Members All Independent
Rodney C. Adkins (Chair)
Beatriz R. Perez Michael J. Roberts Susan Slavik Williams Lucas E. Watson Steven A. White
Oversees the Company's compensation philosophy and compensation and human capital management policies and programs. | | | COMPENSATION COMMITTEE
| | | Number of Meetings Held in Fiscal 2019: 5 |
The Compensation Committee of the Board (the Compensation Committee) met five times in 2019.2020. 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 SEC rules, of the SEC, theNYSE listing standards, of the NYSE, and under the Internal Revenue Code. The Compensation Committee assists the Board in its oversight responsibility as follows: • oversees Grainger in the area ofCompany's compensation and benefits to ensure that:
o
othe Board appropriately discharges its responsibilities relating to senior management compensation,
o
othe Company maintains a market competitive compensation structure designed to attract, motivate, develop, and retain key talent,
o
ocompensation and benefitbenefits policies and practices reflect the highest level of transparency and integrity,
o
ocompensation is aligned with shareholder value creation and strategic objectives,
o
ocompensation, especially senior management compensation is linked to both personal and Company performance and provides appropriate incentives to increase shareholder value,
o
othe Company's compensation policies and practices for all employees are designed with appropriate incentives that do not encourage unnecessary or excessive risk taking and are administered in a transparent manner,
o
othe interests of shareholders are protected, and
o
oall equity-based plans and incentive plans are appropriately designed and administered, including the review and approval of the performance measures applicable to the Company's short-term and long-term incentive plans;
• provides independent oversight of the administration of the Company's shareholder approvedshareholder-approved equity plans; •
•- annually reviews and approves CEO compensation, as follows:
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o- reviews and approves corporate goals and objectives relevant to CEO compensation,
o
oevaluates CEO performance in light of those corporate financial goals and objectives, with assistance from the Lead Director and the other Board Committees, as appropriate, and
o
otogether with the other independent Directors, determines and approves, in its sole discretion, the CEO's total compensation based on the above evaluation, in executive session without members of management present;
• reviews and recommends to the Board for approval the compensation paid to the CEO's direct reports, including the other Named Executive Officers (NEOs);
o
oMembers of management (including some ofNEOs and the NEOs)CEO's other direct reports) assist the Compensation Committee in providing recommendations for the design of Grainger's NEO compensation program design, and for its NEOs, other officers and employees. Management also recommends salary and award levels for the Committee's review and recommendation, except those related to the CEO;
• together with the other independent Directors as directed by the Board, determines, in their sole discretion, the appropriate compensation design and level of CEO compensation in executive session without members of management present;
• approves annual grants of equity-based compensation awards (including, restricted stock units (RSUs) and performance stock units (PSUs)) to NEOs, other officers and employees under approved 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 and to CEO direct reports that are new hires; and, awards under this authority are granted pursuant to terms and conditions 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 is refreshedapproved annually by the Compensation Committee. The Compensation Committee may terminate this delegation of authority at its discretion; and •
•- retains, terminates, and approves the compensation for an independent compensation consultant
that will reportwho reports directly to the Compensation Committee,Committee; determines the independence of such independent compensation consultant,consultant; and, routinely meets in an executive session with the independent compensation consultant, without management present.
20 www.grainger.compresent; and
•
Tableoversees the Company's programs and policies for human capital management and assists the BANC in its oversight of Contentsthe Company's programs and policies with respect to employee engagement and leadership effectiveness, and any related enterprise risk management reviews.
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LEADERSHIP STRUCTURE
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 considers its leadership structure and believes that a combined Chairman/CEO position, coupled with an independent Lead Director appointed by the Board, represents the best leadership structure for Grainger. In the Board's view, having a single individual serving as both the Chairman and CEO 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 Lead Director is 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 important duties, the Board does not believe that separating the role of the Chairman and CEO would result in strengthening Grainger's corporate governance or in creating or enhancing long-term value for our shareholders. The duties performed by the independent Directors, either collectively or through Committees comprised solely of independent Directors, include selecting the Chairman and CEO and evaluating his or her performance, and setting his or her compensation. The Board believes that given Grainger's corporate governance structures and processes, a combined Chairman and CEO 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. LEAD DIRECTOR
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 24 www.grainger.com
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serve in this capacity after the April 2014 annual meeting of shareholders. Among the duties assigned to the Lead Director is the responsibility for: | | | Board Matter
| | Responsibility
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| | | Agendas | | • Soliciting feedback from the independent Directors on agenda items for Board meetings and collaborating with the Chairman in developing and approving Board meeting agendas. • Reviewing and approving meeting schedules to effectively exerciseensure that there is sufficient time for discussion of all agenda items. | | | | Communicating with Directors | | • Serving as the Board's authority in overseeing critical matters of strategy, operations, enterprise risk management, and financial reporting. The Board carefully considers its leadership structure and believes that a combined Chairman/CEO position, coupled with an independent Lead Director appointed by the Board, represents the best leadership structure for Grainger. In the Board's view, having a single individual serving as bothprimary liaison between the Chairman and CEO 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 Lead Director is 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 important duties, the Board does not believe that separating the role of the Chairman and CEO would result in strengthening Grainger's corporate governance or in creating or enhancing long-term value for our shareholders.
The duties performed by the independent Directors, either collectively or through Committees comprised solely of independent Directors, include selecting the ChairmanDirectors.
| | | | Communicating with Shareholders | | • Being available, as necessary, for consultation and CEO and evaluating his or her performance, and setting his or her compensation. The Board believes that given Grainger's corporate governance structures and processes, a combined Chairman and CEO position in conjunctioncommunication with an independent Lead Director provides effective oversight of management by the Board and results in a high level of management accountability tomajor shareholders.
| | | | Executive Sessions | | • LEAD DIRECTOR
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:
•presidingPresiding at meetings of the Board at which the Chairman is not present, including executive sessions of the independent Directors;Directors.
•
•serving as the primary liaison between the Chairman and the independent Directors;
•callingCalling meetings of the independent Directors, if appropriate, to review and approve the types of information sent to the Board;Board.
•soliciting feedback from non-employee Directors on agenda items for Board meetings and collaborating with the Chairman in developing and approving Board meeting agendas;
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•coordinating with the Board Affairs and Nominating Committee and the applicable Board Committee Chairs the annual self-evaluation of the performance and effectiveness of the Board, its Committees and individual Directors;
•leadingLeading the Board in its annual review of the Board and management's performance, including the CEO, to the extent necessary to supplement the Compensation Committee's review of the CEO's performance relative to applicable compensation goals and objectives;objectives.
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Board Meetings | | • being available, asPresiding at meetings of the Board at which the Chairman is not present, including executive sessions of the independent Directors.
• Calling meetings of the independent Directors, if appropriate, to review and approve the types of information sent to the Board. | | | | Board and Management Evaluations | | • Coordinating with the Board Affairs and Nominating Committee and the applicable Board Committee Chairs the annual self-evaluation of the performance and effectiveness of the Board, its Committees and individual Directors. • Leading the Board in its annual review of the Board's and management's performance, including the CEO, to the extent necessary for consultationto supplement the Compensation Committee's review of the CEO's performance relative to applicable compensation goals and communication with major shareholders;objectives. | | | |
Director Search | | • coordinatingCoordinating with the BANC the Director recruitment and interview process; andprocess.
•reviewing and approving meeting schedules to ensure that there is sufficient time for discussion of all agenda items.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: full Board evaluation, Committee 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 ask each Director to respond to written survey questions on how the Board performs. We have also sought written feedback on more open-ended topics, including Board and Committee processes and effectiveness.
In reviewing our approach to evaluation, including 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 opportunities. We made the following changes:
1)Rather than relying on written questionnaires, there were one-on-one discussions of open-ended questions on Board, Committee, and individual Director engagement and effectiveness.
2)Questions related to (a) Board composition dynamics, operations, structure, performance and composition and (b) the Board's engagement in strategy, enterprise risk management, reputation/culture, and the Company's business.
3)As before, the Lead Director conducted the Board evaluation and individual Director self-evaluations, while the Committee Chairs conducted evaluations for their respective Committees.
4)Management's feedback on the Board's operation and engagement was provided to the Board.
5)We also adopted an "after action" process that reviews routine matters such as information flow, meeting content, and management interaction following each meeting in executive session.
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 evaluations/interviews were compiled anonymously. The Lead Director discussed with the Board the results of the Board evaluations, individual Director self-assessments, and the management leadership team feedback, while the Committee Chairs discussed the results of the Committee evaluations with their respective Committees.
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Below is an overview of the key steps in the annual evaluation process:
Annual Board, Committee and Director Evaluation Process
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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.
BOARD OVERSIGHT
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:
•helping management assess short-term and long-term strategies for the Company and evaluating management's performance against its goals;
•selecting, evaluating the performance of, and determining the compensation of the CEO and other executive officers;
•ensuring effective succession planning to maximize long-term corporate performance;
•overseeing enterprise risk management processes and policies of the Company;
•monitoring the processes for maintaining our integrity with regard to our financial statements and other public disclosures, and compliance with law and ethics;
•encouraging management communication with our shareholders;
•assessing and monitoring the Company's culture; and
•overseeing the Company's commitment to corporate social responsibility.
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.
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Succession Planning and Employee Development
The 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 CEO and other key leadership positions. The Board has delegated primary oversight responsibility for management development and leadership succession planning to the BANC. The BANC reports on its activities to the full Board, which routinely addresses planned succession scenarios and also has developed emergency succession plans reviewed annually.
Recruiting, developing, promoting and retaining top diverse talent is a key priority for the Company. The Board conducts in-depth reviews of senior leader 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 BANC also regularly consult with the Chairman of the Board and CEO on the Company's organizational needs, the leadership potential and related development plans for key managers and plans for future development 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
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 to 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 cybersecurity risk, including the Company's framework for preventing, detecting, and addressing cybersecurity incidents. To help inform its approach to devising an appropriate governance framework, cadence, metrics, and reporting to discharge its cybersecurity oversight responsibilities, the Board appointed an Ad Hoc Committee on Cybersecurity constituted of Grainger 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 Ad Hoc Committee, which remains available to provide strategic advice as needed.
Both the Board and the Audit Committee regularly review Grainger's risk assessment and management processes and policies, including receiving regular reports from the Company's Chief Information Security Officer, and the members of Grainger's management who are responsible for the effectiveness of Grainger's ERM program. 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.
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Corporate 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 its 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.
We integrate citizenship initiatives into the Company's strategy and daily 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 a 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 Investor Relations section of our website athttp://www.GraingerCSR.com, it is not being incorporated by reference into this proxy statement.
OTHER COMMUNICATIONS WITH DIRECTORS
Grainger has established a process by which shareholders and other interested parties may communicate with the Board, its Committees, and/or individual Directors on matters of interest. Such communications should be sent in writing to:
[Name(s) of Director(s)]
or
[Non-management Directors]
or
[Board of Directors]
W.W. Grainger, Inc.
P.O. Box 66
Lake Forest, Illinois 60045-0066
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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/.
AVAILABLE INFORMATION
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.
Business Conduct Guidelines
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 on Grainger's website athttp://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/.
Committee Charters
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.
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DIRECTOR COMPENSATION
Grainger's non-employee Directors each receive an annual cash retainer of $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 Directors are compensated at a level that approximates median market practice. In benchmarking Director 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 / 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 Director compensation.
The Directors' compensation program, which was last adjusted in April 2018, consists of the following:
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| | | Value |
| | | | | | | | | | | | | Annual Cash Retainer for each Director | | | | $100,000 | | | | | | | | | | | | | | Deferred Stock Unit Grant for each Director | | | | $145,000 | | | | | | | | | | | | | | Annual Retainer for the Lead Director | | | | $25,000 | | | | | | | | | | | | | | Chair Retainers: | | | | | | | | | Audit Committee | | | | $20,000 | | | | | Compensation Committee | | | | $15,000 | | | | | Board Affairs and Nominating Committee | | | | $10,000 | | | | | | | | | | | |
All non-employee Directors receive an annual deferred stock unit grant worth $145,000. In 2019, the number of shares covered by each grant was equal to $145,000 divided by the 20-day average stock price through January 31 (a methodology consistent with the calculation used for equity awards to grant-eligible employees), rounded up to the next 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. Directors may defer their annual cash retainers, Lead Director retainer, and Committee Chair retainers (as applicable), into a deferred stock unit account.
Stock ownership guidelines applicable to non-employee Directors were established in 1998. These guidelines provide that within five years after election, a Director 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 hedging or pledging of Company shares by Directors or executive officers is prohibited by Company policy (seeHedging and Pledging Prohibition / page 59). No Directors (or executive officers) have hedged or pledged any of the shares beneficially owned by them and all Directors are currently in compliance with the ownership guidelines.
Grainger matches 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.
Mr. Macpherson, who is an employee of Grainger, does not receive any compensation for serving as a Director.
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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: full Board evaluation, Committee evaluations, and Director self-assessments. To help make sure the Proxy Statement 25
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evaluations are useful and that we are implementing best practices, we routinely review the evaluation process with an external governance expert. Process
Our historic approach had been to ask each Director to respond to written survey questions on how the Board performs. We had also sought written feedback on more open-ended topics, including Board and Committee processes and effectiveness. In reviewing our approach to evaluation, including the actions that resulted from past surveys, in 2019 we adopted a new approach designed to facilitate conversation focused on the Board's challenges and opportunities. We made the following changes, which also formed the basis of the 2020 evaluations: - 1)
- Rather than relying on written questionnaires, there were one-on-one discussions of open-ended questions on Board, Committee, and individual Director engagement and effectiveness.
- 2)
- We included questions related to (a) Board composition dynamics, operations, structure, performance and composition and (b) the Board's engagement in strategy, enterprise risk management, reputation/culture, and the Company's business.
- 3)
- As before, the Lead Director conducted the Board evaluation and individual Director self-evaluations, while the Committee Chairs conducted evaluations for their respective Committees.
- 4)
- Management's feedback on the Board's operation and engagement was provided to the Board.
- 5)
- We also adopted an "after action" process that reviews routine matters such as information flow, meeting content, and management interaction following each meeting in executive session.
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 evaluations/interviews were compiled anonymously. The Lead Director discussed with the Board the results of the Board evaluations, individual Director self-assessments, and the management leadership team feedback, while the Committee Chairs discussed the results of the 26 www.grainger.com
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Committee evaluations with their respective Committees. Below is an overview of the key steps in the annual evaluation process:
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. Proxy Statement 27
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Actions
Among the actions taken as a result of the 2020 Board evaluation processes were an analysis of the desired skill sets and backgrounds for future directors, changes to Board meeting agenda and content format to create more time for in-depth discussions, alignment around guiding principles to help management implement the Grainger Edge more effectively, and giving the Board greater visibility into ERM deep dives conducted by the Audit Committee in relation to areas of the business that may carry more significant risk. BOARD OVERSIGHT
The Board oversees, counsels, and directs management in the long-term interests of the Company and its shareholders. The Board's oversight responsibilities include:
Board's Role in Shareholder Engagement
The Board believes it is important for the Company to maintain active engagement with its shareholders in order to effectively communicate the Company strategy and to ensure that shareholders' perspectives are understood and considered by the Board. On a regular basis, as part of its oversight role, the Board routinely receives reports and briefings from the Company's Investor Relations team summarizing ongoing engagement as well as any shareholder concerns, questions and trends. 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 ESG and executive compensation matters. Contact with shareholders includes quarterly earnings calls, the annual meeting of shareholders, investor conferences, individual meetings and other channels of communication. Consistent with prior years, in 2020, the Company proactively reached out to shareholders representing over 53% of current shares outstanding and met with shareholders representing 38% of shares outstanding. Continuing its practice begun in 2017, the Company also proactively made the Board's Lead Director available in 2020 to explain and discuss the Company's ESG and executive compensation practices and policies. 28 www.grainger.com
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Succession Planning, Talent and Human Capital Management
The 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 CEO and other key leadership positions. The Board has delegated primary oversight responsibility for management development and leadership succession planning to the BANC. The BANC reports on its activities to the full Board, which routinely addresses planned succession scenarios and also has developed emergency succession plans reviewed annually. Recruiting, developing, promoting and retaining top diverse talent is a key priority for the Company. The Board annually reviews our talent strategy to ensure we have the right culture and people to support our strategic imperatives well into the future. This strategy has four pillars: - •
- Evolving our culture
- •
- Empowering our people leaders
- •
- Building our talent pipeline
- •
- Developing our future leaders
While the BANC has oversight of the Company's talent strategy, including as to diversity, equity and inclusion, the CCOB has oversight of the Company's programs and policies for human capital management and supports the BANC in its oversight of employee engagement and leadership effectiveness. Consistent with this framework, the BANC routinely conducts in-depth reviews of senior leader 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 BANC also regularly consult with the Chairman of the Board and CEO on the Company's organizational needs, the leadership potential and related development plans for key managers and plans for future development 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 in more informal settings with the Directors. This engagement between Directors and our Proxy Statement 29
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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
The Board has overall responsibility for risk oversight, with its Committees assisting the Board in performing this function based on their respective areas of expertise. 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 to identify, assess, monitor and address potential financial, compensation, operational, strategic and legal risks on an enterprise-wide basis. The risk landscape associated with the COVID-19 pandemic has been, and continues to be, discussed with the full Board as well as each of its Committees through formal and informal updates as needed. Over the course of 2020, management regularly updated the Board on the pandemic's impacts to our business and the related strategic, operational and financial risks. Discussions with the Board and Committees have also included, among other topics, business continuity, employee health and safety, customer demand, operational challenges, financial resources and liquidity, Company strategy, executive compensation, technology, shareholder engagement and succession plans. Management continues to report to the Board and its Committees on its response to the pandemic as appropriate and will seek to identify new risks as they may arise in light of the continuing effects of the COVID-19 pandemic. As part of its ERM oversight, the Board oversees and reviews the Company's programs and processes for cybersecurity risk, including the Company's framework for preventing, detecting, and addressing cybersecurity incidents. To help inform its approach to devising an appropriate governance framework, cadence, metrics, and reporting to discharge its cybersecurity oversight responsibilities, the Board appointed an Ad Hoc Committee on Cybersecurity constituted of Grainger 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 Ad Hoc Committee, which remains available to provide strategic advice as needed. Both the Board and the Audit Committee regularly review Grainger's risk assessment and management processes and policies, including receiving regular reports from the Company's Chief Information Security Officer, and the members of Grainger's management who are responsible for the effectiveness of Grainger's ERM program. As an output of these reviews, in 2020 the Board revised Committee Charters to specifically assign ERM reviews of the Company's ESG programs and reporting to the BANC and the Company's human capital management programs and policies to the Compensation Committee. In addition, as part of its existing 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. Environmental, Social and Governance (ESG)
Grainger is committed to being a responsible corporate citizen and strives to integrate ESG principles into the daily operation of its business. Grainger's ESG strategy includes its commitment to governance, operating sustainably and valuing its people. These commitments shape our focus on corporate citizenship and fuel our determination to make a positive difference today and in the future. 30 www.grainger.com
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Governance The Company integrates ESG initiatives into its strategy and daily operations at each level of its business. This begins with general ESG oversight by the BANC, which is comprised of all independent Directors. The BANC annually reviews the Company's ESG programs and reporting, including environmental and sustainability, social responsibility to its communities, governance, the Company's culture, talent strategy, and diversity, equity and inclusion. In turn, the Compensation Committee oversees the Company's programs and policies for human capital management and assists the BANC in its oversight of the Company's programs and policies with respect to employee engagement and leadership effectiveness. The Board includes one Director with expertise in corporate sustainability and one Director with expertise in environmental matters. ESG Leadership Council The Company's ESG efforts are led by the Chairman and CEO who chairs management's ESG Leadership Council. The key objectives of the ESG Leadership Council include identifying ways to incorporate the appropriate ESG initiatives into operations and strategy, overseeing the overall ESG program, and making regular reports to the BANC. The ESG Leadership Council is supported by a cross-functional steering committee providing subject matter expertise, implementing day-to-day programs and driving progress toward the success of our strategy. Core initiatives relating to culture and talent, including human capital management and diversity, equity and inclusion, are led by the Grainger Human Resources team in coordination with the ESG Leadership Council. Sustainability Grainger incorporates sustainability best practices across the business, improving supply chain efficiency, practicing best-in-class facilities construction and maintenance, and measuring and mitigating climate-related risk. Grainger has set a carbon target to reduce its absolute scope 1 and scope 2 emissions to align with the goal of limiting global warming to well below 2 degrees Celsius. Grainger also provides sustainability solutions for its customers through an environmentally preferred portfolio (EPP) of products and sustainability services offerings.
Supply Chain To help ensure the products Grainger distributes are manufactured and delivered with high ethical standards, its Supplier Code of Ethics focuses on responsible sourcing along the dimensions of human rights, labor, environment and anti-corruption. Grainger's Human Rights Principles include the company's commitment to providing a safe and fair workplace that upholds and respects international human rights standards. These principles are applicable to all Grainger team members and are approved and monitored regularly by Grainger's senior leadership. Proxy Statement 31
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Valuing our People Grainger strives to ensure its team members reflect its increasingly global and diverse customer base. Diversity, equity and inclusion are integral to Grainger's business success. The Company is committed to creating a welcoming culture where all team members can bring their whole selves to work, have opportunities to grow and feel a sense of belonging, regardless of sex, gender, race, color, religion, national origin, age, disability, veteran status, sexual orientation, gender expression or experiences. As of December 31, 2020, within Grainger's U.S. workforce, approximately 38.5% of team members were women and approximately 34.2% of team members were racially and ethnically diverse. Grainger has taken several actions to improve inclusion in its recruiting process, which include how its approaches job postings, develop position requirements, conduct interviews and evaluate candidates in general. ESG Reporting
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 also reports to CDP and EcoVadis, with respective A- and silver ratings. 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 has aligned its ESG reporting to the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD) frameworks. Grainger publishes an annual ESG report that is periodically updated and, while it is available under "Corporate Citizenship" in the Investor Relations section of our website at www.GraingerESG.com it is not being incorporated by reference into this proxy statement. POLITICAL ACTIVITY
Grainger's Business Conduct Guidelines prohibit the use of Company funds or assets for political purposes, including for contributions to any political party, candidate or committee. In accordance with this policy, we do not maintain a political action committee (PAC). Given a particular issue, it is prudent for the Company to understand the legislative and regulatory environments at both the Federal and State levels. We have, from time-to-time, engaged advisors to assist us in advocacy, mainly related to government procurement. In 2020, Grainger was also a member of three trade associations. 32 www.grainger.com
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OTHER COMMUNICATIONS WITH DIRECTORS
Grainger has established a process by which shareholders and other interested parties may communicate with the Board, its Committees, and/or individual Directors on matters of interest. Such communications should be sent in writing to: [Name(s) of Director(s)] or [Non-management Directors] or [Board of Directors] W.W. Grainger, Inc. P.O. Box 66 Lake Forest, Illinois 60045-0066 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 at http://invest.grainger.com/. AVAILABLE INFORMATION
All the documents below are available to shareholders and under "Governance" in the Investor Relations section of our website at http://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. Business Conduct Guidelines
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 on Grainger's website at 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 at http://invest.grainger.com/. Committee Charters
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 at http://invest.grainger.com/. ESG Report
Grainger publishes an ESG report that is periodically updated and, while it is available under "Corporate Citizenship" in the Investor Relations section of our website at http://www.GraingerESG.com, it is not being incorporated by reference into our proxy statement. Proxy Statement 33
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DIRECTOR COMPENSATION
Grainger's non-employee Directors each receive an annual cash retainer of $100,000 and an annual deferred stock unit (DSU) grant of $145,000. The Lead Director and Directors serving as Committee Chairs receive an additional annual cash retainer.
Grainger's non-employee Directors are compensated at a level that approximates median market practice. In benchmarking Director pay, Grainger uses the same compensation comparator group that is used to benchmark compensation for Grainger's executives as described in the Compensation Discussion and Analysis / page 46. The Compensation Committee's independent compensation consultant periodically reviews and updates the comparator group as well as comparative compensation information and advises on Director compensation. The Directors' compensation program, which was last adjusted in April 2018, consists of the following: | | | | | | | | | | | | | | | | | | | | | | | Name |
| | | Fees Earned or Paid in Cash(1) |
| | | Stock Awards(2) |
| | | All Other Compensation(3) |
| | | Total |
| | | | | | | | | | | | | | | | | | | | | | | | | Rodney C. Adkins | | | | $100,000 | | | | $147,475 | | | | $7,500 | | | | $254,975 | | | | | | | | | | | | | | | | | | | | | | | | | | Brian P. Anderson | | | | $100,000 | | | | $147,475 | | | | $0 | | | | $247,475 | | | | | | | | | | | | | | | | | | | | | | | | | | V. Ann Hailey | | | | $120,000 | | | | $147,475 | | | | $0 | | | | $267,475 | | | | | | | | | | | | | | | | | | | | | | | | | | Stuart L. Levenick | | | | $135,000 | | | | $147,475 | | | | $0 | | | | $282,475 | | | | | | | | | | | | | | | | | | | | | | | | | | Neil S. Novich | | | | $100,000 | | | | $147,475 | | | | $7,500 | | | | $254,975 | | | | | | | | | | | | | | | | | | | | | | | | | | Beatriz R. Perez | | | | $100,000 | | | | $147,475 | | | | $7,500 | | | | $254,975 | | | | | | | | | | | | | | | | | | | | | | | | | | Michael J. Roberts | | | | $115,000 | | | | $147,475 | | | | $7,500 | | | | $269,975 | | | | | | | | | | | | | | | | | | | | | | | | | | E. Scott Santi | | | | $100,000 | | | | $147,475 | | | | $0 | | | | $247,475 | | | | | | | | | | | | | | | | | | | | | | | | | | James D. Slavik | | | | $100,000 | | | | $147,475 | | | | $7,500 | | | | $254,975 | | | | | | | | | | | | | | | | | | | | | | | | | | Lucas E. Watson | | | | $100,000 | | | | $147,475 | | | | $7,500 | | | | $254,975 | | | | | | | | | | | | | | | | | | | | | | | |
(1)Represents cash fees received in 2019. | | |
(2)Represents the grant date fair value of an award of 503 deferred stock units made on April 24, 2019, with immediate vesting that will be paid upon termination from service, computed in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718. The number of stock units was determined by dividing the grant dollar value by the 20-day average stock price as of January 31 in the year of the grant, a methodology consistent with the calculation used for equity awards to grant-eligible employees.
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(3)Represents amount paid by the Company to charitable organizations as part of the Company's matching gift program with respect to donations made and matched in 2019. The Directors receive no direct or indirect benefit from the matching contributions. | Proxy Statement
Additional Annual Cash Retainers:
• 29$25,000—Lead Director
• Table of Contents$20,000—Audit Committee Chair
• $15,000—
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• $10,000—Board Affairs and Nominating Committee Chair |
All non-employee Directors receive an annual DSU grant worth $145,000. In 2020, the number of shares covered by each grant was equal to $145,000 divided by the 20-day average stock price through March 31 (a methodology consistent with the calculation used for equity awards to grant-eligible employees), rounded up to the next whole share. For non-employee Directors elected at the 2020 annual meeting of shareholders, the DSU formula resulted in payment of 576 DSUs based on a 20-day average stock price as of March 31, 2020 of $251.89 per share. The DSUs are settled in shares upon termination of service as a Director. Directors may defer their annual cash retainers, Lead Director retainer, and Committee Chair retainers (as applicable), into a DSU account. Stock ownership guidelines applicable to non-employee Directors were established in 1998. These guidelines provide that within five years after election, a Director 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 hedging or pledging of Company shares by Directors or executive officers is prohibited by Company policy (see Hedging and Pledging Prohibition / page 64). No Directors (or executive officers) have hedged or pledged any of the shares beneficially owned by them and all Directors are currently in compliance with the ownership guidelines. Grainger matches 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. Mr. Macpherson, who is an employee of Grainger, does not receive any compensation for serving as a Director. 34 www.grainger.com
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Corporate Governance
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Corporate Governance
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OWNERSHIP OF GRAINGER STOCK
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2020 Director Compensation
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 | | | | | | | | | | | | | | | | | | | | | | | Name |
| | | Fees Earned or Paid in Cash (1) |
| | | Stock Awards (2) |
| | | All Other Compensation (3) |
| | | Total |
| | | | | | | | | | | | | | | | | | | | | | | | | Rodney C. Adkins | | | | $115,000 | | | | $164,748 | | | | $7,500 | | | | $287,248 | | | | | | | | | | | | | | | | | | | | | | | | | | Brian P. Anderson | | | | $100,000 | | | | $164,748 | | | | $0 | | | | $264,748 | | | | | | | | | | | | | | | | | | | | | | | | | | V. Ann Hailey | | | | $120,000 | | | | $164,748 | | | | $0 | | | | $284,748 | | | | | | | | | | | | | | | | | | | | | | | | | | Stuart L. Levenick | | | | $135,000 | | | | $164,748 | | | | $0 | | | | $299,748 | | | | | | | | | | | | | | | | | | | | | | | | | | Neil S. Novich | | | | $100,000 | | | | $164,748 | | | | $7,500 | | | | $272,248 | | | | | | | | | | | | | | | | | | | | | | | | | | Beatriz R. Perez | | | | $100,000 | | | | $164,748 | | | | $7,500 | | | | $272,248 | | | | | | | | | | | | | | | | | | | | | | | | | | Michael J. Roberts | | | | $100,000 | | | | $164,748 | | | | $0 | | | | $264,748 | | | | | | | | | | | | | | | | | | | | | | | | | | E. Scott Santi | | | | $100,000 | | | | $164,748 | | | | $7,500 | | | | $272,248 | | | | | | | | | | | | | | | | | | | | | | | | | | Susan Slavik Williams | | | | $100,000 | | | | $164,748 | | | | $0 | | | | $264,748 | | | | | | | | | | | | | | | | | | | | | | | | | | Lucas E. Watson | | | | $100,000 | | | | $164,748 | | | | $7,500 | | | | $272,248 | | | | | | | | | | | | | | | | | | | | | | | | | | Steven A. White | | | | $50,000 | | | | $104,049 | | | | $0 | | | | $154,049 | | | | | | | | | | | | | | | | | | | | | | | |
- (1)
- Represents the annual cash retainer received in 2020 by all non-employee Directors. Mr. White's 2020 annual cash retainer was pro-rated to 50% to reflect his appointment to the Board on October 27, 2020.
- (2)
- Represents the fair value as of the grant date of DSUs paid to non-employee Directors using the closing price of Grainger's common stock as of the immediately preceding trading day. For non-employee Directors other than Mr. White, represents the fair value of their respective 2020 award of 576 DSUs on the grant date of April 29, 2020, using the closing price of $286.02 per share of Grainger's common stock as of April 28, 2020. For Mr. White, who was appointed to the Board on October 27, 2020, represents the fair value of his 2020 award of 288 DSUs (reflecting pro-ration of 50% given his appointment to the Board mid-way through the 2020-2021 Director term) on the grant date of October 27, 2020, using the closing price of $361.28 per share of Grainger's common stock as of October 26, 2020. The DSUs immediately vest upon the grant date and will be paid in shares of Grainger common stock on a 1:1 basis upon departure from the Board, computed in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718.
- (3)
- Represents amount paid by the Company to charitable organizations as part of the Company's matching gift program with respect to donations made and matched in 2020. The Directors receive no direct or indirect benefit from the matching contributions.
Proxy Statement
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Table of Contents | | | | | | Corporate Governance
| | | Amount and Nature of
Beneficial Ownership(1) |
| | | Percent of Class | | | | | | | | | | The Vanguard Group
100 Vanguard Boulevard
Malvern, PA 19355
| | | | 5,865,471(2) | | | | 10.88% | | | | | | | | | | Susan Slavik Williams
4450 MacArthur Blvd., Second Floor
Newport Beach, CA 92660
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| | | 4,810,153(3) | | | | 8.96% | | | | | | | | | | Longview Partners (Guernsey) Limited
PO Box 559
Mill Court
La Charroterie
St Peter Port
Guernsey
GY1 6JG
United Kingdom
London EC4V 3RL
| | | | 4,106,146(4) | | | | 7.65% |
OWNERSHIP OF GRAINGER STOCK
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, 2020 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 | | | | | | | | | | The Vanguard Group 100 Vanguard Boulevard Malvern, PA 19355 | | | | 5,398,750(2) | | | | 10.06% | | | | | | | | | | Susan Slavik Williams 4450 MacArthur Blvd., Second Floor Newport Beach, CA 92660 |
| | | 4,728,153(3) | | | | 8.81% | | | | | | | | | | Longview Partners (Guernsey) Limited PO Box 559 Mill Court La Charroterie St Peter Port Guernsey GY1 6JG United Kingdom | | | | 2,689,371(4) | | | | 5.12% | | | | | | | | | | BlackRock, Inc. 55 East 52nd Street New York, NY 10055 |
| | | 3,728,861(5) | | | | 6.9% | | | | | | | | | | BlackRock, Inc.
55 East 52nd Street
New York, NY 10055
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- (1)
- Unless otherwise indicated, percentages calculated are based upon Grainger common stock outstanding as set forth in the statements on Schedule 13G or 13G/A filed by the respective beneficial owners with the SEC.
- (2)
- Based on information provided in a Schedule 13G/A filed on February 10, 2021, The Vanguard Group has shared voting power with respect to 75,488 shares, sole dispositive power with respect to 5,200,457 shares, and shared dispositive power with respect to 198,293 shares. The Vanguard Group is the parent of several subsidiaries; no one subsidiary's beneficial ownership interest in the Grainger common stock being reported is five percent or more of the total outstanding common shares. The Schedule 13G/A certifies that the securities were acquired in the ordinary course of business and not with the purpose or effect of changing or influencing the control of Grainger.
- (3)
- Based on information provided in a Schedule 13G/A filed on February 8, 2021, Ms. Slavik Williams has sole voting power with respect to 4,719,811 shares, shared voting power with respect to 8,342 shares, sole dispositive power with respect to 3,084,051 shares and shared dispositive power with respect to 1,644,102 shares. Ms. Slavik Williams' aggregate beneficial ownership of 4,728,153 shares excludes 742,743 shares held in trusts over which Ms. Slavik Williams has no dispositive or voting power. The 8.81% calculation is based on the number of shares shown to be outstanding as of September 30, 2020 on Grainger's Quarterly Report on Form 10-Q filed on October 22, 2020.
- (4)
- Based on information provided in a Schedule 13G filed on February 16, 2021, Longview Partners (Guernsey) Limited, Longview Partners LLP, and Longview Partners (UK) Limited (collectively referred to hereafter as "Longview Partners") each has (i) shared voting power with respect to 1,719,568 shares and (ii) shared dispositive power with respect to 2,689,371 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
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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.
- (5)
- Based on information provided in a Schedule 13G/A filed on February 1, 2021, BlackRock, Inc. has sole dispositive power with respect to all of the shares, and sole voting power with respect to 3,152,526 shares. Various non-person entities have the right to receive or the power to direct the receipt of dividends or the proceeds from the sale of Grainger's common stock. No one person's interest in the Grainger common stock is more than five percent of the total outstanding common shares. The Schedule 13G/A certifies that the securities were acquired and held in the ordinary course of business and not with the purpose of changing or influencing the control of Grainger.
Proxy Statement 37
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Security Ownership of Management
The table below shows the ownership of Grainger common stock by each Director nominee, each of our NEOs, and all Director nominees and all executive officers as a group, as of March 1, 2021 except as otherwise noted below. Beneficial ownership is 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) |
| | | | | | | | | | | | | | | | | | | | | | | | | Rodney C. Adkins | | | | 400 | | | | — | | | | 4,416 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Brian P. Anderson | | | | 3,340 | | | | — | | | | 19,827 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | V. Ann Hailey | | | | 200 | | | | — | | | | 13,672 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | John L. Howard (4) | | | | 234,676 | | | | 43,688 | | | | 20,000 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Katherine D. Jaspon | | | | — | | | | — | | | | — | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Stuart L. Levenick | | | | 400 | | | | — | | | | 20,349 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | D.G. Macpherson | | | | 44,560 | | | | 169,134 | | | | 9,925 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Deidra C. Merriwether | | | | 1,757 | | | | 14,483 | | | | 3,398 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Neil S. Novich | | | | 4,605 | | | | — | | | | 29,529 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas B. Okray(5) | | | | — | | | | — | | | | — | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Beatriz R. Perez | | | | — | | | | — | | | | 3,170 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | 7,114 | | | | 20,016 | | | | 4,079 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Michael J. Roberts | | | | 1,000 | | | | — | | | | 24,133 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | E. Scott Santi | | | | 303 | | | | — | | | | 8,649 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Susan Slavik Williams(6) | | | | 4,728,153 | | | | — | | | | 586 | | | | 8.81% | | | | | | | | | | | | | | | | | | | | | | | | | | Lucas E. Watson (7) | | | | 157 | | | | — | | | | 3,360 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Steven A. White | | | | — | | | | — | | | | 431 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Director Nominees and Executive Officers as a Group | | | | 5,029,320 | | | | 253,766 | | | | 171,971 | | | | 10.04% | | | | | | | | | | | | | | | | | | | | | | | |
- (1)
- In computing the percentage of shares owned by each person and by the group, these shares were added to the total number of outstanding shares for the separate calculations.
- (2)
- Represents the number of stock units credited to the accounts of non-employee Directors, and the number of RSUs credited to the accounts of executive officers. Each stock unit is intended to be the economic equivalent of a share of Grainger common stock. These units are excluded from the computations of percentages of shares owned.
- (3)
- An asterisk (*) indicates less than 1%.
- (4)
- Includes 19,567 shares as to which Mr. Howard has sole voting and investment power, and 215,109 shares as to which Mr. Howard may be deemed to have shared voting and investment power, by virtue of his serving as a director of The Grainger Foundation, Inc. The Grainger Foundation was established in 1949 by William Wallace Grainger, the founder of Grainger, and is not affiliated with Grainger.
- (5)
- Mr. Okray resigned as Senior Vice President and Chief Financial Officer of the Company effective December 31, 2020 to pursue an opportunity at another publicly-traded company.
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- (6)
- Based on information provided in a Schedule 13G/A filed on February 8, 2021, Ms. Slavik Williams has sole voting power with respect to 4,719,811 shares, shared voting power with respect to 8,342 shares, sole dispositive power with respect to 3,084,051 shares and shared dispositive power with respect to 1,644,102 shares. Ms. Slavik Williams' aggregate beneficial ownership of 4,728,153 shares excludes 742,743 shares held in trusts over which Ms. Slavik Williams has no dispositive or voting power. The 8.81% calculation is based on 53,571,736 shares of common stock outstanding as of September 30, 2020.
- (7)
- Includes 157 shares as to which Mr. Watson has shared voting and/or investment power.
Proxy Statement 39
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REPORT OF THE AUDIT COMMITTEE
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 Securities and Exchange Commission (the SEC) and corporate governance standards of the New York Stock Exchange. The Audit Committee acts under a charter that is reviewed annually; and, it was last amended by the Board on December 9, 2020. The charter is available on the Governance section of Grainger's website at http://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 (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, 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 EY. The Audit Committee discussed with EY 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). EY also provided to the Audit Committee the letter and written disclosures required by PCAOB standards concerning EY's independence and the Audit Committee discussed with EY 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, 2020, as filed with the SEC. V. Ann Hailey, Chair Brian P. Anderson Stuart L. Levenick Neil S. Novich E. Scott Santi Members of the Audit Committee of the Board of Directors 40 www.grainger.com
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AUDIT FEES AND AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The following table sets forth the fees for professional services rendered by Ernst & Young LLP (EY) with respect to fiscal years 2020 and 2019, respectively: | | | | | | | | | | | | | Fee Category |
| | | 2020 |
| | | 2019 |
| | | | | | | | | | | | | Audit Fees (1) | | | | $ | 6,081,000 | | | | $ | 5,329,700 | | | | | | | | | | | | | | Audit-Related Fees (2) | | | | 177,000 | | | | 177,000 | | | | | | | | | | | | | | Tax Fees (3) | | | | 282,300 | | | | 372,300 | | | | | | | | | | | | | | All Other Fees (4) | | | | 7,000 | | | | 7,000 | | | | | | | | | | | | | | Total Fees | | | | $ | 6,547,300 | | | | $ | 5,886,000 | | | | | | | | | | | | | |
- (1)
- Audit Fees. Consists of fees billed for professional services rendered for the audit of Grainger's annual financial statements and internal control over financial reporting, review of the interim financial statements included in Grainger's quarterly reports on Form 10-Q, and other services normally provided in connection with Grainger's statutory and regulatory filings or engagements. Fees for the fiscal year ended December 31, 2019 were originally reported to the Company by EY as $6,075,000. The amount reported in this table has been corrected to reflect the final fees as reported to the Company by EY following the filing of the Company's 2019 Annual Notice of Meeting and Proxy Statement.
- (2)
- Audit-Related Fees. Consists of fees billed for professional services rendered for assurance and related services that are reasonably related to the performance of the audit or a review of Grainger's financial statements and are not reported under "Audit Fees." These services include the audits of Grainger's employee benefit plans and various attest services.
- (3)
- Tax Fees. Consists of fees billed for professional services rendered for tax compliance, tax advice and tax planning. These services include assistance with the preparation of various tax returns.
- (4)
- All Other Fees. Consists of fees billed for all other professional services rendered to Grainger, other than those reported as "Audit Fees," Audit-Related Fees" and "Tax Fees."
Pre-Approval Policy for Audit and Non-Audit Services
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 41
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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 2021 fiscal year, the Audit Committee reviewed the firm's qualifications and competencies, including the following factors:• EY's historical performance and its recent performance during its engagement for the 2020 fiscal year; • 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 issues identified in the audit; • 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 accounting and auditing. |
EY has been retained as the Company's independent auditor continuously since 2005. To 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 EY's personnel occurs routinely and the Audit Committee is directly involved in the review, selection and evaluation of EY's lead engagement partner. The Audit Committee and the Board of Directors believe that the continued retention of EY to serve as the Company's independent auditor for the year ending December 31, 2021 is in the best interests of the Company and its shareholders, and the Board is asking shareholders to ratify this appointment. Representatives of EY 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 present or represented by proxy and entitled to vote at the annual meeting. 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. 42 www.grainger.com
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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
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 CD&A be included in the Company's proxy statement for its 2021 annual meeting of shareholders and in its Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC. The Compensation Committee acts under a charter, last amended on December 9, 2020, that is reviewed annually. The Amended and Restated charter is available in the Governance section of Grainger's website at http://invest.grainger.com/. Rodney C. Adkins, Chairman Beatriz R. Perez Michael J. Roberts Susan Slavik Williams Lucas E. Watson Steven A. White 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. Deloitte Consulting LLP (Deloitte Consulting) had served as the Compensation Committee's independent compensation consultant since 2009. In May 2020, the partner leading the Deloitte Consulting engagement retired, causing the Compensation Committee to conduct a broad-based search process for a new independent compensation consultant. Following review of the consulting firms asked to participate in the search process, the Compensation Committee selected and retained Pay Governance LLC (Pay Governance) as its independent compensation consultant effective November 2020. After a review of the factors prescribed by the SEC and the NYSE rules and regulations, the Compensation Committee determined that each of Deloitte Consulting and Pay Governance and (collectively, the 2020 Independent Compensation Consultants) is independent. At the Compensation Committee's direction, the independent compensation consultant: - •
- attends Compensation Committee meetings;
- •
- assists the Compensation Committee in the review of goals and objectives for the CEO compensation;
- •
- provides the Compensation Committee with comparable compensation market data, including pay levels and pay practices of both our comparator companies and general industry;
- •
- helps the Compensation Committee evaluate recommendations proposed by management;
- •
- assists with incentive compensation program design, structure, and selection of the metrics;
Proxy Statement 43
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- annually reviews and recommends appropriate comparator companies used for compensation studies;
- •
- conducts or assists in risk reviews of the Company's performance and incentive-based compensation programs;
- •
- provides periodic updates on executive compensation trends and regulatory developments; and
- •
- undertakes special projects as assigned.
The following table sets forth the fees for services rendered by Deloitte Consulting and its affiliates with respect to fiscal year 2020: | | | | | | | | | | Type of Fee |
| | | Deloitte Consulting |
| | | | | | | | | Executive Compensation Consulting | | | | | $ | 177,505 | | | | | | | | | | | All Other Consulting | | | | | $ | 1,767,629 | | | | | | | | | | | Total Fees | | | | | $ | 1,945,134 | | | | | | | | | | |
The following table sets forth the fees for services rendered by Pay Governance and its affiliates with respect to fiscal year 2020: | | | | | | | | | | Type of Fee |
| | | Pay Governance |
| | | | | | | | | Executive Compensation Consulting | | | | | $ | 56,627 | | | | | | | | | | | All Other Consulting | | | | | $ | 0 | | | | | | | | | | | Total Fees | | | | | $ | 56,627 | | | | | | | | | | |
Executive Compensation Consulting Fees: Consists of fees billed for services provided to advise the Compensation Committee with respect to executive and Director 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. Affiliates 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 none of the 2020 Independent Compensation Consultants had any conflicts of interest 44 www.grainger.com
Table of Contents
EXECUTIVE COMPENSATION COMPENSATION DISCUSSION AND ANALYSIS |
This Compensation Discussion and Analysis (CD&A) explains the compensation earned by Grainger's Named Executive Officers (NEOs) and describes the Company's pay for performance compensation philosophy and programs. Please read this CD&A in conjunction with the advisory vote we are conducting on the compensation of our NEOs under Proposal 3, Say on Pay, on page 81 as it contains information that is relevant to your voting decision. Opportunity for Shareholder Comment Grainger has a comprehensive shareholder engagement program to reach a significant cross-section of our shareholder base. The Compensation Committee carefully considers feedback from our shareholders regarding NEO compensation. Shareholders who wish to directly provide feedback to the Company may by contacting investorrelations@grainger.com.
| | | Introduction | | 46 | 2020 Highlights | | 46 | Key 2020 Compensation Changes | | 46 | | | | Executive Summary | | 47 | 2021 Leadership Transitions | | 48 | Compensation Philosophy | | 48 | Performance Summary | | 49 | Compensation Actions in Response to COVID-19 | | 50 | Compensation Elements and Pay Mix | | 50 | Total Target Compensation | | 52 | Company Compensation Practices | | 53 | Determination of Total Target Compensation | | 53 | Risk Mitigating Actions | | 54 | Risk Assessment | | 55 | | | | Compensation Philosophy, Plans, and Practices | | 55 | Compensation Committee of the Board | | 55 | Role of Management | | 56 | Compensation Comparator Group | | 56 | Base Salaries | | 59 | Annual Incentives | | 60 | Long-Term Incentives | | 61 | Other At Risk Awards | | 63 | Stock Ownership Guidelines | | 64 | Hedging and Pledging Prohibition | | 64 | Other Benefits | | 64 | | | | Compensation Tables | | 66 | Summary Compensation Table | | 66 | Grants of Plan-Based Awards Table | | 67 | Outstanding Equity Awards at Fiscal Year-End Table | | 68 | Option Exercises and Stock Vested Table | | 69 | Nonqualified Deferred Compensation Table | | 70 | | | | Employment Agreements, Change in Control, and Termination of Employment Arrangements | | 71 | Employment Agreements | | 71 | Change in Control—Equity Plans | | 71 | Change in Control Agreements | | 71 | Deductibility of Executive Compensation | | 71 | Accounting Considerations | | 72 | Compensation Recoupment Policy (Claw-backs) | | 72 | Termination | | 73 | Retirement | | 73 | Other Potential Post-Employment Payments | | 74 |
Proxy Statement 45
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During the unprecedented global pandemic and a period of deep reflection on social issues, the Company remains guided by its purpose and its principles in fulfilling its commitment to serve customers, to protect the health and safety of employees, and to execute its business strategy. In the wake of these events, the Company focused on critical operating priorities and enhancing existing workplace initiatives related to health and safety, diversity, equity, and inclusion, and employee experience. Throughout the year, the Company reviewed financial performance as well as the pandemic's overall impact on its employees and concluded that its executive compensation programs remained relevant and consistent with shareholder and other stakeholder interests. 2020 Highlights
- •
- Achieved Strong Financial Performance: The Company delivered strong financial performance and operating results despite a challenging environment.
- •
- Aligned Compensation Programs with Shareholders: In direct response to shareholder feedback, the Company revised its 2020 compensation programs and previewed these changes in last year's proxy statement, receiving a strong endorsement with approximately 93% of shareholder votes cast to support our Say on Pay vote.
- •
- Deferral of Merit-Based Increases and Temporary Salary Reductions: The Company deferred for three months paying the annual Company-wide merit increases from April 1, 2020 to July 1, 2020 and executives voluntarily elected temporary salary reductions for the second quarter of 2020 with a 50% reduction for the Chairman and CEO and a 20% reduction for other NEOs.
- •
- No Other Changes or Modifications Resulting from the COVID-19 Pandemic: The compensation programs were carefully and continuously evaluated during the year. Despite the extraordinary events of the past year, the original design proved viable in achieving the intended pay-for-performance results. No modifications were deemed necessary to existing programs based on the Company's performance and alignment with shareholder value creation.
Key 2020 Compensation Changes
The 2020 Say on Pay vote garnered broad support with approximately 93% of shareholders voting in favor of our executive compensation programs. This strong support demonstrates the Company's responsiveness to shareholders, and indicates that shareholders agreed with various action the Company took in 2020 to strengthen the link between pay and performance, including: - •
- Establishing a performance-based long-term incentive program with 50% performance share units (PSUs) and 50% restricted stock units (RSUs).
- •
- Aligning the 2020 PSU design with the performance measures focused on the Company's strategic growth priorities in both the U.S. High-Touch Solutions and Endless Assortment businesses and total Company operating margin which eliminated overlapping measures with the short-term incentive program.
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- Using a 20-day average stock price to determine the number of shares awarded under our long-term incentive program to mitigate the potential for outsized long-term incentive grant values due to significant stock price volatility.
46 www.grainger.com
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In recognition of the challenges and uncertainty resulting from the COVID-19 pandemic, the Company separately evaluated the 2020 compensation program against the following factors: - •
- Financial performance, including whether the programs remain aligned with near and long-term objectives
- •
- Appropriateness of the original targets to remain relevant and challenging under current conditions
- •
- Relative workforce impact and performance to peer companies
- •
- Ability for Company programs to attract, motivate, and retain critical talent
Based on its review and considering the shareholder support for Company programs, the Compensation Committee determined that the programs are aligned with shareholder value creation and no modifications or discretionary adjustments to the 2020 NEO short-term and long-term incentive compensation programs were needed. These actions to align compensation with shareholder value creation are consistent with the philosophy and approach described throughout this CD&A.
Named Executive Officers (NEOs) for 2020 The following table reflects NEO positions held as of the end of 2020. As explained below under "2021 Leadership Transitions," several leadership and role changes took place in January 2021 in connection with Mr. Okray's departure from the Company and new responsibilities assigned to Mses. Merriwether and Robbins. | | | | | | |
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| D.G. Macpherson | | John L. Howard | | Paige K. Robbins | | Deidra C. Merriwether |
Proxy Statement 47
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| | | Title |
| | | 3,182,616(5) | | | | 5.9% | | | | | | | | | |
(1)Unless otherwise indicated, percentages calculated are based upon Grainger common stock outstanding as set forth in the statements on Schedule 13G or 13G/A filed by the respective beneficial owners with the SEC.
(2)Based on information provided in a Schedule 13G/A filed on February 12, 2020, The Vanguard Group has sole voting power with respect to 68,040 shares, shared voting power with respect to 13,273 shares, sole dispositive power with respect to 5,787,915 shares, and shared dispositive power with respect to 77,556 shares. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., beneficially owns 51,869 shares or 0.09%D.G. Macpherson | | | | Chairman of the common stock outstanding of the Company as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., beneficially owns 41,180 shares or 0.07% of the common stock outstanding of the Company as a result of its serving as investment manager of Australian investment offerings. The Schedule 13G/A certifies that the securities were acquired in the ordinary course of businessBoard & Chief Executive Officer (CEO) | | | | | | John L. Howard | | | | Senior Vice President & General Counsel | | | | | | Paige K. Robbins | | | | Senior Vice President, Chief Technology, Merchandising, Marketing, and not with the purpose or effect of changing or influencing the control of Grainger.Strategy Officer* | | | | | | Deidra C. Merriwether | | | | Senior Vice President & President, North American Sales & Service* | | | | | | Former Officer |
(3)Based on information provided in a Schedule 13G/A filed on March 5, 2020, Ms. Slavik Williams has sole voting power with respect to 4,801,811 shares, shared voting power with respect to 8,342 shares, sole dispositive power with respect to 3,166,051 shares and shared dispositive power with respect to 1,644,102 shares. Ms. Slavik Williams aggregate beneficial ownership of 4,810,153 shares excludes 783,743 shares held in trusts over which Ms. Slavik Williams has no dispositive or voting power. The 8.96% calculation is based on the number of shares shown to be outstanding as of January 31, 2020 on Grainger's Annual Report on Form 10-K filed on February 20, 2020. Ms. Slavik Williams, a Director nominee for election at the Annual Meeting, is the cousin of James D. Slavik, a current Director who is not standing for re-election at the Annual Meeting. Neither Mr. Slavik nor Ms. Slavik Williams has any beneficial ownership of the other's shares.
(4)Based on information provided in a Schedule 13G filed on February 11, 2020, Longview Partners (Guernsey) Limited, Longview Partners LLP, and Longview Partners (UK) Limited (collectively referred to hereafter as "Longview Partners") | 30 www.grainger.com
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Title | | | | | | Thomas B. Okray | | | | Former Senior Vice President & Chief Financial Officer* | | | | | |
- *
- As of December 31, 2020.
2021 Leadership Transitions
The following leadership transitions took place in January 2021: - •
- Mr. Okray resigned as Senior Vice President and Chief Financial Officer of the Company to pursue an opportunity at another publicly-traded company. His last day in this role at Grainger was December 31, 2020.
- •
- Robert F. O'Keef, Jr., the Company's Vice President and Treasurer, assumed additional responsibilities as interim Chief Financial Officer, effective January 1, 2021.
- •
- Ms. Merriwether was appointed Senior Vice President and Chief Financial Officer, effective January 12, 2021, succeeding Mr. O'Keef as Chief Financial Officer who continues as the Company's Vice President and Treasurer.
- •
- Ms. Robbins was appointed Senior Vice President and President of the Grainger Business Unit, effective January 12, 2021.
Compensation Philosophy
The Company's overall NEO compensation structure is designed to drive profitable growth leading to shareholder value creation and create a strong link between pay and Company short-term and long-term performance. This philosophy extends throughout the Company as employees below the executive level are also 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 its strategy of consistently gaining market share and attaining profitable sales growth through its High-Touch Solutions model and the Endless Assortment model. These objectives are directly reflected in the 2020 long-term incentive design for executives which further reinforces pay for performance. The Company's compensation philosophy aligns with the Grainger Edge, a new strategic framework that outlines the Company's purpose, aspiration, strategy, and principles. The Grainger Edge is the foundational structure for the Company's strategy and culture with individual performance assessments for all Company employees, including NEOs, based on goals set in alignment with the Grainger Edge. For more on The Grainger Edge principles, see The Role of the Board / The Grainger Edge on page 2. 48 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.
(5)Based on information provided in a Schedule 13G/A filed on February 6, 2020, BlackRock, Inc. has sole dispositive power with respect to all of the shares, and sole voting power with respect to 2,659,715 shares. Various non-person entities have the right to receive or the power to direct the receipt of dividends or the proceeds from the sale of Grainger's common stock. No one person's interest in the Grainger common stock is more than five percent of the total outstanding common shares. The Schedule 13G/A certifies that the securities were acquired and held in the ordinary course of business and not with the purpose of changing or influencing the control of Grainger.
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Corporate Governance
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Security Ownership of Management
The table below shows the ownership of Grainger common stock by each Director nominee, each of our NEOs, and all Director nominees and all executive officers as a group, as of March 2, 2020 except as otherwise noted below.
Beneficial ownership is 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.
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Performance Summary In 2020, the Company maintained a strong financial position supporting a return of capital to shareholders while making progress on strategic growth priorities, including embedding the Grainger Edge principles as a new cultural framework. Following the onset of the COVID-19 pandemic, the Company executed its pandemic plan across the organization to rapidly address customer needs, supply chain disruptions, and unprecedented macroeconomic conditions, while prioritizing the health and safety of employees. Through the collective efforts of our global workforce and leadership, the Company achieved strong operating results and ended the year with approximately less than 1% of its workforce on furlough and without any major workforce reductions. | | | | | | | | | | | | | | | | | | | | | | | Name of Beneficial Owner |
| | | Shares |
| | | Stock Option Shares Exercisable within 60 Days(1) |
| | | Stock Units(2) |
| | | Percent of Class(3) |
| | | | | | | | | | | | | | | | | | | | | | | | | Rodney C. Adkins | | | | 400 | | | | 0 | | | | 3,767 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Brian P. Anderson | | | | 3,340 | | | | 0 | | | | 18,825 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | V. Ann Hailey | | | | 200 | | | | 0 | | | | 12,871 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | John L. Howard(4) | | | | 415,125 | | | | 51,620 | | | | 24,811 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Stuart L. Levenick | | | | 400 | | | | 0 | | | | 19,438 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | D.G. Macpherson | | | | 34,039 | | | | 129,773 | | | | 8,507 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Deidra C. Merriwether | | | | 0 | | | | 10,580 | | | | 5,092 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Neil S. Novich | | | | 4,605 | | | | 0 | | | | 28,118 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas B. Okray | | | | 1,690 | | | | 3,118 | | | | 5,823 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Beatriz R. Perez | | | | 0 | | | | 0 | | | | 2,367 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | 6,252 | | | | 21,789 | | | | 4,038 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Michael J. Roberts | | | | 1,000 | | | | 0 | | | | 22,810 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | E. Scott Santi | | | | 303 | | | | 0 | | | | 7,931 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | James D. Slavik(5) | | | | 2,033,325 | | | | 0 | | | | 22,341 | | | | 3.79% | | | | | | | | | | | | | | | | | | | | | | | | | | Susan Slavik Williams(6) | | | | 4,810,153 | | | | 0 | | | | 0 | | | | 8.96% | | | | | | | | | | | | | | | | | | | | | | | | | | Lucas E. Watson(7) | | | | 195 | | | | 0 | | | | 2,379 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | Directors and Executive Officers as a group | | | | 7,311,895 | | | | 219,090 | | | | 193,230 | | | | 13.97% | | | | | | | | | | | | | | | | | | | | | | | |
(1)In computing the percentage of shares owned by each person | | | The Company operated safely and by the group, these shares were added to the total number of outstanding shares for the separate calculations.
(2)Represents the number of stock units credited to the accounts of non-employee Directors,effectively and the number of RSUs credited to the accounts of executive officers. Each stock unit is intended to be the economic equivalent of a share of Grainger common stock. These units are excluded from the computations of percentages of shares owned.
(3)An asterisk (*) indicates less than 1%.
(4)Includes 18,406 shares as to which Mr. Howard has sole voting and investment power, and 396,719 shares as to which Mr. Howard may be deemed to have shared voting and investment power, by virtue of his serving as a director of The Grainger Foundation, Inc. The Grainger Foundation was established in 1949 by William Wallace Grainger, the founder of Grainger, and is not affiliated with Grainger.
(5)Based on information provideddrove strong operating results in a Schedule 13G/A filed on March 5, 2020, Mr. Slavik has sole voting power with respectchallenging environment while delivering a return of capital to 1,159,833 shares, shared voting power with respect to 873,492 shares, sole dispositive power with respect to 1,159,833 shares, and shared dispositive power with respect to 873,492 shares. Mr. Slavik's aggregate beneficial ownership of 2,033,325 shares excludes 1,038,890 shares that are held in trusts for the benefit of Mr. Slavik's adult children who do not share his shareholders | | | | | | | | | |
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- (1)
- Organic daily sales, a non-GAAP measure, excludes results for Fabory (post June 30, 2020) and Grainger China (post August 21, 2020) in the prior year period to reflect the completed divestitures of these businesses.
- (2)
- Reported daily sales growth for Zoro Tools, Inc. in the U.S. and MonotaRO Co., Ltd. in Japan (excludes Zoro UK Limited).
- (3)
- U.S. MRO market based on Company estimates using compilation of external market data. Outgrowth measured as U.S. segment daily sales growth less estimated U.S. MRO market growth.
- (4)
- Total Company adjusted operating margin is a non-GAAP measure.
- (5)
- Adjusted ROIC is a non-GAAP measure.
- *
- See Appendix B to this proxy statement for a definition of these measures and for a reconciliation to the nearest comparable GAAP measure.
Incentives earned in 2020 reflect the following financial results against our performance metrics: - •
- short-term financial results did not meet expectations and therefore the payout for the annual bonus program was below target at 84%; and
Proxy Statement 49
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- •
- long-term results for the three-year 2018-2020 Performance Restricted Stock Units (PRSUs) cycle met the profitability threshold and therefore the payout for these PRSUs attained 100% of target.
Compensation Actions in Response to COVID-19
During the early stages of the pandemic, the Company decided to defer for three months paying the annual company-wide merit increases planned for April 1, 2020 until July 1, 2020. This measure was intended to allow the Company to maintain financial flexibility and preserve job continuity in the face of considerable uncertainty. In addition, the Company's executive leadership team voluntarily elected temporary base salary reductions for the second quarter of 2020, including a 50% reduction for the Chairman and CEO and 20% reductions for the executive leadership (including NEOs). To recognize employees whose day-to-day job responsibilities required them to remain working at Grainger facilities or customer locations during this unprecedented time, beginning in March 2020, the Company provided $6.9M in premium and essential leader pay, a benefit that continued through mid-June 2020 along with other pandemic, facility closure, and dependent care pay programs. The Company also assumed the full cost for COVID-related testing and enhanced our benefit offerings with additional tools and resources to support the physical and emotional well-being of our employees and their families, including providing two weeks of additional "pandemic pay" to cover lost wages for those impacted by COVID-19. Throughout 2020, the executive compensation program was evaluated to determine if the original design remained relevant under current conditions as well as strongly aligned with performance. After review of the Company's performance during the pandemic, the Compensation Committee determined that no discretionary adjustments to the structure of existing incentive programs or modifications to final payouts were warranted, which were determined, in each case, based on pre-pandemic performance expectations. The Committee concluded that the existing programs remained strongly aligned with the Company's pay-for-performance objectives and consistent with shareholder interests. Compensation Elements and Pay Mix
The 2020 NEO compensation mix is comprised of base salary, short-term incentives, and long-term equity incentives including PSUs and RSUs, and a performance-based retirement vehicle. To make our long-term compensation program more performance-based, beginning in 2020, the Company replaced stock options and PRSUs with 50% performance share units (PSUs) and 50% restricted stock units (RSUs). 50 www.grainger.com
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Compensation Elements Introduced in 2020: The Company's current long-term incentive design and underlying metrics correspond directly with the Company's strategic initiatives, which are critical to providing sustained shareholder returns and future growth. As previewed in our proxy statement for the 2020 annual meeting of shareholders, the metrics for 2020 PSU awards focus on three-year average U.S. share gain, endless assortment business revenue growth, and adjusted operating margin(1). 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: - •
- Accelerating share gain in the Company's U.S. High-Touch Solutions business is directly connected to the Company's focus on top line growth and expanding its leadership position in the U.S. MRO space by being the go-to-partner for customers who build and run safe, sustainable and productive operations.
- •
- Profitable revenue growth in the Endless Assortment businesses is an important growth driver for the Company.
- •
- Adjusted operating margin(1) balances the above growth initiatives by focusing management on attaining profitability targets as the Company grows, which over time, we believe will lead to improved shareholder returns.
- (1)
- 2020 adjusted operating margin is a non-GAAP financial measure. For a definition of this measure and for a reconciliation to the nearest comparable GAAP measure, see Appendix B to this proxy statement.
Proxy Statement 51
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Compensation Elements Continuing from 2019—The design of 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. Effective January 1, 2021, the Company's new Retirement Savings Plan replaced the Company's Employees Profit Sharing Plan as the primary Company-sponsored retirement vehicle for U.S.-based employees. The Retirement Savings Plan provides for a 6% Company contribution to the 401(k) plan. Total Target Compensation
Target total compensation for the Company's employees is generally set to approximate the market median, with differentiation based on tenure, skills, proficiency, and performance as required to attract and retain key talent. 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, followed by base salary and performance-based annual 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) and nationally recognized surveys. NEO base salaries and long-term incentive grant values are determined based on many factors including individual performance, responsibilities, internal equity and the overall relation to market levels of compensation. These components and the use of performance-based pay are generally aligned with the compensation mix of the comparator group and survey data. The tables below show compensation components as a percentage of the total target compensation package. While Grainger no longer grants stock options, the table includes stock options in the performance-based pay category for the comparator group. 52 www.grainger.com
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Company Compensation Practices 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. The Company's compensation programs also maintain alignment with shareholders and best practices by not including certain features as outlined below.
Determination of Total Target Compensation
The Compensation Committee is 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. Proxy Statement 53
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In setting individual compensation levels, the Compensation Committee completes the following key actions:
Risk Mitigating Actions The Company's compensation programs are designed to include risk-mitigating features, and the Compensation Committee also engaged its independent compensation consultant to assist in the process of an annual internal risk assessment of all incentive-based compensation, including short-term and long-term incentive programs.
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 believes that the appropriate metrics are used in its incentive plan design and the metrics do not create unreasonable risk. In order to encourage profitable growth while protecting shareholders' interests, the Company's compensation programs includes the following risk mitigating components such as: - •
- balanced performance measures—sales growth combined with profitability;
- •
- robust performance measure selection and rigorous targets;
- •
- balanced mix of short-term and long-term incentives;
- •
- balanced mix of equity vehicles—time-based and performance-based shares;
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- •
- strong claw-back provisions to recoup incentive compensation;
- •
- stock ownership, retention, and holding requirements; and
- •
- clear business conduct guidelines.
The Company has established recoupment policies with respect to executive compensation in the event of fraud, criminal misconduct, materially inaccurate financial statements, conduct that violates Company policy, misconduct that causes or is 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. Further, both the existing Change in Control Agreements and awards under the W.W. Grainger, Inc. 2015 Incentive Plan, as amended and restated as of October 31, 2018 (the 2015 Incentive Plan), have double-trigger change in control provisions.
Risk Assessment Since 2009, the Compensation Committee has engaged its independent compensation consultant to conduct a risk assessment that is completed every three years. Deloitte Consulting conducted the Company's most recent triennial risk assessment in 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. Based on the risk review conducted in 2020 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. The Company continues to monitor and evaluate the above mitigating practices as part of its annual review process.
Compensation Philosophy, Plans, and Practices |
Compensation Committee of the Board
The Compensation Committee oversees the Company's compensation and benefit programs for all officers and other 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. 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 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, and 75th percentiles, individual and Company performance, the executive's overall experience, Proxy Statement 55
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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 executives (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-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 vested and unvested awards and the retention value of these awards. 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 2020 Independent Compensation Consultants are independent advisors under the applicable rules and regulations. The Compensation Committee's charter is available in the Governance section of Grainger's website at http://invest.grainger.com/. Role of Management
Members of management (including the NEOs and the CEO's other direct reports) 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 the Compensation Committee's independent compensation consultant 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 Mr. 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 Chairman of the Board and CEO before they are presented to the Compensation Committee. Mr. Macpherson's compensation is reviewed by the Compensation Committee in conjunction with its independent compensation consultant and is approved by the independent directors in executive session without management present. Compensation Comparator Group
Every 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 56 www.grainger.com
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considered when determining the relative competitiveness of the Company's compensation practices. Consistent with this practice, a comparator group compensation study was conducted in 2020 (2020 Compensation Study). Based on the 2020 Compensation Study, the previous comparator group was updated to include Stanley Black & Decker, Inc. due to its comparable business characteristics and operational similarities to the Company, and to remove Anixter International Inc., due to its acquisition by WESCO International Inc. (an existing peer), and Ingersoll-Rand plc, due its divestiture of its industrial segment. The 2020 comparator group consists of 17 companies that are relatively similar in complexity and size to Grainger and represent the types of major companies with which Grainger historically competes for executive talent. The companies that were selected for the 2020 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The Committee relied on its 2020 Independent Compensation Consultants for survey and market 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 57
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Listed below are the 2020 Compensation Study comparator group and the 2019 revenues and enterprise values for each company.
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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
(6)Based on information provided in a Schedule 13G/A filed on March 5, 2020, Ms. Slavik Williams has sole voting power with respect to 4,801,811 shares, shared voting power with respect to 8,342 shares, sole dispositive power with respect to 3,166,051 shares and shared dispositive power with respect to 1,644,102 shares. Ms. Slavik Williams' aggregate beneficial ownership of 4,810,153 shares excludes 783,743 shares held in trusts over which Ms. Slavik Williams has no dispositive or voting power. The 8.96% calculation is based on 53,673,069 shares of common stock outstanding as of March 2, 2020, the record date for the Annual Meeting. Ms. Slavik Williams, a Director nominee for election at the Annual Meeting, is the cousin of James D. Slavik, a current Director who is not standing for re-election at the Annual Meeting. Neither Mr. Slavik nor Ms. Slavik Williams has any beneficial ownership of the other's shares.
(7)Includes 195 shares as to which Mr. Watson has shared voting and/or investment power.
Proxy Statement 33 | | | | | | | | | Company |
| | | 2019 Revenue ($mil)* |
| | | 2019 Enterprise Value ($mil)** | | | | | | | | | | Avnet, Inc. | | | | $19,519 | | | | $5,752 | | | | | | | | | | Beacon Roofing Supply, Inc. | | | | $7,105 | | | | $5,119 | | | | | | | | | | CDW Corporation | | | | $18,032 | | | | $24,165 | | | | | | | | | | Eaton Corporation plc | | | | $21,390 | | | | $46,934 | | | | | | | | | | eBay Inc. | | | | $10,800 | | | | $34,702 | | | | | | | | | | Fastenal Company | | | | $5,334 | | | | $21,686 | | | | | | | | | | Genuine Parts Company | | | | $19,392 | | | | $19,525 | | | | | | | | | | HD Supply Holdings, Inc. | | | | $6,047 | | | | $9,120 | | | | | | | | | | Henry Schein, Inc. | | | | $9,986 | | | | $11,967 | | | | | | | | | | Illinois Tool Works Inc. | | | | $14,109 | | | | $63,739 | | | | | | | | | | Insight Enterprises, Inc. | | | | $7,731 | | | | $3,466 | | | | | | | | | | LKQ Corporation | | | | $12,506 | | | | $15,797 | | | | | | | | | | Parker-Hannifin Corporation | | | | $14,320 | | | | $31,777 | | | | | | | | | | Sanmina Corporation | | | | $8,234 | | | | $2,347 | | | | | | | | | | Stanley Black & Decker, Inc. | | | | $14,442 | | | | $31,550 | | | | | | | | | | Univar Solutions Inc. | | | | $9,287 | | | | $7,148 | | | | | | | | | | WESCO International, Inc. | | | | $8,359 | | | | $3,972 | | | | | | | | | | 25th Percentile | | | | $8,234 | | | | $5,752 | | | | | | | | | | 50th Percentile | | | | $10,800 | | | | $15,797 | | | | | | | | | | 75th Percentile | | | | $14,442 | | | | $31,550 | | | | | | | | | | W.W. Grainger, Inc. | | | | $11,486 | | | | $20,551 | | | | | | | | | | Percent Rank | | | | 53% | | | | 59% | | | | | | | | | |
- *
- Revenue is for Fiscal Year 2019.
- **
- Enterprise Value is calculated as market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents, as of 12/31/2019.
The Compensation Committee reviewed and approved the comparator group and considered the findings of the 2020 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 2020 were consistent with the Company's pay philosophy, Company and individual performance, and market practices (as reflected in the 2020 Compensation Study). The next Compensation Study and comparator group validation is scheduled to take place in 2021. 58 www.grainger.com
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Base Salaries
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.
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 with goals set in alignment with the Grainger Edge, base salaries for comparable positions from market studies, experience, tenure, fairness and internal equity. Base salary increases for the NEOs, with the exception of Mr. Macpherson, are reviewed and approved by the Chairman of the Board and CEO before they are presented to the Compensation 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 Mr. Macpherson was determined by the independent directors with assistance from the Compensation Committee and its independent compensation consultant. The Compensation Committee reviews and approves the corporate goals and objectives relevant to Mr. Macpherson's compensation and evaluates his performance in light of those goals and objectives. The Compensation Committee recommended, and the independent directors approved in executive session without management present, Mr. Macpherson's compensation level based on this evaluation. During the early stages of the pandemic, the Company decided to defer for three months paying the annual company-wide merit increases planned for April 1, 2020 until July 1, 2020. In addition, the Company's executive leadership team voluntarily elected temporary base salary reductions for the second quarter of 2020 with a 50% reduction for the Chairman and CEO and 20% for the executive leadership (including NEOs). Salaries were reinstated and certain salaries were increased effective July 1, 2020 as follows:
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| | | 2019 Annualized Base Salary |
| | | Annualized Base Salary Effective 7/1/2020 |
| | | Annualized Base Salary Percent Change (3) |
| | | Actual 2020 Base Salary Increase Percent (4) |
| | | | | | | | | | | | | | | | | | | | | | | | | D.G. Macpherson | | | | $1,060,900 | | | | $1,060,900 | | | | 0% | | | | –9% | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas B. Okray | | | | $715,000 | | | | $730,000 | | | | 2% | | | | 0% | | | | | | | | | | | | | | | | | | | | | | | | | | John L. Howard | | | | $715,000 | | | | $720,000 | | | | 1% | | | | –1% | | | | | | | | | | | | | | | | | | | | | | | | | | Paige K. Robbins (1) | | | | $570,000 | | | | $570,000 | | | | 0% | | | | –1% | | | | | | | | | | | | | | | | | | | | | | | | | | Deidra C. Merriwether (2) | | | | $475,000 | | | | $530,000 | | | | 0% | | | | –1% | | | | | | | | | | | | | | | | | | | | | | | |
- (1)
- Ms. Robbins' base salary was increased from $530,000 to $570,000 effective November 1, 2019 to reflect the expansion of her role and responsibilities.
- (2)
- Ms. Merriwether's base salary was increased from $475,000 to $530,000 effective January 1, 2020 to reflect the expansion of her role and responsibilities.
- (3)
- Percentage increase based on annualized base salary.
- (4)
- Reflects actual base salary including reduction in base salaries based on deferral of Company-wide merit increases from April 1st to July 1st and temporary base salary reductions for the second quarter of 2020 with a 50% reduction for the Chairman and CEO and 20% for NEOs.
Proxy Statement |
REPORT OF THE AUDIT COMMITTEE 59
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 Securities and Exchange Commission (the SEC) and corporate governance standards of the New York Stock Exchange. The Audit Committee acts under a charter that is reviewed annually and was last amended by the Board on December 11, 2019.The charter is available on the Governance section of Grainger's website athttp://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 (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, 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 EY. The Audit Committee discussed with EY 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). EY also provided to the Audit Committee the letter and written disclosures required by PCAOB standards concerning EY's independence and the Audit Committee discussed with EY 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, 2019, as filed with the SEC.
V. Ann Hailey, Chair
Brian P. Anderson
Neil S. Novich
E. Scott Santi
Lucas E. Watson
Members of the Audit Committee of
the Board of Directors
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Annual Incentives
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 2020 MIP target payment applicable to each NEO. | | | | | | | | | | | Name |
| | | 2020 Target Incentive (as a % of base salary) |
| | | Performance Results (as a % of the target) |
| | | | | | | | | | | | | D.G. Macpherson (1) | | | | 150% | | | | 84% | | | | | | | | | | | | | | Thomas B. Okray (2) | | | | 95% | | | | 0% | | | | | | | | | | | | | | John L. Howard | | | | 80% | | | | 84% | | | | | | | | | | | | | | Paige K. Robbins | | | | 80% | | | | 84% | | | | | | | | | | | | | | Deidra C. Merriwether | | | | 80% | | | | 84% | | | | | | | | | | | | | |
- (1)
- Mr. Macpherson's 2020 target incentive was increased from 135% to 150% effective April 1, 2020.
- (2)
- Mr. Okray resigned as Senior Vice President and Chief Financial Officer of the Company to pursue an opportunity at another publicly-traded company. His last day in this role at Grainger was December 31, 2020. Accordingly, Mr. Okray was not eligible to receive a 2020 MIP payment.
The final payout is based as a percentage of the NEO's annualized base salary as of December 31, 2020 and total Company results. The 2020 MIP was based on the Company's 2020 Adjusted ROIC (see Appendix B) 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 = (ROIC Performance + Sales Growth Performance) The Company believes the design of the annual incentive program supports the creation of shareholder value as it encourages management to focus on profitable sales growth and ROIC. The basic framework of the MIP has been in place for more than 10 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. 60 www.grainger.com
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The following table shows the performance and payout scenarios that were established at the beginning of the year for 2020: | | | | | ROIC Performance (1) |
| | | % Payout (2) | | | | | | < 14.3% | | | | 0% | | | | | | 28.1% | | | | 40% | | | | | | 29.5% to 29.8% | | | | 50% | | | | | | 31.3% | | | | 60% | | | | | | 45.1% | | | | 100% | | | | | |
| | | | | Daily Sales Growth Performance (3) |
| | | % Payout (2) | | | | | | < –10.3% | | | | 0% | | | | | | 3.2% | | | | 40% | | | | | | 4.5 to 4.9% | | | | 50% | | | | | | 6.0% | | | | 60% | | | | | | 19.8% | | | | 100% | | | | | |
- (1)
- 2020 Adjusted ROIC is a non-GAAP financial measure. For a definition of this measure and for a reconciliation to the nearest comparable GAAP measure, see Appendix B to this proxy statement.
- (2)
- Payouts are interpolated on a straight-line basis.
- (3)
- For the year 2020, reported daily sales growth was 3.5% and 2020 Adjusted ROIC (see footnote (1) immediately above) was 28.2%. This resulted in a final MIP payout of 84% of target (no discretion was exercised).
The Company believes that it establishes ROIC and sales growth 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. However, as noted earlier, the Compensation Committee did not elect to modify or exercise discretion for existing 2020 NEO compensation programs, including the MIP. After reviewing several factors, including financial performance relative to peers and pay for performance alignment, the Committee concluded that the original construct and targets remained appropriate under current conditions. Long-Term Incentives
Proxy Statement 61
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AUDIT FEES AND AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The following table sets forth the fees for professional services rendered by Ernst & Young LLP (EY) with respect to fiscal years 2019 and 2018, respectively:
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The Company's long-term incentives for NEOs are provided under shareholder-approved incentive plans. The target number of shares granted to the NEOs is designed to approximate the median economic value of the compensation comparator group or applicable survey data 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. After careful review and consideration informed by the Company's engagement with shareholders following the 2019 Say on Pay voting results, the Company retired its prior long-term incentive program comprised of 50% Performance Restricted Stock Units (PRSUs) and 50% stock options; with the final grant of stock options and PRSUs occurring in 2019. In response to shareholder input and a review of market practice, the Company's 2020 program uses a mix of 50% PSUs and 50% RSUs. Beginning with the 2020 equity grants, the Company also adjusted the methodology for calculating the number of shares to both directors and grant-eligible employees from a 20-day average stock price ended January 31 to a 20-day average stock price ended March 31 to better reflect market practice and to reduce short-term volatility between the value used to convert shares and the stock price value on the day of grant. 2020 NEO Long-Term Incentives Overview The long-term incentives provided to NEOs during 2020 are summarized as follows: | | | | | | | | | | | | | Fee Category |
| | | 2019 |
| | | 2018 |
| | | | | | | | | | | | | Audit Fees(1) | | | | $ | 5,519,000 | | | | $ | 5,736,000 | | | | | | | | | | | | | | Audit-Related Fees(2) | | | | 177,000 | | | | 223,500 | | | | | | | | | | | | | | Tax Fees(3) | | | | 372,000 | | | | 700,000 | | | | | | | | | | | | | | All Other Fees(4) | | | | 7,000 | | | | 7,000 | | | | | | | | | | | | | | Total Fees | | | | $ | 6,075,000 | | | | $ | 6,666,500 | | | | | | | | | | | | | |
(1) | | | | | | | | | | | | | Audit Fees.Award | Consists of fees billed for professional services rendered for the audit of Grainger's annual financial statements and internal control over financial reporting, review of the interim financial statements included in Grainger's quarterly reports
| | | Weight |
| | | Vesting |
| | | Performance Measure | | | | | | | | | | | | | | Performance Share Units (PSUs) | | | | 50% | | | | Three-year cliff vesting contingent on Form 10-Q, and other services normally provided in connection with Grainger's statutory and regulatory filings or engagements.
(2)Audit-Related Fees. Consists of fees billed for professional services rendered for assurance and related services that are reasonably related to the performance of the audit or a review of Grainger's financial statements and are not reported under "Audit Fees." These services include the audits of Grainger's employee benefit plans and various attest services.
(3)Tax Fees. Consists of fees billed for professional services rendered for tax compliance, tax advice and tax planning. These services include assistance with the preparation of various tax returns.
(4)All Other Fees. Consists of fees billed for all other professional services rendered to Grainger, other than those reported as "Audit Fees," "Audit-Related Fees" and "Tax Fees." These fees relate to an annual subscription to an online research resource.Pre-Approval Policy for Audit and Non-Audit Services
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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Corporate Governance
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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 historical performance and its recent performance during its engagement for the 2019 fiscal year;
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EY's capability and expertise in handling the breadth and complexity of the Company's operations;
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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;
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the quality of EY's communications with the Audit Committee regarding the conduct of the audit, and with management with respect to issues identified in the audit;
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external data on audit quality and performance, including recent PCAOB reports on EY; and
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EY's reputation for integrity and competence in the fields of accounting and auditing.
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EY has been retained as the Company's independent auditor continuously since 2005. To 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 EY's personnel occurs routinely and the Audit Committee is directly involved in the review, selection and evaluation of EY's lead engagement partner.
The Audit Committee and the Board of Directors believe that the continued retention of EY to serve as the Company's independent auditor for the year ending December 31, 2020 is in the best interests of the Company and its shareholders, and the Board is asking shareholders to ratify this appointment. Representatives of EY 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
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 CD&A be included in the Company's proxy statement for its 2020 annual meeting of shareholders and in its Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC. The Compensation Committee acts under a charter, last amended on December 12, 2018, that is reviewed annually.The Amended and Restated charter is available in the Governance section of Grainger's website athttp://invest.grainger.com/.
Michael J. Roberts, Chairman
Rodney C. Adkins
Stuart L. Levenick
Beatriz 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:
•attends Compensation Committee meetings;
•assists the Compensation Committee in the review of goals and objectives for the CEO compensation;
•provides the Compensation Committee with comparable compensation market data, including pay levels and pay practices of both our comparator companies and general industry;
•helps the Compensation Committee evaluate recommendations proposed by management;
•assists with incentive compensation program design, structure, and selection of the metrics;
•annually reviews and recommends appropriate comparator companies used for compensation studies;
•conducts or assists in risk reviews of the Company's performance and incentive-based compensation programs;
•provides periodic updates on executive compensation trends and regulatory developments; and
•undertakes special projects as assigned.
Proxy Statement 37
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Corporate Governance
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The following table sets forth the fees for services rendered by Deloitte Consulting and its affiliates with respect to fiscal year 2019:
| | | | | | | Type of Fee |
| | | 2019 | | | | | | | | Executive Compensation Consulting | | | | $ | 182,724 | | | | | | | | All Other Consulting | | | | $ | 1,214,821 | | | | | | | | Total Fees | | | | $ | 1,397,545 | | | | | | | |
Executive Compensation Consulting Fees: Consists of fees billed for services provided to advise the Compensation Committee with respect to executive and Director 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.
Affiliates 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.
38 www.grainger.com
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INTRODUCTION
This Compensation Discussion and Analysis (CD&A) describes the Company's response to the 2019 Say on Pay vote, explains the compensation paid to the Company's Named Executive Officers (NEOs) in 2019 and describes the Company's compensation philosophy and programs generally.
2019 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 Company strongly believes that its compensation systems must be aligned with shareholder interests and value creation. We value the perspectives of our shareholders and take their feedback seriously. In light of the 2019 annual Say on Pay vote, the Company understood that it needed to carefully review its overall compensation program, including each component, as well as the overall compensation delivered.
As described below, as a result of an extensive feedback and analysis 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 link between pay and performance.
Our Review Process
The Compensation Committee and Company management completed a three-step process:
•outreach to shareholders and proxy advisors to learn about and consider their concerns;
•review our compensation design and evaluate potential changes; and
•verify the design changes with additional feedback before implementing the 2020 program.
As part of this process, the Company 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 shareholders representing a large percentage of the Company's outstanding shares.
We also had discussions with the leading proxy advisory firms, one which had recommended voting against our 2019 Say on Pay proposal and one which had recommended voting for the proposal. These discussions helped us understand the reasons for their voting recommendations on our compensation program.
Proxy Statement 39
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Feedback on Compensation
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.
Actions Taken
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)adjusted operating margin (1) percentage, with 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
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metric equally weighted. |
The table below sets out the concerns we heard from shareholders and the proxy advisory firms, and the actions we have taken
| | | | | | | | | | | | | Restricted Stock Units (RSUs) | | | | 50% | | | | Three-year graded vesting | | | | Grant allocated based on individual performance; long-term value based on appreciation in response to those concerns, in order to further align our executive compensation program with shareholder expectations: | | | | | | | | | | | | | Area of Concern |
| | | Factors |
| | | Actions Taken |
| | | Effectivestock price. | | | | | | | | | | | | | | CEO Pay
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- (1)
- 2020 adjusted operating margin is a non-GAAP financial measure. For a definition of this measure and for a reconciliation to the nearest comparable GAAP measure, see Appendix B to this proxy statement.
As noted earlier, the Compensation Committee did not elect to modify or exercise discretion for existing 2020 NEO compensation programs, including the long-term incentive program. The Company continuously evaluates its long-term incentive program against its objective 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. 2020 Performance Share Units (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 adjusted operating margin(1) 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. 62 www.grainger.com
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Outsized long-term incentive grant value due to the use of a 200-day average stock price |
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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.
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CEO compensation above market median.
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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 | |
| | 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. This award will remain at risk through 2023. 2020 Restricted Stock Units (RSUs) 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. 2018-2020 Performance Restricted Stock Unit (PRSUs) The Company's 2018 PRSU program vested in 2020. The 2018 PRSU program was designed to provide NEOs and other executives with a potential share payout depending on ROIC achievement over a three-year cycle with the actual number of shares paid to an NEO being either 0% or 100% of the target number of PRSUs awarded. The ROIC component was measured at the end of the third year based on the three-year average. These measurement dates reinforced a long-term focus. No dividend equivalents were paid on PRSUs. The 2018 PRSU Program focused on maintaining profitability over a three-year period and retaining key talent during our pricing initiative. Vesting was based on achieving total Company three-year average ROIC threshold at or above 18%, as shown in the table below. | | | | | Three-Year Average ROIC Performance (2018 - 2020) (1) |
| | | % Payout | |
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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.
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| | | | | | | | | | | | | | Long-Term Incentive—Strengthening Pay and Performance Link
Use of Stock Options and PRSUs for Long-Term Incentive
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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.
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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 | | | | | | | | | | | | | | Long-Term Incentive—Performance Target
Rigor of plan metrics and design which included a single 18% ROIC hurdle to receive a target payout
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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.
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The PRSUs were designed so there would be no payout if the ROIC performance target was not met.
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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 | | | | | | | | | | | | | | Long Term Incentive—Alignment to Company Strategy
Alignment between the long-term incentive performance condition and the Company's strategy
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The PRSUs required achievement of a three-year average ROIC target of 18% or higher to vest into shares.
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Some shareholders believed that the single ROIC trigger was insufficiently aligned to Company strategy.
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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 | | | | | | | | | | | | | | Short-Term and Long-Term Incentives—Overlapping Performance Conditions
Use of similar metrics in both annual and long-term incentive plans
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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.
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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.
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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.
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| Proxy Statement <18%
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Executive Summary—2019 Executive Compensation Program
Named Executive Officers (NEOs) for 2019
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| | | Title | 100% | | | | | | D.G. Macpherson | | | | Chairman of the Board & Chief Executive Officer (CEO) | | | | | | Thomas B. Okray | | | | Senior Vice President & Chief Financial Officer | | | | | | John L. Howard | | | | Senior Vice President & General Counsel | | | | | | Paige K. Robbins | | | | Senior Vice President, Chief Technology, Merchandising, Marketing and Strategy Officer | | | | | | Deidra C. Merriwether | | | | Senior Vice President & President, North American Sales & Service | | | | | |
- (1)
- 2018-2020 Adjusted Average ROIC is a non-GAAP financial measure. For a definition of this measure and for a reconciliation to the nearest comparable GAAP measure, see Appendix B to this proxy statement.
The 2018-2020 Adjusted Average ROIC was 28.6%. Accordingly, the profitability threshold was achieved, and participants earned 100% of their target. The Compensation Committee has approved the Company's calculation of 2018-2020 Adjusted Average ROIC for purposes of the 2018-2020 PRSU cycle. Other At Risk Awards
The last grant under the PRSU program was made in 2019, with the same features as the 2018 program. The 2019 PRSU program focuses on maintaining a threshold level of profitability over a three-year period. Vesting is based on achieving total Company three-year average ROIC at or above 18%, consistent with the 2018 PRSU program design. This award will remain at risk through 2021. Proxy Statement 63
Compensation Philosophy
The Company's overall NEO compensation structure is designed to drive profitable growth leading to shareholder value creation 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, including 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.
Incentives earned in 2019 reflect our pay for performance philosophy, including the following financial results against our performance metrics:
•short-term financial results did not meet expectations and therefore the payout for the annual bonus program was below target; and
•long-term results for the three-year 2017 Performance Share cycle exceeded profitability expectations, therefore the payout for this Performance Share cycle exceeded target.
(1)2018 Adjusted ROIC and 2019 Adjusted ROIC are non-GAAP financial measures. For a definition of these measures and for reconciliations to the nearest comparable GAAP measures, see Appendix B to this proxy statement.
42 www.grainger.com
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Compensation Overview
In 2019, NEO compensation mix did not change, as it includes a combination of 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 is comprised of the following components:
| | | | | | | | | | | | | Element | | | | | | | Executive Compensation
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| | | Link to Performance |
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Term | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | Long-Term Incentive Plan Effective in 2019—Stock Options(1) | | | | 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 performance prior to exercise. | | | | Long-Term | | | | | | | | | | | | | | Long-Term Incentive Plan Effective in 2019—PRSUs(1) | | | | Aligns compensation with three-year average ROIC. | | | | Linked to achieving a predetermined Company three-year profitability. | | | | Long-Term | | | | | | | | | | | | | |
(1)Stock options and PRSUs were not granted in 2020.
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Stock Ownership Guidelines
As of December 31, 2020, grants are based on a vehicle mix of 50% PSUs and 50% RSUs.Proxy Statement 43
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Compensation Pay Mix
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 |
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| | | Link to Performance |
| | | Short/Long
Term | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | |
In 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 mix 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 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:
•Accelerating U.S. share gain in the Company's high-touch solutions model is directly connected to the Company's focus on top line growth and expanding its leadership position in the MRO space
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by being the go-to-partner for people who build and run safe, sustainable and productive operations.
•Revenue growth in the endless assortment businesses is an important growth driver for the Company.
•Operating margin balances the above growth initiatives by focusing management on attaining profitability targets as the Company grows, which should lead to improved shareholder returns.
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, followed by base salary and performance-based annual 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.
These components and the use of performance-based pay are consistent with the compensation mix of the comparator group. The tables below show compensation components as a percentage of the total target compensation package.
Proxy Statement 45
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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
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| | | Annual
Incentives |
| | | Stock
Options |
| | | PRSUs | | | | | | | | | | | | | | Robust Goal Setting
| | | | ✓ | | | | | | | | | | | | | | | | | | | | | | Balanced Performance Measures
| | | | ✓ | | | | ✓ | | | | ✓ | | | | | | | | | | | | | | Claw-Back Policies
| | | | ✓ | | | | ✓ | | | | ✓ | | | | | | | | | | | | | | Stock Ownership Requirements
| | | | N/A | | | | ✓ | | | | ✓ | | | | | | | | | | | | | | Performance Payouts Capped
| | | | ✓ | | | | ✓ | | | | ✓ | | | | | | | | | | | | | | No Dividend Equivalents Paid on PRSUs
| | | | N/A | | | | N/A | | | | ✓ | | | | | | | | | | | | | | Compensation Committee Oversight
| | | | ✓ | | | | ✓ | | | | ✓ | | | | | | | | | | | | | | Internal and Independent External Risk Review
| | | | ✓ | | | | ✓ | | | | ✓ | | | | | | | | | | | | | | Restrictions on Hedging and Pledging
| | | | N/A | | | | ✓ | | | | ✓ | | | | | | | | | | | | | |
The Company believes that the appropriate metrics are used in its incentive plan design and the metrics do not create unreasonable risk.
Compensation Philosophy, Plans, and Practices
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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.
Compensation Committee of the Board
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
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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 vested and unvested awards and the retention value of these 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 is available in the Governance section of Grainger's website athttp://invest.grainger.com/.
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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."
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Determine
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(other than CEO)
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Purpose |
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A review of the comparators is performed to maintain a group of companies that are relatively similar in complexity and size to Grainger |
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An analysis of NEO compensation versus the comparator group is performed to ensure compensation is market competitive |
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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 |
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Annual |
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Annual |
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Annual |
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Annual |
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Recommendation |
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Recommended by the independent compensation consultant to the Compensation Committee |
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Recommended by the independent compensation consultant to the Compensation Committee |
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Reviewed and
recommended by
the Compensation |
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Recommended by the Chairman and CEO |
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Approval |
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Reviewed and approved by the Compensation Committee |
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Reviewed by the Compensation Committee |
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Committee and
approved by
Independent
Directors in
Executive Session |
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Reviewed and recommended by the Compensation Committee, then to be approved by the Board |
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Planned Timing of Approval |
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October |
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February |
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February |
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Proxy Statement 49
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Risk Assessment
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, to assist in 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:
•balanced performance measures—sales growth combined with profitability;
•robust performance measure selection and rigorous targets;
•balanced mix of short-term and long-term incentives;
•balanced mix of equity vehicles—fixed and performance-based shares;
•claw-back provisions to recoup incentive compensation;
•stock ownership, retention, and holding requirements; and
•clear business conduct guidelines.
Since 2009, the Compensation Committee has engaged its independent compensation consultant, Deloitte Consulting, to conduct a risk assessment that is completed every three years. Deloitte Consulting conducted the Company's most recent triennial risk assessment in 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.
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.
Role of Management
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 Deloitte 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 Mr. 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 Chairman of the Board and CEO before they are presented to the Compensation Committee. Mr. Macpherson's compensation is reviewed by the Compensation Committee in conjunction with its independent compensation consultant, together with other independent Directors (as directed by the Board), in executive session without members of management present.
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Compensation Comparator Group
Every 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 2019 (2019 Compensation Study).
The 2019 comparator group consists of 18 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 2019 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
The Committee relied on its independent compensation consultant, Deloitte Consulting, for survey and market 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 2019 Compensation Study comparator group and the 2018 revenues and enterprise values for each company.
| | | | | | | | | | | | | Company | | | | 2018 Revenue ($mil)* |
| | | 2018 Enterprise Value ($mil)** | | | | | | | | | | | | | | Anixter International Inc. | | | | $8,400 | | | | $3,012 | | | | | | | | | | | | | | Avnet, Inc. | �� | | | $19,037 | | | | $5,215 | | | | | | | | | | | | | | Beacon Roofing Supply, Inc. | | | | $6,418 | | | | $5,052 | | | | | | | | | | | | | | CDW Corporation | | | | $16,241 | | | | $15,528 | | | | | | | | | | | | | | Eaton Corporation plc | | | | $21,609 | | | | $36,594 | | | | | | | | | | | | | | eBay Inc. | | | | $10,746 | | | | $31,437 | | | | | | | | | | | | | | Fastenal Company | | | | $4,965 | | | | $15,270 | | | | | | | | | | | | | | Genuine Parts Company | | | | $18,735 | | | | $16,699 | | | | | | | | | | | | | | HD Supply Holdings, Inc. | | | | $5,121 | | | | $8,622 | | | | | | | | | | | | | | Henry Schein, Inc. | | | | $13,202 | | | | $14,733 | | | | | | | | | | | | | | Illinois Tool Works Inc. | | | | $14,768 | | | | $47,855 | | | | | | | | | | | | | | Ingersoll-Rand Plc | | | | $15,668 | | | | $25,514 | | | | | | | | | | | | | | Insight Enterprises, Inc. | | | | $7,080 | | | | $1,841 | | | | | | | | | | | | | | LKQ Corporation | | | | $11,877 | | | | $11,684 | | | | | | | | | | | | | | Parker-Hannifin Corporation | | | | $14,302 | | | | $23,861 | | | | | | | | | | | | | | Sanmina Corporation | | | | $7,110 | | | | $1,831 | | | | | | | | | | | | | | Univar Solutions Inc. | | | | $8,633 | | | | $5,026 | | | | | | | | | | | | | | WESCO International, Inc. | | | | $8,177 | | | | $3,385 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 25th Percentile | | | | $7,377 | | | | $5,032 | | | | | | | | | | | | | | 50th Percentile | | | | $11,311 | | | | $13,209 | | | | | | | | | | | | | | 75th Percentile | | | | $15,443 | | | | $22,071 | | | | | | | | | | | | | | W.W. Grainger, Inc. | | | | $11,221 | | | | $17,783 | | | | | | | | | | | | | | Percent Rank | | | | 50% | | | | 71% | | | | | | | | | | | |
*Revenue is for Fiscal Year 2018.
**Enterprise Value is calculated as market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents, as of 12/31/2018.
The Compensation Committee reviewed and approved the comparator group and considered the findings of the 2019 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 2019 were consistent with the Company's pay philosophy, Company and individual performance, and market practices (as reflected in the 2019 Compensation Study). The next Compensation Study and comparator group validation is scheduled to take place in 2020.
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Base Salaries
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 2019 Compensation Study showed that, on average, the Company's base salaries for NEOs were within the market range.
Base salary increases for the NEOs, with the exception of Mr. Macpherson, are reviewed and approved by the Chairman of the Board and CEO before they are presented to the Compensation 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 Mr. Macpherson was determined by the Board with assistance from the Compensation Committee and Deloitte Consulting. The Compensation Committee reviews and approves the corporate goals and objectives relevant to Mr. Macpherson's compensation and evaluates his performance in light of those goals and objectives. Together with the other independent Directors (as directed by the Board), the Compensation Committee determined and approved 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, 2019, the following base salary adjustments were made for the other NEOs effective April 1, 2019:
| | | | | | | | | Name |
| | | Percentage Increase |
| | | Base Salary Effective 4/1/2019 | | | | | | | | | | D.G. Macpherson | | | | 3% | | | | $1,060,900 | | | | | | | | | | Thomas B. Okray | | | | 2% | | | | $715,000 | | | | | | | | | | John L. Howard | | | | 1% | | | | $715,000 | | | | | | | | | | Paige K. Robbins | | | | 4%(1) | | | | $530,000 | | | | | | | | | | Deidra C. Merriwether | | | | 5%(2) | | | | $475,000 | | | | | | | | | |
(1)Ms. Robbins' base salary was increased from $530,000 to $570,000 effective November 1, 2019 to reflect the expansion of her role and responsibilities.
(2)Ms. Merriwether's base salary was increased from $475,000 to $530,000 effective January 1, 2020 to reflect the expansion of her role and responsibilities.
Proxy Statement 53
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Annual Incentives
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 2019 MIP target 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% | | | | | | | | | | Thomas B. Okray | | | | 90% | | | | 75% | | | | | | | | | | John L. Howard | | | | 80% | | | | 75% | | | | | | | | | | Paige K. Robbins | | | | 80% | | | | 75% | | | | | | | | | | Deidra C. Merriwether | | | | 60%(1) | | | | 75% | | | | | | | | | |
(1)Ms. Merriwether's 2019 target incentive was increased from 50% to 60% effective April 1, 2019. Ms. Merriwether's incentive target was subsequently increased from 60% to 80% effective January 1, 2020 based on changes to Ms. Merriwether's role and responsibilities. Accordingly, her 2019 incentive amount is pro-rated at 50% for 3 months and 60% for 9 months.
The Company believes the design of the annual incentive program supports the creation of shareholder value as it encourages management to focus on profitable sales growth and ROIC. The basic framework of the MIP has been in place for more than 10 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.
The 2019 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 = (Sales Growth Performance + ROIC Performance)
(1)2019 Adjusted ROIC is a non-GAAP financial measure. For a definition of this measure and for a reconciliation to the nearest comparable GAAP measure, see Appendix B to this proxy statement.
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The following table shows various payout scenarios that were established at the beginning of the year for 2019:
| | | | | ROIC Performance* |
| | | % Payout** | | | | | | < 11.3% | | | | 0% | | | | | | 24.6% | | | | 25% | | | | | | 30.5% to 30.7% | | | | 50% | | | | | | 36.5% | | | | 75% | | | | | | 49.8% | | | | 100% | | | | | |
| | | | | Daily Sales Growth Performance* |
| | | % Payout** | | | | | | < –13.3% | | | | 0% | | | | | | 0.0% | | | | 25% | | | | | | 6.3% to 7.7% | | | | 50% | | | | | | 12.5% | | | | 75% | | | | | | 25.8% | | | | 100% | | | | | |
*For the year 2019, reported daily sales growth was 2.4% and 2019 Adjusted ROIC(1) was 29.3%. This resulted in a final Company MIP payout of 75% of target.
**Payouts are interpolated on a straight-line basis.
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.
Long-Term Incentives
The Company's long-term incentives for NEOs are provided under shareholder-approved incentive plans. The target number of shares granted to the NEOs is designed to approximate the median economic value 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.
(1)2019 Adjusted ROIC is a non-GAAP financial measure. For a definition of this measure and for a reconciliation to the nearest comparable GAAP measure, see Appendix B to this proxy statement.
Proxy Statement 55
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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 a 200-day average price to a 20-day average stock price ended January 31 to better reflect market practice. Beginning with the 2020 equity grants, Grainger has adjusted this methodology to be the 20-day average stock price 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. | | | | | | | | | | | | | | | | | | | | | | PRSUs
| | | | 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 | | | | Restricted Stock Units (RSUs)
| | | | 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. | | | | | | | | | | | | | | | | | | | | | | Performance Share Units (PSUs)
| | | | 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. | | | | | | | | | | | | | | | | | |
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
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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
2019 Sales
|
| | | % Payout | | | | | | <$11.4B
| | | | 0% | | | | | | $11.9B
| | | | 50% | | | | | | ³$12.4B
| | | | 100% | | | | | |
| | | | | Three-Year Average ROIC Performance (2017 - 2019) |
| | | % Payout | | | | | | £19.1% | | | | 0% | | | | | | 21.6% | | | | 50% | | | | | | ³24.0% | | | | 100% | | | | | |
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.
(1)2017-2019 Adjusted Average ROIC is a non-GAAP financial measure. For a definition of this measure and for a reconciliation to the nearest comparable GAAP measure, see Appendix B to this proxy statement.
Proxy Statement 57
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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
Performance (2018 - 2020)
|
| | | % Payout | | | | | | <18%
| | | | 0% | | | | | | ³18%
| | | | 100% | | | | | |
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
Performance (2019 - 2021)
|
| | | % Payout | | | | | | <18%
| | | | 0% | | | | | | ³18%
| | | | 100% | | | | | |
This award will remain at risk through 2021.
Long-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 10-year term with three-year vesting. Three-year vesting encourages meaningful retention before an executive may 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.
(1)2017-2019 Adjusted Average ROIC is a non-GAAP financial measure. For a definition of this measure and for a reconciliation to the nearest comparable GAAP measure, see Appendix B to this proxy statement.
58 www.grainger.com
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Stock Ownership Guidelines
As of December 31, 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 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? | | | | | | | | | | D.G. Macpherson | | | | 6x | | | | Yes | | | | | | | | | | Thomas B. Okray(1) | | | | 3x | | | | Yes | | | | | | | | | | John L. Howard | | | | 3x | | | | Yes | | | | | | | | | | Paige K. Robbins | | | | 3x | | | | Yes | | | | | | | | | | Deidra C. Merriwether | | | | 3x | | | | Yes | | | | | | | | | | Paige K. Robbins
| | | | 3x | | | | Yes | | | | | | | | | | Deidra C. Merriwether
| | | | 3x | | | | Yes | | | | | | | | | |
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 be 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), shares owned in a self-directed IRA, 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.
Hedging and Pledging Prohibition
The Company's Business Conduct Guidelines (which are available under "Governance" in the Investor Relations section of our website athttp://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) that establish a short position in Company stock and are designed to hedge or offset, any decrease in market value of the Company's (or its subsidiaries') equity securities. Company officers and Directors are also prohibited from pledging any Company stock 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.
Other Benefits
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, 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 160
Proxy Statement 59
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- (1)
- Mr. Okray resigned as Senior Vice President and Chief Financial Officer of the Company effective December 31, 2020 to pursue an opportunity at another publicly-traded company
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 net shares realized from exercised option shares and other stock awards until ownership requirements are met. Officers who fail to achieve these ownership levels will not be 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), shares owned in a self-directed IRA, 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. Hedging and Pledging Prohibition
The Company's Business Conduct Guidelines (which are available under "Governance" in the Investor Relations section of our website at 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) that establish a short position in Company stock and are designed to hedge or offset, any decrease in market value of the Company's (or its subsidiaries') equity securities. Company officers and Directors are also prohibited from pledging any Company stock 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. Other Benefits
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, other than the benefits discussed in this section. This includes the same health and welfare benefits and the same retirement profit sharing 64 www.grainger.com
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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 149 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. For 2020, the Company's annual contribution to retirement profit sharing is based on ROIC. Under the terms of the Profit Sharing Plan, the Company contributes a minimum of 8% of payroll to the plan and provides for additional contribution if a threshold return on capital is achieved. The Company's Profit Sharing Plan includes a 401(k) feature for all U.S.-based employees, including the NEOs. Of the 8% Company minimum contribution, the first 3% (which is funded from the retirement profit sharing pool) will go into the 401(k). Effective January 1, 2021, the Retirement Savings Plan replaced the Company's Profit Sharing Plan as the primary Company-sponsored retirement vehicle for U.S.-based employees. The Retirement Savings Plan provides for a 6% Company contribution to the 401(k) plan. Effective April 2011, the Company requires that the NEOs and certain other Company officers have periodic physical examinations that are paid for by the Company. The Company believes that periodic physical exams are helpful in maintaining the effectiveness of its executive talent. There are currently seven participants in the program. Messrs. Macpherson and Howard have grandfathered participation in the Company's Executive Death Benefit 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. The Company's policy is that, unless offered to other employees, it 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 un-granted equity, perquisites, and other payments or awards made in lieu of compensation. Mr. Howard has grandfathered participation in the Company's Voluntary Salary and Incentive Deferral Plan, which was discontinued effective December 31, 2016 (the Voluntary Salary and Incentive Deferral Plan). Participants of this plan were previously able to defer up to 50% of their base salary and up to 85% of their bonus through this plan. Officers are allowed the business use of corporate aircraft, which is chartered by the Company from a third party provider on an as-needed basis, while Mr. Macpherson is allowed personal use of corporate aircraft, subject to reimbursement of the full cost of use. Officers also are allowed the business use of a car and driver, while Mr. Macpherson is 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. Proxy Statement 65
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Compensation Discussion and Analysis
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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.
Retirement profit sharing is the primary Company-sponsored retirement vehicle for U.S.-based employees. Retirement 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 is achieved. The Company's Profit Sharing Plan includes a 401(k) feature for all U.S.-based employees, including the NEOs. Of the 8% Company minimum contribution, the first 3% (which is funded from the retirement profit sharing pool) will go into the 401(k).
Effective April 2011, the Company requires that the NEOs and certain other Company officers have periodic physical examinations that are paid for by the Company. The Company believes that periodic physical exams are helpful in maintaining the effectiveness of its executive talent. There are currently eight participants in the program.
Messrs. Macpherson and Howard have grandfathered participation in the Company's Executive Death Benefit 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. The Company's policy is that, unless offered to other employees, it 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 un-granted equity, perquisites, and other payments or awards made in lieu of compensation.
Mr. Howard has grandfathered participation in the Company's Voluntary Salary and Incentive Deferral Plan, which was discontinued effective December 31, 2016 (the Voluntary Salary and Incentive Deferral Plan). Participants of this plan were previously able to defer up to 50% of their base salary and up to 85% of their bonus through this plan.
Officers are allowed the business use of corporate aircraft, which 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 Mr. Macpherson is 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.
60 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position* |
| | | Year |
| | | Salary(1) |
| | | Bonus |
| | | Stock Awards(2) |
| | | Option Awards(3) |
| | | Non-Equity Incentive Plan Comp.(4) |
| | | Change in Pension Value and NQDC Earnings |
| | | All Other Comp.(5) |
| | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | D. G. Macpherson | | | | 2020 | | | | $969,091 | | | | $0 | | | | $4,761,519 | | | | $0 | | | | $1,303,316 | | | | $0 | | | | $441,452 | | | | $7,475,378 | Chairman of the Board & | | | | 2019 | | | | $1,053,175 | | | | $0 | | | | $2,901,333 | | | | $2,081,098 | | | | $1,074,161 | | | | $0 | | | | $555,360 | | | | $7,665,127 | Chief Executive Officer | | | | 2018 | | | | $1,030,000 | | | | $0 | | | | $4,086,887 | | | | $3,100,501 | | | | $1,842,464 | | | | $0 | | | | $395,992 | | | | $10,455,844 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas B. Okray | | | | 2020 | | | | $714,827 | | | | $0 | | | | $1,571,661 | | | | $0 | | | | $0 | | | | $0 | | | | $99,158 | | | | $2,385,646 | Sr. Vice President & | | | | 2019 | | | | $711,250 | | | | $0 | | | | $885,359 | | | | $634,924 | | | | $482,625 | | | | $0 | | | | $162,886 | | | | $2,877,044 | Chief Financial Officer | | | | 2018 | | | | $498,630 | | | | $0 | | | | $2,450,059 | | | | $0 | | | | $567,000 | | | | $0 | | | | $795,845 | | | | $4,311,534 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | John L. Howard | | | | 2020 | | | | $709,442 | | | | $0 | | | | $1,000,279 | | | | $0 | | | | $483,840 | | | | $0 | | | | $324,391 | | | | $2,517,952 | Sr. Vice President & | | | | 2019 | | | | $712,500 | | | | $0 | | | | $565,733 | | | | $405,659 | | | | $429,000 | | | | $0 | | | | $397,717 | | | | $2,510,609 | General Counsel | | | | 2018 | | | | $703,533 | | | | $0 | | | | $796,617 | | | | $604,376 | | | | $749,486 | | | | $0 | | | | $185,994 | | | | $3,040,006 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | 2020 | | | | $563,423 | | | | $0 | | | | $619,357 | | | | $0 | | | | $383,040 | | | | $0 | | | | $77,708 | | | | $1,643,528 | Sr. Vice President Chief Technology, | | | | 2019 | | | | $531,667 | | | | $0 | | | | $270,519 | | | | $194,040 | | | | $342,000 | | | | $0 | | | | $110,016 | | | | $1,448,242 | Merchandising, Marketing and Strategy Officer | | | | 2018 | | | | $508,500 | | | | $0 | | | | $846,722 | | | | $262,778 | | | | $516,375 | | | | $0 | | | | $118,944 | | | | $2,253,319 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deidra C. Merriwether | | | | 2020 | | | | $523,885 | | | | $0 | | | | $523,887 | | | | $0 | | | | $356,160 | | | | $0 | | | | $61,577 | | | | $1,465,509 | Sr. Vice President & President, | | | | 2019 | | | | $469,491 | | | | $0 | | | | $221,411 | | | | $158,748 | | | | $204,844 | | | | $0 | | | | $80,479 | | | | $1,134,972 | North America Sales & Service | | | | 2018 | | | | $448,922 | | | | $0 | | | | $293,843 | | | | $210,209 | | | | $305,749 | | | | $0 | | | | $100,035 | | | | $1,358,758 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
- *
- Titles as of December 31, 2020. Mr. Okray resigned as Senior Vice President and Chief Financial Officer of the Company effective December 31, 2020.
- (1)
- Reflects actual reduction in base salaries based on deferral of Company-wide merit increases from April 1 to July 1, 2020 and temporary base salary reductions for the second quarter of 2020 with a 50% reduction for the Chairman and CEO and 20% for NEOs.
- (2)
- Represents the grant date fair value of stock awards computed in accordance with FASB ASC Topic 718 and with PSUs calculated at target achievement. PSUs have a maximum payout of 200% of the target award. Therefore, the PSU awards at 200% of target would have a grant date fair value of $4,590,313, $1,515,150, $964,313, $597,088, and $505,050 for Messrs. Macpherson, Okray, and Howard, and Mses. Robbins and Merriwether, respectively. Mr. Okray stepped down as Senior Vice President and Chief Financial Officer as of December 31, 2020 and forfeited any unvested equity awards as of his employment termination date.
- (3)
- Represents the grant date fair value of option awards computed in accordance with FASB ASC Topic 718. Further details with respect to these awards are included in the Company's audited financial statements included in the Annual Report on Form 10-K for the relevant fiscal year ended. Mr. Okray exercised 3,118 shares of vested stock options on February 8, 2021. Under the existing provisions of the Long-Term Incentive Plan, he was entitled to exercise vested stock options within 3 months after his employment termination date.
- (4)
- Mr. Okray was not eligible to receive a 2020 MIP payment based on his employment termination date.
- (5)
- For 2020, includes contributions accrued under the Company's profit sharing plan and the related supplemental profit sharing plan ($175,343, $99,158, $93,889, $72,938, and $56,807 for Messrs. Macpherson, Okray, and Howard, and Mses. Robbins and Merriwether respectively). It also includes the incremental cost of the frozen Executive Death Benefit Program ($266,109 and $224,782 for Messrs. Macpherson and Howard, respectively) and the cost of executive physicals ($5,720, $4,770, $4,770 for Mr. Howard and Mses. Robbins and Merriwether, respectively).
66 www.grainger.com
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| | | Grant | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Awards: |
| | | Date Fair | | | | | | | | | | | | | Estimated Future Payouts |
| | | Estimated Future Payouts |
| | | No. of |
| | | Value of | | | | | | | | | | | | | Under Non-Equity Incentive |
| | | Under Equity Incentive |
| | | Shares of |
| | | Stock and | | | | | Grant |
| | | Approval |
| | | Plan Awards (1) |
| | | Plan Awards (2) |
| | | Stock or |
| | | Option | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name |
| | | Date |
| | | Date |
| | | Threshold |
| | | Target |
| | | Maximum |
| | | Threshold |
| | | Target |
| | | Maximum |
| | | Units |
| | | Awards (3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | D. G. Macpherson | | | | | | | | | | | | $0 | | | | $1,551,566 | | | | $3,103,133 | | | | | | | | | | | | | | | | | | | | | | | | | 4/1/20 | | | | 2/18/20 | | | | | | | | | | | | | | | | 0 | | | | 9,925 | | | | 19,850 | | | | | | | | $2,295,156 | | | | | 4/1/20 | | | | 2/18/20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,925 | | | | $2,466,363 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas B. Okray | | | | | | | | | | | | $0 | | | | $684,375 | | | | $1,368,750 | | | | | | | | | | | | | | | | | | | | | | | | | 4/1/20 | | | | 2/18/20 | | | | | | | | | | | | | | | | 0 | | | | 3,276 | | | | 6,552 | | | | | | | | $757,575 | | | | | 4/1/20 | | | | 2/18/20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,276 | | | | $814,086 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | John L. Howard | | | | | | | | | | | | $0 | | | | $576,000 | | | | $1,152,000 | | | | | | | | | | | | | | | | | | | | | | | | | 4/1/20 | | | | 2/18/20 | | | | | | | | | | | | | | | | 0 | | | | 2,085 | | | | 4,170 | | | | | | | | $482,156 | | | | | 4/1/20 | | | | 2/18/20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,085 | | | | $518,123 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | | | | | | | | | $0 | | | | $456,000 | | | | $912,000 | | | | | | | | | | | | | | | | | | | | | | | | | 4/1/20 | | | | 2/18/20 | | | | | | | | | | | | | | | | 0 | | | | 1,291 | | | | 2,582 | | | | | | | | $298,544 | | | | | 4/1/20 | | | | 2/18/20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,291 | | | | $320,814 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deidra C. Merriwether | | | | | | | | | | | | $0 | | | | $424,000 | | | | $848,000 | | | | | | | | | | | | | | | | | | | | | | | | | 4/1/20 | | | | 2/18/20 | | | | | | | | | | | | | | | | 0 | | | | 1,092 | | | | 2,184 | | | | | | | | $252,525 | | | | | 4/1/20 | | | | 2/18/20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,092 | | | | $271,362 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
- (1)
- Represents potential amounts under the 2020 MIP. Actual payout amounts under the 2020 MIP are included in the "Non-Equity Incentive Plan Comp." column of the Summary Compensation Table. Mr. Okray resigned as Senior Vice President and Chief Financial Officer of the Company. His last day in this role at Grainger was December 31, 2020. Accordingly, Mr. Okray was not eligible to receive a 2020 MIP payment.
- (2)
- The number of shares that may be earned for the 2020 grant of PSUs are either 0% or 200% of the target award and will be determined based on the Company's achievement of three-year average performance goals for: U.S. Share Gain, Endless Assortment revenue growth, and adjusted operating margin, with each metric weighted equally (2020 adjusted operating margin is a non-GAAP financial measure. For a definition of this measure and for a reconciliation to the nearest comparable GAAP measure, see Appendix B to this proxy statement.). The awards were made under the 2015 Incentive Plan. Mr. Okray forfeited unvested equity awards, including the 2020 grant of PSUs, as of his employment termination date.
- (3)
- Represents the grant date fair value of awards of RSUs and PSUs at target payout as calculated under FASB ASC Topic 718 without allocating over the vesting period. As noted above, Mr. Okray forfeited unvested equity awards, including the 2020 grant of RSUs and PSUs. Mr. Okray exercised 3,118 shares of vested stock options on February 8, 2021. Under the existing provisions of the Long-Term Incentive Plan, he was entitled to exercise vested stock options within 3 months after the employment termination date.
Proxy Statement 67
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Outstanding Equity Awards at Fiscal Year-End | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards |
| | | Stock Awards | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name* |
| | | No. of Securities Underlying Unexercised Options Exercisable (1) |
| | | No. of Securities Underlying Unexercised Options Unexercisable (1)
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| | | 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) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | D. G. Macpherson | | | | 15,741 (7) | | | | | | | | | | | | $245.86 | | | | 4/23/2023 | | | | 9,925 (14) | | | | $4,052,775 | | | | 52,904 (15) | | | | $21,602,819 | | | | | 12,266 (8) | | | | | | | | | | | | $248.22 | | | | 4/29/2024 | | | | | | | | | | | | | | | | | | | | | 14,380 (9) | | | | | | | | | | | | $231.88 | | | | 3/31/2025 | | | | | | | | | | | | | | | | | | | | | 23,827 (10) | | | | | | | | | | | | $234.38 | | | | 3/31/2026 | | | | | | | | | | | | | | | | | | | | | 36,415 (11) | | | | | | | | | | | | $231.20 | | | | 4/2/2027 | | | | | | | | | | | | | | | | | | | | | | | | | 46,063 (12) | | | | | | | | $276.64 | | | | 4/1/2028 | | | | | | | | | | | | | | | | | | | | | 10,221 (11) | | | | 20,442 (13) | | | | | | | | $311.26 | | | | 3/31/2029 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas B. Okray | | | | 3,118 (11) | | | | | | | | | | | | $311.26 | | | | 3/31/2029 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | John L. Howard | | | | 9,728 (9) | | | | | | | | | | | | $231.88 | | | | 3/31/2025 | | | | | | | | | | | | 7,071 (16) | | | | $2,887,372 | | | | | 12,390 (10) | | | | | | | | | | | | $234.38 | | | | 3/31/2026 | | | | | | | | | | | | | | | | | | | | | 8,607 (11) | | | | | | | | | | | | $231.20 | | | | 4/2/2027 | | | | | | | | | | | | | | | | | | | | | | | | | 8,979 (12) | | | | | | | | $276.64 | | | | 4/1/2028 | | | | | | | | | | | | | | | | | | | | | 1,992 (11) | | | | 3,985 (13) | | | | | | | | $311.26 | | | | 3/31/2029 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | 2,330 (7) | | | | | | | | | | | | $245.86 | | | | 4/23/2023 | | | | 4,079 (17) | | | | $1,665,619 | | | | 3,546 (18) | | | | $1,447,974 | | | | | 2,127 (8) | | | | | | | | | | | | $248.22 | | | | 4/29/2024 | | | | | | | | | | | | | | | | | | | | | 3,122 (9) | | | | | | | | | | | | $231.88 | | | | 3/31/2025 | | | | | | | | | | | | | | | | | | | | | 3,813 (10) | | | | | | | | | | | | $234.38 | | | | 3/31/2026 | | | | | | | | | | | | | | | | | | | | | 2,814 (11) | | | | | | | | | | | | $231.20 | | | | 4/2/2027 | | | | | | | | | | | | | | | | | | | | | | | | | 3,904 (12) | | | | | | | | $276.64 | | | | 4/1/2028 | | | | | | | | | | | | | | | | | | | | | 953 (11) | | | | 1,906 (13) | | | | | | | | $311.26 | | | | 3/31/2029 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deidra C. Merriwether | | | | 2,127 (8) | | | | | | | | | | | | $248.22 | | | | 4/29/2024 | | | | 3,398 (19) | | | | $1,387,539 | | | | 1,872 (20) | | | | $764,412 | | | | | 2,496 (9) | | | | | | | | | | | | $231.88 | | | | 3/31/2025 | | | | | | | | | | | | | | | | | | | | | 2,860 (10) | | | | | | | | | | | | $234.38 | | | | 3/31/2026 | | | | | | | | | | | | | | | | | | | | | 2,318 (11) | | | | | | | | | | | | $231.20 | | | | 4/2/2027 | | | | | | | | | | | | | | | | | | | | | | | | | 3,123 (12) | | | | | | | | $276.64 | | | | 4/1/2028 | | | | | | | | | | | | | | | | | | | | | 779 (11) | | | | 1,560 (13) | | | | | | | | $311.26 | | | | 3/31/2029 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
- *
- Mr. Okray resigned as Senior Vice President and Chief Financial Officer as of December 31, 2020 and forfeited unvested equity awards as of his employment termination date. Mr. Okray exercised 3,118 shares of vested stock options on February 8, 2021. Under the existing provisions of the Long-Term Incentive Plan, he was entitled to exercise vested stock options within 3 months after the employment termination date.
- (1)
- Represents stock option awards with a ten-year term and three-year cliff vesting for awards granted through 2018; three-year graded vesting for awards granted in 2019. Upon retirement from the Company, unvested options automatically vest and may be exercised within the lesser of six years or the remaining term of the option. Mr. Howard is currently retirement-eligible.
- (2)
- Awards were issued at fair market value, which is the closing stock price on the grant date.
- (3)
- Represents ten years after the award date.
- (4)
- Represents the aggregate unvested RSUs outstanding multiplied by the year-end closing price ($408.34).
- (5)
- Represents the maximum number of shares to be issued in connection with the 2018 and 2019 PRSUs granted to the NEOs and the 2015 and 2016 PRSUs granted to Mr. Macpherson.
- (6)
- Represents the aggregate performance awards outstanding multiplied by the year-end closing price ($408.34).
- (7)
- 100% of these options vested on April 24, 2016.
- (8)
- 100% of these options vested on April 30, 2017.
- (9)
- 100% of these options vested on April 1, 2018.
- (10)
- 100% of these options vested on April 1, 2019.
- (11)
- 100% of these options vested on April 3, 2020.
- (12)
- 100% of these options will vest on April 2, 2021.
- (13)
- Represents remaining unvested stock option awards granted April 1, 2019, which will vest ratably on April 2, 2021 and April 1, 2022.
68 www.grainger.com
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- (14)
- 3,308 of these RSUs will vest on April 1, 2021, 3,308 of these RSUs will vest on April 1, 2022, and 3,309 of these RSUs will vest on April 1, 2023.
- (15)
- 15,355 of these PRSUs will vest on April 2, 2021, 10,221 of these PRSUs will vest on April 1, 2022, 8,507 of these PRSUs will vest on August 1, 2022, and 8,896 of these PRSUs will vest on October 3, 2023. 9,925 of these PSUs will vest on April 1, 2023 subject to the achievement of the performance goals over the three-year performance period from January 1, 2020 through December 31, 2022.
- (16)
- 2,993 of these PRSUs will vest on April 2, 2021, and 1,993 of these PRSUs will vest on April 1, 2022. 2,085 of these PSUs will vest on April 1, 2023 subject to the achievement of the performance goals over the three-year performance period from January 1, 2020 through December 31, 2022.
- (17)
- 430 of these RSUs will vest on April 1, 2021, 1,016 of these RSUs will vest on September 2, 2021, 430 of these RSUs will vest on April 1, 2022, 431 of these RSUs will vest on April 1, 2023, and 1,772 of these RSUs will vest on April 2, 2025.
- (18)
- 1,302 of these PRSUs will vest on April 2, 2021 and 953 of these PRSUs will vest on April 1, 2022. 1,291 of these PSUs will vest on April 1, 2023 subject to the achievement of the performance goals over the three-year performance period from January 1, 2020 through December 31, 2022.
- (19)
- 1,041 of these RSUs will vest on April 2, 2021 and 1,265 of these RSUs will vest on November 1, 2024. 364 of these RSUs will vest on April 1, 2021, 364 of these RSUs will vest on April 1, 2022, and 364 of these RSUs will vest on April 1, 2023.
- (20)
- 780 of these PRSUs will vest on April 1, 2022. 1,092 of these PSUs units will vest on April 1, 2023 subject to the achievement of the performance goals over the three-year performance period from January 1, 2020 through December 31, 2022.
Option Exercises and Stock Vested | | | | | | | | | | | | | | | | | | | | | Option Awards Exercised |
| | | Stock Awards Vested | | | | | | | | | | | | | | | | | | Name* |
| | | No. of Shares Acquired on Exercise (1)
|
| | | Value Realized on Exercise (2) |
| | | No. of Shares Acquired on Vesting |
| | | Value Realized on Vesting (3) | | | | | | | | | | | | | | | | | | D. G. Macpherson | | | | 16,923 | | | | $2,573,054 | | | | 13,232 | | | | $4,479,297 | | | | | | | | | | | | | | | | | | Thomas B. Okray | | | | 0 | | | | $0 | | | | 2,868 | | | | $767,649 | | | | | | | | | | | | | | | | | | John L. Howard | | | | 18,903 | | | | $2,967,889 | | | | 10,024 | | | | $3,220,114 | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | 6,630 | | | | $1,085,012 | | | | 2,273 | | | | $691,468 | | | | | | | | | | | | | | | | | | Deidra C. Merriwether | | | | 0 | | | | $0 | | | | 3,629 | | | | $1,267,577 | | | | | | | | | | | | | | | | | |
- *
- Mr. Okray resigned as Senior Vice President and Chief Financial Officer as of December 31, 2020 and forfeited unvested equity awards as of his employment termination date. Mr. Okray exercised 3,118 shares of vested stock options on February 8, 2021. Under the existing provisions of the Long-Term Incentive Plan, he was entitled to exercise vested stock options within 3 months after the employment termination date.
- (1)
- Represents the number of stock options exercised.
- (2)
- Represents the difference between the exercise price and the market price of the common stock on the date of exercise.
- (3)
- Represents the value of the RSU and PRSU awards on the vesting date.
Proxy Statement 69
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Nonqualified Deferred Compensation | | | | | | | | | | | | | | | | | | | | | | | | | Name |
| | | Plan |
| | | Executive Contributions in Last FY |
| | | Company Contributions in Last FY (1) |
| | | Aggregate Earnings in Last FY (2) |
| | | Aggregate Withdrawals/ Distributions |
| | | Aggregate Balance at Last FYE (3) | | | | | | | | | | | | | | | | | | | | | | | | | | D. G. Macpherson | | | | SPSP & SPSP II | | | | $0 | | | | $284,975 | | | | $369,061 | | | | $0 | | | | $2,630,671 | | | | | Total | | | | $0 | | | | $284,975 | | | | $369,061 | | | | $0 | | | | $2,630,671 | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas B. Okray | | | | SPSP & SPSP II | | | | $0 | | | | $135,996 | | | | $55,400 | | | | $0 | | | | $321,769 | | | | | Total | | | | $0 | | | | $135,996 | | | | $55,400 | | | | $0 | | | | $321,769 | | | | | | | | | | | | | | | | | | | | | | | | | | John L. Howard | | | | Frozen Salary & Incentive Deferral | | | | $0 | | | | $0 | | | | $387,162 | | | | $0 | | | | $3,781,006 | | | | | SPSP & SPSP II | | | | $0 | | | | $128,795 | | | | $295,413 | | | | $0 | | | | $2,814,453 | | | | | Deferred RSUs | | | | $0 | | | | $0 | | | | $1,396,400 | | | | $0 | | | | $8,166,800 | | | | | Total | | | | $0 | | | | $128,795 | | | | $2,078,975 | | | | $0 | | | | $14,762,260 | | | | | | | | | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | SPSP & SPSP II | | | | $0 | | | | $83,426 | | | | $84,447 | | | | $0 | | | | $542,326 | | | | | Total | | | | $0 | | | | $83,426 | | | | $84,447 | | | | $0 | | | | $542,326 | | | | | | | | | | | | | | | | | | | | | | | | | | Deidra C. Merriwether | | | | SPSP & SPSP II | | | | $0 | | | | $53,889 | | | | $48,078 | | | | $0 | | | | $287,709 | | | | | Total | | | | $0 | | | | $53,889 | | | | $48,078 | | | | $0 | | | | $287,709 | | | | | | | | | | | | | | | | | | | | | | | | | |
- (1)
- The Company provides the supplemental profit sharing plans (SPSPs) solely to maintain an equal percentage of profit sharing contribution to employees (including all NEOs) who would be subject to contribution or compensation limits imposed on qualified plans by the Internal Revenue Code. For Messrs. Macpherson, Okray, and Howard, and Mses. Robbins and Merriwether this represents the Company SPSP contribution. These contributions were disclosed as part of "All Other Comp." in the 2020 Summary Compensation Table.
- (2)
- Represents earnings on all nonqualified deferred compensation balances, including SPSP earnings, stock price appreciation and dividend equivalent payments for vested, deferred RSUs, and for Mr. Howard, earnings on voluntary deferrals.
- (3)
- Aggregate year-end balances for the SPSPs, vested deferred RSUs, and for Mr. Howard, year-end balances for his voluntary deferral account. Mr. Howard has 20,000 vested, deferred RSUs outstanding.
70 www.grainger.com
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Employment Agreements, Change in Control, and Termination of Employment Arrangements |
Employment Agreements The Company does not maintain employment agreements with its 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).
Change in Control Agreements 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. - •
- The Company's CIC Agreements have double-trigger arrangements. Under each CIC Agreement, the executive is entitled to certain benefits which include a lump-sum payment equal to 2x the sum of (i) the executive's annual salary, (ii) the executive's target annual incentive, and (iii) in connection with the Company's non-contributory retirement profit sharing plans, a percentage of annual salary and annual incentive equal to the average percentage of covered compensation contributed by the Company under the plans for the last three fiscal years. The executive is also entitled to two years of continued health and dental benefits.
- •
- The Company has committed that no more than 10 positions will be eligible for CIC Agreements in the future. Existing agreements remain in place.
Deductibility of Executive Compensation 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 taxable year paid to the Company's NEOs. Prior to the Tax Cuts and Jobs Act of 2017 (TCJA), compensation that qualified as "performance-based" compensation was not subject to the deductibility limit. Effective for taxable years beginning after December 31, 2017, subject to certain transition relief, the TCJA eliminated this exception. Stock Options granted to our NEOs prior to November 2, 2017 under the 2015 Incentive Plan qualify for the transition relief, and gains on exercises of such stock options are considered to be "performance-based" compensation not subject to the $1 million deductibility limit. Any 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 such compensation may be nondeductible. While the tax treatment applicable to the Company's compensation programs was considered, the Company intends to authorize compensation that will not be deductible under Section 162(m) as it believes doing so is in the best interest of the Company and its shareholders. Proxy Statement 71
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Accounting Considerations 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 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.
Compensation Recoupment Policy (Claw-Backs) In connection with using long-term incentives as a method to align management and shareholder interests, the Company provides an annual equity award agreement that sets forth the terms 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 (or claw-back) provisions that specify situations granting the Board discretion to recoup both cash incentives and equity compensation from the NEOs and other employees. Under the recoupment terms of these agreements, the Company may recover incentive compensation: - •
- that was awarded based on achievement of financial results that were the subject of a restatement if the officer engaged in criminal conduct or financial fraud and in the case of materially inaccurate financial statements whether or not they result in a restatement and whether or not the executive officer has engaged in wrongful conduct. Recoveries under these provisions can extend back for three years from the date of the initial filing that contained the relevant financial statements;
- •
- should an executive violate confidentiality or non-compete or non-solicit obligations; or
- •
- if the Company determines that an executive:
- o
- has committed fraud against the Company or has engaged in any criminal conduct, including embezzlement or theft, that involves or is related to the Company;
- o
- engaged in any other conduct that violates Company policy, causes or is discovered to have caused, any loss, damage, injury or other endangerment to Grainger's property or reputation; or
- o
- receives any amount in excess of what the Executive should have received for any reason.
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. 72 www.grainger.com
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Termination 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.
Retirement 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: - •
- age 60;
- •
- age 55 and 20 years of service; or
- •
- 25 years of service.
Mr. Howard is the only NEO who is retirement-eligible. The Company provides the following upon retirement for all retirement-eligible employees, including NEOs: - •
- outstanding stock options become vested and executives have the right to exercise such stock options within six years from date of termination or for the remaining term of the stock option, whichever is less;
- •
- settlement of PRSUs and PSUs occurs after the end of the performance period in common stock equal to the number of the executive's outstanding performance shares earned for the performance period; and
- •
- cash payments equal to account balances under retirement profit sharing, any supplemental retirement profit sharing program, and the Voluntary Salary and Incentive Deferral Plan will be made in installment payments for up to 15 years or in a lump-sum payment based on the election made by the executive in accordance with the terms and conditions of those plans.
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 change in control of the Company. The amounts shown in the following tables assume that any such retirement, death, disability or change in control, as applicable, was effective as of December 31, 2020 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. Proxy Statement 73
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Other Potential Post-Employment Payments Macpherson, D. G. | | | | | | | | | | | | | | | | | | | | | Type of Payment |
| | | Retirement (7) ($) |
| | | Death ($) |
| | | Disability ($) |
| | | Change In Control Only ($) |
| | | Change In Control and Termination without Cause or with Good Reason ($) | | | | | | | | | | | | | | | | | | | | | | Cash Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash Severance | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $5,851,925 | | | | | | | | | | | | | | | | | | | | | | Long-Term Incentives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (1) | | | | $0 | | | | $8,051,006 | | | | $8,051,006 | | | | $8,051,006 | | | | $8,051,006 | | | | | | | | | | | | | | | | | | | | | | Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (2) | | | | $0 | | | | $4,052,775 | | | | $4,052,775 | | | | $4,052,775 | | | | $4,052,775 | | | | | | | | | | | | | | | | | | | | | | Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (3) | | | | $0 | | | | $21,602,819 | | | | $21,602,819 | | | | $21,602,819 | | | | $18,563,238 | | | | | | | | | | | | | | | | | | | | | | Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuation of Health & Welfare Benefits (4) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $34,418 | | | | | | | | | | | | | | | | | | | | | | Life Insurance and Death Benefit Payout (5) | | | | $0 | | | | $11,812,269 | | | | $0 | | | | $0 | | | | $2,365,490 | | | | | | | | | | | | | | | | | | | | | | Perquisites and Tax Payments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outplacement (6) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $159,135 | | | | | | | | | | | | | | | | | | | | | | Total | | | | $0 | | | | $45,518,869 | | | | $33,706,600 | | | | $33,706,600 | | | | $39,077,988 | | | | | | | | | | | | | | | | | | | | | |
- (1)
- Unvested options become immediately exercisable in the event of death, disability, retirement, or a change in control.
- (2)
- Mr. Macpherson has one grant of unvested RSUs as of December 31, 2020.
- (3)
- In the event of death or disability, Mr. Macpherson is entitled to receive in settlement of performance-based awards, a number of shares of common stock equal to the target number of shares that vest based upon the Company's average return on invested capital, as of the date of death or disability.
- (4)
- The health and welfare benefits value upon a change in control followed by termination without cause or with good reason is based upon two years of continuation of active health and welfare benefits using the Company's budget/insured rates projected forward throughout the two years using 6.0% health and 3.5% dental annual trends as well as a 3.01% annual discount factor.
- (5)
- Upon death, Mr. Macpherson's survivors shall receive, for 120 months, 50% of his monthly base salary and target bonus amount, under the frozen Executive Death Benefit Plan (EDBP). The figure above reflects the present value lump-sum payment amount based upon the FTSE pension curve discount rate of 2.05%. Upon a change in control, under the frozen EDBP, he would receive the present value based on the Applicable Federal Rate of 1.58%.
- (6)
- In the event of a change in control followed by termination without cause or with good reason, the Company shall provide Mr. Macpherson with standard outplacement services provided that the cost of such services to the Company not exceed 15% of the Executive's annual base salary in effect on the date of termination. The amount above represents the maximum cost to the Company for providing such outplacement services.
- (7)
- Mr. Macpherson is not eligible for retirement under the Company's retirement plan as of December 31, 2020.
74 www.grainger.com
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Okray, Thomas B. Mr. Okray resigned as Senior Vice President and Chief Financial Officer of the Company effective December 31, 2020. Mr. Okray exercised 3,118 shares of vested stock options on February 8, 2021. Under the existing provisions of the Long-Term Incentive Plan, he was entitled to exercise vested stock options within 3 months after the employment termination date. For plan year 2020, Mr. Okray is entitled to a final Profit Sharing Plan contribution of $17,100 and Supplemental Profit Sharing Plan II contribution of $82,058 in March 2021 under the existing provisions of the respective plans. Under plan rules, the entire Supplemental Profit Sharing II account balance will be transferred to Mr. Okray in August 2021. Proxy Statement 75
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Howard, John L. | | | | | | | | | | | | | | | | | | | | | Type of Payment |
| | | Retirement(7) ($) |
| | | Death ($) |
| | | Disability ($) |
| | | Change In Control Only ($) |
| | | Change In Control and Termination without Cause or with Good Reason ($) | | | | | | | | | | | | | | | | | | | | | | Cash Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash Severance | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $2,903,040 | | | | | | | | | | | | | | | | | | | | | | Long-Term Incentives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards(1) | | | | $1,569,398 | | | | $1,569,398 | | | | $1,569,398 | | | | $1,569,398 | | | | $1,569,398 | | | | | | | | | | | | | | | | | | | | | | Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards(2) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | | | | | | | | | | | | | | | | | | | Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards(3) | | | | $2,887,372 | | | | $2,887,372 | | | | $2,887,372 | | | | $2,887,372 | | | | $2,248,830 | | | | | | | | | | | | | | | | | | | | | | Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuation of Health & Welfare Benefits(4) | | | | $407,331 | | | | $0 | | | | $0 | | | | $0 | | | | $34,418 | | | | | | | | | | | | | | | | | | | | | | Life Insurance and Death Benefit Payout(5) | | | | $664,678 | | | | $5,859,866 | | | | $0 | | | | $0 | | | | $1,372,643 | | | | | | | | | | | | | | | | | | | | | | Perquisites and Tax Payments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outplacement(6) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $108,000 | | | | | | | | | | | | | | | | | | | | | | Total | | | | $5,528,779 | | | | $10,316,636 | | | | $4,456,770 | | | | $4,456,770 | | | | $8,236,330 | | | | | | | | | | | | | | | | | | | | | |
- (1)
- Unvested options become immediately exercisable in the event of death, disability, retirement, or a change in control.
- (2)
- Mr. Howard does not have any unvested RSUs as of December 31, 2020.
- (3)
- In the event of retirement, death or disability, Mr. Howard is entitled to receive in settlement of performance-based awards, a number of shares of common stock equal to the target number of shares that vest based upon the Company's average return on invested capital, as of the end of the performance period. Mr. Howard is retirement-eligible as of December 31, 2020.
- (4)
- The health and welfare benefits value upon a change in control followed by termination without cause or with good reason is based upon two years of continuation of active health and welfare benefits using the Company's budget/insured rates projected forward throughout the two years using 6.0% health and 3.5% dental annual trends as well as a 3.01% annual discount factor.
- (5)
- Upon death, Mr. Howard's survivors shall receive, for 120 months, 50% of his monthly base salary and target bonus amount, under the frozen Executive Death Benefit Plan (EDBP). The figure above reflects the present value lump-sum payment amount based upon the FTSE pension curve discount rate of 2.05%. Upon retirement, he has elected to receive a present value cash settlement at retirement in lieu of the post-retirement death benefit based on the 6.0% discount rate and assumed mortality of age 80 under the frozen EDBP provisions. Upon a change in control, under the frozen EDBP, he would receive the present value based on the Applicable Federal Rate of 1.58%.
- (6)
- In the event of a change in control followed by termination without cause or with good reason, the Company shall provide Mr. Howard with standard outplacement services provided that the cost of such services to the Company not exceed 15% of the Executive's annual base salary in effect on the date of termination. The amount above represents the maximum cost to the Company for providing such outplacement services.
- (7)
- Mr. Howard has met the eligibility requirements for retirement under the Company's retirement plan as of December 31, 2020.
76 www.grainger.com
Table of Contents | | | Executive Compensation
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Robbins, Paige K. | | | | | | | | | | | | | | | | | | | | | Type of Payment |
| | | Retirement (7) ($) |
| | | Death ($) |
| | | Disability ($) |
| | | Change In Control Only ($) |
| | | Change In Control and Termination without Cause or with Good Reason ($) | | | | | | | | | | | | | | | | | | | | | | Cash Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash Severance | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $2,298,240 | | | | | | | | | | | | | | | | | | | | | | Long-Term Incentives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (1) | | | | $0 | | | | $699,191 | | | | $699,191 | | | | $699,191 | | | | $699,191 | | | | | | | | | | | | | | | | | | | | | | Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (2) | | | | $0 | | | | $1,665,619 | | | | $1,665,619 | | | | $1,665,619 | | | | $1,665,619 | | | | | | | | | | | | | | | | | | | | | | Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (3) | | | | $0 | | | | $1,447,974 | | | | $1,447,974 | | | | $1,447,974 | | | | $1,052,598 | | | | | | | | | | | | | | | | | | | | | | Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuation of Health & Welfare Benefits (4) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $34,418 | | | | | | | | | | | | | | | | | | | | | | Life Insurance and Death Benefit Payout (5) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | | | | | | | | | | | | | | | | | | | Perquisites and Tax Payments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outplacement (6) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $85,500 | | | | | | | | | | | | | | | | | | | | | | Total | | | | $0 | | | | $3,812,784 | | | | $3,812,784 | | | | $3,812,784 | | | | $5,835,567 | | | | | | | | | | | | | | | | | | | | | |
- (1)
- Unvested options become immediately exercisable in the event of death, disability, retirement, or a change in control.
- (2)
- Ms. Robbins has three grants of unvested RSU grants as of December 31, 2020.
- (3)
- In the event of death or disability, Ms. Robbins is entitled to receive in settlement of performance-based awards, a number of shares of common stock equal to the target number of shares that vest based upon the Company's average return on invested capital, as of the date of death or disability.
- (4)
- The health and welfare benefits value upon a change in control followed by termination without cause or with good reason is based upon two years of continuation of active health and welfare benefits using the Company's budget/insured rates projected forward throughout the two years using 6.0% health and 3.5% dental annual trends as well as a 3.01% annual discount factor.
- (5)
- Ms. Robbins is not eligible for the frozen Executive Death Benefit Plan.
- (6)
- In the event of a change in control followed by termination without cause or with good reason, the Company shall provide Ms. Robbins with standard outplacement services provided that the cost of such services to the Company not exceed 15% of the Executive's annual base salary in effect on the date of termination. The amount above represents the maximum cost to the Company for providing such outplacement services.
- (7)
- Ms. Robbins is not eligible for retirement under the Company's retirement plan as of December 31, 2020.
Proxy Statement 77
Table of Contents | | | | | | Executive Compensation
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Merriwether. Deidra C. | | | | | | | | | | | | | | | | | | | | | Type of Payment |
| | | Retirement (7) ($) |
| | | 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 | | | | $2,136,960 | | | | | | | | | | | | | | | | | | | | | | Long-Term Incentives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (2) | | | | $0 | | | | $562,744 | | | | $562,744 | | | | $562,744 | | | | $562,744 | | | | | | | | | | | | | | | | | | | | | | Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (3) | | | | $0 | | | | $1,387,539 | | | | $1,387,539 | | | | $1,387,539 | | | | $1,387,539 | | | | | | | | | | | | | | | | | | | | | | Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (4) | | | | $0 | | | | $764,412 | | | | $764,412 | | | | $764,412 | | | | $429,982 | | | | | | | | | | | | | | | | | | | | | | Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuation of Health & Welfare Benefits (6) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $34,418 | | | | | | | | | | | | | | | | | | | | | | Life Insurance and Death Benefit Payout (7) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | | | | | | | | | | | | | | | | | | | Perquisites and Tax Payments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outplacement (8) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $79,500 | | | | | | | | | | | | | | | | | | | | | | Total | | | | $0 | | | | $2,714,696 | | | | $2,714,696 | | | | $2,714,696 | | | | $4,631,143 | | | | | | | | | | | | | | | | | | | | | |
- (1)
- Unvested options become immediately exercisable in the event of death, disability, retirement, or a change in control.
- (2)
- Ms. Merriwether has three grants of unvested RSUs as December 31, 2020.
- (3)
- In the event of death or disability, Ms. Merriwether is entitled to receive in settlement of performance-based awards, a number of shares of common stock equal to the target number of shares that vest based upon the Company's average return on invested capital, as of the date of death or disability.
- (4)
- The health and welfare benefits value upon a change in control followed by termination without cause or with good reason is based upon two years of continuation of active health and welfare benefits using the Company's budget/insured rates projected forward throughout the two years using 6.0% health and 3.5% dental annual trends as well as a 3.01% annual discount factor.
- (5)
- Ms. Merriwether is not eligible for the frozen Executive Death Benefit Plan.
- (6)
- In the event of a change in control followed by termination without cause or with good reason, the Company shall provide Ms. Merriwether with standard outplacement services provided that the cost of such services to the Company not exceed 15% of the Executive's annual base salary in effect on the date of termination. The amount above represents the maximum cost to the Company for providing such outplacement services.
- (7)
- Ms. Merriwether is not eligible for retirement under the Company's retirement plan as of December 31, 2020.
78 www.grainger.com
Table of Contents | | | Executive Compensation
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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. Further, the median employee should be identified once every three years, unless has been a significant change to its employee population or compensation arrangements that it reasonably believes would result in a significant change in the pay ratio disclosure. As the Company identified the median employee in 2017, a new median employee has been identified for purposes of the 2021 CEO pay ratio disclosure. Based on the newly identified median employee, the ratio of CEO pay to median employee pay is 116:1 as outlined below. In calculating 2020 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 2020 is $7,475,378. The CEO's total compensation for purposes of our pay ratio disclosure calculation is $7,485,389, which differs from the total compensation described in the Summary Compensation Table on page 66 of this document by his health and wellness benefits amount. The median employee's estimated 2020 total compensation was $64,355 (which includes compensation of $54,344 and estimated benefits of $10,011. | | | | | | | | | | | | | | | Element |
| | | Chairman and CEO ($) |
| | | Median Employee $ |
| | | | | | | | | | | | | | | | | Base Salary | | | | $969,091 | | | | $49,712 | | | | | | | | | | | | | | | | | | Stock Awards | | | | $4,761,519 | | | | $0 | | | | | | | | | | | | | | | | | | Non-Equity Incentive Plan Compensation | | | | $1,303,316 | | | | $0 | | | | | | | | | | | | | | | | | | All Other Compensation | | | | $441,452 | | | | $4,632 | | | | | | | | | | | | | | | | | | Estimated Company Health and Wellness Benefits | | | | $10,011 | | | | $10,011 | | | | | | | | | | | | | | | | | | Total | | | | $7,485,389 | | | | $64,355 | | | | | | | | | | | | | | | | | | CEO PAY RATIO | | | | 116:1 | | | | | | | | | | | | | | | |
Methodology
As permitted under the SEC rules, the following process was used to identify the median employee in 2020: - •
- Applied a consistent compensation measure of "base pay" earned during the period from January 1, 2020 to September 30, 2020, rather than summary compensation table (SCT) total compensation for all of 2020.
- •
- Annualized base pay for those employees who started work during 2020. The identified median employee is a full-time, U.S.-based employee.
- •
- Determined the above-mentioned employee populations full year's compensation based on the compensation elements required for inclusion in the SCT, with the exception of incorporating healthcare benefits in total compensation as discussed previously in this section. The other components of our compensation program for NEOs are substantially similar to those available for most of our other employees. 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.
Proxy Statement 79
Table of Contents | | | | | | Executive Compensation
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- •
- Used the de minimis exemption to exclude approximately 4.3% of our global workforce, or 1,015 employees (based on employee data as of the analysis date), as reflected below:
- •
- Included in calculation: Canada, Japan, Mexico, United Kingdom, United States (approximately 22,644 employees as of the calculation date)
- •
- Excluded from calculation: China, Czech Republic, Germany, Hungary, India, Indonesia, Ireland, Malaysia, Panama, Poland, South Africa, South Korea, Thailand, United Arab Emirates (approximately 1,015 employees as of the calculation date).
- •
- Note that as of December 31, 2020, Grainger had approximately 23,100 employees, of whom approximately 21,800 were full-time, and 1,300 were part-time or temporary.
80 www.grainger.com
Table of Contents | | | Executive Compensation
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Compensation Tables
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Summary Compensation Table | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position |
| | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (a) | | | | (b) | | | | (c) | | | | (d) | | | | (e) | | | | (f) | | | | (g) | | | | (h) | | | | (i) | | | | (j)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | D.G. Macpherson | | | | 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 | | | | 2017 | | | | $1,022,500 | | | | $0 | | | | $2,634,042 | | | | $1,643,409 | | | | $1,210,250 | | | | $0 | | | | $456,158 | | | | $6,966,359 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | 2019 | | | | $531,667 | | | | $0 | | | | $270,519 | | | | $194,040 | | | | $342,000 | | | | $0 | | | | $110,016 | | | | $1,448,242 | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | North America Sales & Service | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)Represents the grant date fair value of stock awards computed in accordance with FASB ASC Topic 718. As these amounts represent stock-based grants, the maximum value of the awards is the same as disclosed above. Further details with respect to these awards are included in Note 10 (Stock Incentive Plans) to the Company's audited financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019. | | |
(2)Represents the grant date fair value of option awards computed in accordance with FASB ASC Topic 718. Further details with respect to these awards are included in Note 10 (Stock Incentive Plans) to the Company's audited financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
(3)For 2019, includes contributions accrued under the Company's profit sharing plan and the related supplemental profit sharing plan ($324,462, $167,282, $159,684, $111,818, and $80,655 for Macpherson, Okray, Howard, Robbins, and Merriwether respectively). It also includes the incremental cost of the frozen Executive Death Benefit Program ($254,224 and $259,621 for Macpherson and Howard, respectively) and the cost of executive physicals ($5,420, $4,770, $5,420, $4,470, and $4,770 for Macpherson, Okray, Howard, Robbins, and Merriwether respectively).Proxy Statement 61
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Grants of Plan-Based Awards | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | All Other |
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| | | Target |
| | | Maximum |
| | | Units |
| | | Options (3) |
| | | Awards (4) |
| | | Awards (5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | D.G. Macpherson | | | | | | | | | | | | $0 | | | | $1,432,215 | | | | $2,864,430 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | 0 | | | | 10,221 | | | | 10,221 | | | | | | | | | | | | | | | | $2,901,333 | | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 30,663 | | | | $311.26 | | | | $2,081,098 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas B. Okray | | | | | | | | | | | | $0 | | | | $643,500 | | | | $1,287,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | 0 | | | | 3,119 | | | | 3,119 | | | | | | | | | | | | | | | | $885,359 | | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,355 | | | | $311.26 | | | | $634,924 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | John. L. Howard | | | | | | | | | | | | $0 | | | | $572,000 | | | | $1,144,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | 0 | | | | 1,993 | | | | 1,993 | | | | | | | | | | | | | | | | $565,733 | | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,977 | | | | $311.26 | | | | $405,659 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | | | | | | | | | $0 | | | | $456,000 | | | | $912,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | 0 | | | | 953 | | | | 953 | | | | | | | | | | | | | | | | $270,519 | | | | | 4/1/19 | | | | 2/19/19 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,859 | | | | $311.26 | | | | $194,040 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)Represents potential amounts under the 2019 Company Management Incentive Program. Actual payout amounts under the 2019 Company Management Incentive Program are included in the "Non-Equity Incentive Plan Comp." column of the Summary Compensation Table.
(2)The number of shares that may be earned for the 2019 grant of performance RSUs are either 0% or 100% of the target award and will be determined based on the Company's three-year average ROIC in 2021. The awards were made under the 2015 Incentive Plan.
(3)Represents stock option awards with a ten-year term and three-year graded vesting. The awards were made under the 2015 Incentive Plan.
(4)Awards were issued at fair market value, which is the closing stock price on the grant date.
(5)Represents the full grant date fair value of awards as calculated under FASB ASC Topic 718 without allocating over the vesting period.
62 www.grainger.com
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Outstanding Equity Awards at Fiscal Year-End
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| | | 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) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | 30,663(14) | | | | | | | | $311.26 | | | | 3/31/2029 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas B. Okray | | | | | | | | 9,355(14) | | | | | | | | $311.26 | | | | 3/31/2029 | | | | 5,823(18) | | | | $1,971,202 | | | | 3,119(19) | | | | $1,055,844 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | John. L. Howard | | | | 11,543(8) | | | | | | | | | | | | $245.86 | | | | 4/23/2023 | | | | 2,869(20) | | | | $971,214 | | | | 9,797(21) | | | | $3,316,480 | | | | | 7,360(9) | | | | | | | | | | | | $248.22 | | | | 4/29/2024 | | | | | | | | | | | | | | | | | | | | | 9,728(10) | | | | | | | | | | | | $231.88 | | | | 3/31/2025 | | | | | | | | | | | | | | | | | | | | | 12,390(11) | | | | | | | | | | | | $234.38 | | | | 3/31/2026 | | | | | | | | | | | | | | | | | | | | | | | | | 8,607(12) | | | | | | | | $231.20 | | | | 4/2/2027 | | | | | | | | | | | | | | | | | | | | | | | | | 8,979(13) | | | | | | | | $276.64 | | | | 4/1/2028 | | | | | | | | | | | | | | | | | | | | | | | | | 5,977(14) | | | | | | | | $311.26 | | | | 3/31/2029 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | 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 | | | | | | | | | | | | | 2,330(8) | | | | | | | | | | | | $245.86 | | | | 4/23/2023 | | | | | | | | | | | | | | | | | | | | | 2,127(9) | | | | | | | | | | | | $248.22 | | | | 4/29/2024 | | | | | | | | | | | | | | | | | | | | | 3,122(10) | | | | | | | | | | | | $231.88 | | | | 3/31/2025 | | | | | | | | | | | | | | | | | | | | | 3,813(11) | | | | | | | | | | | | $234.38 | | | | 3/31/2026 | | | | | | | | | | | | | | | | | | | | | | | | | 2,814(12) | | | | | | | | $231.20 | | | | 4/2/2027 | | | | | | | | | | | | | | | | | | | | | | | | | 3,904(13) | | | | | | | | $276.64 | | | | 4/1/2028 | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)Represents stock option awards with a ten-year term and three-year cliff vesting for awards granted through 2018, with three-year graded vesting for awards granted in 2019. Upon retirement from the Company, unvested options automatically vest and may be exercised within the lesser of six years or the remaining term of the option. Howard is currently retirement-eligible.
(2)Awards were issued at fair market value, which is the closing stock price on the grant date.
(3)Represents ten years after the award date.
(4)Represents the aggregate unvested RSUs and performance shares outstanding multiplied by the year-end closing price ($338.52).
(5)Represents the target number of shares that may be issued following the end of the performance period in connection with performance awards.
(6)Represents the aggregate performance awards outstanding multiplied by the year-end closing price ($338.52).
(7)100% of these options vested on April 25, 2015.
(8)100% of these options vested on April 24, 2016.
(9)100% of these options vested on April 30, 2017.
(10)100% of these options vested on April 1, 2018.
(11)100% of these options vested on April 1, 2019.
(12)100% of these options will vest on April 3, 2020.
(13)100% of these options will vest on April 2, 2021.
(14)1/3 of these options will vest on each annual anniversary of the grant for three years.
(15)100% of these options vested on April 27, 2014.
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(16)Represents unvested shares under the performance share award granted on January 1, 2017, subject to the achievement of the performance goals over the three-year performance period from January 1, 2017 through December 31, 2019, which became fully vested on February 19, 2020.
(17)15,355 of these PRSUs will vest on April 2, 2021, 10,221 of these PRSUs will vest on April 1, 2022, 8,507 of these performance shares will vest on August 1, 2022, and 8,896 of these performance shares will vest on October 3, 2023.
(18)2,868 of these RSUs will vest on May 2, 2020 and 2,955 of these RSUs will vest on May 2, 2021.
(19)3,119 of these PRSUs will vest on April 1, 2022.
(20)Represents unvested shares under the performance share award granted on January 1, 2017, subject to the achievement of the performance goals over the three-year performance period from January 1, 2017 through December 31, 2019, which became fully vested on February 19, 2020.
(21)4,811 of these performance shares will vest on August 1, 2020, 2,993 of these PRSUs will vest on April 2, 2021 and 1,993 of these PRSUs will vest on April 1, 2022.
(22)1,250 of these RSUs will vest on April 23, 2020, 1,016 of these RSUs will vest on September 2, 2021 and 1,772 of these RSUs will vest on April 2, 2025.
(23)1,302 of these PRSUs will vest on April 2, 2021 and 953 of these PRSUs will vest on April 1, 2022.
(24)Represents unvested shares under the performance share award granted on January 1, 2017, subject to the achievement of the performance goals over the three-year performance period from January 1, 2017 through December 31, 2019, which became fully vested on February 19, 2020.
(25)2,786 of these RSUs will vest on October 29, 2020, 1,041 of these RSUs will vest on April 2, 2021 and 1,265 of these RSUs will vest on November 1, 2024.
(26)780 of these performance shares will vest on April 1, 2022.
(27)Represents unvested shares under the performance share award granted on January 1, 2017, subject to the achievement of the performance goals over the three-year performance period from January 1, 2017 through December 31, 2019, which became fully vested on February 19, 2020.
Option Exercises and Stock Vested
| | | | | | | | | | | | | | | | | | | | | Option Awards Exercised |
| | | Stock Awards Vested | | | | | | | | | | | | | | | | | | Name |
| | | No. of Shares Acquired on Exercise(1) |
| | | Value Realized on Exercise(2) |
| | | No. of Shares Acquired on Vesting |
| | | Value Realized on Vesting(3) | | | | | | | | | | | | | | | | | | D.G. Macpherson | | | | 0 | | | | $0 | | | | 3,302 | | | | $1,038,974 | | | | | | | | | | | | | | | | | | Thomas B. Okray | | | | 0 | | | | $0 | | | | 2,867 | | | | $788,024 | | | | | | | | | | | | | | | | | | John. L. Howard | | | | 11,716 | | | | $1,191,111 | | | | 1,717 | | | | $540,254 | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | 0 | | | | $0 | | | | 1,010 | | | | $315,002 | | | | | | | | | | | | | | | | | | Deidra C. Merriwether | | | | 0 | | | | $0 | | | | 397 | | | | $124,916 | | | | | | | | | | | | | | | | | |
(1)Represents the number of stock options exercised.
(2)Represents the difference between the exercise price and the market price of the common stock on the date of exercise.
(3)Represents the value of the RSUs and PRSU awards on the vesting date.
64 www.grainger.com
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Nonqualified Deferred Compensation
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| | | 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) | | | | | | | | | | | | | | | | | | | | | | | | | | D.G. Macpherson | | | | SPSP & SPSP II | | | | $0 | | | | $310,510 | | | | $319,944 | | | | $0 | | | | $1,976,635 | | | | | Total | | | | $0 | | | | $310,510 | | | | $319,944 | | | | $0 | | | | $1,976,635 | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | $152,499 | | | | $316,307 | | | | $0 | | | | $2,390,246 | | | | | Deferred RSUs | | | | $0 | | | | $0 | | | | $1,123,200 | | | | $0 | | | | $6,770,400 | | | | | Total | | | | $0 | | | | $152,499 | | | | $1,921,313 | | | | $0 | | | | $12,554,490 | | | | | | | | | | | | | | | | | | | | | | | | | | Paige K. Robbins | | | | SPSP & SPSP II | | | | $0 | | | | $79,274 | | | | $61,897 | | | | $0 | | | | $374,453 | | | | | Total | | | | $0 | | | | $79,274 | | | | $61,897 | | | | $0 | | | | $374,453 | | | | | | | | | | | | | | | | | | | | | | | | | | Deidra C. Merriwether | | | | SPSP & SPSP II | | | | $0 | | | | $66,540 | | | | $28,614 | | | | $0 | | | | $185,742 | | | | | Total | | | | $0 | | | | $66,540 | | | | $28,614 | | | | $0 | | | | $185,742 | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)The Company provides the supplemental profit sharing plans (SPSPs) solely to maintain an equal percentage of profit sharing contribution to employees (including all NEOs) who would be subject to contribution or compensation limits imposed on qualified plans by the Internal Revenue Code. For Messrs. Macpherson, Okray, and Howard, and Mses. Robbins and Merriwether, this represents the Company SPSP contribution. These contributions were disclosed as part of "All Other Comp." in the 2019 Summary Compensation Table.
(2)Represents earnings on all nonqualified deferred compensation balances, including SPSP earnings, stock price appreciation and dividend equivalent payments for vested, deferred restricted stock units, and for Mr. Howard, earnings on voluntary deferrals.
(3)Aggregate year-end balances for the SPSPs, vested deferred restricted stock units, and for Mr. Howard, year-end balances for his voluntary deferral account. Mr. Howard has 20,000 vested, deferred RSUs outstanding.
Proxy Statement 65
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EMPLOYMENT CONTRACTS, CHANGE IN CONTROL AGREEMENTS, AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
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).
Change in Control Agreements
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.
•The Company's CIC Agreements have double-trigger arrangements. Under each CIC Agreement, the executive is entitled to certain benefits which include a lump-sum payment equal to 2x the sum of (i) the executive's annual salary, (ii) the executive's target annual incentive, and (iii) in connection with the Company's non-contributory retirement profit sharing plans, a percentage of annual salary and annual incentive equal to the average percentage of covered compensation contributed by the Company under the plans for the last three fiscal years. The executive is also entitled to two years of continued health and dental benefits.
•The Company has committed that no more than 10 positions will be eligible for CIC Agreements in the future. Existing agreements remain in place.
Deductibility of Executive Compensation
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 taxable year paid to the Company's NEOs. Prior to the Tax Cuts and Jobs Act of 2017 (TCJA), compensation that qualified as "performance-based" compensation was not subject to the deductibility limit. Effective for taxable years beginning after December 31, 2017, subject to certain transition relief, the TCJA eliminated this exception. Stock Options granted to our NEOs prior to November 2, 2017 under the 2015 Incentive Plan qualify for the transition relief, and gains on exercises of such stock options are considered to be "performance-based" compensation not subject to the $1 million deductibility limit. Any 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 such compensation may be nondeductible. While the tax treatment applicable to the Company's compensation programs was considered, the Company intends to authorize compensation that will not be deductible under Section 162(m) as it believes doing so is in the best interest of the Company and its shareholders.
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Accounting Considerations
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 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.
Compensation Recoupment Policy (Claw-Backs)
In connection with using long-term incentives as a method to align management and shareholder interests, the Company provides an annual equity award agreement that sets forth the terms 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 (or claw-back) provisions that specify situations granting the Company discretion to recoup both cash and equity compensation.
Under the recoupment terms of these agreements, the Company may recover incentive compensation:
•that was awarded based on achievement of financial results that were the subject of a restatement if the officer engaged in criminal conduct or financial fraud and in the case of materially inaccurate financial statements whether or not they result in a restatement and whether or not the executive officer has engaged in wrongful conduct. Recoveries under these provisions can extend back for three years from the date of the initial filing that contained the relevant financial statements;
•should an executive violate confidentiality or non-compete or non-solicit obligations; or
•if the Company determines that an executive:
ohas committed fraud against the Company or has engaged in any criminal conduct, including embezzlement or theft, that involves or is related to the Company;
oengaged in any other conduct that violates Company policy, causes or is discovered to have caused, any loss, damage, injury or other endangerment to Grainger's property or reputation; or
oreceives any amount in excess of what the Executive should have received for any reason.
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.
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Termination
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.
Retirement
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:
•age 60;
•age 55 and 20 years of service; or
•25 years of service.
Mr. 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 NEOs:
•outstanding stock options become vested and executives have the right to exercise such stock options within six years from date of termination or for the remaining term of the stock option, whichever is less;
•settlement of PRSUs occurs after the end of the performance period in common stock equal to the number of the executive's outstanding performance shares earned for the performance period; and
•cash payments equal to account balances under retirement profit sharing, any supplemental retirement profit sharing program, and the Voluntary Salary and Incentive Deferral Plan will be made in installment payments for up to 15 years or in a lump-sum payment based on the election made by the executive in accordance with the terms and conditions of those plans.
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 change in control of the Company. The amounts shown in the following tables assume that any such retirement, death, disability or change in control, as applicable, was effective as of December 31, 2019 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.
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Other Potential Post-Employment Payments
Macpherson, D.G.
| | | | | | | | | | | | | | | | | | | | | Type of Payment |
| | | Retirement (7) ($) |
| | | Death ($) |
| | | Disability ($) |
| | | Change In Control Only ($) |
| | | Change In Control and Termination without Cause or with Good Reason ($) | | | | | | | | | | | | | | | | | | | | | | Cash Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash Severance | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $5,584,578 | | | | | | | | | | | | | | | | | | | | | | Long-Term Incentives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (1) | | | | $0 | | | | $7,594,310 | | | | $7,594,310 | | | | $7,594,310 | | | | $7,594,310 | | | | | | | | | | | | | | | | | | | | | | Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (2) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | | | | | | | | | | | | | | | | | | | Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (3) | | | | $0 | | | | $18,658,545 | | | | $18,658,545 | | | | $18,658,545 | | | | $18,658,545 | | | | | | | | | | | | | | | | | | | | | | Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | Perquisites and Tax Payments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outplacement (6) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $159,135 | | | | | | | | | | | | | | | | | | | | | | Total | | | | $0 | | | | $37,076,990 | | | | $26,252,855 | | | | $26,252,855 | | | | $33,757,902 | | | | | | | | | | | | | | | | | | | | | |
(1)Unvested options become immediately exercisable in the event of death, disability, retirement, or a change in control.
(2)Mr. Macpherson does not have any unvested RSUs as of December 31, 2019.
(3)In the event of death or disability, Mr. Macpherson is entitled to receive in settlement of performance-based awards, a number of shares of common stock equal to the target number of shares that vest based upon the Company's average return on invested capital, as of the date of death or disability.
(4)The health and welfare benefits value upon change in control followed by termination without cause or with good reason is based upon two years of continuation of active health and welfare benefits using the Company's budget/insured rates projected forward throughout the two years using 6.5% health and 3.5% dental annual trends as well as a 3.01% annual discount factor.
(5)Upon death, Mr. Macpherson's survivors shall receive, for 120 months, 50% of his monthly base salary and target bonus amount, under the frozen Executive Death Benefit Plan (EDBP). The figure above reflects the present value lump-sum payment amount based upon the FAS discount rate of 2.91%. Upon a change in control, under the frozen EDBP, he would receive the present value based on the applicable federal rate of 2.52%.
(6)In the event of a change in control followed by termination without cause or with good reason, the Company shall provide Mr. Macpherson with standard outplacement services provided that the cost of such services to the Company not exceed 15% of the Executive's annual base salary in effect on the date of termination. The amount above represents the maximum cost to the Company for providing such outplacement services.
(7)Mr. Macpherson is not eligible for retirement under the Company's retirement plan as of December 31, 2019.
Proxy Statement 69
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Okray, Thomas B.
| | | | | | | | | | | | | | | | | | | | | Type of Payment |
| | | Retirement (6) ($) |
| | | Death ($) |
| | | Disability ($) |
| | | Change In Control Only ($) |
| | | Change In Control and Termination without Cause or with Good Reason ($) | | | | | | | | | | | | | | | | | | | | | | Cash Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash Severance | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $3,043,040 | | | | | | | | | | | | | | | | | | | | | | Long-Term Incentives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (1) | | | | $0 | | | | $255,017 | | | | $255,017 | | | | $255,017 | | | | $255,017 | | | | | | | | | | | | | | | | | | | | | | Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (2) | | | | $0 | | | | $1,971,202 | | | | $1,971,202 | | | | $1,971,202 | | | | $1,971,202 | | | | | | | | | | | | | | | | | | | | | | Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards | | | | $0 | | | | $1,055,844 | | | | $1,055,844 | | | | $1,055,844 | | | | $1,055,844 | | | | | | | | | | | | | | | | | | | | | | Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuation of Health & Welfare Benefits (3) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $34,990 | | | | | | | | | | | | | | | | | | | | | | Life Insurance and Death Benefit Payout (4) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | | | | | | | | | | | | | | | | | | | Perquisites and Tax Payments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outplacement (5) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $107,250 | | | | | | | | | | | | | | | | | | | | | | Total | | | | $0 | | | | $3,282,063 | | | | $3,282,063 | | | | $3,282,063 | | | | $6,467,343 | | | | | | | | | | | | | | | | | | | | | |
(1)Unvested options become immediately exercisable in the event of death, disability, retirement, and a change in control.
(2)Mr. Okray has one grant of unvested RSUs as of December 31, 2019.
(3)The health and welfare benefits value upon change in control and termination without cause or with good reason is based upon two years of continuation of active health and welfare benefits using the Company's budget/insured rates projected forward throughout the two years using 6.5% health and 3.5% dental annual trends as well as a 3.01% annual discount factor.
(4)Mr. Okray is not eligible for the frozen Executive Death Benefit Plan.
(5)In the event of a change in control followed by termination without cause or with good reason, the Company shall provide Mr. Okray with standard outplacement services provided that the cost of such services to the Company not exceed 15% of the Executive's annual base salary in effect on the date of termination. The amount above represents the maximum cost to the Company for providing such outplacement services.
(6)Mr. Okray is not eligible for retirement under the Company's retirement plan as of December 31, 2019.
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Howard, John L.
| | | | | | | | | | | | | | | | | | | | | Type of Payment |
| | | Retirement (7) ($) |
| | | Death ($) |
| | | Disability ($) |
| | | Change In Control Only ($) |
| | | Change In Control and Termination without Cause or with Good Reason ($) | | | | | | | | | | | | | | | | | | | | | | Cash Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash Severance | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $2,882,880 | | | | | | | | | | | | | | | | | | | | | | Long-Term Incentives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (1) | | | | $1,642,257 | | | | $1,642,257 | | | | $1,642,257 | | | | $1,642,257 | | | | $1,642,257 | | | | | | | | | | | | | | | | | | | | | | Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (2) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | | | | | | | | | | | | | | | | | | | Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (3) | | | | $4,287,694 | | | | $4,287,694 | | | | $4,287,694 | | | | $4,287,694 | | | | $4,287,694 | | | | | | | | | | | | | | | | | | | | | | Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuation of Health & Welfare Benefits (4) | | | | $421,988 | | | | $0 | | | | $0 | | | | $0 | | | | $34,990 | | | | | | | | | | | | | | | | | | | | | | Life Insurance and Death Benefit Payout (5) | | | | $621,716 | | | | $5,587,653 | | | | $0 | | | | $0 | | | | $1,143,008 | | | | | | | | | | | | | | | | | | | | | | Perquisites and Tax Payments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outplacement (6) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $107,250 | | | | | | | | | | | | | | | | | | | | | | Total | | | | $6,973,655 | | | | $11,517,604 | | | | $5,929,951 | | | | $5,929,951 | | | | $10,098,079 | | | | | | | | | | | | | | | | | | | | | |
(1)Unvested options become immediately exercisable in the event of death, disability, retirement, and a change in control.
(2)Mr. Howard does not have any unvested RSUs as of December 31, 2019.
(3)In the event of retirement, death or disability, Mr. Howard is entitled to receive in settlement of performance-based awards, a number of shares of common stock equal to the target number of shares that vest based upon the Company's average return on invested capital, as of the end of the performance period. Mr. Howard is retirement-eligible as of December 31, 2019.
(4)The health and welfare benefits value upon change in control and termination without cause or with good reason is based upon two years of continuation of active health and welfare benefits using the Company's budget/insured rates projected forward throughout the two years using 6.5% health and 3.5% dental annual trends as well as a 3.01% annual discount factor.
(5)Upon death, Mr. Howard's survivors shall receive, for 120 months, 50% of his monthly base salary and target bonus amount, under the frozen Executive Death Benefit Plan (EDBP). The figure above reflects the present value lump-sum payment amount based upon the FTSE pension curve discount rate of 2.91%. Upon retirement, he has elected to receive a present value cash settlement at retirement in lieu of the post-retirement death benefit based on the 6.0% discount rate and assumed mortality of age 80 under the frozen EDBP provisions. Upon a change in control, under the frozen EDBP, he would receive the present value based on the applicable federal rate of 2.52%.
(6)In the event of a change in control followed by termination without cause or with good reason, the Company shall provide Mr. Howard with standard outplacement services provided that the cost of such services to the Company not exceed 15% of the Executive's annual base salary in effect on the date of termination. The amount above represents the maximum cost to the Company for providing such outplacement services.
(7)Mr. Howard has met the eligibility requirements for retirement under the Company's retirement plan as of December 31, 2019.
Proxy Statement 71
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Robbins, Paige K.
| | | | | | | | | | | | | | | | | | | | | Type of Payment |
| | | Retirement (7) ($) |
| | | Death ($) |
| | | Disability ($) |
| | | Change In Control Only ($) |
| | | Change In Control and Termination without Cause or with Good Reason ($) | | | | | | | | | | | | | | | | | | | | | | Cash Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash Severance | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $2,298,240 | | | | | | | | | | | | | | | | | | | | | | Long-Term Incentives | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (1) | | | | $0 | | | | $621,514 | | | | $621,514 | | | | $621,514 | | | | $621,514 | | | | | | | | | | | | | | | | | | | | | | Restricted Stock Units | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (2) | | | | $0 | | | | $1,366,944 | | | | $1,366,944 | | | | $1,366,944 | | | | $1,366,944 | | | | | | | | | | | | | | | | | | | | | | Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unvested and Accelerated Awards (3) | | | | $0 | | | | $1,080,894 | | | | $1,080,894 | | | | $1,080,894 | | | | $1,080,894 | | | | | | | | | | | | | | | | | | | | | | Benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuation of Health & Welfare Benefits (4) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $34,990 | | | | | | | | | | | | | | | | | | | | | | Life Insurance and Death Benefit Payout (5) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | | | | | | | | | | | | | | | | | | | Perquisites and Tax Payments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outplacement (6) | | | | $0 | | | | $0 | | | | $0 | | | | $0 | | | | $85,500 | | | | | | | | | | | | | | | | | | | | | | Total | | | | $0 | | | | $3,069,352 | | | | $3,069,352 | | | | $3,069,352 | | | | $5,488,082 | | | | | | | | | | | | | | | | | | | | | |
(1)Unvested options become immediately exercisable in the event of death, disability, retirement, and a change in control.
(2)Ms. Robbins has three grants of unvested RSUs grants as of December 31, 2019.
(3)In the event of death or disability, Ms. Robbins is entitled to receive in settlement of performance-based awards, a number of shares of common stock equal to the target number of shares that vest based upon the Company's average return on invested capital, as of the date of death or disability.
(4)The health and welfare benefits value upon change in control and termination without cause or with good reason is based upon two years of continuation of active health and welfare benefits using the Company's budget/insured rates projected forward throughout the two years using 6.5% health and 3.5% dental annual trends as well as a 3.01% annual discount factor.
(5)Ms. Robbins is not eligible for the frozen Executive Death Benefit Plan.
(6)In the event of a change in control followed by termination without cause or with good reason, the Company shall provide Ms. Robbins with standard outplacement services provided that the cost of such services to the Company not exceed 15% of the Executive's annual base salary in effect on the date of termination. The amount above represents the maximum cost to the Company for providing such outplacement services.
(7)Ms. Robbins is not eligible for retirement under the Company's retirement plan as of December 31, 2019.
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Merriwether, Deidra C.
| | | | | | | | | | | | | | | | | | | | | Type of Payment |
| | | Retirement (7) ($) |
| | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | |
(1)Unvested options become immediately exercisable in the event of death, disability, retirement, and a change in control.
(2)Ms. Merriwether has three grants of unvested RSUs as of December 31, 2019.
(3)In the event of death or disability, Ms. Merriwether is entitled to receive in settlement of performance-based awards, a number of shares of common stock equal to the target number of shares that vest based upon the Company's average return on invested capital, as of the date of death or disability.
(4)The health and welfare benefits value upon change in control and termination without cause or with good reason is based upon two years of continuation of active health and welfare benefits using the Company's budget/insured rates projected forward throughout the two years using 6.5% health and 3.5% dental annual trends as well as a 3.01% annual discount factor.
(5)Ms. Merriwether is not eligible for the frozen Executive Death Benefit Plan.
(6)In the event of a change in control followed by termination without cause or with good reason, the Company shall provide Ms. Merriwether with standard outplacement services provided that the cost of such services to the Company not exceed 15% of the Executive's annual base salary in effect on the date of termination. The amount above represents the maximum cost to the Company for providing such outplacement services.
(7)Ms. Merriwether is not eligible for retirement under the Company's retirement plan as of December 31, 2019.
Proxy Statement 73
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CEO PAY RATIO DISCLOSURE
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 Management Incentive Program paid out at 75% of target in 2019, as compared to 135% of target in 2018;
•For 2019 awards, the use of a 20-day average stock price significantly reduced the potential volatility in the number of shares awarded and ultimate size of long-term incentives received. Therefore, the size of the total 2019 CEO compensation package as reported in the Summary Compensation Table decreased by 27% or $2,790,717 compared to 2018.
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:
•Applied a consistent compensation measure of 'base pay' earned during the period from January 1, 2017 to September 30, 2017, rather than summary compensation table (SCT) total compensation for all of 2017.
•Annualized base pay for those employees who started work during 2017. The identified median employee is a full-time, U.S.-based employee.
•Determined the above-mentioned employee populations full year's compensation based on the compensation elements required for inclusion in the SCT, with the exception of incorporating healthcare benefits in total compensation as discussed later in this section. The other components of our compensation program for NEOs are substantially similar to those available for most of our other employees. 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.
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•Used thede minimis exemption to exclude approximately 4% of our global workforce in 2017, or 920 employees, as reflected below:
•Included in calculation: Canada, China, Mexico, Netherlands, Panama, United Kingdom, United States (approximately 23,000 employees)
•Excluded from calculation: Belgium, Costa Rica, Czech Republic, Dominican Republic, France, Germany, Hungary, India, Indonesia, Ireland, Japan, Malaysia, Peru, Poland, Portugal, Romania, Slovakia, South Africa, Spain, Thailand, United Arab Emirates (approximately 920 employees)
Proxy Statement 75
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Compensation Discussion and Analysis
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The Company is asking its shareholders for their non-binding advisory approval of the 20192020 compensation of its Named Executive Officers (NEOs). The
At our 2020 Annual Meeting of Shareholders, shareholders provided a clear endorsement of the Company's philosophy isexecutive compensation programs with approximately 93% voting in favor of our NEO compensation. As described in the "Compensation Discussion and Analysis" on pages 46, the 2020 NEO compensation programs remain consistent with the program described to attractshareholders in our 2020 proxy statement and retainreflects: • Pay for Performance Approach: Our programs align pay with performance in the best peopleinterest of our shareholders. • Balanced and provide appropriate performance-based incentives that encourage them to achieve results that create long-term shareholder value.Sound Pay Practices: The Company sets target compensation to approximate the market median of companies that are of similar size and complexity.complexity and rewards long-term performance while not encouraging excessive risk taking. • Strong Financial Performance: The 2019Company delivered strong operating results despite a challenging environment. • Direct Link to Strategy: NEO pay is tied to near and long-term strategic objectives with the long-term incentive directly tied to gaining share in our U.S. High-Touch Solutions model and propelling sales growth in our Endless Assortment business model over the next several years and our annual incentive program provided NEOs incentives to grow the business (Sales Growth) while achieving investment returns for the Company's shareholders (ROIC). The overall 2019 | | | |
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. 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. This Say on Pay vote is intended to address the 2020 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. Approval of the proposal requires the affirmative votes a majority of the shares of Grainger common stock present or represented by proxy and entitled to vote at the annual meeting. Abstentions will have the same effect as votes against the proposal. Broker non-votes will not affect the outcome of the vote. Proxy Statement 81
Table of Contents | | | | | | Executive Compensation
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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. EQUITY COMPENSATION PLANS
This table contains information as of December 31, 2020 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) |
| | | | | | | | | | | | | | | | | | | | | Equity compensation plans approved by shareholders | | | | 1,247,800(1)(2) | | | | $258.15(3) | | | | 2,145,860(4) | | | | | | | | | | | | | | | | | | | | | | Equity compensation plans not approved by shareholders | | | | 0 | | | | N/A | | | | 0 | | | | | | | | | | | | | | | | | | | | | | Total | | | | 1,247,800 | | | | $258.15 | | | | 2,145,860 | | | | | | | | | | | | | | | | | | | |
- (1)
- Represents 1,061,779 shares of common stock outstanding under the 2015 Incentive Plan, 166,021 shares of common stock outstanding under the 2010 Incentive Plan, and 20,000 shares of common stock outstanding under the 1990 Incentive Plan.
- (2)
- Includes an aggregate of 337,414 RSUs that are to be settled by the issuance of shares of common stock on a 1-for-1 basis. It also includes 150,212 Director's stock units to be settled upon each Director's retirement. Additionally, it includes 97,880 performance shares which will vest and settle between 2021 and 2023. The number of shares vested is dependent on the Company sales and/or the three-year average ROIC performance versus target.
- (3)
- Weighted-average exercise price of outstanding stock options; excludes RSUs, performance shares, and Director's stock units.
- (4)
- Represents shares of common stock authorized for issuance under the 2015 Incentive Plan in connection with awards of stock options, stock appreciation rights, stock units, shares of common stock, RSUs of common stock and other stock-based awards. Under the 2015 Incentive Plan, all shares issued pursuant to "Full Value Awards" (awards other than stock options or stock appreciation rights which are settled by the issuance of shares, e.g., restricted stock, RSUs, Director's stock units, or other stock-based awards) may be granted with the limit of no more than one million (1,000,000) shares of the Share Authorization. There are no shares of common stock available for future issuance under other plans.
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Table of Contents | | | Executive Compensation
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TRANSACTIONS WITH RELATED PERSONS
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 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, 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 BANC 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 2020. In the ordinary course of its operations during 2020, 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 2020, Grainger bought products and/or services from, or sold products and/or services to, companies with which Mses. Perez and Slavik Williams, and Messrs. Santi, Watson, and White are or were associated as senior executives or otherwise as of December 31, 2020. In no instance did the total amount of the purchases from or sales to any such company during 2020 represent more than 0.188% of the consolidated gross revenues of that company for the year or more than 0.217% 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. In addition, as part of its overall 2020 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 $8,000 during 2020. Proxy Statement 83
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VIRTUAL MEETING How do I attend the virtual Annual Meeting of Shareholders? |
To virtually attend the annual meeting, go to the virtual Annual Meeting Website at www.virtualshareholdermeeting.com/GWW2021; then, you must enter the 16-digit control number found on your proxy card or voting instruction form (the "Control Number"). How do I vote during the virtual meeting? |
You may vote your shares and submit your questions during the virtual annual meeting by entering your Control Number and following the instructions also available on the Annual Meeting Website. You may vote during the virtual meeting by going to www.virtualshareholdermeeting.com/GWW2021. PROXY MATERIALS
What is structured to reward long-term performance while not encouraging excessive risk taking. Please see the "Compensation Discussion and Analysis" on pages 39-78purpose 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.
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This proxy statement relates to the 2021 annual meeting of shareholders of Grainger, to be held on April 28, 2021, 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 18, 2021. Compensation Discussion and Analysis
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EQUITY COMPENSATION PLANS
This table contains information as of December 31, 2019 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) |
| | | | | | | | | | | | | | | | | | | | | Equity compensation plans approved by shareholders | | | | 1,592,915(1)(2) | | | | $246.39(3) | | | | 2,285,700(4) | | | | | | | | | | | | | | | | | | | | | | Equity compensation plans not approved by shareholders | | | | 0 | | | | N/A | | | | 0 | | | | | | | | | | | | | | | | | | | | | | Total | | | | 1,592,915 | | | | $246.39 | | | | 2,285,700 | | | | | | | | | | | | | | | | | | | |
(1)Represents 1,214,361 shares of common stock outstanding under the 2015 Incentive Plan, 343,051 shares of common stock outstanding under the 2010 Incentive Plan, 15,503 shares of common stock outstanding under the 2005 Incentive Plan, and 20,000 shares of common stock outstanding under the 1990 Incentive Plan.
(2)Includes an aggregate of 346,124 RSUs that are to be settled by the issuance of shares of common stock on a 1-for-1 basis. It also includes 140,216 Director's stock units to be settled upon each Director's retirement. Additionally,What does it includes 104,907 performance shares which will vest and settle between 2020 and 2023. The number of shares vested is dependent on the Company sales and/or the three-year average ROIC performance versus target.
(3)Weighted-average exercise price of outstanding stock options; excludes RSUs, performance shares, and Director's stock units.
(4)Represents shares of common stock authorized for issuance under the 2015 Incentive Plan in connection with awards of stock options, stock appreciation rights, stock units, shares of common stock, RSUs of common stock and other stock-based awards. Under the 2015 Plan, all shares issued pursuant to "Full Value Awards" (awards other than stock options or stock appreciation rights which are settled by the issuance of shares, e.g., restricted stock, RSUs, Director's stock units, or other stock-based awards) may be granted with the limit of nomean if I receive more than one million (1,000,000)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. 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: - •
- Deliver to Grainger's Corporate Secretary timely written notice that you are revoking your proxy; or
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- Provide to Grainger another proxy with a later date (which can be done by telephone, by Internet, or by signing, dating, and returning a proxy form); or
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- Vote during the virtual meeting.
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Table of Contents VOTING INFORMATION
Holders of shares of common stock outstanding on Grainger's books at the close of business on March 1, 2021, the record date for the meeting, may vote. There were 52,340,993 shares of common stock outstanding on that date. What is the difference between holding shares as "shareholder of the Share Authorization. There are no shares of common stock available for future issuance under other plans.record" and as "beneficial owner"? Proxy Statement 77
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Compensation Discussion and Analysis
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TRANSACTIONS WITH RELATED PERSONS
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 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, 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 BANC 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.
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PROXY MATERIALS
What is the purpose of this proxy statement?
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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?
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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.
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:
•Deliver to Grainger's Corporate Secretary timely written notice that you are revoking your proxy; or
•Provide to Grainger another proxy with a later date (which can be done by telephone, by Internet, or by signing, dating, and returning a proxy form); or
•Vote in person at the meeting.
VOTING INFORMATION
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.
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Questions and Answers
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What is the difference between holding shares as "shareholder of record" and as "beneficial owner"?
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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 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 during the virtual 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 the voting standard for each annual meeting agenda items? |
| | | | | | | | | | | | | | | | | | | Annual Meeting Agenda Item |
| | | Voting Standard |
| | | Frequency of Vote |
| | | Cumulative Voting? |
| | | | | | | | | | | | | | | | | | | | | Election of Directors | | | | Majority Voting | | | | Annual | | | | Yes | | | | | | | | | | | | | | | | | | | | | | Ratification of Independent Auditor | | | | Majority Voting | | | | Annual | | | | No | | | | | | | | | | | | | | | | | | | | | | (Non-binding) Advisory Vote on NEO Compensation ("Say on Pay") | | | | Majority Voting | | | | Annual | | | | No | | | | | | | | | | | | | | | | | | | |
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 may 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. Proxy Statement 85
Table of Contents 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 of Grainger common stock present or represented by proxy and entitled to vote at the annual meeting. Moreover, in accordance with the Company's Criteria for Membership on the Board of Directors, any Director standing for re-election (including the 13 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. What voting standard applies to the ratification of the appointment of the independent auditor? |
Ratification of the appointment of the independent auditor requires the affirmative votes of a majority of the shares of Grainger common stock present or represented by proxy and entitled to vote at the annual meeting. What voting standard applies to 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.NEOs? If my shares are held in "street name," can my broker vote for me?
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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?
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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?
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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.
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Questions and Answers
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What voting standard applies to the ratification of the appointment of the independent auditor?
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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 NEOs?
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Although the shareholders' vote is advisory and therefore non-binding, the vote on the compensation of the Named Executive Officers (Say on Pay)—Grainger's five 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.
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Although the shareholders' vote is advisory and therefore non-binding, the vote on the compensation of the Named Executive Officers (Say on Pay)—Grainger's five highest paid executive 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 of Grainger common stock present or represented by proxy and entitled to vote at the annual meeting. How frequently does Grainger conduct an advisory vote on the compensation of its NEOs? |
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?
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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:NEOs?
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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. FOR the election of the 11What if I don't indicate my voting choices?
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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: - •
- FOR the election of the 13 Director nominees;
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- FOR the proposal to ratify the appointment of the independent auditor; and
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- FOR the approval of the non-binding advisory vote on the compensation of Grainger's NEOs.
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Table of Contents 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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Questions and Answers
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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?
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