| Summary Description ofDirectors Compensation Program
Effective January 1,2005
Membersof the Companys Board of Directors who are not Company employees receive an annualretainer of $60,000, which is intended to cover all regularly scheduled meetings of theBoard and its committees. If additional meetings are held, a per-meeting fee of $1,500will be paid to each attending director.
TheChairmen of Board committees receive annual retainers in the amount of $10,000 for theAudit Committee Chair and $7,500 for the other committee Chairs. Other directors receivean annual retainer of $5,000 for each committee on which the director serves as a member.Directors may elect to defer, in a deferred stock unit account, their chair and committeeretainers and the retainers and fees described in the preceding paragraph.
Inaddition, directors receive annual deferred stock unit grants. The number of sharescovered by each grant is equal to $60,000 divided by the fair market value of a share ofGrainger stock at the time of grant, rounded up to the next ten-share increment. Thedeferred stock units will be settled on termination of service as a director. In addition,Grainger reimburses travel expenses relating to service as a director, and reimbursesdirectors for attending continuing education programs.
Adirector who is an employee of Grainger or any Grainger subsidiary does not receive anyretainer fees for Board or Board committee service, Board or Board committee meetingattendance fees, or stock options or stock units under the Director Stock Plan.
Stockownership guidelines applicable to non-employee directors were established in 1998. Theseguidelines provide that within five years after election, a director must own Graingercommon stock and common stock equivalents having a value of at least five times the annualretainer fee for serving on the Board.