GRACO INC
EXH 10.1, 2002 EXEC OFFICER ANNUAL INC BONUS PLAN
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<FILENAME>exhibit10pt1.txt
<DESCRIPTION>EXH 10.1, 2002 EXEC OFFICER ANNUAL INC BONUS PLAN
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                                                                    Exhibit 10.1

               2002 EXECUTIVE OFFICER ANNUAL INCENTIVE BONUS PLAN



Objectives
----------

o    To  create  shareholder  value  through  achievement  of  annual  financial
     objectives.

o    To  motivate  and retain  those key  executives  and  managers  who work in
     positions where they can impact the Company's annual financial objectives.


Plan Design
-----------

The  Plan  links  the size of each  individual's  award  to  specific  financial
objectives.  These  objectives  are  tailored for the  Corporation  and for each
Business Unit. These objectives are:

o    Corporation
     o    Corporate Sales and/or Net Earnings objectives

o    Business Units
     o    Sales and/or Contribution Growth objectives


Eligibility Requirements
------------------------

Only those positions which carry clear  managerial  responsibility  for directly
contributing  to Graco's  Corporate  Sales  and/or Net  Earnings  objective  and
Business Unit Sales and/or  Contribution  Growth  objectives  are eligible to be
included in this Plan.

Only those  individuals  in eligible  positions  who have  demonstrated  and are
maintaining a performance level that meets the supervisor's  normal expectations
for that position are eligible for annual  participation in this Plan as well as
the receipt of any annual Bonus Payments.

Participation
-------------

The  top  executive  in each  organizational  unit  may  nominate  managers  for
participation  in  this  Plan  when  the  established  position  and  individual
eligibility requirements have been met.

The Management  Organization and Compensation  Committee of the Graco Inc. Board
of  Directors  has sole  authority  to approve  the  participation  of the Chief
Executive Officer in the Plan.

The Chief  Executive  Officer of Graco  Inc.  has sole  authority  to select and
approve all other Plan participants.

Bonus Maximum
-------------

Taken in conjunction with base salary market comparisons,  bonus maximum for all
positions will be:

o    Commensurate  with the  position's  ability to impact the annual  Corporate
     Sales  and/or  Net  Earnings  objective  and  Business  Unit  Sales  and/or
     Contribution Growth objectives.
o    Consistent with total  compensation  levels prevalent for similar positions
     in the market place.

Based  on these  criteria,  bonus  maximums  ranging  from 10% to 90% have  been
established for each individual.

Bonus Payment
-------------

The determination of a participant's  annual Bonus Payment will be calculated by
adding the bonus  results  attained  for  Corporate  Sales  and/or Net  Earnings
performance  (expressed  in  percent)  to the  bonus  results  attained  for any
applicable   Business  Unit's  Sales  and/or   Contribution  Growth  performance
(expressed  in  percent).  These  bonus  results  are  then  multiplied  by  the
participant's  Maximum Bonus Percentage and then multiplied by the participant's
Base Salary for the Plan Year, to determine the total Bonus Payment.

Example:

-------------     --------------
|Annual            Annual      |       Participant's    Participant's
|Corporate         Business    |       Maximum          Annual
|Performance   +   Unit        |    x  Bonus         x  Base          =   Bonus
|Results           Performance |       Salary           Salary
|                  Results     |
|                  (if         |
|                  applicable) |
|                              |
|      %                 %     |            $                $              $
-------------     --------------

Administration
--------------

The following rules have been established to ensure equitable  administration of
Graco's Annual Bonus Plan (the Plan):

1.   The  Plan  will  be  administered  by  the  Management   Organization   and
     Compensation Committee of the Board of Directors.  The Committee may cancel
     the Plan and interpret the Plan.

2.   The Management  Organization and Compensation Committee shall establish the
     Annual  Corporate  Bonus  Plan  financial  objectives.   Within  the  basic
     framework of the Plan, the Chief Executive Officer may establish the annual
     bonus plan financial  objectives for individual Business Units. The CEO may
     also establish  deadlines for filing  administrative  forms and adopt other
     administrative rules.

     The CEO has established the Bonus  Administrative  Committee  consisting of
     the CEO, the Vice President, Human Resources, and the Compensation Manager.
     This Committee is responsible  for making approval  recommendations  on all
     Annual Bonus Program  administrative  matters,  such as participation award
     payments,  performance measures,  and performance results. All requests for
     adjustments  or exceptions  are to be formally  submitted to this Committee
     for review through the Compensation Manager.

3.   Key executives  and managers  selected to participate in the Plan after its
     annual effective date (January 1st) may be included on a pro-rata basis.

4.   Participation   in  the  Plan  one  year   does  not   necessarily   assure
     participation in subsequent  years.  Eligibility  requirements for both the
     position and individual performance must be met continually.

5.   Participation  continues  during  any  paid  time  off  such as  short-term
     disability (up to six months). Participation ceases with retirement, death,
     or  long-term  disability  (over six  months).  In the event  participation
     ceases due to retirement,  death, or long term disability,  the Participant
     will be eligible for a Bonus  Payment,  calculated  using the Maximum Bonus
     Percent and Base Salary up to the time of retirement,  death,  or long-term
     disability  and  the  annual  performance  results  for the  year in  which
     retirement, death, or long-term disability occurs.

6.   A participant who transfers to a position (e.g.  through job posting or job
     elimination)  that  is not  eligible  for  inclusion  in the  Plan  will be
     eligible  for a pro-rata  award  based on the actual  time  employed in the
     eligible position during the year.

     If, due to unique skills  possessed by a participant,  the company requests
     that the participant  accept a transfer to a non-bonus  eligible  position,
     the participant will remain on the Plan. The participant's eligibility will
     be reviewed annually as noted in Administrative Rule #4.

7.   A  participant  must be an employee  in good  standing on 12/31 of the Plan
     Year in  order  to  receive  a  bonus.  A  participant  who  resigns  or is
     terminated effective during the Plan Year is ineligible for a bonus.

     Participants  must maintain  satisfactory  performance  throughout the Plan
     year in order to be eligible to receive a bonus award payment.

     In addition, a participant whose employment  termination has been requested
     due  to job  elimination,  performance  or  otherwise  for  cause  will  be
     ineligible  for a bonus  payment  even  though  the  participant  is  still
     employed at year-end.

8.   Targets and actual  performance for Corporate and Division measures will be
     at actual exchange rates.  Targets and actual performance for international
     measures where  business is conducted in foreign  currency will be at prior
     year's actual rates.

9.   Acquisitions  and divestitures not included in the annual business plan for
     the Plan Year will be excluded from the Corporate Sales and/or Net Earnings
     calculations.

10.  Significant  changes in historical FASB accounting  practices or income tax
     rates will be included in corporate earnings calculations at the discretion
     of the Management  Organization and Compensation  Committee of the Board of
     Directors.

11.  Payments will be made by March 15th of the year following  each  successive
     Corporate and Business Unit performance year.



These Administrative  Rules indicate Graco's intent.  Situations may arise which
are not specifically covered by these rules and will require the use of judgment
and discretion.  Final responsibility for interpretation of these Administrative
Rules rests solely with the Vice President, Human Resources.

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