Exhibit 10(a) to the quarterly report
on Form 10-Q of W.W. Grainger, Inc.
for the quarter ended June 30, 2000
W.W. GRAINGER, INC.
SUMMARY DESCRIPTION OF THE
2000 COMPANY MANAGEMENT INCENTIVE PROGRAM (MIP)
I. Introduction
------------
The Company Management Incentive Program (MIP) was initiated
January 1, 1993 for employees in grades 13 and above with the first
payout in March 1994. For eligible participants, this program replaced
participation in both the discontinued Team Achievement Bonus (TAB) and
the Long-term Incentive Program (LTIP).
The effective date of the Team Incentive Program (TIP) was January 1,
1994. This program included employees in salary grades 10 through 12.
The first payout was made in March 1995. For eligible participants,
this program replaced participation in the discontinued Team
Achievement Bonus (TAB) program and other short-term incentive
programs.
Effective January 1, 1997, the MIP and the TIP were combined into one
program. Changes were made to various provisions to accomplish this
transition.
For 2000, Company MIP was redesigned to provide alignment with key
financial and business objectives. The program will include Company
Economic Earnings as a measure, but will use additional measures.
II. Objectives
----------
The Company MIP is designed to:
o Focus participants on key financial measures. Management may
change the emphasis on these measures from year to year based
on the current business plan.
o Encourage decision-making which results in improvements in
Company gross profit, operating earnings, and economic
earnings as well as the achievement of key programs.
III. Eligibility
-----------
Employees in incentive-eligible salary grades 10 and above are
eligible to participate in this program, subject to the Terms and
Conditions.
Most business units have established incentive programs unique to
their units. Employees who would otherwise be eligible for the Company
MIP will instead participate in their unit-level program. Employees
may not participate in multiple short-term incentive programs at the
same time.
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IV. Performance Measures
--------------------
For purposes of this program, there will be four performance measures:
o Gross Profit Dollars - reflects the Company's interest in
accelerating profitable revenue growth
o Operating Earnings - emphasizes the need for careful
management of expenses
o Economic Earnings - captures the value of good asset
management
o Key Programs - allows management to highlight key imperatives
on a year-to-year basis
Operating earnings and economic earnings will be adjusted to add back
the accrued bonus amount.
For 2000, each of these measures will be weighted 25%. These
percentages will be reviewed annually by the Compensation Committee of
Management (CCOM) and the Compensation Committee of the Board (CCOB)
and may be reset to emphasize different results in different years.
The performance goals and key programs are determined by the CCOM. In
determining a goal for each of the three financial measurements, the
CCOM considers the actual result for the prior year, the planned result
for the current year, and other information that may be relevant. The
goals are then approved by the CCOB no later than the first quarter of
the program year.
V. Target Award Opportunity
------------------------
Target awards are established for each grade and are stated as a
percentage of the employee's base salary.
VI. Determination Of Payment Amounts
--------------------------------
The following process is used to determine the payment amount for each
participant.
Step 1: Determine the performance results for each Company measure and
the resultant performance to goal.
Step 2: Compute the appropriate percentage of target award earned for
each measure. Determine the Total Percentage Payout using the following
formula.
Total % Payout = (Economic Earnings % of Target Earned X 25%)
+ (Operating Earnings % of Target Earned X 25%)
+ (Gross Profit % of Target Earned X 25%)
+ (Key Programs % of Target Earned X 25%)
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Step 3: Calculate each participant's incentive amount earned as
follows:
Incentive Amount Earned = (Annualized 12/31 Salary X Target Award %)
X Total % Payout
Those employees who are eligible to participate for only part of the
year will have their incentive amount adjusted accordingly, based on
the eligibility provisions in the Terms and Conditions.
Step 4: Final incentive amounts must be approved by the CCOM and CCOB.
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