WW GRAINGER INC

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2023 Program Performance and Financial Highlights

In 2023, Grainger’s team members (more than 26,000 worldwide as of December 31, 2023) remained relentlessly focused on providing tangible value to our customers and advancing our strategic initiatives to drive short and long-term growth. We also continued to advance the Grainger Edge to build a strong, inclusive culture. These actions allowed us to deliver profitable growth while furthering our service advantage with future capacity investments.

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(1)

See Appendix B of this Proxy Statement for information regarding compensation and non-GAAP financial measures, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.

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(2)

The 2023 MIP financial metrics are modified for the Company’s current year planned foreign currency exchange rates used when setting initial targets resulting in total Company daily, organic constant currency sales of 9.2% and total Company adjusted ROIC of 42.8%.

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(3)

Share gain is based on outgrowth measured as High-Touch Solutions—U.S. daily, organic sales less estimated U.S. MRO market growth. Company estimates using compilation of external market data, including volume and price.

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(4)

Three-year average based on actual performance for 2021 (+77 bps), 2022 (+781 bps) and 2023 (+518 bps).

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Throughout 2023, the Compensation Committee evaluated our compensation programs against the following factors:

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Company performance, including whether the programs remain aligned with near and long-term objectives;

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Appropriateness of the original targets to remain relevant and challenging under current conditions;

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Alignment to the broader Grainger team and performance to peer companies; and

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Ability for Company programs to attract, motivate and retain critical talent.

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The Committee did not alter the structure of existing incentive programs or adjust payouts for material items for the 2023 annual incentives as it believes the programs remained strongly aligned with the Company’s pay-for-performance objectives and consistent with shareholder interests. The discussion of the Company’s annual incentives within this CD&A refer to the Company Management Incentive Program (“MIP”), which is primarily tied to total Company financial performance (high-touch solutions model and endless assortment model). The 2023 MIP payout was defined as a percentage of the NEO’s annualized base salary generally as of December 31, 2023. The 2023 MIP was based on 2023 year-over-year total Company daily, organic constant currency sales and total Company adjusted ROIC, as well as on an ESG modifier, which can increase or decrease payouts determined by financial performance up to +/- 10 percentage points.

Short-term financial results exceeded expectations and therefore, the payout for the 2023 MIP was above target. Total Company daily, organic constant currency sales was 9.2%, resulting in a 50% daily, organic constant currency sales payout, and 2023 total Company adjusted ROIC was 42.8%, resulting in a 78% total Company adjusted ROIC payout. Total absolute scope 1 and scope 2 emissions and diverse leadership representation outcomes were within the targeted range. Therefore, the ESG modifier was determined to be 0% and the final 2023 MIP payout was 128%. The Company’s average MIP payout for NEOs over the last five years (2018-2022) was 123%. Total Company daily, organic constant currency sales for the purpose of MIP, excludes the impact on Company’s sales due to foreign currency exchange rate fluctuations. The 2023 MIP financial metrics are modified for the Company’s current year planned foreign currency exchange rates used when setting initial targets. See Annual Incentives on page 49 and Appendix B of this Proxy Statement for information regarding compensation and non-GAAP financial measures, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.

The CEO and his U.S. direct reports, along with members of the Grainger Leadership Team are aligned to MIP as of December 31, 2023. For the period before Mr. Fortin’s appointment as SVP and Chief Human Resources Officer, he was a participant in the Company’s broad-based annual incentive program, North America Management Incentive Plan (“N.A. MIP”). N.A. MIP has the same financial metrics as the MIP, but is tied to the performance of the High-Touch Solutions—N.A. segment. The 2023 N.A. MIP payout was 126%.

The Compensation Committee approved the final results of the 2021-2023 PSU program at 124% of target. The 2021-2023 cycle covered a three-year performance period starting January 1, 2021 and ending December 31, 2023. The 2021 PSU cycle was based on three performance metrics—​U.S. share gain (a relative metric), Endless Assortment daily sales growth based on year-over-year sales growth and total Company adjusted operating margin performance. As outlined in detail on page 52, U.S. share gain was 459 bps, Endless Assortment daily sales growth was 10.7% and total Company adjusted operating margin performance expanded 143 bps on average over the three-year performance period. Therefore, the payout for these PSUs attained 124% of target.(1)

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(1)

See Appendix B of this Proxy Statement for information regarding compensation and non-GAAP financial measures, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.

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