DEF 14A 1 praxair_def14a.htm DEFINITIVE PROXY STATEMENT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant Filed by a Party other than the Registrant      

CHECK THE APPROPRIATE BOX:
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Definitive Proxy Statement
  Definitive Additional Materials
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Praxair, Inc.

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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A MESSAGE FROM OUR
LEAD DIRECTOR

Dear Fellow Shareholder,

On behalf of Praxair’s entire Board of Directors, thank you for entrusting us with the oversight of your company. The Board and management are absolutely committed to driving the company’s performance and shareholder value creation. Praxair is considered to be the best performing industrial gases company in the world and all of our more than 26,000 employees and your Board of Directors expect to keep it that way.

Strong Corporate Governance Structure

The Board has adopted Corporate Governance Guidelines and policies and practices that implement a strong governance architecture that compares very favorably to those of other S&P 500 companies and to the standards of recognized governance organizations. These are described in more detail on pages 8-15 in the accompanying 2016 proxy statement

A Diverse, Qualified, Independent and Engaged Board of Directors

Your Board is comprised of eleven members who bring a broad diversity of experiences, competencies, backgrounds and perspectives that are well-suited for advice and counsel to, and oversight of, Praxair’s business and its management. Each director has executive management and oversight experience in most, if not all, of the areas which are critical to the conduct of Praxair’s business, as discussed on pages 22-29 of the proxy statement. All directors except for the Chairman & CEO are independent of management.

Shareholder Outreach and Executive Compensation Program Changes

Praxair has a robust shareholder outreach program that it has conducted for many years which ensures that the Board and management remain responsive to shareholder concerns. This includes ongoing interaction with institutional investors, as well as an extensive annual shareholder outreach program focused on corporate governance and executive compensation matters. During 2015, this outreach provided the Compensation & Management Development Committee with valuable input that enabled it to make changes to the executive compensation program that were responsive to shareholders (these changes are discussed in detail on pages 4 and 38 of the proxy statement).

Commitment to Sustainability

Praxair’s mission of “Making our Planet More Productive” represents Praxair’s commitment to sustainability through its Sustainable Development Program. In 2015, Praxair was again included in the prestigious Dow Jones Sustainability World Index, making Praxair the only U.S. chemical company selected for 13 consecutive years. For the 8th consecutive year, Praxair was also listed on the Global Carbon Disclosure Leadership Index. You can learn more about our Sustainable Development Program on our

website, www.praxair.com in the Our Company/Sustainable Development section.

2015 and Recent Highlights

The Compensation & Management Development Committee made significant changes to the Executive Compensation Program to more closely align pay and performance.

 

The Board is pleased to welcome Martin Richenhagen who joined the Board in October, 2015 and who has been nominated for reelection by the shareholders at this 2016 Annual Meeting. Mr. Richenhagen is the Chairman, President and CEO of AGCO Corporation, an international agricultural and farm machinery company. He brings extensive executive management experience to the Board and international business experience in Europe and South America, two of Praxair’s key geographic markets.

 

In January 2016, the Board adopted a Proxy Access structure that allows shareholders who meet certain requirements to nominate persons for election as directors and have them included in the Company's proxy statement.

 

2015 was the first full year in which the Board's Technology, Safety & Sustainability Committee operated. The Board created this new committee in late 2014 to assist in oversight of (a) technology and research & development, including the use of technology in product applications; (b) safety, particularly the use of technology in enhancing safety performance; and (c) sustainability and environmental matters.

 

The Board thanks you for your continued support and confidence in Praxair and we look forward to continuing our strong partnership with you.

Regards,

ROBERT L. WOOD

Independent Lead Director


 

TABLE OF CONTENTS

     

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

 

PROXY STATEMENT HIGHLIGHTS

  

Voting Items  

  

Performance Highlights  

  

Compensation Highlights  

  

Board and Governance Highlights  

  

CORPORATE GOVERNANCE AND BOARD MATTERS

  

Praxair’s Corporate Governance Framework  

  

Board Committees  

  

Director Compensation  

  

Director Nominees  

  

ITEM 1: ELECTION OF DIRECTORS

  

AUDIT MATTERS

  

Independent Auditor Selection Process  

  

Auditor Independence  

  

Fees Paid to the Independent Auditor  

  

Audit Committee Report  

  

ITEM 2: PROPOSAL TO RATIFY THE APPOINTMENT OF THE INDEPENDENT AUDITOR

  

EXECUTIVE COMPENSATION MATTERS

  

Compensation Discussion and Analysis  

  

Executive Compensation Highlights  

  

Praxair’s Executive Compensation Program 

  

Pay Design and Decisions  

  

Report of the Compensation Committee  

  

Executive Compensation Tables  

  

Table 1: Summary Compensation  

  

Table 2: Grants of Plan-Based Awards 

  

Table 3: Outstanding Equity Awards at Fiscal Year-End  

  

Table 4: Option Exercises and Stock Vested  

  

Table 5: Pension Benefits  

  

Table 6: Nonqualified Deferred Compensation  

  

Severance and Other Change-In Control Benefits  

  

Table 7: Amounts Potentially Payable upon Termination  

  

ITEM 3: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION

  

ITEM 4: PROPOSAL TO APPROVE THE MATERIAL TERMS OF PERFORMANCE GOALS UNDER

 

 

 

PRAXAIR’S SECTION 162(m) PLAN

  

ITEM 5: SHAREHOLDER PROPOSAL REGARDING DIVIDENDS AND SHARE REPURCHASES

  

INFORMATION ON SHARE OWNERSHIP

  

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

  

General Information  

  

Miscellaneous  

  

APPENDIX A – Proposed Material Terms of Performance Goals under Praxair’s Section 162(m) Plan

 

A-1

 

 


 

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

APRIL 26, 2016

Dear Praxair Shareholder:

The Annual Meeting of Shareholders of Praxair, Inc. (“Praxair” or the “Company”) will be held at 11:00 a.m. on Tuesday, April 26, 2016 at the Hyatt Regency Greenwich Hotel, 1800 East Putnam Avenue, Old Greenwich, Connecticut, for the following purposes:

 

1.

To elect eleven directors to the Board of Directors.

 

2.

To ratify the appointment of the independent auditor.

 

3.

To provide an advisory vote on Named Executive Officer Compensation.

 

4.

To approve the material terms of performance goals under Praxair’s Section 162(m) plan.

 

5.

To vote upon a shareholder proposal regarding dividends and share repurchases.

 

6.

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

Only holders of record of Praxair Common Stock at the close of business on March 1, 2016 will be entitled to notice of, and to vote at, the meeting or any adjournment or postponement thereof.

It is important that your shares be represented and voted at the meeting. You may vote your shares by means of a proxy form as described in the accompanying Proxy Statement. The giving of such proxy does not affect your right to vote in person if you attend the meeting.

WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE PROMPTLY SUBMIT YOUR PROXY OR VOTING INSTRUCTION. Most shareholders have a choice of voting over the Internet, by telephone or by using a traditional proxy card. Please refer to the enclosed proxy materials or the information forwarded by your bank, broker or other holder of record to see which voting methods are available to you. We urge you to complete and submit your proxy electronically or by telephone (if those options are available to you) as a means of reducing Praxair’s expenses related to the meeting.

Please be aware that, if you own shares in a brokerage account, you must instruct your broker on how to vote your shares. Without your instructions, New York Stock Exchange rules do not allow your broker to vote your shares on any of the proposals except the ratification of the appointment of the independent auditor. Please exercise your right as a shareholder to vote on all proposals, including the election of directors, by instructing your broker by proxy.

 

 

 

BY ORDER OF THE BOARD OF DIRECTORS

 

 

 

 

GUILLERMO BICHARA,

 

Vice President, General Counsel & Secretary

March 17, 2016


 

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PROXY STATEMENT HIGHLIGHTS

This summary highlights selected information in this Proxy Statement. Please review the entire document before voting.

Voting Items

Voting Item

Board Voting
Recommendation

Reason(s) for Board Recommendation

Further
Information
(page)

1.

To elect eleven directors to the Board of Directors

FOR each
nominee

Our nominees are seasoned leaders who bring a mix of skills and qualifications to the Board

22-29

2.

To ratify the appointment of the independent auditor

FOR

Based on its recent evaluation, our Audit Committee believes that the retention of PricewaterhouseCoopers LLP is in the best interests of the Company and its shareholders

31-35

3.

To provide an advisory vote on Named Executive Officer Compensation

FOR

Our executive compensation program reflects our commitment to paying for performance and reflects recent significant changes based upon feedback received from our shareholder outreach

65

4.

To approve the material terms of performance goals under Praxair’s Section 162(m) plan

FOR

Compensation paid under the Plan enables us to attract and retain key employees and allows the Company to deduct the compensation paid to certain executives for federal tax purposes.

66

5.

To vote upon a shareholder proposal regarding dividends and share repurchases

AGAINST

The Board believes that the proposal is ambiguous, unnecessary and not in the Company’s or the shareholders’ best interests. See the Board’s statement of opposition

67-71

How to Vote

Your vote is important. You are eligible to vote if you were a stockholder of record at the close of business on March 1, 2016. Even if you plan to attend the meeting, please vote as soon as possible using one of the following methods. In all cases, you should have your proxy card in hand.

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PROXY STATEMENT HIGHLIGHTS
Performance Highlights

Performance Highlights

Challenges

2015 brought significant headwinds to Praxair’s earnings growth. The strength of the U.S. dollar reduced earnings from the translation of foreign subsidiary income by an unprecedented 10%. This also negatively impacted demand from our U.S. metals and manufacturing customers who struggled to compete with cheaper imports. Additionally, growth in many of our emerging markets slowed.

High-quality results

We took prompt actions to mitigate these headwinds and Praxair employees once again delivered high-quality results that included:

Protecting Margins and Cash Flow

Delivered cost control, productivity and price improvement

 

Grew operating margin and earnings before interest, taxes, depreciation and amortization (“EBITDA”) margin to record levels of 23.1% and 33.8%, respectively*

 

Growth

Launched capital projects in Asia, Europe and North America

 

Maintained a capital project backlog of $1.5 billion including 6 new projects and expansion in the U.S. Gulf Coast

 

Increased base volumes in more resilient end-markets including food and beverage, healthcare and aerospace

 

Completed 15 synergistic acquisitions

 

Announced the acquisition of Yara’s carbon dioxide business in Europe to grow exposure to food and beverage customers

 

Positioned our Surface Technologies business to grow sales to the aerospace industry through a joint venture with GE Aviation for expanded jet engine coatings

 

Strong Cash Flow and Return to Shareholders

Generated operating cash flow of $2.7 billion (representing 25% of sales) and free cash flow $1.1 billion*

 

Returned $1.5 billion to shareholders in dividends and net share repurchases

 

Announced in July 2015 a new $1.5 billion share repurchase program

 

Increased the annual dividend by 5% for 2016, making this the 23rd consecutive annual dividend increase

 

Industry-Leading Results

Continued to lead the industrial gases industry in operating margin, EBITDA margin, and return on capital (“ROC”)*

 

The graphs below show some of the Company’s key financial performance achievements including: (1) a ten-year average ROC that well exceeds the industrial gases industry ten-year average ROC; (2) the growth in the Company’s operating cash flow since 1999, the majority of which was used to invest in organic growth through capital expenditures and acquisitions; (3) Operating and EBITDA margins as a percent of sales that have increased each year since 2008; and (4) the substantial amounts returned to shareholders in the form of dividends and net share repurchases since 1999.

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PROXY STATEMENT HIGHLIGHTS
Performance Highlights

*

Operating margin, EBITDA margin, ROC, and free cash flow are non-GAAP measures. A reconciliation of reported amounts to non-GAAP measures can be found in Praxair's 2015 Form 10-K and Annual Report in “Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations” in the sub-section called “Non-GAAP Financial Measures”. Free cash flow equals operating cash flow minus capital expenditures.

 

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PROXY STATEMENT HIGHLIGHTS
Compensation Highlights

Compensation Highlights

Shareholder Feedback is Critical to Executive Compensation Design

Praxair continues to have a long-standing, robust outreach program whereby management regularly discusses executive compensation design and other relevant matters with shareholders. The Compensation Committee carefully considers shareholder feedback as it makes compensation program decisions.

The feedback received from shareholders over the past years on executive compensation has been generally positive, including that from shareholders who participated in the outreach efforts in late 2014 and early 2015. In April 2015, certain proxy advisory firms recommended that shareholders vote against the Company’s Advisory Vote on Named Executive Officer (“NEO”) Compensation, and as a result, additional shareholder outreach was conducted to seek further feedback. Shareholders ultimately approved the Say-on-Pay proposal on April 28, 2015 with 62% of shares voted in its favor.

After the shareholder vote, the Compensation Committee met on multiple occasions and revisited the executive compensation program design while considering shareholder feedback, market data, compensation analyses, and advice from its compensation consultant. Additional shareholder outreach was conducted towards the end of 2015 whereby shareholders were invited to discuss the proposed changes being considered by the Compensation Committee prior to finalization.

In total, 111 invitations were sent to shareholders to discuss the Company’s executive compensation program and other relevant matters. 54 individual meetings were held, and collectively, shareholders representing 49% of the shares outstanding provided feedback for consideration.

In response to, and after carefully considering shareholder feedback, the Compensation Committee approved changes to certain elements of the Company’s executive compensation program as highlighted below:

 

What We Heard

What We Did

Effective

For More Detail

Concern that variable compensation awards can be too greatly influenced by elements other than financial performance

Reduced and limited the impact of the non-financial performance on payouts:

Financial performance must account for at least 80% of total business performance for NEOs

 

Eliminated the individual performance adjustment for the CEO’s payout

 

2015

(retroactive)

See page 43

Want additional alignment with shareholder returns in the variable compensation program

Revised the annual variable compensation program by increasing the weighting of net income and by replacing the working capital metric with a cash flow metric

2016

See page 43

ROC is viewed as a good measure for long-term incentive equity awards. Additionally, some shareholders also prefer relative metrics and linking payouts to TSR

 

Modified the annual long term equity grants to incorporate a relative total shareholder return (“TSR”) measure, while maintaining the ROC measure

2016

See pages 47-48

Concern about CEO special pension arrangements

Agreements to provide additional service credit under the Company’s pension program have not been made with any current executive since 2001, and will not be made in the future

legacy

See page 54

Desire for enhanced disclosure in the proxy statement

Performance goals disclosed for the TSR and ROC performance share unit awards in the year of grant

 

Improved the readability and redesigned the presentation of the proxy statement

 

2016

See page 49

 

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PROXY STATEMENT HIGHLIGHTS
Compensation Highlights

Pay Aligned with Shareholder Interests

Low Payouts and Forfeited Performance Shares

Financial results most under management’s control such as cash flow, return on capital and operating margins, continued to demonstrate the success of the management team at Praxair. Nonetheless, foreign currency exchange and other macro-economic weakening in demand resulted in financial results that did not meet target performance for the annual performance-based variable compensation program nor for the performance share units (“PSUs”) covering the 2013 through 2015 performance period.

 

 

2015 PAYOUTS: The variable compensation programs continue to work as designed.

Annual variable compensation business result:
29% financial + 7% non-financial

 

EPS performance share units: forfeited

 

ROC performance share units: 73.3% of target

 

Impact to CEO Pay for 2015

The CEO’s realized pay was greatly impacted by Praxair’s lower financial performance. Additionally, Mr. Angel’s variable compensation payout was reduced due to the variable compensation design changes that were implemented by the Compensation Committee retroactively for the 2015 performance year.

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PROXY STATEMENT HIGHLIGHTS
Board and Governance Highlights

Board and Governance Highlights

Board Nominees

The following eleven persons currently serve on the Board of Directors and have been nominated for reelection to serve until the 2017 annual meeting and the election and qualification of their successors.

Name

Age

Director
Since

Background

Independent

Current
Committee
Memberships(1)

Other Current Public
Company Boards

Yes

No

Stephen F. Angel

60

2006

Chief Executive Officer and Chairman of the Board of Praxair, Inc.

 

X

 

PPG Industries, Inc.

 

Oscar Bernardes

69

2010

Managing Partner at Yguapora Consultoria e Empreendimentos Ltda; former Chief Executive Officer of Bunge International

X

 

CMD, FP, TSS

DASA Laboratorios da America SA

 

Localiza Rent A Car S.A.

 

Marcopolo S.A.

 

Metalurgica Gerdau S.A. (retiring from Board in April 2016)

 

Nance K. Dicciani

68

2008

Former President & Chief Executive Officer of Honeywell Specialty Materials

X

 

AC, CMD, Chairperson of TSS

AgroFresh Solutions, Inc.

 

Halliburton Company

 

LyondellBasell Industries

 

Edward G. Galante

65

2007

Former Senior Vice President and a member of the Management Committee of ExxonMobil Corporation

X

 

Chairman of CMD, GN, TSS

Celanese Corporation

 

Clean Harbors, Inc.

 

Tesoro Corporation

 

Ira D. Hall

71

2004

Former President & Chief Executive Officer of Utendahl Capital Management, L.P.

X

 

Chairman of AC, FP

 

Raymond W. LeBoeuf

69

1997

Former Chairman & Chief Executive Officer of PPG Industries, Inc.

X

 

AC, GN

MassMutual Financial Group

 

Larry D. McVay

68

2008

Principal of Edgewater Energy, LLC; former Chief Operating Officer of TNK-BP Holding

X

 

AC, Chairman of FP, TSS

Callon Petroleum Company

 

Chicago Bridge & Iron Company

 

Denise L. Ramos

59

2014

Chief Executive Officer, President and a Director of ITT Corporation

X

 

AC, GN

ITT Corporation

 

Martin H. Richenhagen

63

2015

Chief Executive Officer, President and Chairman of the Board of AGCO Corporation

X

 

FP, GN

AGCO Corporation

 

PPG Industries, Inc.

 

Wayne T. Smith

70

2001

Chairman, President & Chief Executive Officer of Community Health Systems, Inc.

X

 

CMD, FP

Community Health Systems, Inc.

 

Robert L. Wood

61

2004

Former Chairman, President & Chief Executive Officer of Chemtura Corporation

X

 

FP, Chairman of GN

Jarden Corporation

 

MRC Global Inc.

 

(1)
AC means Audit Committee
CMD means Compensation & Management Development Committee
FP means Finance & Pension Committee
GN means Governance & Nominating Committee
TSS means Technology, Safety & Sustainability Committee

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PROXY STATEMENT HIGHLIGHTS
Board Highlights

Board Highlights

Corporate Governance Highlights

Praxair has a strong corporate governance structure that compares very favorably to that of other S&P 500 Companies and to the standards of recognized governance organizations. The key aspects of our corporate governance structure are listed below and are discussed more fully in the “Corporate Governance and Board Matters” section of this Proxy Statement.

During 2015 and early 2016, we took the following new governance actions:

Added Martin H. Richenhagen as a director. He is CEO and Chairman of AGCO Corporation and brings extensive executive management experience to the Board.

 

Adopted a proxy access structure that allows shareholders who meet certain requirements to nominate a limited number of directors for election and have them included in the Company’s Proxy Statement.

 

Decreased from five to four the total number of public company boards on which a director may serve in addition to serving on Praxair’s board.

 

Increased the stock ownership requirements for directors from four times to five times the base annual retainer.

 

 

Board and Governance Information

Size of Board

11

Board Orientation and Continuing Education Program

Yes

Number of Independent Directors

10

Limits service on other Boards

Yes (4)

Board Meetings Held in 2015

6

Succession Planning Process

Yes

Annual Election of Directors

Yes

Board Risk Oversight

Yes

Mandatory Retirement Age

72

Codes of Conduct for Directors, Officers and Employees

Yes

Board Diversity

Yes

Stock Ownership Guidelines for Directors and Executive Officers

Yes

Majority Voting in Director Elections

Yes

Anti-Hedging and Pledging Policies

Yes

Proxy Access

Yes

Clawback Policy

Yes

Lead Independent Director

Yes

Rights Agreement (Poison Pill)

No

Independent Directors Meet Without Management Present

Yes

Comprehensive Sustainability Program

Yes

Annual Board Strategy Review

Yes

Shareholders May Call Special Meetings

Yes

Annual Board and Committee Evaluations

Yes

 

 

 

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CORPORATE GOVERNANCE AND BOARD MATTERS

Praxair’s Corporate Governance Framework

Praxair operates under Corporate Governance Guidelines which are posted at Praxair’s public website,

Director Independence

The Board has adopted independence standards for service on Praxair’s Board of Directors which are posted at Praxair’s public website referenced above. The Board has applied these standards to all of the non-management directors (all directors are non-management except for Mr. Angel, the Company’s Chairman & CEO), and has determined that each qualifies as independent. The Board is not otherwise aware of any relationship with the Company or its management that could potentially impair the independent judgment of these directors. See also related information in this Proxy Statement under the caption “Certain Relationships and Transactions.”

Board Leadership

As set forth under the Corporate Governance Guidelines, the Board believes that the best leadership model for the Company at this time is that of a combined Chairman & CEO, balanced by practices and policies designed to assure effective independence in the Board’s oversight, advice and counsel of management. These include having an independent Lead Director, as discussed below. The Governance & Nominating Committee (consisting entirely of independent directors) periodically examines the Board leadership structure as well as other governance practices and conducts an annual assessment of Board and Committee effectiveness. The Governance & Nominating Committee has determined that the present leadership structure is effective and appropriate. The Board believes that the substantive duties of the Chairman, including calling and organizing meetings and preparing agendas, are best performed by someone having day-to-day familiarity with the business issues confronting the Company and an understanding of the specific areas in which management seeks advice and counsel from the Board.

Lead Director

In order to enhance the Board’s independence and oversight of management, the independent directors elect a Lead Director from among the independent directors to serve for at least one year. The Board’s practice has been to select the Chairman of the Governance & Nominating Committee to serve as the Lead Director. Although elected to serve at least one year, the Lead Director is generally expected to serve multiple terms. Mr. Wood, who is the Chairman of the Governance & Nominating Committee, has been the Lead Director since 2013. The designated responsibilities of the Lead Director are set forth in the Board’s Corporate Governance Guidelines and include:

serving as chairman of the meetings of the independent directors and all meetings of the Board at which the Chairman is not present;

 

having the authority to call meetings of the independent directors;

 

serving as a liaison between the Chairman and CEO and the independent directors;

 

being available to consult with the Chairman and CEO about the concerns of the Board;

 

approving the Board meeting agendas and related information sent to the Board;

 

approving the Board meeting schedules to assure that there is sufficient time for discussion of all agenda items;

 

being available for consultation and direct communication with major shareholders if requested; and

 

coordinating an annual performance review of the CEO with input from the Compensation Committee and the other independent directors.

 

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CORPORATE GOVERNANCE AND BOARD MATTERS
Praxair’s Corporate Governance Framework

Board Role in Risk Oversight

At least annually, the full Board reviews the Company’s risk identification, assessment and management processes and the guidelines and policies by which key risks are managed. As part of that review, the Board discusses (1) the key enterprise risks that management has identified, (2) management accountability for managing or mitigating each risk, (3) the steps being taken to manage each risk, and (4) which Board Committees will oversee each risk area on an ongoing basis.

The risk factors disclosed in Item 1A of the Company’s Form 10-K and Annual Report illustrate the range of the risks faced by a global industrial company and help explain the need for strong Board Committee oversight of the management of risks in specific subject areas. Each Committee’s calendar of recurring meeting agenda topics addresses risk areas pertinent to the Committee’s subject-matter responsibilities. These areas include: financing and currency exchange risks (Finance & Pension Committee); compensation risks, and executive development and retention (Compensation Committee); regular review of the Board’s governance practices (Governance & Nominating Committee); internal controls, investigations, and integrity standards compliance (Audit Committee); and a regular review of the Company’s sustainability program and certain enterprise risks such as natural disasters and plant control systems and security (Technology, Safety & Sustainability Committee). Other risk areas are regularly reviewed by the full Board. These include: safety and environmental risk (covered at each Board meeting), economic, market and competitive risk (part of business operating reports at each Board meeting, and the annual operating and strategic reviews), cyber security, and global compliance risks (supplementing reporting within the Audit Committee). In addition, risk identification and assessment is integrated into Board decision-making with respect to capital projects and acquisitions, entry into new markets, financings, and cash flow analysis, among other matters. In Committee meetings and full Board deliberations, each director brings his or her particular operating, financial, management development, and other experiences and expertise to bear in assessing management’s response to specific risks and in providing advice and counsel with respect to risk mitigation and management.

Board Oversight of Business Strategy

Each year, the Board conducts a comprehensive long-term strategic review of the Company’s outlook and business plans and provides advice and counsel to management regarding the Company’s strategic issues. This process involves engagement by all Board members and senior management. The Board performs a detailed review of management’s proposed strategy for each of the key business units that is designed to drive profitability over the near-and long-term independent of the macro environment and drive long-term shareholder value creation.

Board Effectiveness Assessment

The Board assesses its effectiveness annually under a process determined by the Governance & Nominating Committee. Typically, this assessment includes each non-management director completing written questionnaires that are used to evaluate the Board’s effectiveness in the areas of Performance of Core Responsibilities, Decision-Making Support, the Quality of Deliberations, Director Performance, and Committee Functions, as well as consideration of additional Board practices and policies recommended as best practices by recognized governance authorities. Similarly, each Committee annually assesses its effectiveness in meeting its oversight responsibilities under its charter from the Board. The Governance & Nominating Committee reviews the results of the written assessments, provides the results to all Board members, and the Lead Director conducts a discussion of the results in an executive session of the non-management directors. Subsequently, the Governance & Nominating Committee may recommend certain actions be taken to enhance the operations and effectiveness of the Board and its committees.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Praxair’s Corporate Governance Framework

Governance Practices Review

In addition to leading the annual Board and Committee effectiveness assessment referred to above, the Governance & Nominating Committee annually reviews with an outside expert the Company’s governance practices, and updates those practices as it deems appropriate. The Committee considers, among other things, the results of the Board and Committee effectiveness assessments, developments in Delaware Corporation Law, federal laws and regulations promulgated by the SEC, and the views and standards of recognized governance authorities and institutional investors.

Succession Planning and Personnel Development

The Compensation Committee conducts an annual Succession Planning and Personnel Development session to which all Board members are invited and at which executives are evaluated with respect to their potential for promotion into senior leadership positions, including that of the CEO. In addition, a wide variety of executives are introduced to the Board by way of Board and Committee presentations and directors have unrestricted access to a broad cross-section of managers and high potential employees.

Mandatory Director Retirement

The Board’s policy is that a director who has attained the age of 72 may not stand for re-election at the next annual shareholders’ meeting. The Board also has a policy against service on the Board by an officer of the Company after his or her retirement, resignation or removal as an officer.

Limits to Service on Other Boards

The Board’s policy is that a non-management director may not serve on more than four additional public company boards and a member of the Audit Committee may not serve on more than two additional public company audit committees. Also, the Chairman & CEO may not serve on more than two additional public company boards.

Shareholder Outreach and Communications with the Board

The Company has a robust shareholder outreach program that it has conducted for many years and which ensures that the Board and management remain responsive to shareholder concerns. This includes ongoing interaction between the Director of Investor Relations and major institutional investors, as well as an extensive shareholder outreach program that is conducted annually.

In addition, the Board has established procedures to enable a shareholder or other interested party to direct a communication to the Board of Directors. Such communications may be confidential or anonymous and may be communicated by mail, e-mail, or telephone. Information on how to submit communications, and how

they will be handled, is included at www.praxair.com in the Our Company/Corporate Responsibility section.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Praxair’s Corporate Governance Framework

Director Attendance at Board and Committee Meetings and the Annual Shareholders Meeting

Absent extenuating circumstances, each member of the Board is expected to attend all meetings of the Board, all meetings of each Committee of which he or she is a member, and the Annual Meeting of Shareholders. All of the then serving directors attended the 2015 annual meeting. Director meeting attendance is one of the factors that the Governance & Nominating Committee considers in determining whether to re-nominate an incumbent director for election at the Annual Meeting.

Business Integrity and Ethics

Praxair’s Board of Directors has adopted policies and standards regarding Compliance with Laws and Business Integrity and Ethics that are posted on Praxair’s public

website, www.praxair.com, in the Our Company/Corporate Responsibility section and are available in print to any shareholder who requests it. This Code of Ethics applies to Praxair’s directors and to all employees, including Praxair’s CEO, CFO and Controller, and other officers.

Director Election by Majority Vote and Resignation Policy

Praxair’s Certificate of Incorporation and Bylaws require directors to be elected annually and that a director nominee must receive a majority of the votes cast at an annual meeting in order to be elected (meaning a greater number of “for” votes than “against” votes) in an uncontested election of directors. The Board’s Corporate Governance Guidelines require that any director nominee who is then serving as a director must tender his or her resignation if he or she fails to receive this majority vote. The Governance & Nominating Committee of the Board would then consider the resignation offer and recommend to the Board whether to accept or reject the resignation, or whether other action should be taken. The Board would take action on the Committee’s recommendation within 90 days following certification of the vote, and promptly thereafter publicly disclose its decision and the reasons therefor.

Proxy Access

A shareholder, or a group of up to twenty shareholders, who have owned at least three percent of the Company’s outstanding common stock continually for at least three years, may nominate persons for election as directors and have these nominees included in the Company’s proxy statement. The shareholders or group must meet the requirements in the Company’s bylaws. The number of nominees is generally limited to the greater of two persons or 20% of the number of directors serving on the Board.

Shareholder Rights Agreements

The Company does not have a Stockholder Protection Rights Agreement (sometimes referred to as a “Poison Pill”). In addition, the Board’s policy is that the Board will adopt or materially amend a future Stockholder Protection Rights Agreement only if, in the exercise of its fiduciary responsibilities under Delaware law, and acting by a majority of its independent directors, it determines that such action is in the best interests of Praxair’s shareholders. If the Board adopts or materially amends a Stockholder Protection Rights Agreement, it will submit such action to a non-binding shareholder vote as a separate ballot item at the first annual meeting of shareholders occurring at least six months after such action.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Praxair’s Corporate Governance Framework

Special Shareholder Meetings

Shareholders may call a special shareholders’ meeting in accordance with the conditions set forth in Praxair’s Certificate of Incorporation and By-laws.

Director Stock Ownership Guidelines

The Board’s policy is that non-management directors must acquire and hold shares of the Company’s stock equal in value to at least five times the base cash retainer for non-management directors. Directors have five years from their initial election to meet this guideline. All non-management directors have met this guideline or are within the 5-year transition period afforded to them to do so; and most substantially exceed the guideline.

Executive Stock Ownership and Shareholding Policy

The Board believes that it is important for executive officers to acquire a substantial ownership position in Praxair. In this way, their interests will be more closely aligned with those of shareholders. Significant stock ownership ensures that executives manage Praxair as equity owners.

Accordingly, a stock ownership and shareholding policy has been established for the Company’s officers that requires them to own a minimum number of shares as set forth below. Individuals must meet the applicable ownership level no more than five years after first becoming subject to it and must acquire at least 20% of the required stock each year. Until the stock ownership requirement is met, executive officers (i) may not sell, transfer or otherwise dispose of any of their Praxair common stock, and (ii) must retain and hold all Praxair common stock acquired from all equity incentive awards, net of shares withheld for taxes and option exercise prices, including performance share unit awards, restricted stock unit awards and stock options.

Set forth below is the minimum number of shares required by the policy for each officer position. As of the date of this Proxy Statement, all covered individuals are in compliance with this policy. Stock ownership of the Named Executive Officers can be found in the table presented under the caption “Information on Share Ownership.”

 

 

Minimum Shares
to be Owned

Chief Executive Officer

100,000

Executive Vice Presidents

30,000

Chief Financial Officer

25,000

Senior Vice Presidents

20,000

Other Executive Officers

10,000-15,000

HEDGING, PLEDGING AND SIMILAR TRANSACTIONS PROHIBITED. Directors and officers may not engage in hedging transactions related to Praxair’s stock that would have the effect of reducing or eliminating the economic risk of holding Praxair stock. They also may not pledge or otherwise encumber Praxair stock.

Review, Approval or Ratification of Transactions with Related Persons

The Company’s Compliance with Laws and Business Integrity and Ethics Policy (“Ethics Policy”) prohibits employees, officers and Board members from having a personal, financial or family interest that could in any way prevent the individual from acting in the best interests of the Company (a “conflict of interest”) and provides that

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CORPORATE GOVERNANCE AND BOARD MATTERS
Praxair’s Corporate Governance Framework

any conflict of interest waiver relating to Board members or executive officers may be made only after review and approval by the Board upon the recommendation of its Governance & Nominating Committee. In addition, the Board’s Corporate Governance Guidelines require that any “related party transaction” by an executive officer or director be pre-approved by a committee of independent and disinterested directors. For this purpose, a “related party transaction” means any transaction or relationship that is reportable under Regulation S-K, Item 404, of the Securities and Exchange Commission (“SEC”) or that, in the case of a non-management director, would violate the Board’s independence standards.

REPORTING AND REVIEW PROCEDURES. To implement the foregoing policies, the Governance & Nominating Committee has adopted a written procedure for the Handling of Potential Conflicts of Interests which specifies a process for the referral of potential conflicts of interests to the Board and standards for the Board’s evaluation of those matters. This policy applies to any transaction or relationship involving an executive officer, a member of the Board of Directors, a nominee for election as a director of the Company, or a family member of any of the foregoing which (1) could violate the Company’s Ethics Policy provisions regarding conflicts of interest, (2) would be reportable under the SEC’s disclosure rules, or (3) in the case of a non-management director, would violate the Board’s independence standards.

Under this procedure, potential conflicts of interest are reported to the Corporate Secretary for preliminary analysis to determine whether referral to the Governance & Nominating Committee is appropriate. Potential conflicts of interest can be self-identified by the director or executive officer or may arise from internal audits, the integrity hotline or other referrals, or through periodic due diligence conducted by the Corporate Secretary’s office. The Governance & Nominating Committee then examines the facts and circumstances of each matter referred to it and makes a final determination as to (1) whether the transaction or relationship would (or does) constitute a violation of the conflicts of interest provisions of the Company’s Ethics Policy, and (2) whether the transaction or relationship should be approved or ratified and the conditions, if any, of such approval or ratification. In determining whether a transaction or relationship constitutes a violation of the conflicts of interest provisions of the Company’s Ethics Policy, the Governance & Nominating Committee considers, among other factors, the materiality of the transaction or relationship to the individual’s personal interest, whether the individual’s personal interest is materially adverse to or competitive with the interests of the Company, and whether the transaction or relationship materially interferes with the proper performance of the individual’s duties or loyalty to the Company. In determining whether to approve or ratify a transaction or relationship, the Governance & Nominating Committee considers, among other factors, whether the matter would constitute a violation of the conflicts of interest provisions of the Company’s Ethics Policy, whether the matter would violate the NYSE listing standards, the expected practical impact of the transaction or relationship on the individual’s independence of judgment or ability to act in the best interests of the Company, the availability, practicality and effectiveness of mitigating controls or safeguards such as recusal, restricted access to information, reassignment etc., and the best interests of the Company and its shareholders generally.

APPLICATION OF POLICIES & PROCEDURES. During 2015, no actual or potential conflicts of interest were identified with respect to the executive officers and directors of the Company.

Certain Relationships and Transactions

When determining whether any director or nominee is independent, the Board considers all facts and circumstances and any relationships that a director or nominee may have with the Company, directly or indirectly, other than in the capacity of serving as a director. To assist the Board in making independence determinations, it also applies the independence standards which are posted at

Praxair’s public website, www.praxair.com in the Our Company/Our People/Our Board of Directors section. In determining that each of the non-management directors is independent, in February, 2016, the Board considered the following circumstances and relationships of those directors and nominees who then had any direct or indirect relationship with the Company. In the ordinary course of its business, (1) Praxair: sells medical oxygen and other industrial gases products to Community Health Systems, Inc. of which Mr. Smith is an executive officer; (2) sells industrial gases to, and purchases pumps and other products from, ITT Corporation, of which Ms. Ramos is an executive officer; and (3) sells industrial gases to AGCO Corporation, of which Mr. Richenhagen is an executive officer. The 2015 consolidated revenues for each of Praxair, Community Health, ITT Corporation and AGCO Corporation were $10.8 billion, $19.4 billion, $2.5 billion and $7.5 billion, respectively. For the last three fiscal years, the dollar value of Praxair’s sales to Community Health ranged from $1.3 million to $3.7 million, sales to and purchases from ITT Corporation ranged from $165,000 to $1.65 million, and

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CORPORATE GOVERNANCE AND BOARD MATTERS
Praxair’s Corporate Governance Framework

sales to AGCO Corporation ranged from $2.25 million to $2.41 million. Such sale and purchase transactions were well below the limits set forth in the Board’s independence standards and, for any of the last three fiscal years, were significantly less than 1% of either Praxair’s, Community Health Systems’, ITT Corporation’s or AGCO Corporation’s consolidated revenues. Therefore, the Board has determined that such ordinary course business relationships are not material and do not otherwise impair the ability of either Ms. Ramos or of Messrs. Smith or Richenhagen to exercise independent judgment as a director.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of SEC Forms 3, 4 and 5 furnished to the Company and written representations from the Company’s executive officers and directors, the Company believes that those persons complied with all Section 16(a) filing requirements during 2015 with respect to transactions in the Company’s stock, except that there was one inadvertent late filing to report the tax withholding of shares upon the vesting of a restricted stock unit grant made to Karen Keegans, an executive officer of the Company.

Director & Nominee Selection Criteria

The Governance & Nominating Committee will consider any candidate for election to the Board who is timely recommended by a shareholder and whose recommendation otherwise complies with the requirements under Praxair’s certificate of incorporation. Recommendations should be sent to the Corporate Secretary of Praxair and should include the candidate’s name and qualifications and a statement from the candidate that he or she consents to being named in the proxy statement and will serve as a director if elected. In order for any candidate to be considered by the Governance & Nominating Committee and, if nominated, to be included in the proxy statement, such recommendations must be received by the Corporate Secretary on or before the date specified in this Proxy Statement under the caption “Shareholder Proposals for the 2017 Annual Meeting.”

In addition to considering any shareholder-recommended candidates for election as directors, prior to each annual meeting of shareholders, the Governance & Nominating Committee considers each of the incumbent directors for nomination for reelection to the Board, unless an incumbent does not wish to be reelected or will be retiring from the Board under the Board’s retirement policy.

The qualities and skills sought in director nominees are governed by the projected needs of the Board at the time the Governance & Nominating Committee considers adding a new director or renominating incumbent directors. Consistent with the Board’s Corporate Governance Guidelines, the Committee seeks to build and maintain a Board that contains a range of experiences, competencies, and perspectives that is well-suited for advice and counsel to, and oversight of, the Company’s business and operations. In doing so, the Committee takes into account a variety of factors, including:

 

(1)

the Company’s strategies and its market, geographic and regulatory environments, both current and projected,

(2)

the mix of experiences, competencies, and perspectives (including gender, ethnic and cultural diversity) currently represented on the Board,

(3)

the results of the Board’s annual self-assessment process,

(4)

the CEO’s views as to areas in which management would like to have additional advice and counsel from the Board, and

(5)

with respect to the incumbent directors, meeting attendance, participation and contribution, and the director’s current independence status.

The Committee also seeks in each director candidate a breadth of experience and background that (a) will allow the director to contribute to the full range of issues confronting a global industrial company and (b) will qualify the director to serve on, and contribute to, any of the Board’s standing committees, thus facilitating the Board’s committee rotation policy. In addition, the Governance & Nominating Committee believes that every director nominee should demonstrate a strong record of integrity and ethical conduct, an absence of conflicts that might interfere with the exercise of his or her independent judgment, and a willingness and ability to represent all shareholders of the Company.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Praxair’s Corporate Governance Framework

When the need to recruit a director arises, the Governance & Nominating Committee will consult the other directors, the CEO and, on occasion, third party recruiting firms to identify potential candidates. The candidate evaluation process may include inquiries as to the candidate’s reputation and background, examination of the candidate’s experiences and skills in relation to the Board’s needs at the time, consideration of the candidate’s independence as measured by the Board’s independence standards, and other considerations that the Governance & Nominating Committee deems appropriate at the time. Prior to formal consideration by the Governance & Nominating Committee, any candidate who passes such screening is interviewed by the Governance & Nominating Committee or its Chairman and by the CEO.

Since the 2015 Annual Meeting, the Board elected Martin Richenhagen a director in October, 2015, and Mr. Richenhagen has been nominated for reelection at the Annual Meeting. In selecting Mr. Richenhagen as a new director the Governance & Nominating Committee followed the above described process and utilized a recognized third party search firm to identify for consideration potential Board candidates based upon criteria developed by the Governance & Nominating Committee. Mr. Richenhagen was first identified by the search firm and, after an initial interview with the CEO, was introduced to the full Governance & Nominating Committee.

Additional information about the specific skills, qualifications and backgrounds of each of the director nominees is set forth in this Proxy Statement under the under caption “Director Nominees.”

PROXY ACCESS NOMINEES. The foregoing description applies only to the Governance & Nominating Committee’s consideration of director nominees who may be nominated by the Committee itself. It does not apply to persons nominated by eligible shareholders under the Company’s Proxy Access structure which has separate requirements that are set forth in the Company’s bylaws.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Board Committees

Board Committees

The Board currently has five standing committees as described below and each is comprised of only independent

directors. The Charters for each of these committees may be found on Praxair’s public website, www.praxair.com, in the Our Company/Our People/Our Board of Directors section.

 

Board Committees

Director

Audit Committee

Compensation & Management Development Committee

Finance &
Pension
Committee

Governance & Nominating Committee

Technology, Safety & Sustainability Committee

OSCAR BERNARDES

 

 

NANCE K. DICCIANI

 

 

Chairperson

EDWARD G. GALANTE

 

Chairman

 

IRA D. HALL

Chairman

 

 

 

RAYMOND W. LEBOEUF

 

 

 

LARRY D. MCVAY

 

Chairman

 

DENISE L. RAMOS

 

 

 

MARTIN H. RICHENHAGEN

 

 

 

WAYNE T. SMITH

 

 

 

ROBERT L. WOOD

 

 

Chairman

 

Description of Key Committee Functions

AUDIT COMMITTEE

 Committee Chair

Ira D. Hall

 Current Members:

Nance K. Dicciani

Raymond W. LeBoeuf

Larry D. McVay

Denise L. Ramos

 Meetings in 2015

(5)

 

 

The Audit Committee assists the Board in its oversight of (a) the independence, qualifications and performance of Praxair’s independent auditor, (b) the integrity of Praxair’s financial statements, (c) the performance of Praxair’s internal audit function, and (d) Praxair’s compliance with legal and regulatory requirements. In furtherance of these responsibilities, the Audit Committee, among other duties,

 

(1)

appoints the independent auditor to audit Praxair’s financial statements, approves the fees and terms of such engagement, approves any non-audit engagements of the independent auditor, and meets regularly with, and receives various reports from, the independent auditor. The independent auditor reports directly to the Audit Committee;

(2)

reviews Praxair’s principal policies for accounting and financial reporting and its disclosure controls and processes, and reviews with management and the independent auditor Praxair’s financial statements prior to their publication;

(3)

reviews assessments of Praxair’s internal controls, the performance of the Internal Audit function, the performance evaluations of the General Auditor and the Chief Compliance Officer, and the guidelines and policies by which Praxair undertakes risk assessment and risk management; and

(4)

reviews the effectiveness of Praxair’s compliance with laws, business conduct, integrity and ethics programs.

 

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CORPORATE GOVERNANCE AND BOARD MATTERS
Board Committees

 

COMPENSATION & MANAGEMENT DEVELOPMENT COMMITTEE

 Committee Chair

Edward G. Galante

 Current Members:

Oscar Bernardes

Nance K. Dicciani

Wayne T. Smith

 Meetings in 2015

6

 

 

The Compensation Committee assists the Board in its oversight of (a) Praxair’s compensation and incentive policies and programs, and (b) management development and succession, in both cases particularly as they apply to Praxair’s executive officers. In furtherance of these responsibilities, the Compensation & Management Development Committee, among other duties,

 

(1)

determines Praxair’s policies relating to the compensation of executive officers and assesses the competitiveness and appropriateness of their compensation and benefits;

(2)

determines the salaries, performance-based variable compensation, equity awards, terms of employment, retirement or severance, benefits, and perquisites of executive officers;

(3)

approves corporate goals relevant to the CEO’s compensation, evaluates the CEO’s performance in light of these goals and sets the CEO’s compensation accordingly;

(4)

reviews management’s long-range planning for executive development and succession, and develops a CEO succession plan;

(5)

reviews design, administration and risk associated with Praxair’s management incentive compensation and equity compensation plans; and

(6)

reviews periodically the Company’s diversity policies and objectives, and programs to achieve those objectives.

Certain Committee Processes for Determining Executive Compensation

DELEGATION AND CEO INVOLVEMENT. Except under limited circumstances, the Compensation Committee may not delegate its executive compensation authority to any other persons. With respect to the allocation of compensation and awards to employees other than the executive officers, the Compensation Committee may, and has, delegated authority to the CEO, subject to guidelines established by the Compensation Committee. The CEO does not determine the compensation of any of the executive officers but he does offer for the Compensation Committee’s consideration his views on relevant matters, as described in more detail in this Proxy Statement in the CD&A section.

COMPENSATION RISK ANALYSIS. The Compensation Committee considers whether the Company’s compensation policies and practices create incentives for risk-taking that could have a material adverse effect on the Company. Each year, the Compensation Committee examines management’s review of the Company’s incentive compensation programs applicable to all employees, including executive officers, in order to evaluate whether they encourage excessive risk-taking through either the design of the executive and management incentive programs, or operational decision-making that could affect compensation payouts. The Compensation Committee has determined that (1) there exist sufficient operational controls, checks and balances that prevent or constrain compensation-driven decision-making that is inappropriate or excessively risky including, among others, frequent risk discussions with the Board, particularly in connection with capital project or acquisition proposals, (2) the Company does not use highly leveraged short term incentives that would tend to drive high short term risk decisions or unsustainable gains, and (3) the Company’s executive stock ownership policy and the “recapture” policy described in the CD&A also serve as disincentives for unacceptable risk-taking. Based upon this review, the Compensation Committee has concluded that the Company’s incentive compensation programs and related controls are designed appropriately and that risks arising from the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

A more detailed description of how the Compensation Committee considers and determines executive compensation is described in this Proxy Statement in the CD&A section.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Board Committees

 

GOVERNANCE & NOMINATING COMMITTEE

 Current Chair

Robert L. Wood

 Current Members:

Edward G. Galante

Raymond W. LeBoeuf

Denise L. Ramos

Martin H. Richenhagen

 Meetings in 2015

5

 

 

The Governance & Nominating Committee assists the Board in its oversight of (a) the selection, qualifications, compensation and performance of Praxair’s directors, (b) Praxair’s governance, including the practices and effectiveness of the Board, and (c) various important public policy concerns that affect the Company. In furtherance of these responsibilities, the Governance & Nominating Committee, among other duties,

 

(1)

recommends to the Board nominees for election as directors, and periodically reviews potential candidates, including incumbent directors;

(2)

reviews policies with respect to the composition, compensation, organization and practices of the Board, and developments in corporate governance matters generally; and

(3)

reviews Praxair’s policies and responses to broad public policy issues such as social responsibility, corporate citizenship, charitable contributions, legislative issues, and important shareholder issues, including management and shareholder proposals offered for shareholder approval.

 

FINANCE & PENSION COMMITTEE

 Committee Chair

Larry D. McVay

 Current Members:

Oscar Bernardes

Ira D. Hall

Martin H. Richenhagen

Wayne T. Smith

Robert L. Wood

 Meetings in 2015

3

 

 

The Finance & Pension Committee assists the Board in its oversight of (a) Praxair’s financial position and financing activities, (b) Praxair’s financial risk management policies and activities, and (c) the ERISA-qualified, funded plans sponsored by Praxair. In furtherance of these responsibilities, the Finance & Pension Committee, among other duties,

 

(1)

monitors Praxair’s financial condition and its requirements for financing, and reviews, and recommends to the Board, the amounts, timing, types and terms of public stock issues and public and private debt issues;

(2)

reviews Praxair’s foreign exchange and interest rate exposures, the results of its foreign exchange hedging activities, and Praxair’s practices for managing insurable risks;

(3)

reviews Praxair’s policies on dividends and stock repurchases; and

(4)

appoints administration and investment committees to act as fiduciaries of Praxair’s funded benefit plans, and reviews the investment performance, administration and funded status of such plans.

 

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CORPORATE GOVERNANCE AND BOARD MATTERS
Board Committees

 

TECHNOLOGY, SAFETY & SUSTAINABILITY COMMITTEE

 Committee Chair

Nance K. Dicciani

 Current Members:

Oscar Bernardes

Edward G. Galante

Larry D. McVay

 Meetings in 2015

2

 

 

The Technology, Safety & Sustainability Committee assists the Board in its oversight of: (a) technology and research & development, including the use of technology in products applications; (b) safety, particularly the use of technology in enhancing safety performance; (c) sustainability and environmental matters; and (d) certain enterprise risks. In furtherance of these duties, the Technology, Safety & Sustainability Committee, among other duties,

 

(1)

reviews and evaluates Praxair’s use of technology and its technology capabilities and Praxair’s strategies, objectives and effectiveness of research and development efforts;

(2)

monitors and reviews Praxair’s personnel, process and distribution safety goals and performance and the use of technology to enhance safety performance;

(3)

reviews Praxair’s policies, programs and practices related to sustainability and the environment; and

(4)

provides oversight and guidance on certain enterprise risks that are not otherwise reviewed by the full Board of Directors or its other committees including (a) natural disasters, and (b) plant control systems security.

 

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CORPORATE GOVERNANCE AND BOARD MATTERS
Director Compensation

Director Compensation

Director Compensation Program

The Company paid the amounts reported in the 2015 Director Compensation table below pursuant to its director compensation program in effect for 2015. The Company does not pay any director who is a Company employee (Mr. Angel in 2015) for serving as a member of the Board of Directors or any committee of the Board of Directors. The Governance & Nominating Committee of the Board determines non-management director compensation consistent with the Directors’ Compensation principles set forth in the Corporate Governance Guidelines. The director compensation program in effect for 2015 is described below, but changes to the program were made effective January 1, 2016, as described below.

Cash Compensation

A $100,000 annual retainer paid quarterly.

 

An additional $10,000 annual retainer paid quarterly to each chairman of a Board committee ($20,000 for the chairman of the Audit Committee, and $15,000 for the chairman of the Compensation Committee).

 

An additional $25,000 annual retainer paid quarterly to the Lead Director.

 

Equity Compensation

Each active non-management director participates in the Amended and Restated 2009 Praxair, Inc. Long Term Incentive Plan. The Plan allows for grants of stock options, restricted stock, unrestricted stock, and restricted stock units or any combination thereof, as the Governance & Nominating Committee determines. The Committee may make an annual equity grant under this Plan to each non-management director having a value up to an amount set by the Board. For 2015, the Board set this amount at $150,000.

The Governance & Nominating Committee selected restricted stock units as the sole form of equity for the 2015 grant. The restricted stock units are fully vested (non-forfeitable) after one-year from the date of grant, and will be forfeited if a director’s service on the Board terminates for any reason before the one year anniversary of the grant. Restricted stock units will be paid out as soon as practicable after the vesting date unless a director further defers the payout. The number of restricted stock units granted so as to deliver the $150,000 value as of the April 28, 2015 grant date was based upon the average of the closing prices of the Company’s stock for the 200 trading days prior to April 1, 2015. Because the closing price of the Company’s stock on April 28, 2015 was lower than this 200-day average, the full grant date fair market value of the restricted stock units granted on April 28, 2015 and reported in the 2015 Director Compensation Table below was $144,033.

Fees Deferral Plan

Under the Directors’ Fees Deferral Plan, non-management directors may, before the beginning of a calendar year, elect to defer to a later date payment of some or all of the cash fees that may be earned in the upcoming year. A director may fix this deferred payment date when making a deferral election. A director also chooses whether the deferred fees will earn amounts based upon a “Cash Account,” or a “Stock Unit Account.” The Cash Account earns interest at the prime rate, while the value of the Stock Unit Account tracks the market price of the Company’s common stock. Stock Unit Accounts are also credited with additional stock units whenever dividends are paid on the Company’s common stock. Dividends are credited at the same rate as they are paid to all shareholders. Stock units provide directors the economic equivalent of owning the Company’s stock, except that the units may not be transferred or sold and they do not provide any voting or other shareholder rights. The “Cash Account” is paid to the director in cash on the designated payment date. The “Stock Unit Account” is paid in shares of Company common stock upon his or her termination of service as a director or the attainment of an age specified by the director not to exceed age 75.

Expenses

The Company pays or reimburses directors for travel, lodging and related expenses incurred in connection with attending board and committee meetings, the Annual Meeting and other Company business-related events (including the expenses related to the attendance of spouses if they are specifically invited for appropriate business purposes), and may provide use of Company chartered aircraft. From time to time, the Company may reimburse a director’s expenses for his or her participation in third party-supplied continuing education related to the director’s board or committee service.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Director Compensation

Changes for 2016

During 2015, the Governance & Nominating Committee engaged Deloitte Consulting to provide data, analysis and advice to support the Committee’s periodic review of the Company’s director compensation program, including a report on director compensation trends and benchmarking of director compensation against peer companies. Such analysis and advice was last conducted in late 2012 by Deloitte Consulting, consistent with the Committee’s practice to conduct this review every three years. As a result of this review, the Governance & Nominating Committee recommended to the Board, and the Board adopted, certain changes to the director compensation program, effective January 1, 2016, designed to align the program more closely with the director compensation programs of such benchmark companies. Specifically, the Committee determined to increase the value of equity compensation to be delivered annually to $160,000 in the form of Restricted Stock Units, and to increase the additional annual retainer paid to the Chair of the Finance & Pension Committee, the Nominating & Governance Committee and the Technology, Safety and Sustainability Committees by $5,000 (from $10,000 to $15,000).

The table below shows (i) the fees that the Company’s non-management directors earned in 2015, (ii) the value of restricted stock units granted in 2015, and (iii) other amounts disclosed as “All Other Compensation.”

2015 DIRECTOR COMPENSATION TABLE

                       

Name

Fees Earned
or
Paid in Cash
($)(1)

Stock
Awards
($)(2)

Option
Awards
($)(3)

Non-Equity
Incentive
Plan
Compensation
($)

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(4)

All Other
Compensation
($)(5)

Total
($)

Oscar Bernardes

 

100,000

   

144,033

 

0

0

0

 

13,400

   

257,433

 

Nance K. Dicciani

 

110,000

   

144,033

 

0

0

0

 

15,000

   

269,033

 

Edward G. Galante

 

115,000

   

144,033

 

0

0

0

 

15,000

   

274,033

 

Claire W. Gargalli (6)

 

32,418

   

0

 

0

0

0

 

10,000

   

42,418

 

Ira D. Hall

 

120,000

   

144,033

 

0

0

0

 

15,000

   

279,033

 

Raymond W. LeBoeuf

 

100,000

   

144,033

 

0

0

0

 

15,000

   

259,033

 

Larry D. McVay

 

110,000

   

144,033

 

0

0

0

 

14,750

   

268,783

 

Denise L. Ramos

 

100,000

   

144,033

 

0

0

0

 

0

   

244,033

 

Martin H. Richenhagen (7)

 

18,207

   

68,512

 

0

0

0

 

0

   

86,719

 

Wayne T. Smith

 

100,000

   

144,033

 

0

0

0

 

10,000

   

254,033

 

Robert L. Wood

 

135,000

   

144,033

 

0

0

0

 

10,000

   

289,033

 

 

(1)

Certain non-management directors elected to defer some or all of their cash retainers earned in 2015 pursuant to the Directors’ Fees Deferral Plan described above. Any deferred amounts are included in this column.

(2)

Full grant date fair value of restricted stock units granted to each director on April 28, 2015 (except for Mr. Richenhagen whose grant was on October 27, 2015) as determined under accounting standards related to shared-based compensation.

(3)

At December 31, 2015, the non-management directors had the following outstanding stock option awards: Oscar Bernardes 0 shares; Nance K. Dicciani, 6,146 shares; Edward G. Galante, 9,025 shares; Claire W. Gargalli, 22,655 shares; Ira D. Hall, 0 shares; Raymond W. LeBoeuf, 15,035 shares; Larry D. McVay 0 shares; Denise L. Ramos, 0 shares; Wayne T. Smith, 0 shares; and Robert L. Wood, 10,435 shares.

(4)

Some non-management directors defer cash fees pursuant to the Directors’ Fees Deferral Plan and/or have balances from previous deferrals. As none of the earnings on these deferred amounts is above-market or otherwise preferential, no amounts are included in this column.

(5)

Amounts in this column do not represent compensation paid to the directors. These amounts are the Company’s 2015 matching contributions for the director’s eligible charitable donations. SEC rules require disclosure of these amounts in this table. In 2015, Praxair matched personal donations to eligible charitable institutions up to a $15,000 maximum per year per donor. This matching gift program is available to Company employees and non-management directors on the same basis.

(6)

Ms. Gargalli retired from the Board of Directors on April 27, 2015 and received pro rata compensation for the period of her Board service in 2015.

(7)

Mr. Richenhagen was elected as a director for the first time by the Board in October 2015 and received pro rata compensation for the period of his Board service in 2015.

 

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CORPORATE GOVERNANCE AND BOARD MATTERS
Director Nominees

Director Nominees

Experience and Qualifications of All Nominees

Eleven persons will be elected to the Board to serve until the 2017 Annual Meeting of shareholders and the election and qualifications of their successors. The Governance & Nominating Committee has nominated each current director of the Board for reelection at the Annual Meeting. The Governance & Nominating Committee believes that each director nominee has an established record of accomplishment in areas relevant to our business and objectives and possesses the characteristics identified in our Corporate Governance Guidelines as essential to a well-functioning and deliberative governing body, including integrity, independence and commitment.

Each of the director nominees listed below has experience as a senior executive of a public company. Each nominee also is serving or has served as a director of one or more public companies and on a variety of board committees. As such, each has executive management and director oversight experience in most, if not all, of the following areas which are critical to the conduct of the Company’s business, including: strategy development and implementation, risk assessment and management, financial accounting and reporting, internal controls, corporate finance, capital project evaluation, the evaluation, compensation, motivation and retention of senior executive talent, public policies as they affect global industrial corporations, compliance, corporate governance, productivity management, safety management, project management, and, in most cases, global operations. Many of the nominees also bring particular insights into specific end-markets and foreign markets that are important to the Company. These nominees collectively provide a range of perspectives, experiences and competencies well-suited to providing advice and counsel to management and to overseeing the Company’s business and operations. In addition to these qualifications that are shared by all of the nominees, more specific information about each of their individual experience and qualifications is included below.

The following pages include information about those persons currently serving on Praxair’s Board of Directors who have been nominated for election to serve until the 2017 annual meeting and until their successors are elected and qualify. The graph below shows the number of directors who have certain of the skills, qualifications and experience in key areas that are important for the Board’s oversight of the Company’s business.

Director Meeting Attendance

During 2015, the Board held six meetings. The nominees for reelection to the Board collectively attended 100% of all Board meetings and meetings of committees of which they are members.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Director Nominees

 

STEPHEN F. ANGEL

Chief Executive Officer and Chairman of Praxair

Age

Director Since

Other Public Company Directorships

 

60

2006

PPG Industries, Inc.

Qualification Highlights

Industry

 

Praxair End Markets

 

Praxair Foreign Markets

 

Operations

 

International business

 

Technology

 

Risk Management

 

Public company board

 

BIOGRAPHY

Chief Executive Officer of Praxair, Inc. since January 1, 2007, and Chairman since May 1, 2007. Before becoming the Chief Executive Officer, Mr. Angel served as President & Chief Operating Officer from March to December 2006, and as Executive Vice President from 2001 to March 2006. Prior to joining Praxair in 2001, Mr. Angel spent 22 years in a variety of management positions with General Electric.

Mr. Angel is a director of PPG Industries, Inc. (where he serves on the Officers-Directors Compensation Committee and is Chairman of the Technology and Environment Committee). He is also a member of The Business Council, the U.S. - Brazil CEO Forum, and a member of the Board of the U.S. - China Business Council.

EXPERIENCE AND QUALIFICATIONS

As the Chief Executive Officer of the Company and a former senior operating executive at General Electric, a global diversified manufacturing company, Mr. Angel brings the senior executive experience and skills described above. He also has a deep insight into the industrial gases industry and the needs, challenges and global opportunities of the Company in particular. Mr. Angel utilizes his deep operating experience and knowledge of the industry and the Company in performing his role as Chairman to, among other things, drive capital discipline and to help facilitate Board discussions and keep the Board apprised of significant developments in the Company’s business.

OSCAR BERNARDES

Managing partner at Yguapora Consultoria e Empreendimentos Ltda.

Age

Director Since

Other Public Company Directorships

 

69

2010

DASA Laboratorios da America SA

Localiza Rent A Car S.A.
Marcopolo S.A.

Metalurgica Gerdau S.A.

Qualification Highlights

Praxair End Markets

 

Praxair Foreign Markets

 

Operations

 

International business

 

Risk Management

 

Public company board

 

BIOGRAPHY

Managing partner at Yguapora Consultoria e Empreendimentos Ltda. in São Paulo, Brazil, a consulting and investment firm. From 2003 to 2010, he was a managing partner at Integra Assessoria em Negocios Ltda. in São Paulo, Brazil, a consulting firm specializing in financial restructuring, governance and interim management in turnaround situations. From 1997 to 1999, he was Chief Executive Officer of Bunge International, a leading global agribusiness and food company. Prior to joining Bunge, he was Senior Vice President and Managing Partner for Latin America with Booz Allen and Hamilton, Inc. and prior to that, operations director in Brazil for Ferro Corporation.

Mr. Bernardes is a director of four public companies in Brazil: DASA Laboratorios da America SA, Localiza Rent A Car S.A. (where he is Chairman of the Audit Committee), Marcopolo S.A., and Metalurgica Gerdau S.A. (he will retire from this board in April, 2016). During the past five years, he was also a director of Gerdau S.A., Johnson Electric Holdings Ltd. in Hong Kong, and São Paulo Alpargatas S.A. He is also on the advisory board of Amerys, Johnson Electric and a Board Member of Votorantim Participacoes and OMINI, both private companies.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Director Nominees

EXPERIENCE AND QUALIFICATIONS

As a former chief executive officer at Bunge International, and as a senior executive of Booz Allen and Hamilton, Mr. Bernardes brings the senior executive experience and skills described above. He also has an in-depth understanding of markets and business operations in South America generally, and in Brazil particularly, where the Company has a large presence.

NANCE K. DICCIANI

Former President & Chief Executive Officer of Honeywell Specialty Materials

Age

Director Since

Other Public Company Directorships

 

68

2008

AgroFresh Solutions, Inc. Halliburton Company
LyondellBasell Industries

Qualification Highlights

Industry

 

Praxair End Markets

 

Praxair Foreign Markets

 

Operations

 

International business

 

Technology

 

Risk Management

 

Public company board

 

BIOGRAPHY

Former President & Chief Executive Officer of Honeywell Specialty Materials, a strategic business group of Honeywell International, Inc., from 2001 until her retirement in 2008. Dr. Dicciani joined Honeywell from Rohm and Haas Company where she was Senior Vice President and Business Group Executive of Chemical Specialties and Director of the European Region, responsible for business strategy and worldwide operations of five business units and for the company’s operations and infrastructure in Europe, the Middle East and Africa. Previously, she served as Rohm and Haas’ Vice President and General Manager of the Petroleum Chemicals division and headed the company’s worldwide Monomers business.

In 2006, President George W. Bush appointed Dr. Dicciani to the President’s Council of Advisors on Science and Technology. She has served on the Board of Directors and Executive Committee of the American Chemistry Council and has chaired its Research Committee. She currently serves on the Board of Directors of AgroFresh Solutions, Inc. (where she serves as non-executive Chair and a member of the Compensation Committee), and effective March 11, 2016, has been appointed as an interim executive officer of AgroFresh until its board of directors selects a new Chief Executive Officer. Dr. Dicciani also serves on the Board of Directors of Halliburton Company (where she serves on the Audit, and the Health, Safety and Environment Committees), LyondellBasell Industries (where she serves on the Audit, and the Health, Safety and Environmental Committees), and on the Board of Trustees of Villanova University. During the past five years, Dr. Dicciani also served on the Board of Directors of Rockwood Holdings, Inc. (where she was the Lead Director and served on the Compensation Committee and was the Chairperson of the Corporate Governance and Nominating Committee).

EXPERIENCE AND QUALIFICATIONS

As a former senior operating executive at Honeywell, a global industrial and consumer products manufacturing company, and at Rohm and Haas, a global chemicals company, Dr. Dicciani brings the senior executive experience and skills described above. She also has a substantial understanding of technology policy, management and markets. Her technical expertise in the chemical industry, an important end-market for the Company, and her international operations experience, also enable her to provide the Board and management with valuable insight and counsel.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Director Nominees

 

EDWARD G. GALANTE

Former Senior Vice President of ExxonMobil Corporation

Age

Director Since

Other Public Company Directorships

 

65

2007

Celanese Corporation

Clean Harbors, Inc.

Tesoro Corporation

Qualification Highlights

Praxair End Markets

 

Praxair Foreign Markets

 

Operations

 

International business

 

Technology

 

Risk Management

 

Public company board

 

BIOGRAPHY

Former Senior Vice President and a member of the Management Committee of ExxonMobil Corporation from 2001 until his retirement in 2006. His principal responsibilities included the worldwide downstream business - Refining & Supply, Fuels Marketing, Lubricants and Specialties, and Research and Engineering. Immediately prior to that, Mr. Galante was Executive Vice President of ExxonMobil Chemical Company.

Mr. Galante is a director of Celanese Corporation (where he serves on the Audit Committee and the Environmental, Health, Safety and Public Policy Committee), a director of Clean Harbors, Inc. (where he is Chairman of the Corporate Governance Committee), and a director of Tesoro Corporation (where he serves on the Compensation Committee and the Environmental, Health, Safety and Security Committee). He also serves on the Boards of the United Way Foundation of Metropolitan Dallas and the United Way of Metropolitan Dallas, and is the Vice Chairman of the Board of Trustees of Northeastern University. During the past five years, Mr. Galante also served on the Board of Directors of Foster Wheeler Ltd. (where he served on the Audit Committee and was the Chairman of the Compensation and Executive Development Committee).

EXPERIENCE AND QUALIFICATIONS

As a former senior operating executive at ExxonMobil, one of the largest global energy companies, Mr. Galante brings the senior executive experience and skills described above and also has significant experience in the operations and management of a large, global business. He has substantial experience in the oil, gas, refining and chemical sectors of the energy industry, all of which are important end markets for the Company, as well as an in-depth understanding of engineering management, operations and technology, which are important in the execution of many of the Company’s large capital projects.

IRA D. HALL

Former President & Chief Executive Officer of Utendahl Capital Management, L.P.

Age

Director Since

Other Public Company Directorships

 

71

2004

None

Qualification Highlights

Finance

 

Risk Management

 

Public company board

 

BIOGRAPHY

Former President & Chief Executive Officer of Utendahl Capital Management, L.P. (an asset management company) from 2002 through 2004. From 1999 to 2001, Mr. Hall served as Treasurer of Texaco Inc., and from 1998 to 1999, he was General Manager, Alliance Management of Texaco Inc. Prior to joining Texaco, Mr. Hall held several positions with International Business Machines.

Mr. Hall is a Board member and Vice Chairman – Chair Elect of the Adrienne Arsht Center for the Performing Arts of Miami Dade County, Florida. He is the past Chairman of the Board of the Executive Leadership Council, and he is a trustee emeritus of Stanford University. During 2012, he completed twenty years of service on the board of the Jackie Robinson Foundation, during part of which he also served as Treasurer. During 2010, he completed twelve years of service on the Dean’s Advisory Council of the Stanford Graduate School of Business.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Director Nominees

EXPERIENCE AND QUALIFICATIONS

As a former Chief Executive Officer of an asset management company and a former senior finance executive at Texaco, a large energy company, Mr. Hall brings the senior executive experience and skills described above. He also has a substantial understanding of capital markets, asset management, and pension fund matters and is therefore able to provide valuable insight and counsel regarding the Company’s capital structure and strategy, among other areas.

RAYMOND W. LEBOEUF

Former Chairman & Chief Executive Officer of PPG Industries, Inc.

Age

Director Since

Other Public Company Directorships

 

69

1997

MassMutual Financial Group

Qualification Highlights

Industry

 

Praxair End Markets

 

Praxair Foreign Markets

 

Operations

 

International business

 

Finance

 

Risk Management

 

Public company board

 

BIOGRAPHY

Former Chairman & Chief Executive Officer of PPG Industries, Inc. (a diversified manufacturer of coatings, glass and chemicals) from 1997 to 2005. From 1995 to 1997, Mr. LeBoeuf served as President & Chief Operating Officer of PPG Industries, Inc. and was elected a director in 1995. From 1988-1994, he was the Chief Financial Officer of PPG.

Mr. LeBoeuf is a director of MassMutual Financial Group (where he serves on the Audit Committee and is the Chairman of the Human Resources Committee).

EXPERIENCE AND QUALIFICATIONS

As a former Chief Executive Officer and Chief Financial Officer of PPG Industries, a global diversified manufacturing company, Mr. LeBoeuf brings the senior executive experience and skills described above. He also has an in-depth understanding of corporate and international finance, accounting, financial reporting and internal controls and the review and preparation of financial statements.

LARRY D. MCVAY

Principal of Edgewater Energy, LLC

Age

Director Since

Other Public Company Directorships

 

68

2008

Callon Petroleum
Company
Chicago Bridge and
Iron Company

Qualification Highlights

Praxair End Markets

 

Praxair Foreign Markets

 

Operations

 

International business

 

Technology

 

Risk Management

 

Public company board

 

BIOGRAPHY

Principal of Edgewater Energy, LLC, an oil and gas industry investment firm. Mr. McVay served as the Chief Operating Officer of TNK-BP Holding from 2003 until his retirement in 2006. TNK-BP Holding, based in Moscow, Russia, was a vertically integrated oil company that was 50%-owned by BP PLC. Mr. McVay’s responsibilities at TNK-BP included executive leadership for the upstream, downstream, oil field services, technology and supply chain management. He previously served as Technology Vice President — Operations and Vice President of Health Safety Environment for BP’s Exploration and Production operations from 2000 to 2003. Prior to joining BP, Mr. McVay held numerous positions at Amoco, including engineering management and senior operating leadership positions.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Director Nominees

Mr. McVay is a director of Callon Petroleum Company (where he serves on the Audit Committee, the Compensation Committee, the Nominating and Governance Committee and is the Chairman of the Strategic Planning Committee) and Chicago Bridge & Iron Company (where he serves on the Audit Committee, the Strategic Initiatives Committee and is the Chairman of the Corporate Governance Committee).

EXPERIENCE AND QUALIFICATIONS

As a former senior operating executive at BP, one of the largest global energy companies, Mr. McVay brings the senior executive experience and skills described above. He has an in-depth understanding of engineering management and of worldwide energy markets, operations and technology, all of which are important to the Company’s operations, particularly those involving large capital project investments. He also has practical experience in operating in Russia and the Middle East, both of which are emerging markets for the Company.

DENISE L. RAMOS

Chief Executive Officer and President of ITT Corporation

Age

Director Since

Other Public Company Directorships

 

59

2014

ITT Corporation

Qualification Highlights

Praxair End Markets

 

Operations

 

International Business

 

Technology

 

Finance

 

Risk Management

 

Public company board

 

BIOGRAPHY

Chief Executive Officer, President and a Director since October 31, 2011 of ITT Corporation, a diversified manufacturer of highly engineered critical components and customized technology solutions for growing industrial markets. Ms. Ramos previously served as Senior Vice President and Chief Financial Officer of ITT Corporation since 2007. She has more than 20 years of business and financial experience acquired at Atlantic Richfield Company (ARCO). During her tenure at ARCO, she served in a number of increasingly responsible finance positions, including Corporate General Auditor and Assistant Treasurer. In addition, Ms. Ramos has five years of experience at Yum! Brands, Inc., where she was Senior Vice President and Corporate Treasurer for Yum! and Chief Financial Officer for the U.S. division of KFC Corporation. Prior to joining ITT Corporation in 2007, Ms. Ramos served as Chief Financial Officer for Furniture Brands International. She serves on the Executive Committee of the Board of Trustees for the Manufacturers Alliance for Productivity and Innovation and is also a member of the Business Roundtable and the Business Council. Ms. Ramos was included in the Top 100 CEO Leaders in Science, Technology, Engineering and Math publication by STEMconnector. She recently received a Distinguished Leadership Award from the New York Hall of Science and she was named to Fortune magazine’s 2014 Top People in Business.

EXPERIENCE AND QUALIFICATIONS

As Chief Executive Officer and President of ITT Corporation, a large diversified manufacturer, Ms. Ramos brings the senior executive experience and skills described above. In particular, her background includes more than two decades in the oil and gas industry and extensive operational and manufacturing experience with industrial companies, all of which are important end markets for the Company. In addition, her substantial financial experience, including having served as the Chief Financial Officer of ITT Corporation, brings substantial expertise in accounting, financial statement preparation, and financial controls, as well as capital planning.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Director Nominees

 

MARTIN H. RICHENHAGEN

Chairman, President and Chief Executive Officer of AGCO Corporation

Age

Director Since

Other Public Company Directorships

 

63

2015

AGCO Corporation

PPG Industries, Inc.

Qualification Highlights

Praxair Foreign Markets

 

Operations

 

International Business

 

Risk Management

 

Public company board

 

BIOGRAPHY

President and Chief Executive Officer of AGCO Corporation, a global manufacturer and distributor of agricultural equipment, since 2004, and Chairman of the Board of Directors since 2006. From 2003 -2004, Mr. Richenhagen was Executive Vice President of Forbo International SA, a flooring material company headquartered in Switzerland. He also served as Group President for CLAAS KgaA mbH, a global agricultural equipment manufacturer and distributor headquartered in Germany, from 1998 – 2002. Mr. Richenhagen was the Senior Executive Vice President for Schindler Deutschland Holdings GmbH in Germany, a worldwide manufacturer and distributor of elevators and escalators, from 1995 – 1998.

Mr. Richenhagen is a director of PPG Industries, Inc., a leading coatings and specialty products and services company (where he serves on the Audit and the Technology and Environment Committees). He is the Chairman of the German American Chambers of Commerce of the United States, and he is a member of the U.S. Chamber of Commerce Board of Directors. Mr. Richenhagen has served as Chairman of the Board of the Association of Equipment Manufacturers (AEM) and is a Life Honorary Director of AEM.

EXPERIENCE AND QUALIFICATIONS

As Chairman, President and Chief Executive Officer of AGCO Corporation, a large international manufacturer and distributor of agricultural equipment, Mr. Richenhagen brings the senior executive experience and skills described above. In particular, his background includes extensive international, operational and manufacturing experience. In addition, AGCO Corporation operates in many of the foreign markets in which the Company operates, including Europe and South America, and Mr. Richenhagen therefore adds his understanding of these large, foreign markets where the Company has a significant presence.

WAYNE T. SMITH

Chairman, President & Chief Executive Officer of Community Health Systems, Inc.

Age

Director Since

Other Public Company Directorships

 

70

2001

Community Health
Systems, Inc.

Qualification Highlights

Praxair End Markets

 

Operations

 

Risk Management

 

Public company board

 

BIOGRAPHY

Chairman, President & Chief Executive Officer of Community Health Systems, Inc. (a hospital and healthcare services company) since 2001. In 1997, Mr. Smith was elected President and then Chief Executive Officer and a director of Community Health Systems, Inc. Prior to joining Community Health Systems, he served as Chief Operating Officer, President, and a director of Humana Inc.

Mr. Smith is a trustee of Auburn University, and is a trustee and the past Chairman of the Federation of American Hospitals.

EXPERIENCE AND QUALIFICATIONS

As the Chief Executive Officer of Community Health Systems, a large healthcare services company, Mr. Smith brings the senior executive experience and skills described above. He also has an in-depth understanding of the health care business and the regulatory, compliance and business environment in which it operates. Mr. Smith also brings his experience in leading a senior management team on the numerous issues required of the CEO of Community Health, as well as his experience in leading a board of directors as the Chairman of Community Health.

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CORPORATE GOVERNANCE AND BOARD MATTERS
Director Nominees

 

ROBERT L. WOOD

Former Chairman, President & Chief Executive Officer of Chemtura Corporation

Age

Director Since

Other Public Company Directorships

 

61

2004

Jarden Corporation

MRC Global Inc.

Qualification Highlights

Industry

 

Praxair End Markets

 

Operations

 

Risk Management

 

Public company board

 

BIOGRAPHY

Former Chairman, President & Chief Executive Officer of Chemtura Corporation (a specialty chemicals company) from 2004 to 2008. Prior to joining Chemtura, Mr. Wood served in various senior management positions at Dow Chemical Company, most recently as business group president for Thermosets and Dow Automotive, from November 2000. Mr. Wood has been Praxair’s Lead Director since January 1, 2013.

Mr. Wood is also a director of Jarden Corporation (where he serves on the Nominating and Policies Committee and is Chairman of the Audit Committee), and a director of MRC Global Inc. (where he serves on the Compensation Committee). He has served as Chairman of the American Plastics Council and the American Chemistry Council, and is a member of the United States Olympic Committee.

EXPERIENCE AND QUALIFICATIONS

As a former Chief Executive Officer of Chemtura Corporation, a global specialty chemicals company, and a former senior operating executive of Dow, a global chemicals company, Mr. Wood brings the senior executive experience and skills described above. He also has a deep understanding of the specific challenges and opportunities facing a global basic materials company. Mr. Wood’s knowledge of the chemicals industry, an important end market for the Company, provides valuable insight to the Board and management.

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CORPORATE GOVERNANCE AND BOARD MATTERS
ITEM 1: ELECTION OF DIRECTORS

ITEM 1: ELECTION OF DIRECTORS

Eleven Directors will be elected to serve until the 2017 annual meeting of shareholders, and until their successors are elected and qualify. The Governance & Nominating Committee recommended to the Board, and the Board approved and recommends that Stephen F. Angel, Oscar Bernardes, Nance K. Dicciani, Edward G. Galante, Ira D. Hall, Raymond W. LeBoeuf, Larry D. McVay, Denise L. Ramos, Martin H. Richenhagen, Wayne T. Smith, and Robert L. Wood, each be elected to serve for a one-year term, until the 2017 annual meeting of shareholders, and until their successors are elected and qualify. Each nominee has agreed to be named in this Proxy Statement and to serve if elected. Qualifications and biographical data for each of these nominees is presented above. If one or more of the nominees becomes unavailable for election or service as a director, the proxy holders will vote your shares for one or more substitutes designated by the Board of Directors, or the size of the Board of Directors will be reduced.

To be elected, a nominee must receive a majority of the votes cast at the Annual Meeting in person or by proxy by the shareholders entitled to vote (meaning the number of shares voted “for” a nominee must exceed the number of shares voted “against” such nominee). See the vote counting rules on page 75 of this Proxy Statement.

 

THE BOARD RECOMMENDS YOU VOTE IN FAVOR OF EACH OF THE ELEVEN NOMINEES FOR ELECTION TO THE PRAXAIR BOARD OF DIRECTORS

 

 

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Audit Matters

Independent Auditor Selection Process

The Audit Committee is directly responsible for the appointment, compensation (including approval of audit and non-audit fees), retention and oversight of the independent registered public accounting firm that audits our financial statements and our internal control over financial reporting. The Audit Committee has selected PricewaterhouseCoopers LLP (“PWC”) as our independent auditor for 2016. PWC has served as our independent auditor since 1992. Representatives of PWC are expected to be present at the Annual Meeting to be available to respond to appropriate questions and to make a statement if they desire.

The Audit Committee annually reviews PWC’s independence and performance in deciding whether to select PWC as the independent auditor. In the course of these reviews, the Audit Committee considers, among other things:

PWC’s recent performance on the Praxair audit, including the results of an internal, worldwide survey of PWC’s service and quality;

 

PWC’s capability and expertise in providing audit and related services to companies with the breadth and complexity of our worldwide operations;

 

An analysis of PWC’s known legal risks and any significant legal or regulatory proceedings in which it is involved;

 

External data on audit quality and performance, including recent Public Company Accounting Oversight Board (“PCAOB”) reports on PWC and its peer firms;

 

The appropriateness of PWC’s fees for audit and non-audit services, on both an absolute basis and as compared to the fees paid by our peer companies;

 

PWC’s independence (discussed below); and

 

PWC’s tenure as our independent auditor, including the benefits of having a tenured auditor and controls and processes that help ensure PWC’s independence.

 

 

TENURE BENEFITS

 

INDEPENDENCE CONTROLS

Higher audit quality. Through its years of experience with Praxair, PWC has gained institutional knowledge of and deep experience regarding Praxair’s global operations and businesses, accounting policies and practices, and internal control over financial reporting.

 

Thorough Audit Committee oversight. The Audit Committee’s oversight includes private meetings with PWC (the full committee meets with PWC at each of its five regularly scheduled meetings per year), and a comprehensive annual evaluation by the Committee in determining whether to engage PWC.

Efficient fee structure. PWC’s aggregate fees are competitive with fees paid by our peer companies in part because of PWC’s familiarity with our business and the Audit Committee’s negotiation of three-year fixed fee engagements.

 

Rigorous limits on non-audit services. Praxair requires Audit Committee preapproval of non-audit services, limits certain types of non-audit services that otherwise would be permissible under SEC rules, and requires that PWC is engaged only when it is best-suited for the job (see discussion below).

Continuity Efficiency. Bringing on a new auditor would require a significant time commitment that could distract from management’s focus on financial reporting and internal controls and the Audit Committee’s oversight of these matters.

 

Strong internal PWC independence process and strong regulatory framework. PWC conducts periodic internal quality reviews of its audit work, assigns separate lead and concurring partners for Praxair and rotates lead partners at least every five years. PWC, as an independent registered public accounting firm, is subject to PCAOB inspections, and PCAOB and SEC oversight.

 

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Audit Matters
Auditor Independence

Auditor Independence

As noted in the Audit Committee Charter and in the Audit Committee Report presented below, the independent auditor reports directly to the Audit Committee and the Audit Committee is charged with evaluating its independence. The Audit Committee has adopted the policies and procedures discussed below that are designed to ensure that PWC is independent. Based on this evaluation and representations from PWC, the Audit Committee believes that PWC is independent and that it is in the best interest of Praxair and our shareholders to retain PWC as our independent auditor for 2016.

Non-Audit Engagement Services Pre-Approval Policy

The Audit Committee has retained PWC (along with other accounting firms) to provide non-audit services in 2016. We understand the need for PWC to maintain objectivity and independence as the auditor of our financial statements and our internal control over financial reporting. Accordingly, the Audit Committee has established a policy whereby all non-audit fees of the independent auditor must be approved in advance by the Audit Committee or its Chairman, and has adopted a guideline that, absent special circumstances, the aggregate cost of non-audit engagements in a year should not exceed the audit fees for that year. The non-audit fees that are incurred are typically far less than this limit and, as noted below in the report on independent auditor fees, such non-audit fees were approximately 2.6% of audit fees in 2015. All of the Audit-Related Fees, Tax Fees and All Other Fees disclosed below were approved by the Audit Committee.

Audit Partner and Audit Firm Rotation

The Audit Committee’s policy is that the audit engagement partner of the independent auditor must rotate off the Company’s account at least every five years. With respect to audit firm rotation, the Audit Committee believes that it is inappropriate to establish a fixed limit on the tenure of the independent auditor. Continuity and the resulting in-depth knowledge of the Company strengthens the audit. Moreover, the mandatory partner rotation policy expressed above, normal turnover of audit personnel, the Audit Committee’s policy regarding the hiring of auditor personnel as described below, and the Audit Committee’s practices restricting non-audit engagements of the independent auditor as described above, all mitigate against any loss of objectivity that theoretically could arise from a long-term relationship. As provided in the Audit Committee’s Charter and as further described above, the Audit Committee continuously evaluates the independence and effectiveness of the independent auditor and its personnel, and the cost and quality of its audit services in order to ensure that the Audit Committee and the Company’s shareholders are receiving the best audit services available.

Hiring Policy – Auditor Employees

The Audit Committee has established a policy whereby no former employee of the independent auditor may be elected or appointed an officer of the Company earlier than two years after termination of the engagement or employment.

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Audit Matters
Fees Paid to the Independent Auditor

Fees Paid to the Independent Auditor

The Audit Committee authorizes and overseas the fees paid to PWC for audit and non-audit services. The aggregate fees billed by PWC in 2014 and 2015 for its services are set forth in the table below, followed by a description of the fees:

Types of Fees

                         

 

Audit

Audit-Related

Tax

All Other

Total

Non-Audit Fees
% of Total Audit Fees

2015

 

6,131,000

   

38,000

   

98,000

   

24,000

   

6,291,000

   

2.6

%

2014

 

6,512,000

   

593,000

   

155,000

   

48,000

   

7,308,000

   

12.2

%

AUDIT FEES. These are fees paid for the audit of Praxair’s annual financial statements, the reviews of the financial statements included in Praxair’s reports on Form 10-Q, the opinion regarding the Company’s internal controls over financial reporting as required by §404 of the Sarbanes-Oxley Act of 2002, and services that are normally provided by the independent auditor in connection with statutory and regulatory filings or engagements for those fiscal years.

AUDIT-RELATED FEES. These are fees paid for assurance and related services rendered that are reasonably related to the performance of the audit or review of Praxair’s financial statements other than the fees disclosed in the foregoing paragraph. These fees included those related to due diligence services and certifications required by customers and others.

TAX FEES. These are fees paid for professional services rendered for tax compliance and tax preparation, including preparation of original and amended tax returns, and claims for refunds.

ALL OTHER FEES. These are fees paid for services rendered other than those described in the foregoing paragraphs. These services related primarily to consulting and advice in regard to local country accounting issues for non-U.S. subsidiaries.

Audit Committee Report

As set forth in the Audit Committee’s Charter, the management of the Company is responsible for: (1) the preparation, presentation and integrity of the Company’s financial statements; (2) the Company’s accounting and financial reporting principles; and (3) internal controls and procedures designed to ensure compliance with applicable laws, regulations, and standards, including internal control over financial reporting. The independent auditor is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with generally accepted accounting principles, and expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

A principal role of the Audit Committee is to assist the Board of Directors in its oversight of the Company’s financial reporting process. In the performance of its oversight function, the Audit Committee has considered and discussed the audited financial statements with management and the independent auditor. The Audit Committee has also discussed with the independent auditor the matters that are required to be discussed in accordance with Public Company Accounting Oversight Board (PCAOB) standards relating to communications with audit committees.

The Audit Committee has discussed with the independent auditor its independence from the Company and its management. The Audit Committee has received the written disclosures and the letters from the independent auditor required by applicable requirements of the PCAOB. The Audit Committee has also received written confirmations from management with respect to non-audit services provided to the Company by the independent auditor in calendar year 2015 and those planned for 2016. The Audit Committee has further considered whether the provision of such non-audit services is compatible with maintaining PricewaterhouseCoopers LLP’s independence.

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Audit Matters
Audit Committee Report

In its oversight role for these matters, the Audit Committee relies on the information and representations made by management and the independent auditor. Accordingly, the Audit Committee’s oversight does not provide an independent basis to certify that the audit of the Company’s financial statements has been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with generally accepted accounting principles or that the Company’s independent auditor is, in fact, independent.

Based upon the review and discussions described in this report, and subject to the limitations on the role and responsibilities of the Audit Committee referred to above and in the Charter, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s Form 10-K and Annual Report for the year ended December 31, 2015 filed with the SEC.

The Audit Committee

Ira D. Hall, Chairman
Nance K. Dicciani
Raymond W. LeBoeuf
Larry D. McVay
Denise L. Ramos

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Audit Matters
ITEM 2: PROPOSAL TO RATIFY THE APPOINTMENT OF THE INDEPENDENT AUDITOR

ITEM 2: PROPOSAL TO RATIFY THE APPOINTMENT OF THE INDEPENDENT AUDITOR

Under New York Stock Exchange (“NYSE”) and SEC rules, selection of the Company’s independent auditor is the direct responsibility of the Audit Committee. The Board has determined, however, to seek shareholder ratification of that selection as a good practice in order to provide shareholders an avenue to express their views on this important matter. If shareholders fail to ratify the selection, the Audit Committee may reconsider the appointment. Even if the current selection is ratified by shareholders, the Audit Committee reserves the right to appoint a different independent auditor at any time during the year if the Audit Committee determines that such change would be in the best interests of the Company and its shareholders.

Information concerning the independent auditor may be found under the caption “Audit Matters” above. The Audit Committee believes the selection of PWC as the Company’s independent auditor for 2016 is in the best interest of the Company and its shareholders.

In order for this proposal to be approved by the shareholders, a majority of the shares present in person or by proxy and entitled to vote on this matter must be voted FOR approval. See the vote counting rules on page 75 of this Proxy Statement.

 

 

THE BOARD RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL TO RATIFY THE AUDIT COMMITTEE’S SELECTION OF THE INDEPENDENT AUDITOR.

 

 

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Executive Compensation Matters

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) provides context for the policies and decisions underlying the compensation reported in the executive compensation tables included in this Proxy Statement for Praxair’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the three other executive officers who had the highest total compensation for 2015, as set forth in the “Summary Compensation Table” of this Proxy Statement (these five executive officers are collectively referred to as the “Named Executive Officers” or the “NEOs”). The Compensation Committee of the Company’s Board of Directors is responsible for policies and decisions regarding the compensation and benefits for NEOs.

Executive Compensation Highlights

2015 Company Performance: High Quality Results

In addition to building network density in targeted geographies to increase operating efficiency, profitability, cash flow and return on capital, the Company focused on growing the business in more resilient end-markets including food, beverage, healthcare and aerospace.

More than half of the Company’s sales are generated outside the U.S., and the significant strengthening of the U.S. dollar against most currencies in recent years has negatively impacted the Company’s earnings per share and the stock’s price to earnings multiple. Although foreign currency exchange rates and other macro-economic weakening in demand are outside of management’s control, Praxair continues to focus on high-quality results, and during 2015 took actions to protect the quality of the existing business. Praxair is well-positioned for strong accretive growth when markets recover and foreign currency exchange rate headwinds reverse.

 

Continued industry-leading*:

Operating margins: 23.1%

EBITDA margins: 33.8%

ROC: 12.6%

Operating Cash Flow was 25% of sales allowing for:

Increased dividends each year for 23 consecutive years

 

10 years of share buyback

 

* Operating margin, EBITDA margin, and ROC are non-GAAP measures. A reconciliation of reported amounts to non-GAAP measures can be found in Praxair's 2015 Form 10-K and Annual Report in “Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations” in the sub-section called “Non-GAAP Financial Measures.”

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Executive Compensation Matters
Executive Compensation Highlights

Pay Aligned with Shareholder Interests

Low Payouts and Forfeited Performance Shares

Financial results most under management’s control such as cash flow, return on capital and operating margins, continued to demonstrate the success of the management team at Praxair. Nonetheless, foreign currency exchange and other macro-economic weakening in demand resulted in financial results that did not meet target performance for the annual performance-based variable compensation program nor for the performance share units (“PSUs”) covering the 2013 through 2015 performance period.

2015 PAYOUTS: The variable compensation programs continue to work as designed.

Annual variable compensation business result: 29% financial + 7% non-financial

 

EPS performance share units: forfeited

 

ROC performance share units: 73.3% of target

 

Impact to CEO Pay for 2015

The CEO’s realized pay was greatly impacted by the Company’s lower financial performance. Additionally, Mr. Angel’s variable compensation payout was reduced due to the variable compensation design changes that were implemented by the Compensation Committee retroactively for the 2015 performance year.

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Executive Compensation Matters
Executive Compensation Highlights

Shareholder Feedback is Critical to Executive Compensation Design

Praxair continues to have a long-standing, robust outreach program whereby management regularly discusses executive compensation design and other relevant matters with shareholders. The Compensation Committee carefully considers shareholder feedback as it makes compensation program decisions.

The feedback received from shareholders over the past years on executive compensation has been generally positive, including that from shareholders who participated in the outreach efforts in late 2014 and early 2015. In April 2015, certain proxy advisory firms recommended that shareholders vote against the Company’s Advisory Vote on NEO Compensation, and as a result, additional shareholder outreach was conducted to seek further feedback. Shareholders ultimately approved the Say-on-Pay proposal on April 28, 2015 with 62% of shares voted in its favor.

After the shareholder vote, the Compensation Committee met on multiple occasions and revisited the executive compensation program design while considering shareholder feedback, market data, compensation analyses, and advice from its compensation consultants. Additional shareholder outreach was conducted towards the end of 2015 whereby shareholders were invited to discuss the proposed changes being considered by the Compensation Committee prior to finalization.

In total, 111 invitations were sent to shareholders to discuss the Company’s executive compensation program and other relevant matters. 54 individual meetings were held, and collectively, shareholders representing 49% of shares outstanding provided feedback for consideration.

In response to, and after carefully considering shareholder feedback, the Compensation Committee approved changes to certain elements of the Company’s executive compensation program as highlighted below:

 

What We Heard

What We Did

Effective

For More Detail

Concern that variable compensation awards can be too greatly influenced by elements other than financial performance

Reduced and limited the impact of the non-financial performance on payouts:

Financial performance must account for at least 80% of total business performance for NEOs

 

Eliminated the individual performance adjustment for the CEO’s payout

 

2015

(retroactive)

See page 43

Want additional alignment with shareholder returns in the variable compensation program

Revised the annual variable compensation program by increasing the weighting of net income and by replacing the working capital metric with a cash flow metric

2016

See page 43

ROC is viewed as a solid measure for long-term incentive equity awards. Additionally, some shareholders also prefer relative metrics and linking payouts to TSR

Modified the annual long term equity grants to incorporate a relative total shareholder return (“TSR”) measure, while maintaining the ROC measure

2016

See pages 47-48

Concern about CEO special pension arrangements

Agreements to provide additional service credit for the Company’s pension program have not been made with any current executive since 2001, and will not be made in the future

legacy

See page 54

Desire for enhanced disclosure in the proxy statement

Performance goals disclosed for the TSR and ROC performance share units in the year of grant

 

Improved the readability and redesigned the presentation of the proxy statement

 

2016

See page 49

 

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Executive Compensation Matters
Executive Compensation Highlights

Alignment of Executive Compensation Programs with Praxair Business Objectives

The Compensation Committee seeks to achieve its executive compensation objectives by aligning the design of the Company’s executive compensation programs with the Company’s business objectives ensuring a balance between financial and strategic non-financial goals.

FINANCIAL BUSINESS OBJECTIVE: Achieve sustained growth in profitability and shareholder return resulting in a robust cash flow to fund capital investment growth opportunities, dividend payments and share repurchases.

Annual performance-based variable compensation earned by meeting or exceeding pre-established financial goals.

 

Annual grants of performance share units that vest based upon performance results over three years.

 

Annual grants of stock options, the value of which is directly linked to the growth in the Company’s stock price.

 

STRATEGIC BUSINESS OBJECTIVES: Maintain world-class standards in safety, environmental responsibility, global compliance, productivity, talent management, and financial controls.

Annual payout of variable compensation is impacted by non-financial performance in these areas.

 

Attract and retain executives who thrive in a sustainable performance-driven culture.

A competitive compensation and benefits program regularly benchmarked against peer companies of similar size in market cap, revenue and other financial metrics and business attributes.

 

Realized compensation that varies with Company performance, with downside risk and upside opportunity.

 

Best Practices Supporting Executive Compensation Objectives

What We Do:

Link a substantial portion of total compensation to Company performance:

 

Annual variable compensation awards based principally upon performance against objective, pre-established financial goals

 

Equity grants consisting of performance share units and stock options, focused on longer term shareholder value creation

 

Set compensation within competitive market ranges

 

Require substantial stock ownership and retention requirements for officers

 

Limit perquisites and personal benefits

 

Have double trigger change-in-control severance agreements and, for post-2009 agreements, with payouts of 2 times salary plus target variable compensation

 

Include double trigger vesting requirements for officer equity awards in the event of a change-in-control

 

Have a clawback (“recapture”) policy that applies to performance based equity and cash awards including gains realized through exercise or sale of equity securities

 

 

What We Do Not Do:

X
Guarantee bonuses for executive officers

 

X
Regularly grant time vested restricted stock

 

X
Have employment agreements for executive officers

 

X
Allow pledging or hedging of Company stock held by officers

 

X
Pay tax “gross-ups” on perquisites and personal benefits unless related to relocation expenses that are available to employees generally

 

X
Accelerate equity award vesting upon change-in-control

 

X
Include an excise tax “gross-up” provision in any change-in-control arrangements

 

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Executive Compensation Matters
Praxair’s Executive Compensation Program

Praxair’s Executive Compensation Program

Praxair’s Executive Compensation Objectives

Praxair’s executive compensation program is focused on motivating performance to effectively build shareholder value. The Company delivers a total compensation package that includes salary, performance-based cash and equity incentives, and a competitive employee benefits program. The Compensation Committee has established the following objectives for Praxair’s executive compensation program:

attract and retain executive talent;

 

motivate executives to deliver strong business results in line with shareholder expectations;

 

build and support a sustainable performance-driven culture; and

 

encourage executives to own Company stock, aligning their interests with those of shareholders.

 

Determining Compensation Opportunity

In order to align executive compensation with Company performance, the Compensation Committee considers a variety of factors, including the degree to which executive compensation is “at risk.”

At Risk Pay

Between 76% and 89% of the NEOs’ target total direct compensation opportunity for 2015 was in the form of performance-based variable compensation and equity grants, motivating them to deliver strong business performance and drive shareholder value. This portion of compensation is “at risk” and dependent upon the Company’s achievement of pre-established financial and other business goals set by the Compensation Committee and, for equity incentives, the Company’s stock price performance. The annual variable compensation payout and the ultimate value of the equity compensation awards could be zero if the Company does not perform.

CEO Pay Mix

Performance-based equity compensation is valued at the “grant-date fair value” of each award as determined under accounting standards related to share-based compensation.

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Executive Compensation Matters
Praxair’s Executive Compensation Program

Aggregate Compensation

CONSIDERATIONS: The Compensation Committee considers whether the value of each NEO’s aggregate compensation package is consistent with its objectives for Praxair’s executive compensation program. It evaluates the following factors when determining compensation levels for NEOs:

internal equity: respective role, responsibilities and reporting relationships

 

experience and time-in-position

 

contribution to results, and exhibition of values, competencies and behaviors critical to the success of the Company

 

year-to-year swings in market median data

 

retention objectives

 

The Compensation Committee does not have a set formula for determining target compensation opportunity however it refers to the median benchmark data during its regular review. Compensation levels tend to be established towards the lower end of a competitive market range for an executive officer who is new to the role. Conversely, a longer tenured executive officer who consistently performs at a high level will have target compensation levels set higher in a competitive range.

As part of the review, the Compensation Committee compares the CEO’s pay to that of the other NEOs. As in previous years, the CEO’s pay as a multiple of the next highest paid NEO was determined to be appropriate, as the organization does not have a Chief Operating Officer, and the CEO has business executives reporting directly to him. It was also noted that the ratio of CEO pay to the pay of other NEOs collectively changes year-over-year to reflect shifts in executive officer roles from promotions to, and retirements from, those roles. For 2015, two NEOs were short tenured (two years or less) and the CEO has been in his role for nine years.

Compensation Peer Group

The Compensation Committee reviews the benchmark companies used to assess competitive market compensation ranges for U.S.-based officers (the Key Company Group). Elements considered when choosing companies to be included are:

Market capitalization Considerable weight is given to market capitalization, as the Company’s market capitalization has consistently been about three times its annual revenue.

 

Revenue and net income Companies are included in the review if they are generally similar in size to Praxair in one or more of these measures.

 

Other considerations Assets, number of employees, whether or not a company had global operations and whether a company’s operations were similar to that of Praxair or Praxair’s customers are considered.

 

Though the Compensation Committee reviews the Key Company Group annually, it values year-over-year consistency in the peer group and only makes changes when appropriate. When the review was performed in October 2014, the Compensation Committee determined that four of the peer companies no longer fit the peer selection criteria due to merger, spinoff and/or changes in business results that positioned these companies outside of comparable financial parameters. These four companies (Covidien, Ingersoll-Rand, Newmont Mining and Union Pacific Corp) were removed from the peer group, and seven with better alignment were added, resulting in the following Key Company Group used for setting 2015 compensation:

 

Key Company Group

Air Products and Chemicals

Danaher

Kraft Foods Corp

Anadarko Petroleum Corp

DuPont

Monsanto

Applied Materials

Ecolab

Mosaic

Baker Hughes

EMC

Norfolk Southern

Baxter International

General Mills

PPG Industries

Colgate-Palmolive

Illinois Tool Works

Sherwin-Williams

Corning

International Paper

Stryker

CSX Corp

Kellogg

Texas Instruments

Cummins

Kimberly-Clark

 

 

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Executive Compensation Matters
Pay Design and Decisions

Role of the Compensation Consultant

The Compensation Committee engages a third-party compensation consultant to assist in analysis as is necessary to inform and support the Compensation Committee’s decisions on executive compensation. At each of its meetings, the Compensation Committee conducts a private session with its consultant without management present. For its consideration of 2015 executive compensation, the Compensation Committee engaged Deloitte Consulting LLP (“Deloitte Consulting”).

In 2015, the scope of Deloitte Consulting’s engagement included:

Advice on the determination of NEO’s compensation, the consultant’s view of the CEO’s recommendations for other NEO compensation, as well as input on the CEO’s compensation

 

Preparation and presentation to the Compensation Committee of reports on executive compensation trends and other various materials

 

Review of the peer group analysis and compensation benchmarking studies prepared by management and review of other independent compensation data

 

Pay Design and Decisions

Direct Compensation for Executive Officers

Salary

The salary level for each NEO was established by the Compensation Committee after its consideration of multiple factors including positioning to market, CEO input (other than for himself) and advice from Deloitte Consulting. Salary adjustments, if any, are typically effective April 1 of each year.

CEO SALARY: For 2015, the Compensation Committee determined that the CEO’s salary was competitive to market and that no salary adjustment would be made for the year.

 

Annual Performance-Based Variable Compensation

The Compensation Committee sets annual goals to drive desired short-term business performance by focusing executives on key objectives that position Praxair for sustained growth and create shareholder value without compromising long-term business objectives. The program is designed to deliver pay commensurate with performance: results that are greater than goals are rewarded with above target payout levels, and performance not meeting minimum threshold expectations reduces the payout to zero.

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Executive Compensation Matters
Pay Design and Decisions

 

RETROACTIVE CHANGES: In consideration of shareholder feedback, the Compensation Committee made changes to the 2015 variable compensation opportunity for NEOs.

BUSINESS RESULTS:

financial goals Awards are determined based on Company performance against challenging, pre-established financial goals. Payouts can range from zero to 200% of target variable compensation. Beginning with 2015, the financial performance must be at least 80% of the total business results for NEOs.

strategic non-financial goals The Compensation Committee may make a positive or negative adjustment of up to 35 percentage points to the total financial payout earned based on the Committee’s detailed review and assessment of performance against pre-established non-financial goals that relate directly to the Company’s strategic objectives. Beginning for 2015, points awarded for strategic non-financial goals cannot exceed 20% of the total business payout for NEO payout determination.

INDIVIDUAL PERFORMANCE: The Compensation Committee does not assign an individual performance factor for the CEO, though it retains the discretion to decrease (but not increase) his payout if deemed appropriate. The Compensation Committee may positively or negatively adjust each other NEO’s performance-based variable compensation to reflect each individual’s contribution to Company performance. Individual performance adjustments can reduce each NEO’s payout to as low as zero or increase it by a factor of 1.5.

MAXIMUM PAYOUT: Total payout for officers is capped at 260% of target variable compensation.

Annual Performance-Based Variable Compensation Opportunity for 2015

In December 2014, the 2015 variable compensation target for each NEO (expressed as a percent of salary that would be earned for 100% achievement of the performance goals) was established by the Compensation Committee. The target level for each NEO ranged from 80% to 150% of base salary.

Determining Financial Goals

At the time goals are established, the Compensation Committee considers many factors including the degree of control senior management may have over certain factors that affect financial performance. Goals are established with the expectation that executives will be rewarded with higher variable compensation payouts if performance exceeds expectations. Factors considered in assessing the challenge inherent in setting the minimum (“threshold”), target and maximum financial performance goals for each financial measure include:

management’s operating plan, including expected year-over-year challenges in performance,

 

macro-economic trends and outlooks in each of the countries in which the Company operates,

 

foreign exchange rate trends and outlook,

 

expected industrial gases industry peer performance and that of the broader S&P 500,

 

shifts in key customer markets, and

 

expected contribution from contracts already awarded and decisions or actions already made or taken.

 

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Executive Compensation Matters
Pay Design and Decisions

2015 DESIGN With an intention to focus on those activities under the control of the leadership of the Company, the Compensation Committee chose sales, net income and working capital as a percentage of sales as appropriate financial metrics for the 2015 variable compensation program. The Compensation Committee determined that net income would be weighted at 50%, and sales and working capital as a percent of sales would be weighted at 25% each.

 

Determining STRATEGIC Non-financial Goals

The Company’s culture has been institutionalized over decades and is the foundation on which employees drive and deliver financial results. The Board believes culture must be driven from the top by example. As such, the Compensation Committee confirmed the importance of setting non-financial objectives to reinforce leadership’s focus on maintaining an enduring culture that supports both short- and long-term sustainable results. The Compensation Committee identified the non-financial elements that were considered most important to long-term sustainable success and established annual non-financial goals with respect to those elements.

 

GOAL

ADDITIONAL DETAIL

Safety, Environmental Performance and Sustainability:

Zero fatalities

 

Maintain best in class safety rates

 

Superior performance in sustainable development including environmental stewardship

 

Providing our employees with a safe operating environment through investing in state of the art technology and by driving a culture in which safety is a top priority

 

Rigorous processes and procedures to ensure compliance with all applicable environmental regulations, to meet sustainable development performance targets and to continuously reduce the environmental impact of our operations in the communities in which we operate

 

People Development:

Strengthen leadership pipeline, including globally diverse talent

 

Attraction, retention and development of a diverse and engaged workforce through a robust succession planning process

 

Employee value proposition includes providing strong, dynamic leadership, a challenging work environment, industry-leading performance, competitive pay and benefits, and rewards and recognition for outstanding performance

 

Compliance:

Maintain a strong global compliance program and culture

 

Create and maintain a strong ethical culture in every country where we operate

 

All employees accountable for ensuring that business results are achieved in compliance with local laws and regulations and our Standards of Business Integrity

 

Strategy:

Position the business for long-term performance

 

Deliver excellent results in the short-term and over a longer, sustainable period of time

 

Rigorously assess the quality and future impact of actions taken, as benefits may not be recognized for several years

 

Project Selection and Execution:

Maintain industry-leading performance

 

Maintain a thorough capital allocation process to ensure careful selection of projects

 

Focus on meeting schedules and cost estimates, starting-up plants reliably and efficiently, and supporting plant availability

 

Productivity:

Enhance organizational capabilities in tools, processes and practices

 

Deliver value through continuous innovation to help our customers enhance their product quality, service, reliability, productivity, safety, and environmental performance

 

Work across disciplines, industries and sectors, with our employees, customers, suppliers and a range of other stakeholders to get more output utilizing fewer resources and with less environmental impact

 

Relative Performance:

Strong performance relative to peer companies

 

Continue to be the best performing industrial gases company in the world

 

Assess how well we anticipate and manage adversity to optimize results

 

Determine if management’s actions appear more or less effective than those of our peers

 

Appropriately respond to macroeconomic or other external factors unknown at the time financial goals were established

 

 

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Executive Compensation Matters
Pay Design and Decisions

2015 Annual Performance-Based Variable
Compensation Results and Payout

 

CEO PAY ALIGNED WITH SHAREOWNER INTERESTS: Year-over-year, the CEO’s annual variable compensation award was reduced by 74%.

Financial Business Results

As noted above, financial goals are set considering multiple factors with the recognition that there are some items that cannot be easily predicted, and over which management has less control, such as foreign exchange rates and certain raw materials price changes. As part of the variable compensation plan design, certain pre-determined adjustments may be made by the Compensation Committee to actual financial results in order to account for these elements. The Compensation Committee may also conclude that additional adjustments are appropriate based upon unforeseen factors it deems extraordinary, non-recurring or otherwise properly modified.

The chart below shows for each financial performance measure, the Company’s 2015 financial targets set by the Compensation Committee and the actual performance achieved:

             

Financial
Measure*

Target
($ millions)

Actual
($ millions)

Payout

Sales

 

12,222

   

11,129

   

0

%

Net Income

 

1,871

   

1,590

   

0

%

Working Capital as % of Sales

 

12.9

%

better than target

 

29

%

* For the annual variable compensation program, sales and net income are measured in accordance with GAAP subject to certain adjustments that the Compensation Committee approves. Working capital is defined as trade receivables, inventory and payables, excluding non-operating items such as deferred taxes and pensions.

Sales growth for the year was negatively impacted primarily due to the adverse effect of foreign currency translation due to the strengthening of the U.S. dollar against most major currencies and lower volumes due to weaker industrial activity in Brazil and China and in the metals and manufacturing end-markets in North America. In this environment, strong cost control and productivity gains contributed to net income growth which exceeded sales growth. Working capital was positively impacted primarily due to strong accounts receivable collection performance, and as a result, the Company exceeded the working capital goal. The overall weighted average payout factor for financial performance was 29% of target variable compensation.

Non-financial Business Results

Coupled with its assessment of performance related to financial goals, the Compensation Committee reviewed the strategic actions taken by management that focused on long term sustainable success. In December, 2015, the CEO and senior members of management presented to the Board of Directors, including the Compensation Committee, the degree of achievement for each of the non-financial goals. The CEO further apprised the Compensation Committee of the level of success in meeting each goal, and for each element, he provided his view of the relative degree of importance to long term success.

Based on the results, with a focus on those items under control of management, the Compensation Committee determined that the Company’s performance with respect to the non-financial goals was favorable and awarded a positive 7% adjustment for the NEOs (limited by the retroactive design changes). The Compensation Committee noted the following as examples of actions that successfully support the Company’s strategic objectives in determining 2015 variable compensation payouts:

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Executive Compensation Matters
Pay Design and Decisions

Entered into multiple synergistic acquisitions

 

Increased focus on resilient end-markets

 

Practiced prudent capital management

 

Quickly adjusted the cost structure in line with economic conditions and redoubled efforts in productivity and price attainment

 

Took proactive cost management actions including targeted reduction in force

 

Grew industry-leading EBITDA margins and operating margins to record levels

 

Obtained productivity results that were 2 times greater than next competitor, and increased productivity projects 7% year-over-year

 

Had a recordable injury rate that was 7 times better than the OSHA average

 

Improved our lost workday case rate to more than 25 times better than the OSHA average

 

Reduced vehicle accidents by 22% year-over-year

 

Received public recognition:

 

Forbes top 100 companies to work for in the U.S.

 

Best Employer recognition in Canada, Mexico, Brazil and Spain

 

Dow Jones Sustainability World Index for 13th year in a row

 

8th consecutive year on the Climate Disclosure Leadership Index

 

Brought direct benefits to more than 345,000 people around the world through employee community engagement- more than 12 beneficiaries for each Praxair employee

 

Individual Performance Adjustments

Excluding the CEO, the Compensation Committee may make a positive, negative or no adjustment to each NEO’s performance-based variable compensation based on its evaluation of individual performance. In evaluating if an individual performance adjustment was appropriate, the Compensation Committee considered various qualitative factors, such as the NEO’s:

performance in his or her principal area of responsibility,

 

degree of success in leading the Company to meet its strategic objectives, and

 

championing of the values and competencies that are important to the success of the Company.

 

Adjustments were made to the payouts of each NEO based upon individual performance in 2015. The Compensation Committee did not find it practical, nor did it attempt, to assign relative weights to any individual factors or subject them to pre-defined, rigid formulas, or set financial or other objective goals related to personal performance, and the importance and relevance of specific factors varied for each NEO.

ADJUSTMENT OF PAYOUT UNDER SECTION 162(m)

In December, 2014, the Compensation Committee identified participants and established an upper limit on performance-based variable compensation that could be paid to NEOs for 2015 under the shareholder-approved “Praxair, Inc. Plan for Determining Awards under Section 162(m)” (the “162(m) Plan”) based upon budgeted net income performance. In January, 2016, the Compensation Committee certified the net income earned and the maximum performance-based variable compensation awards available to each NEO under the 162(m) Plan. It then exercised its downward discretion to adjust the actual payments to a level it deemed appropriate for each NEO according to the variable compensation methodology described above.

2016 DESIGN The Compensation Committee reviewed the financial measures in the annual variable compensation program and approved changes for the 2016 performance year. Recognizing that cash flow is a critical metric of Praxair’s financial performance that also has significant importance to investors, it was determined that operating cash flow would be included in the 2016 financial goals at a weighting of 25%, replacing the working capital metric. To reinforce the importance of making decisions that support the Company’s profitability, the weighting of net income was increased to 60%, and sales was reduced to 15%.

2016 DESIGN CHANGES: Changes were made to the 2016 variable compensation design to further align management and shareholder interests.

 

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Executive Compensation Matters
Pay Design and Decisions

Equity Awards

Equity awards are the largest portion of each NEO’s target compensation. This weighting helps ensure a strong alignment of NEOs’ and shareholders’ long-term interests. Annual grants of equity awards are made to incent and reward sustained performance.

Equity awards are granted as a mix of stock option and performance share unit (PSU) awards. The mix and type of awards granted to the CEO and other NEOs is the same as those granted to all eligible executives of the Company. Fully aligning the leadership team, from mid-management to officers, is a long-standing practice of the Company that helps sustain its culture of incenting and rewarding all participants with the same goals and performance results.

 

Stock Options

The Compensation Committee believes that stock options continue to present an appropriate balance of risk and reward in that the options have no value unless the Company’s stock price increases above the option exercise price and that the opportunity for leveraged appreciation from growth in shareholder value over the ten-year grant term encourages long term decision-making. The Compensation Committee notes that the Company’s historical record of strong stock price performance results in the Company’s executives placing high value on stock options as a compensation vehicle.

Exercise price is fixed at 100% of the closing market price on date of grant.

 

Vest in equal annual tranches over three years and expire after ten years.

 

Repricing is prohibited without shareholder approval.

 

NEOs must hold all shares obtained from exercise, net of taxes and exercise price, until the stock ownership requirement is met.

 

 

Performance Share Units

The Compensation Committee recognizes that PSUs can provide appropriate rewards to executives for performance while also potentially mitigating some of the impact of an economic downturn on the stock option portion of the annual awards. A three-year performance period is believed to be an appropriate balance between the one-year performance-based variable compensation goals and the longer-term stock option share price growth goals. Additionally, the overlapping three-year performance periods that result from regular annual grants promote retention and encourage management to focus on sustainable growth and shareholder returns.

Vest if pre-established performance goals are attained and forfeited if threshold goal is not met.

 

Pay no dividends nor accumulate dividend equivalents prior to vesting.

 

If vested, payment in shares of Company stock will range from 50% to 200% of the individual’s “target” number of units.

 

NEOs must hold all after-tax shares derived from vested awards until the stock ownership requirement is met.

 

2015 Equity Awards

In December, 2014, the target dollar value of 2015 equity awards for each NEO was established by the Compensation Committee. It examined relative responsibility of the NEOs and each NEO’s position to market with consideration of how long he or she had been in the current role. Particular emphasis was placed on retention considerations and the importance of providing NEOs incentive and appropriate reward for taking high quality actions to support sustainable long-term growth.

STOCK OPTIONS The Compensation Committee reviewed market trends in stock option awards, examined current usage and projections of available shares in the shareholder approved long-term incentive plan, and discussed specific terms of proposed stock

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Executive Compensation Matters
Pay Design and Decisions

option awards. Based on these reviews it was determined that the mix of stock options and PSUs should remain the same wherein stock options comprise 40% of the value awarded to each executive for the annual equity grant to be made in February 2015.

PSUs The Compensation Committee determined that 60% of the equity award value for the February 2015 grants should be in the form of PSUs with half focused on adjusted diluted EPS growth and half tied to ROC performance. EPS is an indicator of how well the Company has grown shareholder value over time, is well understood by executives and shareholders, and progress can be communicated quarterly. The awards with an ROC goal reflected the importance of maintaining focus on achieving satisfactory returns on invested capital as the Company executes its future growth plans.

In determining the EPS growth payout schedule for the PSU awards covering fiscal years 2015 to 2017, the Compensation Committee considered multiple factors including the Company’s past performance against its major competitors, projected EPS growth for the Company and for its major competitors, and projected overall market and economic conditions. At the time they were established, the Compensation Committee believed the goals were challenging and difficult to achieve, but attainable. The range of goals was established to provide participants with an opportunity to receive higher payouts commensurate with strong performance, thus providing an incentive to NEOs to achieve continued EPS growth.

The ROC goal for the PSU awards covering fiscal years 2015 to 2017 was determined after the Compensation Committee examined prior-year ROC results, industry ROC averages, capital expenditure projections and the Company’s cost of capital. It was acknowledged that the Company has maintained industry-leading ROC, and the payout schedule set for the PSU awards would encourage and reward the executive team for taking actions that would result in maintaining industry-leading ROC performance.

2013-2015 PERFORMANCE SHARE UNIT PAYOUTS

In February 2016, the grants of the 2013 PSUs that met the pre-established performance criteria at the end of 2015 became vested and were converted to shares and distributed.

Half of the PSUs awarded had goals based on the Company’s adjusted diluted EPS growth for the 2013-2015 performance cycle. At its January, 2016 meeting, the Compensation Committee certified that the Company’s three-year EPS growth of 4.1% did not meet the pre-established goals, and all associated EPS PSUs would be forfeited.


Growth Excluding
Impact of Foreign Exchange

Growth Measured per Award Agreement

Target

Payout

24%

4%

20%

none

Though ROC over the 2013-2015 performance cycle remained industry-leading, the average annual ROC of 13.2% was less than the 14% target for the awards, and the Compensation Committee certified the vesting of 73.3% of the target number of PSUs granted.


Actual Performance

Target

Payout

2013

2014

2015

Adjustment*

Average

12.8%

12.7%

12.6%

+0.5%

13.2%

14.0%

73.3%

   
* ROC is the Company’s after-tax return on capital as reported in its quarterly and annual Consolidated Financial Statements, adjusted to eliminate the after-tax effect of any acquisition occurring during the Performance Period that was not known at the time the goals were set. For the 2013-2015 performance period, a positive 0.5% adjustment was made to eliminate the effect of the acquisition of NuCO2. All other acquisitions were deemed to be immaterial and were included in the results per plan design.

2016 EQUITY AWARDS In 2015, the Compensation Committee conducted a complete review of the long-term incentive plan awards design. It sought to find a balanced design that would address the needs of multiple stakeholders. In its review, the Compensation Committee considered costs, both monetary and share usage, and recognized that leadership throughout the organization receives the same mix of equity awards as do the NEOs. It considered information gathered from shareholders, management, its compensation consultant, and market practices.

As a result of its analyses, the Compensation Committee determined that it would be appropriate to provide 50% of the 2016 equity award value in stock options, 30% in PSUs that measure three-year ROC performance, and 20% as PSUs that measure relative TSR over a three year period.

2016 DESIGN CHANGES: Changes were made to the 2016 equity awards, and a relative TSR PSU was introduced to further align executive compensation with shareholder interests.

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Executive Compensation Matters
Pay Design and Decisions

Shareholder outreach confirmed that investors feel a strong alignment to management with respect to the ROC measured PSUs. As such, the Compensation Committee concluded to keep the ROC PSUs as a significant component of the annual equity awards. The February 2016 awards are measured against the following industry-leading ROC goals:

2016-2018

Average Annual ROC

Payout*

Below Threshold

<11.0%

0%

Threshold

11.0%

50%

Target

12.5%

100%

Maximum

≥13.5%

200%

*Interpolated for actual results between threshold and maximum

 

To further strengthen alignment of management payouts with shareholder returns, the Compensation Committee determined that it would be appropriate to provide a portion of the target equity award value through a PSU that measures relative TSR performance. For the February 2016 awards, relative performance will be measured against the companies of the S&P 500 as of January 1, 2016, excluding the Financial sector, and payouts will be determined based on the following schedule:

2016-2018

TSR Rank

Payout*

Below Threshold

<25%ile

0%

Threshold

25%ile

25%

Target

50%ile

100%

Maximum

≥75%ile

200%

*Interpolated for actual results between threshold and maximum

Benefits Available to Executive Officers

The Company makes available to NEOs essentially the same benefit plans generally available to other U.S. employees, and also provides to them limited perquisites and personal benefits.

Health, Welfare and Retirement Plans

Competitive benefits are provided to attract executive talent and promote employee health and well-being, to provide opportunity for retirement income accumulation, including opportunities to “invest in” Company stock and to encourage long term service.

Tax-Qualified Pension Plan

The Company maintains a tax-qualified pension plan for eligible U.S. employees, including the NEOs.

 

Supplemental Retirement Income Plan

The plan is maintained for the primary purpose of providing retirement benefits that would otherwise be paid to U.S. employees under the tax-qualified pension plan but for the application of certain limitations under federal tax law.

 

Incremental benefits paid are calculated in the same manner as the underlying tax-qualified pension plan.

 

Only base salary and annual variable compensation awards are considered in pension calculations.

 

 

401(k) PLAN

For U.S. employees, contributions to the plan are voluntary and may be invested in various funds, including the Company’s stock fund.

 

Deferred Compensation

U.S. employees eligible to participate in the Variable Compensation Plan, including the NEOs, may participate in the plan.

 

Contributions to the plan are voluntary and represent compensation already earned by the participant.

 

Employees may choose to invest in Company stock equivalent units and receive Company stock in payment of deferred amounts.

 

No above-market earnings are payable.

 

Other Plans

Medical and dental plans, disability, life insurance, relocation and vacation programs are provided.

 

Perquisites and Personal Benefits

The Compensation Committee reviews items that could be construed as perquisites or personal benefits for each NEO to ensure they are provided for limited and specifically defined business purposes. No “tax gross-up” is permitted for any executive officer unless such gross-up is available to employees generally. The Company’s internal audit department performs an annual audit of executive officer expense reports for compliance with Company policies and the independent auditors review that work.

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Executive Compensation Matters
Pay Design and Decisions

Severance and Change-in-Control Arrangements

Severance Plan

The Company maintains a severance plan that provides certain benefits to eligible employees, including NEOs, in connection with certain Company-initiated terminations.

All full-time U.S. employees, including NEOs are eligible.

 

Upon a without-cause termination, maximum payment is generally limited to 26 weeks of base pay, calculated based upon length of service and salary rate at time of termination.

 

The Company retains discretion to pay excess severance in limited cases.

 

No severance payout and a forfeiture of unvested equity are required upon a for-cause termination.

 

Change-in-Control Arrangements

The Company has entered into executive severance compensation agreements with certain senior executives, including NEOs. The agreements are meant to:

provide temporary income following an involuntary termination of employment,

 

encourage retention of executives for continuity of management, and

 

to keep executives focused on performing their duties in the event of a change-in-control or if the Board considers strategic transactions including a change-in-control.

 

The Compensation Committee determined that these arrangements are generally comparable to those provided by companies in the chemicals industry and provide a legitimate and reasonable benefit to the Company and its shareholders, and it has concluded that the amounts that could be received are appropriate to each NEO’s circumstances.

The terms of the agreements include:

Double trigger is required for payments

 

Termination must be by the Company other than for cause or by executive with “good reason” and within two years of the change-in-control

 

No reimbursement of excise taxes and no “tax gross-ups” payments

 

For post-2009 agreements, lump sum payout equals two times salary plus target variable compensation

 

As a condition of entering into the agreements, each NEO is required to enter into a Nondisclosure, Nonsolicitation and Noncompetition Agreement under which the NEO agrees not to:

 

Disclose Company confidential information both during and after termination of his or her employment with the Company

 

Solicit the Company’s customers and employees for a period of two years following the NEO’s termination of employment with the Company for any reason

 

Engage in any activities that compete with those of the Company for a period of two years following the NEO’s termination of employment

 

Other Compensation Policies and Considerations

Stock Ownership, Retention Requirements, Hedging, and Pledging

In order to align executives’ interests with shareholder interests, the Compensation Committee has established a stock ownership policy for NEOs (see disclosure on details of this policy in the Corporate Governance and Board Practices section of this Proxy Statement under the caption “Executive Stock Ownership and Shareholding Policy”). NEOs may comply with this policy by acquiring Company stock or stock-equivalent units through equity incentive grants, as well as through the Company’s Compensation Deferral Program, 401(k) Plan, Dividend Reinvestment and Stock Purchase Plan and through other personal investments. Under the Company’s Stock Ownership Policy, unless the stock ownership level is met, an executive officer may not sell any of his or her holdings of Company stock, and must hold all shares acquired after tax upon vesting of PSUs or restricted stock units and shares acquired upon an option exercise net of shares used to pay taxes and/or the option exercise price. An executive officer may not engage in hedging transactions related to Company stock that would have the effect of reducing or eliminating the economic risk of holding Company stock. In addition, no executive officer may pledge or otherwise encumber any of his or her Praxair stock.

The Compensation Committee reviewed 2015 stock transactions by executive officers and their year-end holdings to ensure that executives were compliant with

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Executive Compensation Matters
Pay Design and Decisions

the stock ownership policy, including the policy’s anti-hedging and anti-pledging provisions. Based on this review, the Compensation Committee determined that the equity incentives previously granted to NEOs continue to be used appropriately.

Recapture Clawback Policy

The Compensation Committee has adopted a policy for the recapture of annual performance-based variable compensation payouts, equity grants and certain equity gains in the event of a later restatement of financial results. Specifically, if the Board, or an appropriate committee thereof, has determined that any fraud by any elected officer of the Company materially contributed to the Company having to restate all or a portion of its financial statement(s), the Board or committee shall take, in its discretion, such action as it deems necessary to remedy the misconduct. In determining what remedies to pursue, the Board or committee will take into account all relevant factors, including consideration of fairness and equity. Among those remedies, the Board or committee, to the extent permitted by applicable law, may require reimbursement of any performance-based cash, stock or equity-based award paid or granted to, or gains realized by (such as through the exercise of stock options or sale of equity securities), any or all elected officers of the Company, if and to the extent that:

 

(a)

the amount of such cash, stock or equity-based award was calculated based upon, or realized gain can reasonably be attributed to, certain financial results that were subsequently reduced due to a restatement, and

(b)

the amount of the cash, stock or equity-based award, or gain that would have been paid or granted or realized, would have been lower than the amount actually paid or granted or realized.

Tax and Accounting

Under Internal Revenue Code Section 162(m), the Company may not take a tax deduction for compensation paid to any NEO (other than the Company’s CFO) that exceeds $1 million in any year unless the compensation is “performance-based.” While the Compensation Committee endeavors to structure compensation (including performance-based variable compensation as discussed above) so that the Company may take a tax deduction, it does not have a policy requiring that all compensation must be deductible and it may, from time to time, authorize compensation that is not tax deductible. Accounting treatments were reviewed but did not impact the selection and design of equity and equity-related compensation for 2015, although all such grants to NEOs were made in such a manner as to not require liability accounting treatment.

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Executive Compensation Matters
Report of the Compensation Committee

Report of the Compensation Committee

The Compensation Committee reviewed and discussed with management the “Compensation Discussion and Analysis” and recommended to the Board that it be included in this Proxy Statement. The Compensation Committee has represented to management that, to the extent that the “Compensation Discussion and Analysis” discloses the Compensation Committee’s deliberations and thinking in making executive compensation policies and decisions, it is accurate and materially complete.

The Compensation & Management Development Committee

Edward G. Galante, Chairman
Oscar Bernardes
Nance K. Dicciani
Wayne T. Smith

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Executive Compensation Tables

The tables below present compensation information for NEOs and include footnotes and other narrative explanations important for understanding of the compensation information in each table. The Summary Compensation Table summarizes key components of NEO compensation for 2015, 2014 and 2013. The tables following the Summary Compensation Table provide more detailed information about the various types of NEO compensation for 2015, some of which are included in the Summary Compensation Table. The final table provides information regarding compensation that NEOs would receive if their employment with the Company terminates under various circumstances or in connection with a change-in-control.

Summary Compensation Table

                                 

NAME AND PRINCIPAL POSITION

Year

Salary
($)(1)

Stock
Awards
($)(2)

Option
Awards
($)(2)

Non-equity
Incentive Plan
Compensation
($)(3)

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(4)

All Other
Compensation
($)(5)

Total
($)

Stephen F. Angel,

 

2015

   

1,300,000

   

5,043,233

   

3,130,159

   

702,000

   

4,733,000

   

171,133

   

15,079,525

 

Chairman, President & Chief

 

2014

   

1,287,500

   

5,282,750

   

2,982,456

   

2,781,000

   

7,174,000

   

179,695

   

19,687,401

 

Executive Officer

 

2013

   

1,237,500

   

4,658,736

   

3,057,377

   

3,109,219

   

1,324,000

   

198,777

   

13,585,609

 

Matthew J. White,

 

2015

   

537,500

   

789,918

   

489,951

   

193,500

   

19,000

   

26,750

   

2,056,619

 

Senior Vice President &

 

2014

   

500,000

   

806,952

   

454,688

   

576,000

   

38,000

   

24,500

   

2,400,140

 

Chief Financial Officer(6)

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Scott E. Telesz,

 

2015

   

595,000

   

915,969

   

568,003

   

200,277

   

29,000

   

41,293

   

2,349,542

 

Executive Vice President

 

2014

   

575,000

   

966,889

   

545,582

   

674,555

   

56,000

   

40,830

   

2,858,856

 

 

 

2013

   

556,500

   

877,328

   

575,787

   

697,299

   

39,000

   

39,670

   

2,785,584

 

Eduardo F. Menezes,

 

2015

   

578,750

   

915,969

   

568,003

   

203,662

   

160,000

   

34,246

   

2,460,630

 

Executive Vice President

 

2014

   

552,500

   

966,889

   

545,582

   

591,838

   

2,079,000

   

33,800

   

4,769,609

 

 

 

2013

   

522,500

   

877,328

   

575,787

   

654,769

   

416,000

   

35,044

   

3,081,428

 

Anne K. Roby,

 

2015

   

452,500

   

512,607