DEF 14A 1 px-def14a_20170425.htm DEF14A px-def14a_20170425.htm

 

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

     

 

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Preliminary Proxy Statement

 

Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Under Rule 14a-12

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 committed to driving the company’s performance and shareholder value creation.

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.  Please see pages 8-15 in the accompanying 2017 proxy statement.

A Diverse, Qualified, Independent and Engaged Board of Directors

Your Board is comprised of 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 that are critical to the conduct of Praxair’s business, as discussed on pages 22-28 of the proxy statement.  All directors are independent of management except for the Chairman and CEO.

Shareholder Outreach and Executive Compensation Program Changes

Praxair has a robust shareholder outreach program that it has conducted for many years that ensures 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.  Among other things, this outreach provided the Compensation & Management Development Committee with valuable input that enabled it to make changes to the executive compensation program in 2016 that were responsive to shareholders (these changes are discussed on pages 4 and 36 of the proxy statement).

Environmental and Social Responsibility

Praxair’s mission of “Making our Planet More Productive” represents Praxair’s commitment to sustainability through its Sustainable Development Program.  In 2016, Praxair was again included in the prestigious Dow Jones Sustainability World Index, making Praxair the only U.S. chemical company

selected for 14 consecutive years, and Praxair was again named in 2016 to the Forbes Magazine list of the 500 best large employers in the U.S.  You can learn more about our Sustainable Development Program on our website, www.praxair.com in the Our Company/Sustainable Development section.

Proposed Merger with Linde AG

On December 20, 2016, Praxair and Linde AG announced that the companies intend to combine in a merger of equals under a new holding company through an all-stock transaction.  The companies have signed a non-binding term sheet and expect to execute a definitive Business Combination Agreement as soon as practicable.  Based on 2016 reported results, the combination would create an industrial gases company with pro forma revenues of approximately $28.5 billion (EUR 27 billion), prior to any divestitures, and a current market value in excess of $63.4 billion (EUR 59.8 billion).  The combined company would be governed by a single Board of Directors with equal representation from Linde and Praxair.  Linde’s Supervisory Board Chairman, Professor Dr. Wolfgang Reitzle, would become Chairman of the new company’s Board, and Praxair’s Chairman and CEO, Steve Angel, would become CEO and a member of the Board of Directors.

The Board strongly supports this proposed business combination with Linde because, among other things, we believe that the combined company would create significant value for shareholders through the realization of approximately $1 billion (EUR 0.9 billion) in annual synergies, driven by scale benefits, cost savings and efficiency improvements.  If the companies execute a definitive Business Combination Agreement, we will seek approval of the proposed business combination by Praxair’s shareholders at a future meeting of shareholders.

Other 2016 and Recent Highlights

The Compensation & Management Development Committee made significant changes to the Executive Compensation Program to more closely align pay and performance.  You, our shareholders, expressed your approval of these changes by approving the annual “Say-on-Pay” vote on executive compensation at the 2016 Annual Meeting of Shareholders by 94%, compared to 62% in 2015, before we made the changes.

Ira D. Hall is retiring from the Board just prior to the 2017 Annual Meeting after thirteen years of service, as required by the Board’s Director retirement policy.  The Board thanks Ira for his dedicated service and contributions.

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

1

Voting Items

1

Performance Highlights

2

Compensation Highlights

4

Board and Governance Highlights

6

CORPORATE GOVERNANCE AND BOARD MATTERS

8

Praxair’s Corporate Governance Framework

8

Board Committees

16

Director Compensation

20

Director Nominees

22

ITEM 1: ELECTION OF DIRECTORS

29

AUDIT MATTERS

30

Independent Auditor Selection Process

30

Auditor Independence

31

Fees Paid to the Independent Auditor

32

Audit Committee Report

33

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

34

EXECUTIVE COMPENSATION MATTERS

35

Compensation Discussion and Analysis

35

Executive Compensation Highlights

35

Praxair’s Executive Compensation Program

38

Pay Design and Decisions

40

Report of the Compensation Committee

49

Executive Compensation Tables

50

Table 1: Summary Compensation

50

Table 2: Grants of Plan-Based Awards

52

Table 3: Outstanding Equity Awards at Fiscal Year-End

53

Table 4: Option Exercises and Stock Vested

54

Table 5: Pension Benefits

54

Table 6: Nonqualified Deferred Compensation

57

Severance and Other Change-In Control Benefits

58

Table 7: Amounts Potentially Payable upon Termination

59

ITEM 3: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION

62

ITEM 4: ADVISORY VOTE ON THE FREQUENCY OF HOLDING FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION

63

ITEM 5: PROPOSAL TO APPROVE AMENDMENTS TO THE AMENDED AND RESTATED 2009 PRAXAIR, INC. LONG TERM INCENTIVE PLAN TO, AMONG OTHER THINGS, AUTHORIZE ADDITIONAL SHARES FOR GRANT AND TO APPROVE THE MATERIAL TERMS OF PERFORMANCE GOALS FOR AWARDS UNDER THE PLAN

64

INFORMATION ON SHARE OWNERSHIP

73

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

74

General Information

74

Miscellaneous

77

APPENDIX 1: AMENDMENTS TO THE AMENDED AND RESTATED 2009 PRAXAIR, INC. LONG TERM INCENTIVE PLAN

1-1

 


 

NOTICE OF 2017 ANNUAL MEETING OF SHAREHOLDERS

APRIL 25, 2017

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 25, 2017 at the Ritz-Carlton Westchester Hotel, Three Renaissance Square, White Plains, New York, for the following purposes:

 

1.

To elect nine 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 provide an advisory vote on the frequency of holding future advisory votes on Named Executive Officer Compensation.

 

5.

To approve amendments to the Amended and Restated 2009 Praxair, Inc. Long Term Incentive Plan (the “Plan”) to, among other things, authorize additional shares for grant and to approve the material terms of performance goals for awards under the Plan.

 

6.

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

This Proxy Statement and a form of proxy are first being sent to shareholders on or about March 15, 2017.  Only holders of record of Praxair Common Stock at the close of business on March 1, 2017 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 15, 2017

 

 

 

 

 


PROXY STATEMENT HIGHLIGHTS

 

PROXY STATEMENT HIGHLIGHTS

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

 

Annual Meeting of Shareholders of Praxair, Inc.

 

 

Voting Items

 

Voting Item

Board Voting
Recommendation

Reason(s) for Board Recommendation

Further
Information
(page)

1.

To elect nine 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.

22-28

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.

30-34

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.

62

4.

To provide an advisory vote on the frequency of holding future advisory votes on Named Executive Officer Compensation

FOR an Annual
Say-On-Pay Vote

The Company has held an annual vote on Named Executive Officers Compensation (“Say-On-Pay” vote) since this vote was required beginning in 2011.  The Board believes that shareholders should continue to have the opportunity to provide an annual advisory Say-On-Pay vote.

63

5.

To approve amendments to the Amended and Restated 2009 Praxair, Inc. Long Term Incentive Plan (“Plan”) to, among other things, authorize additional shares for grant and to approve the material terms of performance goals for awards under the Plan.

FOR

The Board requests shareholder approval for additional shares for grant under the Plan, as the Plan does not have sufficient shares remaining for future grants.  The Board also requests shareholder approval of the Section 162(m) performance goals under the Plan so that the Company may deduct equity compensation grants to certain executives for federal tax purposes.

64-72

How to Vote

Your vote is important. You are eligible to vote if you were a shareholder of record at the close of business on March 1, 2017.  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.

 

 

Praxair, Inc.  

1  

 


PROXY STATEMENT HIGHLIGHTS

Performance Highlights

 

Performance Highlights

2016 year in review

Praxair delivered solid results for the full year of 2016 despite continued challenging global macro-economic trends and foreign currency headwinds.  Volume growth from resilient end-markets and new project start-ups was offset by weaker volumes in North and South America, primarily in the manufacturing and up-stream energy end-markets. Excluding foreign currency headwinds, sales growth came from higher overall pricing and acquisitions.  Operating cash flow was 3% higher than 2015 despite lower net income from currency and base volume headwinds.

High-quality results

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

Business Optimization

 

 

Attained positive pricing and proactively took cost reduction measures

 

Achieved high-quality operating and earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins of 22.2% and 33.2%, respectively*

Sustainable Growth

 

 

Won seven new onsite projects for customers under long-term contracts, including four in the U.S. Gulf Coast, and finished the year with a project backlog of $1.5 billion

 

Successfully started-up nine large projects in Asia, Europe and South America

 

Grew resilient end-markets to 27% of sales, which include food and beverage, healthcare, environmental, specialty gases and aerospace

 

Increased our carbon dioxide capacity in the U.S. by 50% to support our growing food and beverage end-markets

 

Acquired Yara’s carbon dioxide business in Europe, significantly strengthening our growth platform on the continent

 

Concluded the joint venture with GE for aircraft engine coatings, which we expect will triple our coating sales with GE in a few years

 

Completed 13 synergistic acquisitions in support of our strategy

Strong Cash Flow and Return to Shareholders

 

 

Generated operating cash flow of $2.8 billion (26% of sales) and free cash flow of $1.3 billion*

 

Returned approximately $1 billion to shareholders, primarily in the form of dividends

 

Increased the annual dividend by 5% for 2017, the 24th consecutive annual dividend increase

 

The graphs on page 3 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 2000, the majority of which was used to invest in organic growth through capital expenditures and acquisitions; (3) the high quality operating and EBITDA margins as a percent of sales; and (4) for 24 consecutive years since 1993, the Company has increased its dividends to shareholders.

 

  2

  Praxair, Inc.

 


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 2016 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.

 

 

 

Praxair, Inc.  

3  

 


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 & Management Development Committee of the Board of Directors (the “Compensation Committee”) carefully considers shareholder feedback as it makes compensation program decisions.

 

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.  Fifty-four 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.  Some of the changes were retroactive to 2015, and others affected the Company’s 2016 executive compensation programs.

These changes were disclosed to shareholders in the 2016 proxy statement, and shareholders approved the Say-on-Pay proposal in April 2016 with 94% of shares voted in its favor, compared to 62% in favor in 2015 before the changes were made.

 

 

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 41

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 41

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 performance share unit grants to incorporate a relative total shareholder return (“TSR”) measure, while maintaining the ROC measure

2016

See page 45

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 51

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 45

 

 

 

  4

  Praxair Inc.

 


PROXY STATEMENT HIGHLIGHTS

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

 

 

 

Praxair Inc.  

5  

 


PROXY STATEMENT HIGHLIGHTS

Board and Governance Highlights

 

Board and Governance Highlights

Board Nominees

The following nine persons currently serve on the Board of Directors and have been nominated for reelection to serve until the 2018 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

61

2006

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

 

X

 

       PPG Industries, Inc.

Oscar Bernardes

70

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.

Nance K. Dicciani

69

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

66

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

Raymond W. LeBoeuf

70

1997

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

X

 

Chairman of AC, GN

       MassMutual Financial Group

Larry D. McVay

69

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

Martin H. Richenhagen

64

2015

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

X

 

FP, GN

       AGCO Corporation

       PPG Industries, Inc.

Wayne T. Smith

71

2001

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

X

 

CMD, FP

       Community Health Systems, Inc.

Robert L. Wood

62

2004

Former Chairman, President & Chief Executive Officer of Chemtura Corporation

X

 

FP, Chairman of GN

       MRC Global Inc.

       Univar 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

 

 

 

  6

  Praxair, Inc.

 


PROXY STATEMENT HIGHLIGHTS

Board and Governance 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.

 

 

 

 

Board and Governance Information

Size of Board

 

9

 

Board Orientation and Continuing Education Program

 

Yes

Number of Independent Directors

 

8

 

Limits service on other Boards

 

Yes-4 Other Boards

Board Meetings Held in 2016

 

9

 

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

 

 

 

 

 

 

 

 

Praxair Inc.  

7  

 


CORPORATE GOVERNANCE AND BOARD MATTERS

Praxair’s Corporate Governance Framework

 

CORPORATE GOVERNANCE AND BOARD MATTERS

Praxair’s Corporate Governance Framework

Praxair operates under Corporate Governance Guidelines which are posted at Praxair’s public website, www.praxair.com in the Our Company/Corporate Responsibility section.  Consistent with those guidelines, the Board has adopted the following policies and practices, among others:

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.

 

 

  8

  Praxair Inc.

 


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, which 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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  Praxair Inc.

 


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 2016 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 20 shareholders, who have owned at least 3% 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 five-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 by acquiring 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

 

 

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CORPORATE GOVERNANCE AND BOARD MATTERS

Praxair’s Corporate Governance Framework

 

provides that 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 2016, 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 February 2017, 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; and (2) sells industrial gases to AGCO Corporation, of which Mr. Richenhagen is an executive officer.  The 2016 consolidated revenues for each of Praxair, Community Health and AGCO Corporation were $10.5 billion, $18.4 billion, and $7.4 billion, respectively.  For the last three fiscal years, the dollar value of Praxair’s sales to Community

 

 

Praxair Inc.  

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CORPORATE GOVERNANCE AND BOARD MATTERS

Praxair’s Corporate Governance Framework

 

Health ranged from $1.3 million to $4.7 million, and sales to AGCO Corporation ranged from $1.5 million to $2.4 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’, 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 Mr. Smith or Mr. 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 2016 with respect to transactions in the Company’s stock.

 

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 2018 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 and the CEO, and will typically engage 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.

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 (1)

 

 

 

 

 

 

 

 

RAYMOND W. LEBOEUF

 

Chairman

 

 

 

 

 

 

 

LARRY D. MCVAY

 

 

 

 

Chairman

 

 

 

MARTIN H. RICHENHAGEN

 

 

 

 

 

 

 

 

WAYNE T. SMITH

 

 

 

 

 

 

 

 

ROBERT L. WOOD

 

 

 

 

 

 

Chairman

 

 

(1)

Mr. Hall is retiring from the Board immediately prior to the Annual Meeting.

Description of Key Committee Functions

 

AUDIT COMMITTEE

Committee Chair

 Raymond W. LeBoeuf

Current Members:

 Nance K. Dicciani

  Ira D. Hall (retiring)

 Larry D. McVay

Meetings in 2016

 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 2016

 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 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

Committee Chair

 Robert L. Wood

Current Members:

 Edward G. Galante

 Raymond W. LeBoeuf

 Martin H. Richenhagen

Meetings in 2016

 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 (retiring)

 Martin H. Richenhagen

 Wayne T. Smith

 Robert L. Wood

Meetings in 2016

 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 2016

 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 2016 Director Compensation table below pursuant to its director compensation program in effect for 2016.  The Company does not pay any director who is a Company employee (Mr. Angel in 2016) 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 2016 is described below.

Cash Compensation

 

A $100,000 annual retainer paid quarterly.

 

An additional $15,000 annual retainer paid quarterly to each chairman of a Board committee ($20,000 for the chairman of the Audit 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 2016, the Board set this amount at $160,000.

The Governance & Nominating Committee selected restricted stock units as the sole form of equity for the 2016 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 $160,000 value as of the April 26, 2016 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, 2016.  Because the closing price of the Company’s stock on April 26, 2016 was higher than this 200-day average, the full grant date fair market value of the restricted stock units granted on April 26, 2016 and reported in the 2016 Director Compensation Table below was $175,667.

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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  Praxair, Inc.

 


CORPORATE GOVERNANCE AND BOARD MATTERS

Director Compensation

 

The table below shows (i) the fees that the Company’s non-management directors earned in 2016, (ii) the value of restricted stock units granted in

2016, and (iii) other amounts disclosed as “All Other Compensation.”

 

 

2016 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

 

175,667

 

0

 

0

 

0

 

0

 

275,667

Nance K. Dicciani

 

115,000

 

175,667

 

0

 

0

 

0

 

15,000

 

305,667

Edward G. Galante

 

115,000

 

175,667

 

0

 

0

 

0

 

0

 

290,667

Ira D. Hall (6)

 

120,000

 

175,667

 

0

 

0

 

0

 

15,000

 

310,667

Raymond W. LeBoeuf

 

100,000

 

175,667

 

0

 

0

 

0

 

15,000

 

290,667

Larry D. McVay

 

115,000

 

175,667

 

0

 

0

 

0

 

14,000

 

304,667

Denise L. Ramos (7)

 

75,000

 

0

 

0

 

0

 

0

 

0

 

75,000

Martin H. Richenhagen

 

100,000

 

175,667

 

0

 

0

 

0

 

0

 

275,667

Wayne T. Smith

 

100,000

 

175,667

 

0

 

0

 

0

 

0

 

275,667

Robert L. Wood

 

140,000

 

175,667

 

0

 

0

 

0

 

0

 

315,667

 

(1)

Certain non-management directors elected to defer some or all of their cash retainers earned in 2016 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 26, 2016 as determined under accounting standards related to shared-based compensation.

(3)

At December 31, 2016, 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; Ira D. Hall, 0 shares; Raymond W. LeBoeuf, 8,485 shares; Larry D. McVay 0 shares; Denise L. Ramos, 0 shares; Martin H. Richenhagen, 0 shares; Wayne T. Smith, 0 shares; and Robert L. Wood, 3,885 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 2016 matching contributions for the director’s eligible charitable donations. SEC rules require disclosure of these amounts in this table.  In 2016, 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)

Mr. Hall will retire from the Board immediately prior to the 2017 Annual Meeting.

(7)

Ms. Ramos resigned from the Board in September 2016, and received compensation through the effective date of her resignation.

 

Praxair, Inc.  

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CORPORATE GOVERNANCE AND BOARD MATTERS

Director Nominees

 

Director Nominees

 

 

 

Experience and Qualifications of All Nominees

Nine persons will be elected to the Board to serve until the 2018 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 except for Mr. Hall, who is retiring from the Board immediately before 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 2018 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 2016, the Board held nine meetings.  The nominees for reelection to the Board collectively attended 98% of all Board meetings and meetings of committees of which they are members.

 

 

 

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  Praxair Inc.

 


CORPORATE GOVERNANCE AND BOARD MATTERS

Director Nominees

 

STEPHEN F. ANGEL

Chief Executive Officer and Chairman of Praxair

Age

Director Since

Other Public Company Directorships

 

61

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, is a Co-Chair of the U.S. – Brazil CEO Forum, and a member of the Board of the U.S. – China Business Council where he serves on its Nominating Committee.

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

 

70

2010

DASA Laboratorios da America SA

Localiza Rent A Car S.A.
Marcopolo 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 three public companies in Brazil: DASA Laboratorios da America SA, Localiza Rent A Car S.A. (where he is Chairman of the Audit Committee), and Marcopolo S.A.  During the past five years, he was also a director of Gerdau S.A., Metalurgica 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.

 

Praxair, Inc.  

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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

 

69

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).  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 Finance, 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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  Praxair, Inc.

 


CORPORATE GOVERNANCE AND BOARD MATTERS

Director Nominees

 

EDWARD G. GALANTE

Former Senior Vice President of ExxonMobil Corporation

Age

Director Since

Other Public Company Directorships

 

66

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 the Lead Independent director of Celanese Corporation (where he serves on the Compensation and Management Development 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 serves on the Compensation 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 Board of the United Way Foundation 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.

 

 

RAYMOND W. LEBOEUF

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

Age

Director Since

Other Public Company Directorships

 

70

1997

MassMutual Financial Group

Qualification Highlights

     Industry

     Praxair End-Markets

     Praxair Foreign Markets

     Operations

     International business

     Financial Expert

     Risk Management

     Public company board

BIOGRAPHY

Former Chairman & Chief Executive Officer of PPG Industries, Inc. (principally a manufacturer of coatings) 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).

 

Praxair, Inc.  

25  

 


CORPORATE GOVERNANCE AND BOARD MATTERS

Director Nominees

 

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

 

69

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.

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 and Reserves 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.

 

 

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  Praxair, Inc.

 


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

 

64

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 is Chairman of the Audit Committee and serves on the Officers-Directors Compensation Committee).  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

 

71

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.

 

Praxair, Inc.  

27  

 


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

 

62

2004

MRC Global Inc.

Univar 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 a director of MRC Global Inc. (where he serves as Chairman of the Compensation Committee and a member of the Governance Committee), and a director of Univar Inc. (where he serves on the Audit Committee).  During the past five years, Mr. Wood was also a director of Jarden Corporation (where he served on the Nominating and Policies Committee and was Chairman of the Audit 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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  Praxair, Inc.

 


ITEM 1: ELECTION OF DIRECTORS

 

 

ITEM 1: ELECTION OF DIRECTORS

Nine Directors will be elected to serve until the 2018 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, Raymond W. LeBoeuf, Larry D. McVay, Martin H. Richenhagen, Wayne T. Smith, and Robert L. Wood, each be elected to serve for a one-year term, until the 2018 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 76 of this Proxy Statement.

 

 

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

 

 

 

 

 

Praxair, Inc.  

29  

 


Audit Matters

Independent Auditor Selection Process

 

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 2017.  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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  Praxair, Inc.

 


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 2017.

 

Non-Audit Engagement Services Pre-Approval Policy

 

 

The Audit Committee has retained PWC (along with other accounting firms) to provide non-audit services in 2017.  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 2016.  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 2015 and 2016 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

 

2016

 

 

6,206,000

 

 

 

28,000

 

 

 

94,000

 

 

 

39,000

 

 

 

6,367,000

 

 

 

2.6%

 

2015

 

 

6,131,000

 

 

 

38,000

 

 

 

98,000

 

 

 

24,000

 

 

 

6,291,000

 

 

 

2.6%

 

 

 

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.

 

 

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  Praxair Inc.

 


AUDIT MATTERS

Audit Committee Report

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

2016 and those planned for 2017.  The Audit Committee has further considered whether the provision of such non-audit services is compatible with maintaining PricewaterhouseCoopers LLP’s independence.

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, 2016 filed with the SEC.

 

The Audit Committee

 

Raymond W. LeBoeuf, Chairman
Nance K. Dicciani

Ira D. Hall
Larry D. McVay

 

 

 

 

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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 2017 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 76 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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  Praxair, Inc.

 


Executive Compensation Matters

Compensation Discussion and Analysis

 

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 2016, 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

2016 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 made significant strides on implementing the core strategy which benefits not only supported 2016, but laid the groundwork for future earnings over the next several years. The Company actively focused efforts towards faster growing resilient end-markets, which include food, beverage, healthcare, specialty gases, environmental and aerospace while remaining well positioned for any recovery in industrial end-markets.  As another important element of the strategy, the Company won seven new large on-site projects that brought the backlog to just over $1.5 billion, with 70% of that value supporting Praxair’s extensive network in the U.S. Gulf Coast.

However, Praxair faced significant headwinds from global macro-economic trends and foreign currency.  The continued strengthening of the U.S. dollar reduced earnings from the translation of foreign subsidiary income by 3%.  Additionally, up-stream energy and manufacturing end-markets continued to decline, primarily in North America.  Although foreign currency exchange rates and other macroeconomic weakening in demand are outside of management’s control, Praxair continued to focus on high-quality results and during 2016 proactively took cost reduction measures to protect the quality of the existing business.  Praxair remains well-positioned for strong accretive growth when key end markets recover and foreign currency exchange rate headwinds reverse.

 

 

 

2016 Variable Pay Aligned with Shareholder Interests

 

 

For calendar year 2016, financial results such as cash flow and operating margins continued to demonstrate the success of the Praxair management team. Annual variable compensation goals were set to align target payout with earnings guidance provided to shareholders at the beginning of the year.  Though continued foreign currency exchange and other macro-economic weakening impacted results, financial performance was near target, and strategic non-financial performance was strong.  

 

For long-term incentives, whose challenging goals were established three years ago, performance

continued to be weak, and for a second year in a row, significant value related to performance share units (“PSUs”) was not realized.

 

 

2016 PAYOUTS: The variable compensation programs continue to work as designed.

     Annual variable compensation business result

     85% financial

     21% strategic non-financial

     ROC performance share units: 60% of target

 

 

 

 

* Operating margins, EBITDA margin, and ROC are non-GAAP measures.  A reconciliation of reported amounts to non-GAAP measures can be found in Praxair's Form 2016 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

Compensation Discussion and Analysis

 

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.

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.  Fifty-four 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.  Some of the changes were retroactive to 2015, and others affected the Company’s 2016 executive compensation programs.

These changes were disclosed to shareholders in the 2016 proxy statement, and shareholders approved the Say-on-Pay proposal in April 2016 with 94% of shares voted in its favor, compared to 62% in favor in 2015 before the changes were made.

 

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 41

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 41

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 performance share unit grants to incorporate a relative total shareholder return (“TSR”) measure, while maintaining the ROC measure

2016

See page 45

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 51

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 45

 

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  Praxair Inc.

 


EXECUTIVE COMPENSATION MATTERS

Compensation Discussion and Analysis

 

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

Compensation Discussion and Analysis

 

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 74% and 89% of the NEOs’ target total direct compensation opportunity for 2016 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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  Praxair Inc.

 


EXECUTIVE COMPENSATION MATTERS

Compensation Discussion and Analysis

 

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 updates 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 the 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 2016, two NEOs were short tenured (three years or less) and the CEO has been in his role for ten 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 2015, the Compensation Committee determined to remove Kraft Foods from the peer group as it no longer was a publically traded company.  The following Key Company Group was used for setting 2016 compensation:

 

 

Key Company Group

Air Products and Chemicals

Danaher

Kimberly-Clark

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

 

 

 

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EXECUTIVE COMPENSATION MATTERS

Compensation Discussion and Analysis

 

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 2016 executive compensation, the Compensation Committee engaged Deloitte Consulting LLP (“Deloitte Consulting”).

 

 

 

In 2016, 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.

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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  Praxair, Inc.

 


EXECUTIVE COMPENSATION MATTERS

Compensation Discussion and Analysis

 

 

 

 

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

 

 

 

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 component 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%.

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, and 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.  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 up to 1.5, however, in the past ten years, the maximum awarded has not exceeded 1.3.

MAXIMUM PAYOUT: Total payout for officers is capped at 260% of target variable compensation except for the CEO, whose maximum is 235%.

 

 

 

Annual Performance-Based Variable Compensation Opportunity for 2016

In December 2015, the 2016 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 160% of base salary.

 

 

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EXECUTIVE COMPENSATION MATTERS

Compensation Discussion and Analysis

 

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 threshold, target and maximum financial performance goals for each financial measure include:

 

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

 

external earnings guidance provided to shareholders,

 

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.

When establishing the financial goals for 2016, the Compensation Committee placed great emphasis on

the earnings per share (EPS) guidance that was provided to investors in February 2016.  The net income target goal was set to align with $5.50 annual EPS, which represented the middle of the full-year guidance published at that time.

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.

Most of the strategic non-financial goals are linked to quantitative and measurable objectives, although the Compensation Committee ultimately uses its judgment when determining the points awarded for goal achievement after a rigorous review of the results.

 

 

 

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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  Praxair, Inc.

 


EXECUTIVE COMPENSATION MATTERS

Compensation Discussion and Analysis

 

2016 Annual Performance-Based Variable Compensation Results and Payout

 

 

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.

Though continued foreign currency exchange and other macro-economic weakening impacted results, financial performance was near target. The overall weighted average payout factor for financial performance was 85% of target variable compensation.

The chart below shows for each financial performance measure, the Company’s 2016 financial targets set by the Compensation Committee and the actual performance achieved.

 

 

Financial

Measure*

 

Target

($ millions)

 

Actual

($ millions)

 

Weight

 

Achievement

 

Payout

Sales

 

10,436

 

10,409

 

15%

 

97%

 

15%

Net Income

 

1,581

 

1,518

 

60%

 

61%

 

36%

Operating Cash Flow

 

2,475

 

2,773

 

25%

 

136%

 

34%

 

* 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.  

 

 

strategic 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 2016, management presented to the Compensation Committee, the degree of achievement in meeting each goal, and for each element, provided its view of the relative degree of importance to long term success.

Based on the results, the Compensation Committee determined that the Company’s performance with respect to the non-financial goals was favorable and awarded a positive 21% adjustment for the NEOs (limited by the applicable cap).  The Compensation Committee noted the following as examples of actions that support the Company’s strategic objectives in determining 2016 variable compensation payouts:

   Maintained world class performance in safety with a 10% reduction in significant safety events

    Record year for recordable injury rates that was 8 times better than industry average

    Maintained industry leading project execution with 98% first year reliability

 

Optimized base business through productivity and cost structure alignment

 

Strategically pursued resilient markets, on target to grow from 25% to 33% of total sales by 2020

 

Increased carbon dioxide capacity by 50% in the U.S., and in Europe, the Yara CO2

 

acquisition significantly strengthened the growth platform on the continent

 

Completed GE joint venture of aircraft engine coatings

 

Commercialized 15 new technologies in support of growth opportunities

 

Increased total value of backlog to $1.5 billion, 70% of which is located in the U.S. Gulf Coast

 

Continued to develop a diverse pipeline of future senior leaders

 

Received Public Recognition:

 

Dow Jones Sustainability World Index for 14th year in a row

 

9th consecutive year on the Climate Disclosure Leadership Index, and recognized as only industrial gases company that made the “A-List” for the Materials sector

 

Received “Top 25 Noteworthy Company” by DiversityInc and a perfect score of 100 by The Human Rights Campaign for workplace equality and advocacy

 

Had over 200 sites achieving over 90% waste reduction

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:

 

 

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EXECUTIVE COMPENSATION MATTERS

Compensation Discussion and Analysis

 

 

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 2016.  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.  None of the adjustments made were material to annual performance-based variable compensation payments.

 

 

 

 

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.

 

2016 EQUITY AWARD TARGET VALUE

In December 2015, the target dollar value of 2016 equity awards for each NEO was established.  The Compensation Committee 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 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 only with 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.

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

 

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EXECUTIVE COMPENSATION MATTERS

Compensation Discussion and Analysis

 

 

 



2016 DESIGN CHANGES: To further align the Company’s executive compensation program and shareholder interests, changes were made to the Company’s equity awards mix for 2016, including the addition of relative TSR-measured PSU awards in place of EPS-measured PSU awards.

 

 

 

 

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 comprised of about 600 managers and executives, 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.

ROC-measured performance share units

In January 2016, the ROC goal for the PSU awards covering fiscal years 2016 - 2018 was determined after the Compensation Committee examined prior-year ROC results, industry ROC averages, capital expenditure projections and the Company’s weighted average cost of capital. It was acknowledged that the Company had maintained industry-leading ROC, and the payout schedule set for the PSU awards would encourage and reward the executive team for taking actions that result in maintaining ROC performance.

The February 2016 awards are measured against the following 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 results between threshold and maximum.

 

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.

Relative TSR-measured performance share units

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 is 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 results between threshold and maximum.

 

 

2017 PERFORMANCE SHARE UNITS: In January 2017, it was determined that the February 2017 performance share unit awards would remain in the same form and would have the same goals as those awarded in 2016.

 

 

 

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EXECUTIVE COMPENSATION MATTERS

Compensation Discussion and Analysis

 

2014 - 2016 PERFORMANCE SHARE UNIT PAYOUTS

In February 2017, the grants of the ROC-measured 2014 PSUs that met the pre-established performance criteria at the end of 2016 became vested and were converted to shares and distributed.

Though ROC over the 2014 - 2016 performance cycle remained industry-leading and the average annual ROC of 12.4% exceeded the performance threshold, actual performance was lower than the 14% required for a target level payout of the awards.  The Compensation Committee certified the vesting of 60% of the target number of PSUs granted.

ROC

ROC Target

 

Average ROC

 

2014 - 16 Payout*

14%

 

12.4%

 

60.0%

 

*Payout determined based on linear interpolation from actual results to the target.

Half of the PSUs awarded in 2014 had pre-established goals based on the Company’s adjusted diluted cumulative EPS growth for the 2014 - 2016

performance cycle.  The EPS goals, which included a 20% growth target, were not met. However, these awards also provide that the Compensation Committee may award up to 50% of target shares where the minimum EPS growth goal is not achieved due to materially adverse and unforeseen market conditions beyond the control of the Company and if the Company’s cumulative operating earnings growth exceeds the average cumulative growth in operating earnings of the companies in the Materials Index of the S&P 500 for the same three-year performance period.

As of the date of this Proxy Statement, the Compensation Committee had not made any such payout determination because not all companies in the Materials Index had reported operating earnings for 2016.  The Compensation Committee will make a payout determination (which could include forfeiture of these awards) at a future date when all data is available, and such determination will be disclosed in the Company’s 2018 Proxy Statement.

 

 

 

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 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 employees under the tax-qualified pension plan but for 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

 

Contributions to the plan are voluntary and may be invested in various funds, including the Company’s stock fund.

Deferred Compensation

 

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 participants.

 

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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  Praxair Inc.

 


EXECUTIVE COMPENSATION MATTERS

Compensation Discussion and Analysis

 

 

 

Other Compensation Policies and Considerations

 

 

Severance and Change-in-Control Arrangements

The Company maintains a severance plan that provides certain benefits to eligible employees, including NEOs. The Company has also entered into executive severance compensation agreements with certain senior executives, including NEOs. Additional information about these arrangements is included in this Proxy Statement beginning on page 58.

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).  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 2016 stock transactions by executive officers and their year-end holdings to ensure that executives were compliant with 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:

 

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

 

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 be deductible and it may, from time to time, authorize compensation that is not tax deductible.

In December 2015, the Compensation Committee identified participants and established an upper limit on performance-based variable compensation that could be paid to NEOs for 2016 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 2017, 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 in the 2016 Annual

 

 

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EXECUTIVE COMPENSATION MATTERS

Compensation Discussion and Analysis

 

Performance-Based Variable Compensation Results and Payout section of this CD&A.

Additionally, in January 2016, the Compensation Committee established a performance threshold based upon the Company’s share price for the PSU awards that were granted in February 2016, which is intended to qualify future payments made in

settlement of the awards as deductible under Section 162(m).

Accounting treatments were also reviewed by the Committee but did not impact the selection and design of equity and equity-related compensation for 2016, although all such grants to NEOs were made in such a manner as to not require liability accounting treatment.

 

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  Praxair, Inc.

 


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 MATTERS

Executive Compensation Tables

 

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 2016, 2015 and 2014. The tables following the Summary Compensation Table provide more detailed information about the various types of NEO compensation for 2016, 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,

 

2016

 

1,318,750  

 

4,227,958  

 

3,709,390  

 

2,236,600   

 

1,357,000   

 

187,364   

 

13,037,062 

Chairman, President & Chief

 

2015

 

1,300,000  

 

5,043,233  

 

3,130,159  

 

702,000   

 

4,733,000   

 

171,133   

 

15,079,525 

Executive Officer

 

2014

 

1,287,500  

 

5,282,750  

 

2,982,456  

 

2,781,000   

 

7,174,000   

 

179,695   

 

19,687,401 

Matthew J. White,

 

2016

 

587,500  

 

865,778  

 

759,108  

 

635,279   

 

25,000   

 

29,250   

 

2,901,915 

Senior Vice President &

 

2015

 

537,500  

 

789,918  

 

489,951  

 

193,500   

 

19,000   

 

26,750   

 

2,056,619 

Chief Financial Officer

 

2014

 

500,000  

 

806,952  

 

454,688  

 

576,000   

 

38,000   

 

24,500   

 

2,400,140 

Scott E. Telesz,

 

2016

 

615,000  

 

903,570  

 

792,429  

 

554,140   

 

31,000   

 

43,813   

 

2,939,951 

Executive Vice President

 

2015

 

595,000  

 

915,969  

 

568,003  

 

200,277   

 

29,000   

 

41,293   

 

2,349,542 

 

 

2014

 

575,000  

 

966,889  

 

545,582  

 

674,555   

 

56,000   

 

40,830   

 

2,858,856 

Eduardo F. Menezes,

 

2016

 

611,250  

 

904,659  

 

793,542  

 

688,474   

 

1,458,000   

 

35,922   

 

4,491,847 

Executive Vice President

 

2015

 

578,750  

 

915,969  

 

568,003  

 

203,662   

 

160,000   

 

34,246   

 

2,460,630 

 

 

2014

 

552,500  

 

966,889  

 

545,582  

 

591,838   

 

2,079,000   

 

33,800   

 

4,769,608 

Anne K. Roby,

 

2016

 

471,250  

 

501,862  

 

440,159  

 

430,859   

 

1,139,000   

 

17,526   

 

3,000,656 

Senior Vice President(6)

 

2015

 

452,500