2014 Regal-Beloit Proxy

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Philosophy What is your compensation philosophy?

Our overall compensation philosophy can be summarized as follows:

! In order to attract and retain talented executives, we believe we should offer overall compensation levels that are competitive in the marketplace. As a result, we seek to set compensation levels so that our named executive officers (whom we call our “NEOs”) can earn total compensation at approximately the median level compared to similarly situated executives in our peer group. We consider compensation within a 15% range above or below the fiftieth (50th) percentile of peer group data to be at approximately the “median” level. ! The compensation of our NEOs should be structured so that their interests are aligned with the long‐term interests of our shareholders. We have a “pay‐for‐performance”

philosophy, meaning that we will pay higher compensation to the NEOs if the performance of the company delivers incremental value to the shareholders.

! To further align our NEOs’ interests with the interests of our shareholders, and to reinforce our pay‐for‐performance philosophy, we believe our NEOs should have the opportunity to earn above‐median total compensation if the company performs well, and should earn below‐median total compensation if it does not.

We believe this to be a conservative approach to executive compensation.

Do you consider the results of the shareholders’ “say on pay” vote in your philosophy and in determining compensation? Our shareholders cast a non‐binding vote on our NEO’s compensation annually (the “say on pay” vote). Each year we scrutinize the results of that vote and consider other shareholder inputs to determine whether our shareholders believe we need to change our compensation philosophy or practices. Most recently, in May 2014, our shareholders supported our NEOs’ compensation with more than 91% of votes cast in favor. Consistent with this strong vote of shareholder approval, we have not undertaken any material changes to our executive compensation philosophy or programs in response to the outcome of the vote. However, as described below under “The Elements of Total Compensation – Long‐Term Incentives,” we have modified the metric used to determine vesting of a portion of our performance share units to be awarded in 2015.

25