2014 Regal-Beloit Proxy

on a comparison of the actual SVA amount achieved at the end of the year (the “Actual SVA”) compared to the Target SVA. If Actual SVA for the year is 50% or less of Target SVA, then our NEOs receive no cash incentive for that year. If Actual SVA equals Target SVA, then our NEOs receive the target cash incentive for that year. If Actual SVA equals 150% or more of Target SVA, then our NEOs earn double (or 200% of) the target cash incentive for that year. Actual SVA amounts in between 50% and 150% of Target SVA result in pro‐rated cash incentives. Annual cash incentive amounts earned above 100% of the target amount are paid in installments, with one‐third of the above‐target amount being paid to the NEO in cash after the end of each of the following three years, as long as his or her employment with us has not been voluntarily terminated (other than upon retirement) or terminated for cause. We do not credit participants with interest on amounts subject to payment in installments.

Expressed as a table:

If Actual SVA Is

Then Cash Incentive Will Be

≤ 50% of Target SVA

$ 0

Target SVA

Target Cash Incentive

200% of Target Cash Incentive

≥ 200% of Target SVA

How do you determine the Target SVA, and what was it for 2014?

The Target SVA for any given year is set by formula. The formula is as follows:

(Previous Year Target SVA + Previous Year Actual SVA) + Improvement Factor

= New Target SVA

2

To encourage improved performance, the Committee establishes an expected “improvement factor” as reflected in the formula above. To determine the improvement factor in any given year, the Committee uses a formula established in 2010 with the help of Stern Stewart, an independent compensation consultant, and updated in 2012. Using that formula for 2014, the improvement factor would have been $6.2 million; however, the Committee increased the improvement factor for 2014 to take into account the effect of the reduction in goodwill on the company’s balance sheet that resulted from a non‐cash goodwill impairment charge the company recorded in 2013. The Committee concluded that the reduction in the capital base would, regardless of the company’s financial performance in 2014, result in the addition of approximately $6.2 million to the total SVA amount in 2014. To offset the positive impact of this increase on total SVA, therefore, the Committee increased the improvement factor for 2014 by an additional $6.2 million, resulting in an improvement factor of $12.4 million for 2014.

So, for 2014, the Target SVA was $70.4 million, determined as follows:

(2013 Target SVA of $62.8 million + 2013 Actual SVA of $53.1 million)

+ $12.4 million = $70.4 million

2

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