March 29, 1999

Dear Fellow Stockholder:

You are cordially invited to attend USG Corporation's annual meeting of
stockholders to be held at 9:15 a.m. on Wednesday, May 12, 1999, in the Sixth
Floor Auditorium, The Northern Trust Building, 50 South LaSalle Street, Chicago,
Illinois.

At the meeting, you will have the opportunity to learn more about USG's notable
performance in 1998 and our strategy for continuing profitable growth. The
attached Notice of Annual Meeting and proxy statement describe all known items
to be acted upon by stockholders.

It is important that your shares are represented at the Annual Meeting whether
or not you plan to attend. To ensure that you will be represented, we ask you to
sign, date and return the enclosed proxy card or proxy voting instruction form
as soon as possible. If your bank or broker offers telephone or Internet voting
and you choose to use one of those forms of voting, it is not necessary for you
to return your proxy card. In any event, please vote as soon as possible. If you
then attend the meeting, you may, in your discretion, withdraw your proxy and
vote in person.

In closing, I hope that you will be able to attend USG's annual meeting, and I
look forward to the chance to report to you on our progress and plans.

Sincerely,

/s/ William C. Foote
- --------------------
William C. Foote
Chairman of the Board

125 South Franklin Street USG Corporation Chicago, IL 60606-4678

NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS

The annual meeting of stockholders of USG Corporation will be held in
the Sixth Floor Auditorium, The Northern Trust Building, 50 South LaSalle
Street, Chicago, Illinois, on Wednesday, May 12, 1999, at 9:15 a.m., Central
Daylight Time, for the following purposes:

1. To elect four directors for a term of three years, pursuant to the
Corporation's by-laws.

2. To consider ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year ending December 31, 1999.

3. To transact such other business as may properly come before the meeting.

Pursuant to a provision in the Corporation's by-laws, any matter to be
presented at the meeting for consideration and with a view to obtaining a vote
thereon must be introduced by a motion, and any such motion must be seconded
before consideration of it may begin or before a vote on it may be obtained.

The Board of Directors has fixed the close of business on March 17,
1999, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the meeting or any adjournment thereof.

A list of stockholders entitled to vote at the meeting and the number
of shares registered in the name of each will be available for examination by
any stockholder at the office of the Corporate Secretary of the Corporation, 125
South Franklin Street, Chicago, Illinois, during ordinary business hours
beginning April 28, 1999, and running throughout the course of the meeting.

By order of the Board of Directors

/s/ Dean H. Goossen
-------------------
Corporate Secretary

Chicago, March 29, 1999

IMPORTANT -- PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY IN
THE ENCLOSED ENVELOPE.

PROXY STATEMENT AND PROXY

This proxy statement has been prepared by the management of USG
Corporation (the "Corporation"). It is being furnished to stockholders in
connection with the solicitation of proxies by the Board of Directors for use at
the annual meeting of stockholders of the Corporation to be held on May 12,
1999, and any adjournment thereof. The notice of the meeting accompanies this
proxy statement. The Corporation intends to commence distribution of this proxy
statement together with notice, proxy, and other accompanying materials, on or
about March 26, 1999.

The Board of Directors has selected the close of business on March 17,
1999 (the "Record Date"), as the time for determining the holders of record of
the Corporation's common stock, par value $0.10 per share ("Common Stock"),
entitled to notice of and to vote at the annual meeting or any adjournment
thereof. On the Record Date, the Corporation had outstanding shares of Common
Stock, and those are the only securities of the Corporation entitled to vote at
the annual meeting or any adjournment thereof. A majority of the shares entitled
to vote at the meeting will constitute a quorum for the transaction of business.

Each share of Common Stock outstanding on the Record Date is entitled
to one vote on each proposal. The affirmative vote of the holders of a majority
of the stock entitled to vote and present in person or represented by proxy is
required for election of directors and for ratification of the appointment of
independent public accountants. Broker non-votes (i.e., the failure to vote
shares held of record by nominees due to a lack of both discretionary authority
and instructions from the beneficial owners) with respect to any matter are not
considered part of the "voting power present" with respect to such matter and
will not affect the outcome of the vote on such matter. Abstentions are not
treated as votes cast for or against the election of directors or a particular
matter, as the case may be, but they are treated as part of the "voting power
present" with respect to such matter and therefore have the same legal effect as
a vote against such matter.

Any person giving a proxy may revoke it at any time before it has been
voted by (i) giving written notice of revocation to the Corporate Secretary of
the Corporation, (ii) submitting to the Corporation a valid proxy voting the
same shares and having a later date, or (iii) voting by ballot at the annual
meeting.

All proxies received (and not revoked) pursuant to this solicitation
will be voted by the individuals named in the proxy as indicated below, except
as to matters where authority to vote is specifically withheld and except as to
matters on which the person solicited specifies a choice, in which case the
proxy will be voted in accordance with such specification. If no instructions
are given and authority is not withheld, the individuals named in the proxy
solicited by the Board of Directors intend to vote for the nominees for election
as directors named below and for ratification of the appointment of Arthur
Andersen LLP as independent public accountants for the year ending December 31,
1999.

The Northern Trust Company, as trustee of the USG Corporation
Investment Plan, held of record 745,009 shares of Common Stock as of December
31, 1998, or approximately 1.5% of the total of such shares outstanding. All
shares so held by the Trustee on the Record Date will be voted in accordance
with instructions given by Plan participants. Shares as to which no instructions
are received will be voted by the Trustee in the same proportions as those
shares for which instructions are received.

Except as otherwise expressly indicated, all information in this proxy
statement is provided as of March 17, 1999.

PRINCIPAL STOCKHOLDERS

The following table lists the beneficial ownership of Common Stock as
of December 31, 1998 (except as indicated otherwise below), with respect to all
persons known by the Corporation to be the beneficial owner of more than 5% of
the Common Stock outstanding on such date. The information shown was provided by
the respective persons pursuant to Schedules 13D or 13G filed with the
Securities and Exchange Commission ("SEC").

Name and Address Amount of
of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------

John R. Simplot ................ 4,797,300 9.7%
Self-Declaration of
Revocable Trust (a)
999 Main Street
Boise, ID 83702

FMR Corp. (b)..................... 3,890,100 7.9%
82 Devonshire Street
Boston, MA 02109

Glickenhaus & Co. (c)............. 3,509,500 7.1%
6 East 43rd Street
New York, NY 10017

Harris Associates L.P. (d)........ 3,009,670 6.1%
Two North LaSalle Street
Chicago, IL 60602

(a) The John R. Simplot Self-Declaration of Revocable Trust reported on
Amendment No. 1 to a Schedule 13D that as of January 25, 1999, it was the
beneficial owner of 4,797,300 shares. As trustee of the Trust, Mr. Simplot has
sole voting and dispositive power with respect to 4,737,300 shares owned by the
Trust and shared voting and dispositive power with his son, Don Simplot, with
respect to 60,000 shares held in a joint account for the benefit of Don Simplot,
in which Mr. Simplot disclaims any beneficial interest.

(b) FMR Corp. reported that Fidelity Management & Research Company
("Fidelity"), an investment advisor and a wholly owned subsidiary of FMR Corp.,
through certain funds advised by it, was the beneficial owner of 3,882,900
shares, and that Fidelity Management Trust Company, also wholly owned by FMR
Corp., was the beneficial owner of 7,200 shares. According to its Schedule 13G,
FMR Corp. and its Chairman, Edward C. Johnson 3d, through their control of
Fidelity, and the funds advised by Fidelity each had sole power to dispose of
the 3,882,900 shares owned by such funds; sole power to vote such shares was
held by such funds' respective boards of trustees. Edward C. Johnson 3d,
Chairman of FMR Corp., and Abigail P. Johnson, a director of FMR Corp., own
12.0% and 24.5%, respectively, of the aggregate outstanding voting stock of FMR
Corp.; the Johnson family group and all other Class B shareholders of FMR Corp.
have entered into a shareholders' voting agreement under which all Class B
shares of FMR Corp. will be voted in accordance with the majority vote of such
Class B shares; accordingly, members of the Johnson family, through their
ownership of voting common stock and the execution of a shareholders' voting
agreement, form a controlling group with respect to FMR Corp.

(c) Glickenhaus & Co., an investment advisor, reported that it was the
beneficial owner of 3,509,500 shares, having sole voting power with respect to
2,873,347 shares and sole dispositive power with respect to 3,509,500 shares.

(d) Harris Associates, L.P., an investment advisor, reported that it was
the beneficial owner of 3,009,670 shares, having shared voting power with
respect to all such shares, sole dispositive power with respect to 568,870
shares and shared dispositive power with respect to 2,440,800 shares.

ITEM NO. 1 - ELECTION OF DIRECTORS

The Board of Directors of the Corporation currently is composed of 14
directors, divided into three classes, two of which currently have five members
each, the other having four members. Each class is elected for a three-year
term. One class will be elected at the annual meeting of stockholders on May 12,
1999. The remaining classes will be elected in 2000 and 2001, respectively.

The four candidates nominated by the Board of Directors for election as
directors at the annual meeting of stockholders on May 12, 1999, are identified
below. If any nominee identified below should for any reason become unavailable
prior to the meeting, which the Board of Directors does not anticipate, the
Board of Directors prior to the meeting will either (i) reduce the size of the
Board to eliminate the position for which that person was nominated, or (ii)
nominate a new candidate in place of any such person and vote in favor of the
new candidate all shares represented by proxies received by the Board, unless
authority to vote for all candidates nominated by the Board is withheld.

A provision in the Corporation's by-laws requires that a person serving both
as a director and an officer shall not continue to serve as a director beyond
the date such person ceases to be an officer. Another by-law provision requires
that a director who is not an officer or employee retire from Board service at
the end of the first annual meeting of stockholders following such director's
70th birthday. One director, Philip C. Jackson, Jr., will retire at the end of
the 1999 annual meeting pursuant to such by-law provision, and the Corporation
has no immediate plans to nominate a successor.

Information shown for nominees and directors has been furnished to the
Corporation by such nominees and directors.

NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE-YEAR TERM TO EXPIRE IN 2002

ROBERT L. BARNETT, 58, President, Commercial, Governmental and Industrial
Solutions Sector, Motorola Corporation (since July 1998); President, Land Mobile
Products Sector, Motorola Corporation (1997-1998), Vice President and General
Manager, iDEN Group, Motorola Corporation (1995-1997), private consultant,
international telecommunications (1993-1994); formerly Vice Chairman of
Ameritech (1991-1992). He is a director of Johnson Controls, Inc., Central
Vermont Public Service Corporation and Objective Communications Inc. and is a
member of the Advisory Council of the Robert R. McCormick School of Engineering
and Applied Science at Northwestern University and of the Illinois University
Electrical Engineering and Computer Science Industrial Advisory Board. He is
affiliated with the Institute of Electrical and Electronics Engineers. Mr.
Barnett has been a director of the Corporation since May 1990. He is a member of
the Board's Audit and Compensation and Organization Committees.

DAVID W. FOX, 67, formerly Chairman and Chief Executive Officer (1990-1995)
and President (1987-1993) of Northern Trust Corporation and The Northern Trust
Company, banking and financial services. Mr. Fox is a past director of The
Federal Reserve Bank of Chicago and the Chicago Central Area Committee. He is a
Governor and current Chairman of the Chicago Stock Exchange, director and past
Chairman of Northwestern Memorial Hospital, and a trustee of the Adler
Planetarium, The Orchestral Association, and DePaul University. Mr. Fox has been
a director of the Corporation since May 1987, is a member of the Board's
Executive and Finance Committees and is Chairman of its Compensation and
Organization Committee.

VALERIE B. JARRETT, 42, Executive Vice President (since 1995) of The
Habitat Company; Commissioner, Department of Planning and Development, City of
Chicago (1992-1995). She is Chairman of the Board of Directors of the Chicago
Transit Authority, a director of the Regional Transportation Authority and
Chairman of its Planning Committee, and a director of the Bank of America
Illinois Advisory Board, The Chicago Network, the Metropolitan Planning Council,
The German Marshall Fund, The University of Chicago Laboratory Schools, the
Southeast Chicago Commission, The Fund for Community Redevelopment and
Revitalization, the University of Chicago Hospital and the Museum of Science and
Industry. She is also a member of the Visiting Committee of the University of
Chicago School of Public Policy. Ms. Jarrett has been a director of the
Corporation since August 1998 and is a member of the Board's Corporate Affairs
Committee.

MARVIN E. LESSER, 57, Managing Partner (since 1993) of Sigma Partners,
L.P., a private investment partnership. Mr. Lesser has also been a private
consultant since 1992. He was Managing Partner (1989-1994) of Cilluffo
Associates, L.P., a private investment partnership. Mr. Lesser is a past
director and Chair of the Seacoast Area Chapter (New Hampshire and Maine) of the
American Red Cross. He has been a director of the Corporation since May 1993 and
is a member of the Board's Audit and Finance Committees.

RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the election of the nominees listed

Directors Whose Terms Expire in 2000

KEITH A. BROWN, 47, President (since 1987) of Chimera Corporation, a
private management holding company. He is a director of Myers Industries, inc.
and Morgan FunShares, Inc., a closed-end investment company. Mr. Brown has been
a director of the Corporation since May 1993 and he is a member of the Board's
Audit, Finance and Corporate Affairs Committees and its Committee on Directors.

JAMES C. COTTING, 65, retired Chairman (1987-1996) and Chief Executive
Officer (1987-1995) of Navistar International Corporation, truck and diesel
engine manufacturing and financial services. Mr. Cotting is a director of Asarco
Incorporated and a member of the Board of Governors of the Chicago Stock
Exchange. Mr. Cotting has been a director of the Corporation since October 1987,
is a member of the Board's Executive and Corporate Affairs Committees and
Committee on Directors and is Chairman of its Finance Committee.

W. DOUGLAS FORD, 55, Executive Vice President of BP Amoco p.l.c. and its
predecessor, Amoco Corporation (since 1993); formerly President (1992-1993) and
Executive Vice President (1991-1992) of Amoco Oil Company. Mr. Ford was elected
a director of the Corporation in November 1996 and is a member of the Board's
Compensation and Organization and Corporate Affairs Committees and its Committee
on Directors.

JOHN B. SCHWEMM, 64, retired Chairman (1983-1989) and Chief Executive
Officer (1983-1988) of R.R. Donnelley & Sons Company, commercial and financial
printing. He serves as a director of Walgreen Company and William Blair Mutual
Funds; he also serves as a Life Trustee of Northwestern University. Mr. Schwemm
has been a director of the Corporation since May 1988 and is a member of the
Board's Executive, Audit and Compensation and Organization Committees and is
Chairman of its Committee on Directors.

Directors Whose Terms Expire in 2001

W.H. CLARK, 66, formerly Chairman of the Board (1984-1994), Chief Executive
Officer (1982-1994) and President (1982-1990) of Nalco Chemical Company of
Naperville, Illinois, specialized chemicals and technology. He is a director of
Bethlehem Steel Corporation, Ultramar Diamond Shamrock Corporation, Fort James
Corporation, Merrill Lynch Corporation, and Millenium Chemicals, Inc. Mr. Clark
has been a director of the Corporation since August 1985, is a member of the
Board's Executive and Compensation and Organization Committees, Committee on
Directors and is Chairman of its Audit Committee.

LAWRENCE M. CRUTCHER, 56, Managing Director (since 1990) of Veronis, Suhler
& Associates, investment bankers. Mr. Crutcher has been a director of the
Corporation since May 1993 and is a member of the Board's Finance and Corporate
Affairs Committees and its Committee on Directors.

WILLIAM C. FOOTE, 48, Chairman (since April 1996), President (January
1996-June 1997) and Chief Executive Officer (since January 1996); President and
Chief Operating Officer (January 1994-December 1995); President and Chief
Executive Officer, USG Interiors, Inc. (January 1993-December 1993); President
and Chief Executive Officer, L&W Supply Corporation (September 1991-December
1993). He joined the Corporation in January 1984 and was appointed Vice
President, Strategic Planning and Corporate Development, USG Corporation in
March 1985. Mr. Foote is a director of GATX Corporation and Walgreen Co. He also
serves as a director of Northwestern Memorial Hospital, as a trustee of the
Museum of Science and Industry, and as a member of the INROADS Joint Advisory
Council. He has been a director of the Corporation since March 1994 and is
Chairman of the Board's Executive Committee.

P. JACK O'BRYAN, 63, President and Chief Operating Officer (since June
1997); Executive Vice President Operations (October 1996 to May 1997); Senior
Vice President - Worldwide Manufacturing and Technology (September 1994 to
October 1995); Senior Vice President and Chief Technology Officer (January 1993
to August 1994); President and Chief Executive Officer, L&W Supply Corporation
(since February 1999); President and Chief Executive Officer, United States
Gypsum Company (October 1996 to February 1999), and USG Interiors, Inc. (October
1995 to February 1999). Mr. O'Bryan joined the Corporation in 1958. He is a
director of the National Association of Manufacturers. Mr. O'Bryan has been a
director since August 1997.

JUDITH A. SPRIESER, 45, Executive Vice President and Chief Financial Officer
(since October 1998) of Sara Lee Corporation, packaged food and consumer
products. Ms. Sprieser has been with Sara Lee Corporation since 1987 and served
as Senior Vice President and Chief Financial Officer (1994-1998), and as
President and Chief Executive Officer (1993-1994) and Chief Financial Officer
(1990-1993) of Sara Lee Bakery, North America. She is also a director of Sara
Lee Corporation. She has been a director of the Corporation since February 1994
and is a member of the Board's Audit, Compensation and Organization and Finance
Committees and its Committee on Directors.

Director Retiring Upon Conclusion of 1999 Annual Meeting

PHILIP C. JACKSON, JR., 70, formerly Vice Chairman and a director of
Compass Bank, Birmingham, Alabama, and of its parent company, Compass Bancshares
(1980-1989), banking and financial services; currently Adjunct Professor,
Birmingham-Southern College, Birmingham, Alabama (since January 1989). Mr.
Jackson was a member (April 1990-April 1993) of the Thrift Depositors Protection
Oversight Board, Washington, D.C. He serves as a Director of Saul Centers, Inc.
and International Realty Corp. Mr. Jackson is Trustee, Birmingham - Southern
College, Birmingham, Alabama. He has been a director of the Corporation since
May 1979, is a member of the Board's Executive Committee and Committee on
Directors and is Chairman of its Corporate Affairs Committee.

The Board of Directors held six meetings during 1998 and the standing
committees of the Board of Directors held an aggregate of 16 meetings during
that year. Each director other than Ms. Sprieser attended at least 75% of the
aggregate number of meetings in 1998 of the Board of Directors and the Board
committees on which he or she served.

Committees of the Board of Directors

The Board of Directors has established an Executive Committee, consisting of
Mr. Foote, as Chairman, and Messrs. Clark, Cotting, Fox, Jackson and Schwemm,
which, to the extent permitted by law, is authorized to exercise the power of
the Board with respect to the management of the business and affairs of the
Corporation between Board meetings. The Executive Committee did not meet in
1998. The other standing committees of the Board of Directors are the Audit,
Compensation and Organization, Finance and Corporate Affairs Committees and the
Committee on Directors.

The Audit Committee has ongoing responsibilities with respect to adequacy of
financial reporting, compliance with corporate policies, and the efficacy of
corporate controls. These responsibilities include providing reasonable
assurance to the Board of Directors that the Corporation's financial disclosure
fairly portrays its financial condition, results of operations, and long-term
plans and commitments and that there has been substantial compliance with
corporate policies applicable to business conduct. The Committee also monitors
the Corporation's system of internal controls for adequacy and implementation.
It selects and employs a firm of certified public accountants (which selection
and employment is subject to ratification by stockholders). It confers with the
auditors regarding the scope of the audit and other services and the cost
thereof and reviews with the auditors the findings disclosed during the audit,
including matters relating to internal controls, the internal auditing function,
accounting policies and financial reporting. The Committee members are W. H.
Clark, Chairman, Robert L. Barnett, Keith A. Brown, Marvin E. Lesser, John B.
Schwemm and Judith A. Sprieser. The Audit Committee held four meetings during
1998.

The Compensation and Organization Committee reviews and makes
recommendations to the Board of Directors with respect to management
organization, succession and development programs, and the election of
Corporation officers. The Committee reviews and approves Corporation officers'
salaries, incentive compensation, and bonus awards. The Committee, or a
subcommittee thereof, also makes the decisions required by a committee of the
Board of Directors under all stock option and restricted and deferred stock
plans which the Corporation has adopted or may adopt and approves and reports to
the Board of Directors changes in salary ranges for all major position
categories and changes in Corporation retirement plans, group insurance plans,
investment plans, and management incentive compensation, bonus, and other
benefit plans. The members of the Committee are David W. Fox, Chairman, Robert
L. Barnett, W. H. Clark, W. Douglas Ford, John B. Schwemm and Judith A.
Sprieser. The Compensation and Organization Committee held two meetings during
1998.

The Finance Committee provides review and oversight of and makes
recommendations to the Board of Directors on the Corporation's financing
requirements and programs to obtain funds; forecasting procedures on revenues,
expenses, earnings, and cash flow; operating and capital expenditures budgets;
relationships and communications with banks, other lenders and creditors, and
stockholders; and adoption of any stock-based or significant cash compensation
plan for key employees (other than an annual cash bonus plan consistent with
past practice). The Committee reports periodically to the Board on the funding
and investment performance of qualified pension plans of the Corporation and its
subsidiaries and authorizes necessary or desirable changes in actuarial
assumptions for funding those pension plans. The Committee also considers such
other matters as may be referred to it from time to time by the Board. The
Committee members are James C. Cotting, Chairman, Keith A. Brown, Lawrence M.
Crutcher, David W. Fox, Marvin E. Lesser and Judith A. Sprieser. The Finance
Committee held six meetings during 1998.

The Corporate Affairs Committee reviews and recommends policies and
programs important to the Corporation's position with those various
constituencies whose understanding and goodwill are necessary to the
Corporation's success. It reports periodically to the Board on the Corporation's
activities in fulfilling its social responsibilities and complying with public
policy. The members of the Committee are Philip C. Jackson, Jr., Chairman, Keith
A. Brown, James C. Cotting, Lawrence M. Crutcher, W. Douglas Ford and Valerie B.
Jarrett. The Committee held two meetings in 1998.

The Committee on Directors makes recommendations to the Board of Directors
concerning the size and composition of the Board and committees of the Board,
recommends nominees for election or reelection as directors, and considers other
matters pertaining to Board membership such as benefits and compensation of
non-employee directors. The members of the Committee are John B. Schwemm,
Chairman, Keith A. Brown, W. H. Clark, James C. Cotting, Lawrence M. Crutcher,
W. Douglas Ford, Philip C. Jackson, Jr., and Judith A. Sprieser. The Committee
held two meetings during 1998.

The Committee on Directors will consider recommendations from Corporation
stockholders of director nominee candidates. Such recommendations must be in
writing and must include a brief account of the individual's business experience
during the past five years, including principal occupations and employment
during that period and the name and principal business of any corporation or
other organization in which that individual is a director. Such recommendations
should be sent to the Committee on Directors, attention of the Corporate
Secretary, at the principal office of the Corporation. Recommendations may be
submitted at any time but will not be considered by the Committee in connection
with the annual meeting of a given year unless received on or before December 1
of the prior year.

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth information known to the Corporation
regarding the beneficial ownership of Common Stock as of the Record Date by each
current director and each of the five most highly compensated executive officers
of the Corporation in 1998, and by all current directors and executive officers
of the Corporation as a group (31 persons). Such information is derived from the
filings made with the SEC by such persons under Section 16(a) of the Securities
Exchange Act of 1934, as amended, and subsequent information received by the
Corporation. The totals include any shares which such individuals have the right
to acquire within 60 days of the Record Date through the exercise of stock
options, restricted stock subject to risk of forfeiture, and any shares
allocated to the accounts of those individuals through December 31, 1998, under
the USG Corporation Investment and Supplemental Retirement Plans.

Shares Beneficially Option Shares Total and
Owned, Excluding Exercisable Percent of
Name Options (a)(b) Within 60 Days Class (f)
---- -------------- -------------- ---------

Robert L. Barnett ............... 3,750 0 3,750
Keith A. Brown................... 138,170(c) 0 138,170
W. H. Clark...................... 5,358 0 5,358
James C. Cotting................. 3,129 0 3,129
Lawrence M. Crutcher............. 10,456(d) 0 10,456
Richard H. Fleming............... 49,497 118,000 167,497
William C. Foote................. 104,731(e) 120,000 224,731
W. Douglas Ford.................. 1,285 0 1,285
David W. Fox..................... 5,402 0 5,402
Philip C. Jackson, Jr............ 5,115 0 5,115
Valerie B. Jarrett............... 75 0 75
Arthur G. Leisten................ 27,694 41,000 68,694
Marvin E. Lesser................. 3,325 0 3,325
P. Jack O'Bryan.................. 75,091 87,000 162,091
Harold E. Pendexter, Jr.......... 40,186 91,000 131,186
John B. Schwemm.................. 3,787 0 3,787
Judith A. Sprieser ............. 2,349 0 2,349

All directors and executive
officers as a group (31 persons),
including those directors and
executives named above........... 684,881 737,650 1,422,456

(a) Includes restricted stock grants to executive officers subject to risk
of forfeiture, as follows: Mr. Fleming, 36,000 shares; Mr. Foote, 60,000 shares;
Mr. Leisten, 24,000 shares; Mr. O'Bryan, 40,000 shares; Mr. Pendexter, 24,000
shares; all executive officers as a group: 356,500 shares.

(b) Includes deferred stock units under the Stock Compensation Program for
Non-Employee Directors, as follows: Mr. Cotting, 501 units; and Mr. Lesser, 870
units. See "Director Compensation" below.

(d) Includes 5,990 shares held by Mr. Crutcher as trustee for the benefit
of his adult children in which shares he disclaims beneficial ownership.

(e) Includes 5,000 shares held by Mr. Foote's spouse, Kari H. Foote, in
which shares he disclaims beneficial ownership.

(f) Total beneficial ownership of 1,422,456 shares of Common Stock by
members of the group identified above represents approximately 2.9% of total
outstanding shares of Common Stock; no individual holding within such group
exceeded approximately 0.45% of total outstanding shares.

SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires that the
Corporation's executive officers, directors and 10% owners file reports of
ownership and changes of ownership of Common Stock with the SEC and the New York
Stock Exchange. Based on a review of copies of such reports provided to the
Corporation during 1998, the Corporation believes that all filing requirements
were met during such year.

COMPENSATION OF EXECUTIVE OFFICERS

The discussion that follows has been prepared based on the actual
compensation paid and benefits provided by the Corporation to the five most
highly compensated executive officers of the Corporation (collectively, the
"Named Executives"), for services performed during 1998 and the other periods
indicated. This historical data is not necessarily indicative of the
compensation and benefits that may be provided to such persons in the future.

Summary Compensation Table

The following table summarizes for the years indicated the compensation
awarded to, earned by or paid to the Named Executives for services rendered in
all capacities to the Corporation and its subsidiaries.

Long-Term Compensation
----------------------
Annual Compensation Awards Payouts
-------------------------------------- -------------------- --------------------
Other
Annual Restricted All Other
Compen- Stock Options/ LTIP Compen-
Name and Salary Bonus sation Awards SARs Payouts sation
Principal Position Year ($) ($)(a) ($)(b) ($)(c) (#) ($) ($)(d)
- ------------------------ ---- -------- -------- -------- -------- ------- ------- --------

William C. Foote 1998 $637,500 $524,615 $50,997 $726,300 35,000 - $ 75,259
(Chairman and 1997 562,500 598,280 79,627 498,750 35,000 - 68,958
CEO) 1996 500,000 477,593 59,236 440,625 35,000 - 42,881

P. Jack O'Bryan 1998 475,000 332,064 53,012 484,200 25,000 - 49,347
(President and Chief 1997 435,417 335,300 - 332,500 22,000 - 43,566
Operating Officer) 1996 363,335 221,708 - 205,625 15,000 - 29,754

Harold E. Pendexter, Jr. 1998 346,333 233,275 55,718 338,940 15,000 - 35,613
(Senior Vice President 1997 326,333 238,440 - 166,250 13,000 - 33,334
and Chief 1996 318,000 176,456 - 146,875 13,000 - 27,101
Administrative
Officer)

Arthur G. Leisten 1998 328,000 214,995 - 338,940 15,000 - 34,828
(Senior Vice President 1997 316,333 243,890 - 166,250 13,000 - 32,671
and General Counsel) 1996 308,000 176,456 - 146,875 13,000 - 26,555

Richard H. Fleming 1998 316,667 208,480 - 884,565 15,000 - 32,525
(Senior Vice President 1997 295,000 208,410 - 232,750 15,000 - 31,256
and Chief Financial 1996 270,000 176,456 - 205,625 13,000 - 24,480
Officer)(e)

(a) Reflects payments arising from cash award opportunities under the
Corporation's Annual Management Incentive Program. The amounts shown are taken
into account for purposes of computing benefits under the Corporation's
retirement plans.

(b) Mr. Foote's Other Annual Compensation included $14,400 in automobile
allowance in each of the years 1996 through 1998, and $15,457 and $28,568 in
estate planning reimbursement in 1996 and 1997, respectively; Mr. O'Bryan's
Other Annual Compensation for 1998 included $14,400 in automobile allowance; Mr.
Pendexter's Other Annual Compensation for 1998 included $14,684 in Executive
Death Benefit Plan and Accidental Death and Dismemberment Coverage and $14,400
in Automobile Allowance; no other Named Executive had perquisites and other
personal benefits aggregating the lesser of either $50,000 or 10 percent of
salary and bonus for 1998, 1997 or 1996.

(c) Indicated amounts arise from performance-based restricted stock awards
on January 2, 1998, January 2, 1997, and January 2, 1996, respectively, and the
grant of a time-vested restricted stock award of 10,000 shares to Mr. Fleming on
February 11, 1998. The aggregate restricted stock holdings of each of the Named
Executives as of December 31, 1998, and the value of such holdings on such date,
are as follows: Mr. Foote, 45,000 shares, $2,287,800; Mr. O'Bryan, 27,000
shares, $1,372,680; Mr. Pendexter, 17,000 shares, $864,280; Mr. Leisten, 17,000
shares, $864,280; and Mr. Fleming, 29,000 shares, $1,474,360. Such restricted
stock is eligible for any dividend paid on shares of the Corporation's common
stock. In addition to such restrictive stock awards, the Named Executives were
granted the nonqualified stock options described in the chart below titled
"Option/SAR Grants in Last Fiscal Year" on January 2, 1998.

(d) All other Compensation for the Named Executives for each year consisted
solely of matching contributions from the Corporation to defined contribution
plans.

(e) Mr. Fleming was named Executive Vice President and Chief Financial
Officer on February 10, 1999.

Option/SAR Grants In Last Fiscal Year (a)

Potential
Realizable Value
At Assumed Annual
Individual Grants Rates of Stock
---------------------------------------------------- Price Appreciation
Securities % of Total For Option Term(c)
Underlying Options/SARs ---------------------
Options/SARs Granted To Exercise
Granted Employees Price Expiration
(#)(b) In 1998 ($/SH) Date 5%($) 10%($)
------ ------- ------ ---- ----- ------

William C. Foote................ 35,000 8.70 48.42 1/2/08 1,065,750 2,700,915
P. Jack O'Bryan................. 25,000 6.21 48.42 1/2/08 761,250 1,929,250
Harold E. Pendexter, Jr......... 15,000 3.73 48.42 1/2/08 456,750 1,157,550
Arthur G. Leisten............... 15,000 3.73 48.42 1/2/08 456,750 1,157,550
Richard H. Fleming ............. 15,000 3.73 48.42 1/2/08 456,750 1,157,550

(a) No SARs were granted in 1998, and no SARs have been granted or are
outstanding under any of the Corporation's long-term equity plans with
outstanding awards.

(b) Options granted on January 2, 1998, at an exercise price equal to the market
value of a share of Common Stock on such date. These options become exercisable
on the second anniversary of the date of the grant and expire on the tenth
anniversary of the date of grant except in the case of retirement, death or
disability in which case they expire on the earlier of the fifth anniversary of
such event or the expiration of the original option term.

Aggregated Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End Option/SAR Values (a)

Number of Securities
Number of Underlying Unexercised Value of Unexercised In-
Shares Options/SARs at Fiscal the-Money Options/SARs
Underlying Year-End At Fiscal Year-End
Options Value ------------------------------ ---------------------------
Exercised Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) ($) ($) ($)
---- --- --- --- --- --- ---

William C. Foote 0 0 135,000 70,000 6,863,400 3,558,800
P. Jack O'Bryan 20,000 1,095,000 65,000 47,000 3,304,600 2,389,480
Harold E. Pendexter, Jr. 10,000 533,750 78,000 28,000 3,965,520 1,423,520
Arthur G. Leisten 25,000 1,165,320 48,000 28,000 2,440,320 1,423,520
Richard H. Fleming 10,000 551,875 103,000 30,000 5,236,520 1,525,200

(a) No SARs were outstanding as of December 31, 1998.

Employment Agreements

In order to assure continued availability of services of the Named
Executives, the Corporation, or one of its subsidiaries, entered into employment
agreements (the "Employment Agreements") with such Named Executives in 1993
which superseded substantially identical agreements entered into on various
dates prior to 1993. The Employment Agreements have a current term expiring on
December 31, 2000, and will automatically renew for successive two-year terms
unless the Corporation elects not to renew not less than 120 days before the
expiration of the then current term.

The Employment Agreements provide for minimum annual salaries at the then
current rate to be paid at normal pay periods and at normal intervals to such
Named Executives, with the minimum annual salaries deemed increased concurrently
with salary increases authorized by the Compensation and Organization Committee
of the Board of Directors. The Employment Agreements require that each such
Named Executive devote full attention and best efforts during the term of such
agreement to the performance of assigned duties. A Named Executive discharged
without cause by the Corporation during the term of an Employment Agreement may
elect to be treated as a continuing employee under such agreement, with salary
continuing at the minimum rate specified in such agreement or at the rate in
effect at the time of discharge, if greater, for the balance of the term of the
Employment Agreement or for a period of two years, whichever is greater. In the
event of any such salary continuation, certain benefits will be continued at
corresponding levels and for the same period of time. If a Named Executive
becomes disabled during the term of an Employment Agreement, compensation
continues for the unexpired term of the Employment Agreement at the rate in
effect at the inception of the disability. In the event of a Named Executive's
death during the term of an Employment Agreement, one-half of the full rate of
compensation in effect at the time of death will be paid to the Named
Executive's beneficiary for the remainder of the unexpired term of the
Employment Agreement.

Each such Named Executive has undertaken, during the term of such
Employment Agreement and for a period of three years thereafter, not to
participate, directly or indirectly, in any enterprise which competes with the
Corporation or any of its subsidiaries in any line of products in any region of
the United States. Each such Named Executive has also agreed not to, at any
time, use for personal benefit or the benefit of others or disclose to others
any of the Corporation's confidential information except as required by the
performance of duties under an Employment Agreement.

Termination Compensation Agreements

The Corporation is a party to termination compensation agreements with the
Named Executives which have a current term expiring on December 31, 1999, and
which will automatically renew for successive two-year terms unless the
Corporation elects not to renew not less than 120 days before the expiration of
the then current term. A Named Executive's agreement terminates upon the earlier
of retirement or attaining age 65.

The agreements provide certain benefits in the event of a "change in
control" and termination of employment within three years thereafter or prior to
the Named Executive attaining age 65, whichever is earlier, but only if such
termination occurs under one of several sets of identified circumstances. Such
circumstances include termination by the Corporation other than for "cause" and
termination by the Named Executive for "good reason." Each "change in control"
will begin a new three-year period for the foregoing purposes. For purposes of
the agreements: (i) a "change in control" is deemed to have occurred, in
general, if any person or group of persons acquires beneficial ownership of 20%
or more of the combined voting power of the Corporation's then outstanding
voting securities, if there is a change in a majority of the members of the
Board within a two-year period and in certain other events; (ii) the term
"cause" is defined as, in general, the willful and continued failure by the
Named Executive substantially to perform his or her duties after a demand for
substantial performance has been delivered or the willful engaging of the Named
Executive in misconduct which is materially injurious to the Corporation; and
(iii) "good reason" for termination by a Named Executive means, in general,
termination subsequent to a change in control based on specified changes in the
Named Executive's duties, responsibilities, titles, offices or office location,
compensation levels and benefit levels or participation.

The benefits include payment of full base salary through the date of
termination at the rate in effect at the time of notice of termination, payment
of any unpaid bonus for a past fiscal year and pro rata payment of bonus for the
then current fiscal year, and continuation through the date of termination of
all stock ownership, purchase and option plans and insurance and other benefit
plans. In the event of a termination giving rise to benefits under the
agreements, the applicable Named Executive will be entitled to payment of a lump
sum amount equal to 2.99 times the sum of (i) the then annual base salary,
computed at 12 times the then current monthly pay and (ii) the full year
position par bonus for the then current fiscal year, subject to all applicable
federal and state income taxes, together with payment of a gross-up amount to
provide for applicable federal excise taxes in the event such lump sum and all
other benefits payable to the Named Executive constitute an "excess parachute
payment" under the Internal Revenue Code. The Corporation is required to
maintain in full force and effect until the earlier of (i) two years after the
date of any termination which gives rise to benefits under any of the agreements
and (ii) commencement by the Named Executive of full-time employment with a new
employer, all insurance plans and arrangements in which the Named Executive was
entitled to participate immediately prior to termination in a manner which would
give rise to benefits under the agreements, provided that if such participation
is barred, the Corporation will be obligated to provide substantially similar
benefits. In the event of any termination giving rise to benefits under the
agreements, the Corporation is required to credit the applicable Named Executive
with three years of benefit and credited service in addition to the total number
of years of benefit and credited service the Named Executive accrued under the
USG Corporation Retirement Plan. See "Retirement Plans" below. A Named Executive
with a total of less than five years of credited service following such
crediting will nonetheless be treated as if fully vested under that Plan, but
with benefits calculated solely on the basis of such total benefit service.

The Corporation is obligated to reimburse all legal fees and expenses
incurred by a Named Executive as a result of a termination which gives rise to
benefits under an agreement, including all fees and expenses incurred in
contesting or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided under such agreement. No amounts are payable under
such agreements if the Named Executive's employment is terminated by the
Corporation for "cause" or if the Named Executive terminates his employment and
"good reason" does not exist.

The Corporation has established a so-called "rabbi trust" to provide a
source of payment for benefits payable under such agreements. Immediately upon
any change in control, the Corporation may deposit with the trustee under such
trust an amount reasonably estimated to be potentially payable under all such
agreements, taking into account any previous deposits. In the event that the
assets of such trust in fact prove insufficient to provide for benefits payable
under all such agreements, the shortfall would be paid directly by the
Corporation from its general assets.

Retirement Plans

The following table shows the annual pension benefits on a straight-life
annuity basis for retirement at normal retirement age under the terms of the
Corporation's contributory retirement plan (the "Retirement Plan"), before the
applicable offset of one-half of the primary Social Security benefits at time of
retirement. The table has been prepared for various compensation classifications
and representative years of benefit service under the Plan. Each participating
employee contributes towards the cost of his or her retirement benefit.
Retirement benefits are based on the average rate of annual covered compensation
during the three consecutive years of highest annual compensation in the ten
years of employment immediately preceding retirement. Participants become fully
vested after five years of continuous credited service.

Retirement Plan Table
Years of Benefit Service
------------------------
Covered Compensation 20 25 30 35 40
-----------------------------------------------------------------------------------------------------------

$ 200,000 ................... $ 64,000 $ 80,000 $ 96,000 $112,000 $ 128,000
400,000.................... 128,000 160,000 192,000 224,000 256,000
600,000.................... 192,000 240,000 288,000 336,000 384,000
800,000.................... 256,000 320,000 384,000 448,000 512,000
1,000,000.................... 320,000 400,000 480,000 560,000 640,000
1,200,000.................... 384,000 480,000 576,000 672,000 768,000
1,400,000.................... 448,000 560,000 672,000 784,000 896,000
1,600,000.................... 512,000 640,000 768,000 896,000 1,024,000

The Named Executives participate in the Retirement Plan. The full years of
continuous credited service of the Named Executives at December 31, 1998, were
as follows: Mr. Foote, 15; Mr. O'Bryan, 40; Mr. Pendexter, 41; Mr. Leisten, 23;
and Mr. Fleming, 25. Compensation under the Retirement Plan includes salary and
cash incentive compensation for the year in which payments are made.

Pursuant to a supplemental retirement plan, the Corporation has undertaken
to pay any retirement benefits otherwise payable to certain individuals,
including the Named Executives, under the terms of the Corporation's
contributory Retirement Plan but for provisions of the Internal Revenue Code
limiting amounts payable under tax-qualified retirement plans in certain
circumstances. The Corporation has established a so-called "rabbi trust" to
provide a source of payment for benefits under this supplemental plan. Amounts
are deposited in this trust from time to time to provide a source of payments to
participants as they retire as well as for periodic payments to certain other
retirees. In addition, the Corporation has authorized establishment by certain
individuals, including Messrs. O'Bryan and Pendexter, of special retirement
accounts with independent financial institutions as an additional means of
funding the Corporation's obligations to make such supplemental payments.

Director Compensation

Directors who are not employees of the Corporation are currently entitled
to receive a retainer of $6,500 per quarter plus a fee of $1,200 for each Board
or Board committee meeting attended, together with reimbursement for
out-of-pocket expenses incurred in connection with attendance at meetings. A
non-employee director serving as chairman of a committee is entitled to receive
an additional retainer of $1,000 per quarter for each such chairmanship. The
third quarter retainer is paid in common stock of the Corporation having a value
of $6,500. Directors may elect to receive some or all of the retainers for the
other three quarters, as well as meeting fees and chairmen's retainers, in cash
or in the form of deferred stock units which will increase or decrease in value
in direct relation to shares of Common Stock and be paid in cash upon
termination of Board service ("Deferred Stock Units"). Additional fees for
pre-meeting consultations may be paid as applicable to non-employee directors,
the amount of such fees to bear a reasonable relationship to the regular meeting
fee of $1,200 and the customary length of a meeting of the Board committee
involved. Commencing in 1998, non-employee directors also receive annual grants
of 500 shares of common stock (prorated in the event of less than one year's
service) on July 1 each year. Directors may elect to defer such annual grants
into Deferred Stock Units. No director of the Corporation has received any
compensation of any kind for serving as a director while also serving as an
officer or other employee of the Corporation or any of its subsidiaries.

COMPENSATION AND ORGANIZATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION

The Compensation and Organization Committee of the Board of Directors (the
"Committee"), which is composed entirely of independent, non-employee directors,
has overall responsibility for the Corporation's executive compensation
programs. The Committee or a subcommittee thereof approves the policy and design
of all compensation plans covering executive officers and approves performance
goals, position values, base salary ranges and increases, incentive opportunity
awards and payouts, stock-based awards and related executive compensation
issues.

The Corporation's executive compensation strategy has been designed to
reward executives who plan and lead the Corporation in achieving its financial
and strategic business objectives. Accordingly, executive compensation programs
are developed and administered to promote the linkage of pay to corporate
performance and the alignment of the interests of the Corporation's executives
with that of its stockholders. This philosophy encompasses the following guiding
principles:

1. A significant portion of the total compensation opportunity is variable
and dependent upon the Corporation's annual and long-term business and
financial performance.

2. Compensation programs are designed to drive and reinforce the
attainment of short-term operational objectives through annual
incentive cash awards and longer-range strategic initiatives through a
long-term equity program. Compensation levels are increased when
established performance goals are exceeded and reduced when established
targets are not achieved.

3. The programs provide overall compensation opportunities that are at
competitive levels with comparably sized industrial companies.

The components of the Corporation's executive compensation program are
comprised of base salary, annual incentive cash awards and a long-term equity
program.

Each year, the Committee conducts a comprehensive evaluation of the
Corporation's executive compensation programs: For 1998, the Committee compared
the Corporation's salary and cash incentive programs to those of a peer group of
approximately 600 participants representing 405 industrial organizations as well
as to a smaller group of approximately 100 industrial companies with similar
annual revenues ($1 billion to $3 billion) that represent the Corporation's
direct competition for executive talent. The Committee also reviewed annualized
option grant values of a peer group of over 600 industrial organizations. (The
peer groups reviewed for compensation purposes are significantly broader than
the Building Materials Group used in the graph of cumulative stockholder return
included in this proxy statement, with any overlapping coincidental. The former
groups are utilized to assess compensation practices and trends among industrial
enterprises generally and comparably sized companies with which the Corporation
competes for executive talent specifically, while the latter group was selected
to reflect business compatibility in stockholder return comparisons.) In
addition, the Committee considers recommendations from the Corporation's Human
Resources Department, which works closely with independent compensation
consultants. In reviewing the compensation of executives other than the Chief
Executive Officer, the Committee also considers the Chief Executive Officer's
counsel and recommendations.

Base Salaries

Prior to 1997, salary ranges were established for each position, and the
amount and timing of individual executive salary increases varied based upon
performance rating and contribution, current salary relative to midpoint for the
established salary range, career progress and the annual salary budget
allotment.

In September 1996, the Committee determined to institute the use of
internal market rates, in lieu of salary ranges, as managing points for the base
salaries of the 20 most senior executive positions, beginning in 1997. The
Committee believed that the change, due to the uniqueness of the applicable
positions, would enhance flexibility in executive salary administration.
External market rates for each of the positions at the approximate 60th
percentile of salaries for comparable positions were determined using survey
data from independent compensation consultants. An internal market rate was then
established for each position either at, below or above the external rate based
on relevant internal factors including impact on the Corporation and relative
scope of the position. Internal market rates for all applicable positions will
be reviewed by the Committee annually and adjusted, if warranted by personal
performance, job description and external market rates, as of a common date.

Annual Incentive Cash Awards

The Corporation's executive officers are eligible for annual incentive cash
awards under the provisions of the Annual Management Incentive Program
established under the Corporation's Omnibus Management Incentive Plan approved
by the stockholders in 1997. Approximately 270 officers and managers with
position values above a specified threshold were eligible to participate in the
program in 1998. The program provides for cash awards based upon the achievement
of established, quantifiable operational and financial objectives designed to
enhance the Corporation's overall performance. A lesser incentive award is paid
for goal achievement above threshold but below target and an increased incentive
award is paid for goal achievement above target. Each Named Executive has an
annual incentive opportunity (target) which is expressed as a percentage of
annualized salary and varies with the participant's level of management
accountability. Program measurements for 1998 were based upon an income goal and
the attainment of strategic focus objectives derived from the formal planning
process. Actual income goal achievement may result in an upward or downward
adjustment to the portion of the award based on goal income. A third step in the
award calculation provides for an adjustment, either upward or downward, for
personal performance (except in the case of the 19 most senior executives,
including the Named Executives), to determine an annual management incentive
award. Maximum awards are capped at 200% of target. Annual goals are reviewed
and approved by the Committee. Awards are approved by the Committee following
its written certification of goal attainment and are payable in cash. Corporate
goal achievement for 1998 resulted in awards averaging 121.8% of target to the
Named Executives.

Long-Term Equity Program

Non-qualified stock options for 402,500 shares were granted in 1998 to 69
executives and senior managers, in each case at an exercise price equal to
market value on the date of grant. These options generally become exercisable in
full on the second anniversary of the date of the grant. In determining
individual award levels of such grants to executive officers, the Committee
considered a number of objective factors, such as survey data with respect to
award multiples among comparably sized corporations, and a number of subjective
factors, including the individual's assigned position value, anticipated career
path and performance rating. The Committee also considered survey data
indicating that annualized option grant values overall as a multiple of base
salary ranked in the approximate 50th percentile of surveyed companies.

The 21 most senior executives and managers received a portion approximating
30% of their 1998 long-term equity grants in the form of performance-based
restricted stock which is subject to risk of forfeiture after three years based
on performance in relation to the cumulative shareholder returns of a peer group
of 21 building materials companies. A shareholder return (including reinvestment
of dividends) for the Corporation at the 70th percentile or better of the peer
group is required for a 100% pay-out, with smaller percentile returns resulting
in lower pay-outs and no pay-out for shareholder return below the 40th
percentile.

Limitations On Compensation Deductibility

The Committee has reviewed the effect on the Corporation's executive
compensation programs of provisions of the Internal Revenue Code limiting the
deductibility of annual covered compensation in excess of $1 million in any year
by the Corporation paid to its chief executive officer and the four other most
highly compensated executive officers for such year. Based upon such review, the
Committee believes that compensation to any such executive officer in 1998 from
(i) annual incentive cash awards for that year, or (ii) in connection with
exercises of stock options, will be deemed performanced-based and exempt from
the calculation of covered compensation subject to the deductibility limitation,
resulting in no limitation on the deductibility of annual covered compensation
for 1998. The Committee also believes that compensation to any executive officer
in connection with shares deemed earned under any award of performance-based
restricted stock, commencing in 1999, will similarly be exempt. It is the view
of the Committee that there is no practicable action that could be taken to
qualify regular salaries or other likely annual compensation, other than the
aforementioned performance-based compensation, for such exemption under the
applicable provision of the Internal Revenue Code as currently in effect.

The Chief Executive Officer's 1998 Compensation

In 1998, the compensation for William C. Foote consisted principally of (i)
salary of $637,500; (ii) a 1998 annual incentive cash award of $524,615; and
(iii) long-term incentive compensation consisting of (a) a grant of a
non-qualified stock option for 35,000 shares of Common Stock, and (b) a grant of
performance-based restricted stock of 15,000 shares of Common Stock.

Base Salary

Mr. Foote's base salary as of March 1, 1998, was approved by the Committee
in February 1998. The Committee set Mr. Foote's base salary at an annual rate of
$650,000, an increase of $75,000 over the base salary effective on March 1,
1997, the date of his last increase. Following such increase, Mr. Foote's base
salary ranked in the 39th percentile of the survey group. In determining Mr.
Foote's base salary, the Committee considered the base salaries of chief
executive officers of comparably sized industrial companies, the Corporation's
strong operating performance in 1998, and Mr. Foote's tenure and individual
performance as Chief Executive Officer, including execution of the Corporation's
principal executive assignment and leadership in development of strategic and
financial plans and legal affairs.

Annual Management Incentive Plan

Mr. Foote's 1998 Annual Management Incentive Program award was determined
on the basis of the Corporation's overall achievement versus previously
determined goals described earlier in this report. Mr. Foote's 1998 annual
incentive opportunity (target) was expressed as 70%, or $455,000, of the
annualized salary for his position ($650,000) determined as discussed above. The
corporate goal achievement for 1998 described earlier in this report resulted in
an award of 115.3%, or $524,615, of target to Mr. Foote.

Long-Term Compensation

Mr. Foote's long-term compensation in 1998 was provided by: (a) the grant
of a non-qualified stock option for 35,000 shares of Common Stock; and (b) the
grant of performance-based restricted stock for 15,000 shares of Common Stock
described earlier. These grants were upon the same terms, and involved the
Committee's consideration of the same factors, described earlier in this report
with respect to all 1998 grants. The Committee also considered survey data
indicating that Mr. Foote's annualized grant value as a multiple of base salary
ranked in the approximate 50th percentile of values among surveyed companies.

The Committee believes that the Corporation's executive compensation
program provides competitive opportunities for executives who contribute to the
success of the Corporation in achieving its financial and strategic business
objectives. In 1998, the Named Executives received approximately 69.8% of their
compensation from corporate performance-based variable elements. The Committee
intends to continue the policy of linking executive compensation to corporate
performance and to monitor the effectiveness of the program, and the Committee
will institute changes as it deems appropriate to promote policy goals.

This report is submitted by the members of the Compensation and Organization
Committee:

DAVID W. FOX, CHAIRMAN
ROBERT L. BARNETT
W. H. CLARK
W. DOUGLAS FORD
JOHN B. SCHWEMM
JUDITH A. SPRIESER

PERFORMANCE GRAPH

The following graph and table compares the cumulative total stockholder
return on the Corporation's Common Stock with the Standard and Poor's 500 Index
(the "S&P 500") and a peer group of companies in the building materials industry
selected by the Corporation for purposes of comparison and described more fully
below (the "Building Materials Group"), in each case assuming an initial
investment of $100 and full dividend reinvestment, for the five-year period
ended December 31, 1998.

[GRAPHIC OMITTED]

Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----

USG Corporation $100 $67 $103 $116 $168 $175
S&P 500 100 101 140 171 229 294
Building 100 87 118 136 142 154
Materials Group

All amounts rounded to nearest dollar.

The Building Materials Group is comprised of the following 21 publicly
traded companies in the building materials industry for all periods reflected in
the performance graph, except as noted: Ameron, Inc., Apogee Enterprises, Inc.,
Armstrong World Industries, Inc., Bird Corp. (through 1997), Butler
Manufacturing Co., Crane Co., Elcor Corp., Fluor Corp., International Aluminum
Corp., Jannock, Ltd., Johns- Manville Corp., Justin Industries, Masco Corp.,
Morgan Products, Ltd., Morrison Knudsen Corp. (from mid-1996; prior periods
reflect returns of merger partner Washington Construction Group, Inc.),
Owens-Corning, Perini Corp., Ply-Gem Industries (through 1996), PPG Industries,
Inc., Thomas Industries, Inc., and TJ International, Inc.

ITEM NO. 2--RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS

The firm of Arthur Andersen LLP, Chicago, Illinois, has examined the
financial statements of the Corporation for many years. The following resolution
will be presented at the meeting to ratify the appointment by the Audit
Committee of the firm of Arthur Andersen LLP, as independent public accountants,
to examine the financial statements of the Corporation for the current year
ending December 31, 1999, and to perform other related accounting services.

RESOLVED: That the appointment by the Audit Committee of the Board of
Directors of Arthur Andersen LLP as independent public accountants of the
Corporation for the current year ending December 31, 1999, is hereby ratified,
approved, and confirmed.

The Corporation has been advised by Arthur Andersen LLP that no member of
the firm has any financial interest, either direct or indirect, in the
Corporation, or has any connection with the Corporation in any capacity other
than that of public accountants. A member of Arthur Andersen LLP will be present
at the meeting to answer questions by stockholders and will have the opportunity
to make a statement if he or she so desires.

If the stockholders do not ratify the appointment of Arthur Andersen LLP,
the selection of independent public accountants will be reconsidered by the
Audit Committee.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors recommends a vote FOR this resolution.

The affirmative vote of the holders of a majority of the shares represented
at the meeting is required for adoption of this resolution.

ADDITIONAL INFORMATION

The Corporation will bear the cost of the annual meeting and the cost of
this proxy solicitation, including mailing costs. In addition to solicitation by
mail, directors, officers, and regular employees of the Corporation may solicit
proxies by telephone or otherwise, with no specific additional compensation to
be paid for such services. The Corporation has retained Kissel-Blake Inc. to
assist in this solicitation at a fee of $9,000 plus reimbursement of normal
expenses. The Corporation also will reimburse upon request all brokers and other
persons holding shares for the benefit of others for their reasonable expenses
in forwarding proxies and accompanying material to the beneficial owners of such
shares and in obtaining authorization from such beneficial owners to give
proxies.

The Board of Directors does not know of any matter that will be presented
for action at the annual meeting other than the matters identified in this proxy
statement. If any other matter is presented for such action, the individuals
named in the proxy solicited by the Board of Directors intend to vote on it on
behalf of the stockholders they represent in accordance with their best
judgment.

DEADLINE FOR STOCKHOLDER PROPOSALS

Stockholder proposals and nominations for directors intended for inclusion
in the Corporation's proxy statement relating to the next annual meeting in May
2000 must be received not later than December 1, 1999. Any such proposal must
comply with Rule 14a-8 of Regulation 14A of the proxy rules of the Securities
and Exchange Commission. Under the Corporation's By-laws, proposals of
stockholders not intended for inclusion in the proxy statement, but intended to
be raised at the Corporation's May 2000 annual meeting, including nominations
for election as directors of persons other than nominees of the Board of
Directors, must be received no earlier than February 11, 2000 nor later than
March 14, 2000, and must comply with the procedures outlined in the
Corporation's by-laws, a copy of which is available upon request from the
Corporate Secretary, 125 South Franklin Street, Chicago, Illinois 60606-4678.

By order of the Board of Directors

/s/ DEAN H. GOOSSEN
-------------------
Corporate Secretary
Dated: March 29, 1999