39 Old Ridgebury Road
Danbury, Connecticut 06810-5113

 

 

Dear Praxair Shareholder,

 

 

I am pleased to invite you to attend Praxair’s 2010 Annual Meeting of Shareholders on Tuesday, April 27, 2010. The meeting will be held at 9:30 a.m. in the Grand Ballroom of the Danbury Plaza Hotel, 18 Old Ridgebury Road, Danbury, Connecticut.

 

This proxy statement provides information on Praxair’s governance framework, the Company’s executive compensation program, and the backgrounds of candidates for the Board of Directors. These disclosures reflect Praxair’s commitment to strong governance processes, including independent and active Board oversight, transparent reporting, and accountability to shareholders.

 

With respect to oversight, I am pleased to report that Praxair’s Board continues to play a key role in shaping the Company’s strategic vision, and in guiding its approach to assessing and managing risk. The Board has provided valuable counsel on leadership development and succession planning, and has emphasized performance-based executive compensation. The Board’s leadership has reinforced the Company’s culture of compliance and integrity. In these and other ways, the Board is dedicated to serving shareholder interests through sound corporate governance.

 

For more information on our governance practices, please visit our website, www.praxair.com. I look forward to sharing further information about Praxair at the Annual Meeting. Whether or not you plan to attend, I encourage you to vote your proxy as soon as possible so that your shares will be represented at the meeting.

 

Sincerely,

 

Stephen F. Angel

Chairman, President & Chief Executive Officer

 

March 16, 2010

 

 

39 Old Ridgebury Road

Danbury, Connecticut 06810-5113

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD APRIL 27, 2010

 

Dear Praxair Shareholder:

 

The Annual Meeting of Shareholders of Praxair, Inc. will be held at 9:30 a.m. on Tuesday, April 27, 2010 in the Grand Ballroom of the Danbury Plaza Hotel, 18 Old Ridgebury Road, Danbury, Connecticut, for the following purposes:

 

 

 

Only holders of Common Stock of Praxair, Inc. of record at the close of business on March 1, 2010 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 A 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.

 

If you own shares in a brokerage account, your vote is even more important this year because of recent New York Stock Exchange rule changes. Unlike in previous years, your broker cannot vote your shares on the proposal to elect Praxair’s directors unless you provide voting instructions to your broker. Therefore, it is very important that you exercise your right as a shareholder and vote on all proposals, including the election of directors.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

JAMES T. BREEDLOVE,

Senior Vice President, General Counsel &

Secretary

 

March 16, 2010

 

 

PROXY STATEMENT
TABLE OF CONTENTS

 

 

39 Old Ridgebury Road

Danbury, Connecticut 06810-5113

 

PROXY STATEMENT

 

Annual Meeting of Shareholders

 

Tuesday, April 27, 2010

 

 

This Proxy Statement is furnished to shareholders of Praxair, Inc. (“Praxair” or the “Company”) in connection with the solicitation of proxies for the Annual Meeting of Shareholders to be held at the Danbury Plaza Hotel, 18 Old Ridgebury Road, Danbury, Connecticut on April 27, 2010, at 9:30 a.m. or any adjournment or postponement thereof (the “Annual Meeting”). This Proxy Statement and a form of proxy are first being sent to shareholders on or about March 16, 2010. Proxies are being solicited on behalf of the Board of Directors of Praxair.

 

 

Nine directors will be elected to serve until the 2011 annual meeting of shareholders, and until their successors are elected and qualify. Nine incumbent directors have been nominated for re-election for a one-year term, and one director, H. Mitchell Watson, Jr., has retired from the Board pursuant to the Board’s director retirement policy. Mr. Watson had served on the Board since the Company first became a public company in 1992, and the Company thanks him for his valuable and dedicated service. The Board recommends that Stephen F. Angel, Nance K. Dicciani, Edward G. Galante, Claire W. Gargalli, Ira D. Hall, Raymond W. LeBoeuf, Larry D. McVay, Wayne T. Smith, and Robert L. Wood, each be elected to serve for a one-year term, until the 2011 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 beginning at page 22 of this Proxy Statement under the caption “The Board of Directors.” 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 5 of this Proxy Statement.

 

Under New York Stock Exchange (“NYSE”) and Securities and Exchange Commission (“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 beginning on page 17 of this Proxy Statement under the caption “The Independent Auditor.”

 

The Board recommends that you vote FOR this Item 2, the proposal to ratify the Audit Committee’s selection of the independent auditor.

 

In order for this proposal to be adopted by the shareholders, at least a majority of the votes cast at the Annual Meeting in person or by proxy by the shareholders entitled to vote on the matter must be voted in its favor. See the vote counting rules on page 5 of this Proxy Statement.

 

Praxair knows of no other business that will be considered for action at the Annual Meeting. If any other business calling for a vote of shareholders is properly presented at the meeting, the proxy holders will have the discretion to vote your shares in accordance with their best judgment.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on April 27, 2010:

 

This Proxy Statement and the 2009 Form 10-K and Annual Report are now available for viewing and downloading on the Internet at:

 

2009 Form 10-K and Annual Report: www.praxair.com/annualreport.
2010 Notice of Meeting and Proxy Statement: www.praxair.com/proxy.

 

As allowed by SEC and NYSE rules, Praxair is sending to most shareholders by mail a notice informing them that they can access and download this 2010 Proxy Statement and the 2009 Form 10-K and Annual Report on the Internet at the websites noted above, rather than sending printed copies. If you have received printed copies in the mail, rather than the notice of Internet availability, it is likely that this occurred because either: (1) you have specifically requested printed copies this year or previously, or (2) Praxair has voluntarily sent you printed copies.

 

If you are receiving printed copies you can save Praxair future postage and printing expense by consenting to receive future annual reports, meeting notices, and proxy statements on-line on the Internet. Most shareholders can elect to view future proxy statements and annual reports over the Internet instead of receiving paper copies in the mail. This will help with Praxair’s overall sustainability efforts by reducing paper usage. Shareholders will be given the opportunity to consent to future Internet delivery when they vote their proxy. For some shareholders, this option is only available if they vote by Internet. If you are not given an opportunity to consent to Internet delivery when you vote your proxy, contact the bank, broker or other holder of record through which you hold your shares and inquire about the availability of such an option for you.

 

If you consent, your account will be so noted and, when Praxair’s 2010 Annual Report, meeting notice, and the proxy statement for the 2011 annual meeting of shareholders become available, you will be notified on how to access them on the Internet. Any prior consent you have given will remain in effect until specifically revoked by you in the manner specified by the bank or broker that manages your account. If you do elect to receive your Praxair materials via the Internet, you can still request paper copies by contacting the bank or broker that manages your account or, if you are a shareholder of record, you may contact us through our stock transfer agent, Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07106. They can also be reached by telephone at (800) 368-5948 or via e-mail at info@rtco.com.

 

If you share an address with another shareholder, you may receive only one notice of Internet availability, or one set of printed proxy materials (including this Proxy Statement and the 2009 Form 10-K and Annual Report to shareholders) unless you have provided contrary instructions. If you wish to receive a separate notice of Internet availability or set of proxy materials now or in the future, you may contact the bank or broker that manages your account or, if you are a shareholder of record, you may contact us at the address cited above. Similarly, if you share an address with another shareholder and have received multiple copies of the notice of Internet availability or proxy materials, you may contact the bank or broker that manages your account or, if you are a shareholder of record, you may contact us at the above address to request delivery of only a single copy of these materials to your household.

 

Who are the Shareholders Entitled to Vote at this Meeting?

 

Common Stock shareholders of record at the close of business on March 1, 2010 will be entitled to vote at the Annual Meeting. As of that date, a total of 306,188,969 shares of Praxair’s Common Stock were outstanding and entitled to vote. Each share of Common Stock is entitled to one vote.

 

How do I Submit My Vote by Means of a Proxy?

 

Your vote is important. Because many shareholders cannot attend the Annual Meeting in person, it is necessary that a large number be represented by proxy. Most shareholders have a choice of voting over the Internet, by using a toll-free telephone number or by completing a proxy card or voting instruction card, as described below.

 

 

How are the Proxies Voted?

 

All shares entitled to vote and represented by a properly completed proxy (either by Internet, telephone or mail) will be voted at the Annual Meeting as indicated on the proxy unless earlier revoked by you. If no instructions are indicated for a matter on an otherwise properly completed proxy from a shareholder of record, the shares represented by that proxy will be voted on that matter as recommended by the Board of Directors. See also the vote counting rules on page 5 of this Proxy Statement. Execution of the proxy also confers discretionary authority on the proxy holders to vote your shares on other matters that may properly come before the Annual Meeting.

 

How Can I Revoke my Proxy?

 

You may revoke your proxy at any time before it is voted by filing with Praxair’s Corporate Secretary a written revocation, by timely delivery of a properly completed, later-dated proxy (including by Internet or telephone), or by voting in person at the Annual Meeting.

 

May I Still Vote at the Annual Meeting Even if I Have Submitted a Proxy?

 

The method by which you vote will in no way limit your right to vote at the Annual Meeting if you later decide to attend in person. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record, to be able to vote at the Annual Meeting. See “Attending the Annual Meeting” on page 5 for attendance requirements and directions to the Annual Meeting.

What is the Necessary Quorum to Transact Business at the Annual Meeting?

 

The presence, in person or by proxy, of the holders of a majority of the shares entitled to vote shall constitute a quorum. The shares represented by withhold votes, abstentions and broker non-votes on filed proxies and ballots will be considered present for quorum purposes (for an explanation of “broker non-votes,” see the vote counting rules below).

 

How are the Votes Counted for Each Item of Business?

 

If you are a shareholder of record and submit a proxy (whether by Internet, telephone or mail) without specifying a choice on any given matter to be considered at this Annual Meeting, the proxy holders will vote your shares according to the Board’s recommendation on that matter.

 

If you hold your shares in a brokerage account, then, under NYSE rules and Delaware corporation law:

 

 

If you hold your shares in the Praxair, Inc., Praxair Distribution, Inc., Praxair Healthcare Services, Inc., Praxair Puerto Rico, LLC, or the Dow Chemical Company Employees’ savings plan, and if the plan trustee receives no voting instructions from you, then, under the applicable plan trust agreement, the plan trustee must vote your shares in the same proportion on each matter as it votes the shares for which it has received instructions.

 

Admission Requirements

 

You may attend the Annual Meeting whether or not you want to vote your shares at the Annual Meeting or by proxy. However, only shareholders and the invited guests of Praxair will be granted admission to the Annual Meeting. To assure admittance:

 

-  If you hold shares of Praxair, Inc. common stock through a broker, bank or other nominee, please bring a copy of your broker, bank or nominee statement evidencing your ownership of Praxair common stock as of the March 1, 2010 record date;

 

-  Please bring a photo ID, if you hold shares of record as of March 1, 2010, including shares in certificate or book form or in the Praxair, Inc. Dividend Reinvestment and Stock Purchase Plan;

 

-  Please bring your Praxair ID if you are an employee shareholder.

 

Directions

 

From Points West of Danbury, CT:  Take I-84 East to Exit 2 (Mill Plain Road) in Danbury. After exit, stay left and go to the bottom of the ramp and turn left. Go to the second light and turn right (Mill Plain Road). Go to the next light and turn right (Old Ridgebury Road). Go up the hill and the Danbury Plaza Hotel is on your left.

 

From Points East of Danbury, CT:  Take I-84 West to Exit 2A (Old Ridgebury Road) in Danbury. The exit ramp circles around and up over the highway. The Danbury Plaza Hotel is on your left.

 

The only person known by Praxair to be a beneficial owner of more than five percent of Praxair’s Common Stock is the following:

 

 

(a) Based on 306,188,969 total shares outstanding on March 1, 2010 excluding shares held for the account of Praxair.

 

(b) Holdings as of December 31, 2009 as reported in SEC Schedule 13G by BlackRock, Inc. According to this report, BlackRock, Inc. and certain of its subsidiaries had sole voting power and sole investment power as to all of the reported shares.

 

The table below sets forth the beneficial ownership of Praxair’s Common Stock as of March 1, 2010 by each director and certain executive officers. No director or executive officer of Praxair beneficially owned more than 1% of Praxair’s common stock, and directors and executive officers of Praxair as a group (18 persons) beneficially owned approximately 1.0% of the outstanding shares as of that date.

 

(1) Reported shares include 23,917 unvested restricted shares for which Mr. Angel has sole voting power and that will vest on April 23, 2011.

 

(2) Deferred Stock represents stock price-based units into which deferred compensation has been invested pursuant to the deferred compensation plans for management and for non-employee directors. Holders have no voting rights with respect to Deferred Stock. The value of Deferred Stock units varies with the price of Praxair’s common stock and, at the end of the deferral period, the units are payable in Praxair common stock.

 

(3) Stock Options represent shares that may be acquired upon exercise of options exercisable within 60 days of March 1, 2010.

 

Praxair’s Governance Principles

 

Praxair operates under Corporate Governance Guidelines which are set forth in Appendix 1 to this Proxy Statement and are posted at Praxair’s public website, www.praxair.com. Consistent with those guidelines, the Board has adopted the following policies and practices, among others:

 

Business Integrity and Ethics. One of the Board’s first acts upon Praxair’s launch as a public company was to adopt policies and standards regarding Compliance with Laws and Business Integrity and Ethics. The current version of the Board’s policy in these areas is posted at Praxair’s public website, www.praxair.com and is 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 Chief Executive Officer (“CEO”), Chief Financial Officer, and Controller.

 

Director Independence. The Board has adopted independence standards for service on Praxair’s Board of Directors which are set forth in Appendix 2 to this Proxy Statement and are posted at Praxair’s public website, www.praxair.com. The Board has applied these standards to all of the incumbent non-management directors (all incumbent directors are non-management except for Mr. Angel, the Company’s Chairman & CEO), and has determined that all of these directors qualify as independent. The Board is not otherwise aware of any relationship with the Company or its management that could potentially impair a director’s exercise of independent judgment. See also related information which is presented in this Proxy Statement under the caption “Certain Relationships and Transactions.”

 

Board Leadership. As set forth in Corporate Governance Guidelines attached to this Proxy Statement as Appendix 1, the Board believes that the best leadership model for the Company is that of a combined Chairman & CEO, balanced by certain practices and policies to assure effective independence in the Board’s oversight, advice and counsel.

 

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 continues to be effective and appropriate, as demonstrated by the Company’s sustained superior performance relative to its peers over a number of years.

 

The Board believes that the substantive duties of the Chairman, including calling and organizing meetings and preparing agendas, are best performed by one who has 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.

 

Board independence is achieved by the appointment by the independent directors of an Executive Session Presiding Director (“Presiding Director”) and by other practices set forth in the Corporate Governance Guidelines and described more fully below. These practices assure effective independent oversight as well as effective independent leadership while maintaining (1) practical efficiency, (2) the responsibility of each independent director to assert leadership when appropriate according to his or her background and expertise, and (3) appropriate authority on the part of each independent Committee Chair within the scope of his or her Committee’s subject matter responsibility.

 

The Presiding Director assures that appropriate independence is brought to bear on important Board and governance practices. The Presiding Director’s duties and responsibilities are summarized in the Corporate Governance Guidelines and in the Presiding Director’s appointing resolutions (cited below).

 

There are other sources of independence for the Board in addition to the Presiding Director’s leadership. The Presiding Director’s duties are complemented by (1) the strong leadership vested in, and exercised by, the Board’s independent Committee Chairs with respect to the matters overseen by their Committees, and (2) the responsibility of each director to assert leadership according to his or her particular experience and expertise. Among the reasons to maintain a strong Committee structure and leadership is the diversity

of issues and risks confronted by a global industrial company. The Board believes that exercising Board leadership and oversight through Committees is the most effective method of ensuring that these matters receive the diverse expertise and attention they deserve.

 

In addition, the Board is strengthened by the responsibility of each director to communicate candid advice and counsel directly to the CEO. This approach assures that each director is free to exercise and express independent judgment without filtering, and enables the valuable expression of a diversity of views in Board meetings.

 

Finally, it is recent practice for the independent directors to appoint as the Presiding Director the Chair of the Board’s Governance & Nominating Committee. This practice is in recognition of the Committee’s oversight of the Board’s and the Company’s overall governance practices. The duties of the Chair of the Governance & Nominating Committee complement and unify the duties of the Presiding Director in most respects.

 

The Board’s resolutions appointing the Presiding Director specify the following roles and responsibilities:

 

 

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 diversity of the risks faced by a global industrial company and illustrate the need for a strong Board Committee structure to oversee 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 & Management Development Committee), regular review of the Board’s governance practices and the Company’s sustainability (Governance & Nominating Committee), and internal controls, investigations, and integrity standards compliance (Audit 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), and 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 things.

 

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.

 

Mandatory Director Retirement. The Board’s policy is that a director who has attained the age of 72 must retire from the Praxair Board prior to the first annual shareholders meeting held after his or her 72nd birthday. 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 no non-management director may serve on more than five additional public company boards and no member of the Audit Committee may 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.

 

Director Nomination Process. For a description of the Board’s policy regarding nominees for election as directors, see “The Governance & Nominating Committee” on page 20 of this Proxy Statement.

 

Director Election and Resignation Policy. Praxair’s Certificate of Incorporation and Bylaws require a director nominee to 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.

 

Communications with the Board. The Board believes that the most efficient means for shareholders and other interested parties to raise issues and questions is to direct such communications to the Company through its Investor Relations Department or other methods as described in the “Contact Us” section of the Company’s public website, www.praxair.com.

 

If, notwithstanding these methods, a shareholder or other interested party wishes to direct a communication specifically to the Company’s Board of Directors, then the following means are available (to ensure that the communication is properly directed in a timely manner, it should be clearly identified as intended for the Board):

 

 

The above addresses are supervised by the Company’s Security Department which will promptly forward to the Corporate Secretary’s Office any communication intended for the Board. The Corporate Secretary’s Office will collect and organize all such communications, deleting any that are solicitations or which contain offensive material. A summary of communications received will be periodically provided to the Presiding Director who will make the final determination regarding the disposition of any such communication.

 

The Board believes that the Company should speak with one voice and has empowered management to speak on the Company’s behalf subject to the Board’s oversight and guidance on specific issues. Therefore, in most circumstances, the Board will not respond directly to inquiries received in this manner but may take into consideration ideas, concerns and positions that are presented in a concise, clear, supported and constructive manner.

 

Director Attendance at the Annual Shareholders’ Meeting. Absent extenuating circumstances, each member of the Board is expected to attend the Annual Meeting of Shareholders. All of the then incumbent directors attended the 2009 annual meeting.

 

Policy Statement on Rights Agreements. The Board will adopt or materially amend a 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.

 

Director Stock Ownership Guidelines. The Board’s policy is that non-management directors must acquire and hold during their service as a Praxair Board member shares of the Company’s stock equal in value to at least four times the base cash retainer for non-management directors. Directors have five years from their initial election to meet this guideline. As shown in the stock ownership table presented at page 6 of this Proxy Statement under the caption “Share Ownership,” all non-management directors have met this guideline or are within the 5-year transition period afforded to them to do so; and most substantially exceed the guideline. In addition, any new non-management director must, no later than the effective date of his or her election, acquire, using his or her own personal assets, shares of the Company’s stock equal in value to the base cash retainer then in effect.

 

Executive Stock Ownership Guidelines. 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 focuses the executives’ attention on managing Praxair as equity owners.

 

Accordingly, stock ownership guidelines have been established for the Company’s officers as follows. Twenty-two executives are currently covered under this stock ownership policy. Individuals are expected to meet the applicable guideline no more than five years after first becoming subject to it.

 

 

As of the date of this Proxy Statement, all covered individuals have met or exceeded their guidelines, where permitted by law, or are within the 5-year transition period afforded to them to do so. Stock ownership of the five most highly compensated Executive Officers in 2009 can be found in the table presented at page 6 of this Proxy Statement under the caption “Share Ownership.”

Succession Planning and Personnel Development. Under the leadership of the Compensation & Management Development Committee, it is the Board’s practice to annually conduct a formal Succession Planning and Personnel Development session in which evaluations of senior executives are reviewed with respect to their potential for promotion into senior leadership positions, including that of the CEO. In addition, a wide variety of senior executives are purposely exposed 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 for assessment and development purposes, as well as for information gathering.

 

CEO Performance Evaluation. The Board has in place a process whereby the Presiding Director conducts a performance review at least annually of the CEO taking into account the views of all of the other independent directors. This is in addition to the evaluation inherent in the Compensation & Management Development Committee’s determination of the CEO’s compensation.

 

Strategy Review and Oversight. It is the Board’s practice to conduct a full-day session at least annually to review the strategies of the Company overall and of its key business components and to provide advice and counsel to management regarding the strategic issues facing the Company. In addition, throughout the year, management reports to the Board on the status of significant strategic initiatives and issues.

 

Board Effectiveness Assessment. As set forth in the Corporate Governance Guidelines, the Board assesses its effectiveness at least annually under a process determined by the Governance & Nominating Committee. Typically, this assessment includes evaluating its effectiveness in the areas of Performance of Core Responsibilities, Decision-Making Support, the Quality of Deliberations, and Director Performance, as well as consideration of additional Board practices and policies recommended as best practices by recognized governance authorities. In addition, directors are given measures of individual director effectiveness for purposes of self-assessment, reflection and self-improvement.

 

Auditor Independence. The Board recognizes the importance of ensuring the independence of the Company’s independent auditor. See page 17 of this Proxy Statement under the caption “The Independent Auditor” for a summary of some of the policies designed to monitor and support such independence.

 

Director Compensation. The compensation paid to non-management directors in 2009 and a description of the Company’s director compensation program are presented at pages 60 to 62 of this Proxy Statement under the caption “Director Compensation.” The principles used by the Board in determining director compensation are set forth in the Board’s Corporate Governance Guidelines included in Appendix 1 to this Proxy Statement.

 

Review, Approval or Ratification of Transactions with Related Persons

 

Relevant Polices. The Company’s Compliance with Laws and Business Integrity and Ethics Policy (“Ethics Policy”), prohibits employees, officers and Board members from having a personal, financial or family interest that could in any way prevent the individual from acting in the best interests of the Company (a “conflict of interest”) and provides that 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 (attached as Appendix 1 to this Proxy Statement) 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 the SEC’s Regulation S-K, Item 404, 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.

 

In summary, 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 2009, 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 serving as a director. To assist the Board in making independence determinations, it also applies the independence standards set forth in Appendix 2 to this Proxy Statement.

 

In determining that each non-management director and director nominee is independent, in February 2010, 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, Praxair sells products to, or purchases products from, the company of which Mr. Smith is an executive officer. The dollar value of these transactions is far below the limits set forth in the Board’s independence standards and, for the last three fiscal years, was significantly less than 1% of either Praxair’s or Mr. Smith’s company’s consolidated revenues. Therefore, the Board has determined that such relationships are not material and do not otherwise impair the ability of Mr. Smith to exercise his 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 2009 with respect to transactions in the Company’s stock.

 

The Board currently has four standing committees as described in the tables below and each is comprised of only independent directors. The Charters for each of these committees may be found in the Governance section of Praxair’s public website, www.praxair.com and are available in print to any shareholder who requests them.

 

 

A principal role of the Audit Committee is to assist the Board of Directors in its oversight of the Company’s financial reporting process. The Board of Directors, in its business judgment, has determined that all members of the Audit Committee are “independent,” as required by applicable listing standards of the NYSE and by the Board’s independence standards set forth in Appendix 2 of this Proxy Statement.

 

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.

 

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 required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

 

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 letter from the independent auditor required by applicable requirements of the Public Company Accounting Oversight Board. 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 2009 and those planned for 2010. The Audit Committee has considered whether the provision of such non-audit services is compatible with maintaining PricewaterhouseCoopers’ 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, 2009 to be filed with the SEC.

 

The Audit Committee

 

Raymond W. LeBoeuf, Chairman
Claire W. Gargalli
Ira D. Hall
Larry D. McVay
H. Mitchell Watson, Jr.

 

Auditor Selection and Attendance at the Annual Meeting

 

PricewaterhouseCoopers LLP served as Praxair’s independent auditor for the year ended December 31, 2009 and has been selected by the Board’s Audit Committee to serve in such capacity for the year ending December 31, 2010. Representatives of PricewaterhouseCoopers LLP 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.

 

Audit Partner and Audit Firm Rotation

 

The Audit Committee’s policy is that the audit engagement partner should rotate off the Company’s account no less frequently than every five years. During its history as a public company since 1992, Praxair has had five audit engagement partners. The current engagement partner has been in place since January 1, 2008.

 

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 below, 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 below, 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. The Audit Committee will periodically consider alternatives to ensure that the Audit Committee and the Company’s shareholders are receiving the best audit services available.

 

Auditor Independence

 

As noted in the Audit Committee Charter and in the Audit Committee Report presented above, the independent auditor reports directly to the Audit Committee and the Audit Committee is charged with evaluating its independence.

 

Non-Audit Engagement Pre-Approval Policy

 

To help ensure independence of the independent auditor, the Audit Committee has established a policy whereby all non-audit engagements of the independent auditor must be approved in advance by the Audit Committee or its Chairman, has set forth limitations codifying its bias against such engagements, 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. As noted below in the report on independent auditor fees, such non-audit engagements were approximately 5.9% of audit fees in 2009. All of the Audit-Related Fees, Tax Fees and All Other Fees disclosed below were approved by the Audit Committee.

 

Hiring Policy – Auditor Employees

 

In addition, 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.

 

Fees Paid to the Independent Auditor

 

Audit Fees. PricewaterhouseCoopers LLP billed Praxair, Inc. and its affiliates an aggregate amount of $6,302,000 and $6,291,000 for professional services rendered in 2009 and 2008, respectively, 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. PricewaterhouseCoopers LLP billed Praxair, Inc. and its affiliates an aggregate amount of $116,000 and $16,000 for assurance and related services rendered in 2009 and 2008, respectively, 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 related primarily to due diligence services and certifications required by customers and others.

 

Tax Fees. PricewaterhouseCoopers LLP billed Praxair, Inc. and its affiliates an aggregate amount of $209,000 and $87,000 for professional services rendered in 2009 and 2008, respectively, for tax compliance and tax preparation, including preparation of original and amended tax returns, and claims for refunds.

 

All Other Fees. PricewaterhouseCoopers LLP billed Praxair, Inc. and its affiliates an aggregate amount of $47,000 and $27,000 for products and services rendered in 2009 and 2008, respectively, other than those reported in the foregoing paragraphs. These services related primarily to consulting and advice in regard to local country issues for non-U.S. subsidiaries.

 

Executive Compensation

 

Praxair’s Compensation & Management Development Committee of the Board (the “Compensation Committee”) consists of four non-management directors appointed by the Board who meet the independence requirements of the NYSE and the Board’s standards for director independence as set forth at Appendix 2 of this Proxy Statement. Among other duties, the Compensation Committee is responsible for considering and determining executive compensation. Consideration and determination of directors’ compensation is the responsibility of the Governance & Nominating Committee of the Board.

 

Committee Charter and Responsibilities: As set forth in the Compensation Committee’s charter, with respect to the compensation of the executive officers reported in this Proxy Statement, the Compensation Committee has the authority to:

 

 

Delegation and CEO Involvement: The Compensation Committee may not delegate any of the foregoing 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 section captioned “Compensation Discussion and Analysis.”

Committee Process for Executive Compensation: With regard to executive compensation, the Compensation Committee generally follows the following schedule and process in its annual cycle of meetings:

 

 

 — Review trends in executive compensation and the competitiveness of the Company’s executive compensation program as presented by the Compensation Committee’s consultant.

 

 — Review the Company’s incentive programs with respect to excessive risk-taking.

 

 

 — Approve the management performance-based variable compensation plans for the following plan year including establishment of financial and non-financial goals and payout formulas based on levels of performance against those goals.

 

 — Evaluate executive officers’ aggregate compensation using a “tally sheet” approach.

 

 — Determine for each executive officer the following elements of his/her direct compensation for the upcoming calendar year: (1) salary adjustment (typically effective on April 1), (2) target performance-based variable compensation (percent of salary) and (3) value and form of long term incentive awards.

 

 

 — Determine performance-based variable compensation earned for the previous plan year based on an evaluation of Company performance against the goals previously established by the Compensation Committee and, and for each executive officer, an evaluation of individual performance.

 

 — Determine shares earned upon vesting or maturing of outstanding performance equity awards based on an evaluation of Company performance against goals previously established by the Compensation Committee.

 

 — Determine terms and conditions, including performance conditions as applicable, of long term incentive awards including calculation of the number of equity units to be awarded based on the dollar value to be delivered as established in December.

 

 

 — Review perquisites and personal benefits available to executive officers.

 

 — Review executive officer stock transactions and compliance with stock ownership guidelines.

 

 — Review proposed proxy statement disclosures with respect to executive compensation.

 

Compensation Consultant: The Compensation Committee engages a third-party compensation consultant to assist it in such analysis as is necessary to inform and support the Compensation Committee’s decisions on executive compensation. For its consideration of 2009 executive compensation, the Compensation Committee engaged Deloitte Consulting. The purpose of the engagement was to provide to the Compensation Committee data, analysis and advice with regard to executive compensation. The scope of the consultant’s work is described in this Proxy Statement in the section captioned “Compensation Discussion and Analysis.” During 2009, the Governance & Nominating Committee engaged Deloitte Consulting to provide to that Committee data, analysis and advice with regard to director compensation. The scope of the consultant’s work is described in this Proxy Statement in the section captioned “Director Compensation — Changes for 2010.”

 

During 2009, the Company engaged U.S. affiliates of Deloitte Consulting, primarily related to providing expatriate income tax preparation. The Audit Committee was notified of these engagements, for which pre-approval by the Board or any of its committees was not required. The aggregate fees paid to Deloitte Consulting for its 2009 services to Board Committees in respect to executive and director compensation

was $236,370. The aggregate fees paid to U.S. affiliates of Deloitte Consulting for expatriate income tax preparation and certain other consulting services performed in 2009 was approximately $330,000.

 

The Compensation Committee has reviewed the level of fees paid to Deloitte for non-executive and director compensation services and concluded that the additional services provided by Deloitte and its U.S. affiliates did not impair Deloitte Consulting’s ability to provide independent and objective advice to the Compensation Committee.

 

The Governance & Nominating Committee is comprised of five non-management directors who meet the independence requirements of the NYSE and the Board’s standards for director independence set forth in Appendix 2 to this Proxy Statement. Among other duties, the Governance & Nominating Committee has responsibility for the director nomination process.

 

Director Nominations

 

The Governance & Nominating Committee will consider any candidate for election to the Board who is timely recommended by a shareholder. 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 on page 63 of this Proxy Statement under the caption “Shareholder Proposals for the 2011 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.

 

Director & Nominee Selection Criteria

 

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 re-nominating incumbent directors. Consistent with the Board’s Corporate Governance Guidelines (attached as Appendix 1 to this Proxy Statement), 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.

 

Additional information about the specific skills, qualifications and backgrounds of each of the present director nominees may be found at page 22 of this Proxy Statement under the under caption “The Board of Directors.”

 

New Director Selection Process

 

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

 

The following pages present information about the persons who comprise Praxair’s Board of Directors, all of whom have been nominated for reelection to serve until the 2011 annual meeting and until their successors are elected and qualify. During 2009, the Board held eight meetings.

 

During 2009, the nominees for reelection to the Board collectively attended 97% of all Board meetings and meetings of committees of which he or she is a member, and no nominee attended fewer than 93% of such meetings.

 

The Governance & Nominating Committee recommended to the Board, and the Board approved, the nomination for reelection of each incumbent director, except for Mr. Watson who retired from the Board as of March 15, 2010.

 

Each of the director nominees listed below has experience as a senior executive of a U.S. public company. Each nominee also has served as a director of one or more U.S. 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: 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 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. A description of the Governance & Nominating Committee’s process and criteria for nominating director candidates may be found at page 20 of this Proxy Statement under the caption “Director & Nominee Selection Criteria.”

 

 

The following Executive Officers have been elected by the Board of Directors and serve at the pleasure of the Board. It is expected that the Board will elect officers annually following each annual meeting of shareholders.

 

Stephen F. Angel, 54, See description under “The Board of Directors.”

 

James T. Breedlove, 62, is Senior Vice President, General Counsel and Secretary of Praxair, Inc. and served as Vice President, General Counsel and Secretary from 2004 to 2006. Prior to joining Praxair in 2004, Mr. Breedlove was Senior Vice President and General Counsel at GE Equipment Services from 2002, and from 1992 to 2002 he served as a Senior Vice President of a division of General Electric Capital Corp.

 

Domingos H. G. Bulus, 48, is President of White Martins Gases Industriais Ltda. (“White Martins”), Praxair’s Brazilian subsidiary, and is a Vice President of Praxair, Inc. He served as President of Praxair Asia from 2001 to 2003. Mr. Bulus also served as Executive Director of the Andean Treaty region for White Martins from 1996 to 2001. He assumed his current position in 2003.

 

James J. Fuchs, 57, is a Senior Vice President of Praxair, Inc., and served as a Vice President from 2001 to 2006. Since 2001, he also has been President of North American Industrial Gases, and President of Praxair Canada. Since December 2009, he has also overseen Praxair Distribution, Inc. In 2006, Mr. Fuchs also assumed responsibility for Praxair’s Mexican operations. Prior to these assignments, Mr. Fuchs served Praxair Asia as its President from 1998 and as a Vice President from 1996.

 

Ricardo S. Malfitano, 51, is an Executive Vice President of Praxair, Inc., overseeing Praxair’s South America and Asia regions, the electronics and healthcare businesses, global supply systems, global procurement, global operations excellence, safety and environmental compliance and global sustainability. Mr. Malfitano served as a Senior Vice President of Praxair from 2003 to 2006 and was President of White Martins, and President, Praxair South America from 2001 to 2003. He served as President, North American Industrial Gases and President of Praxair Canada from 1998 to 2001.

 

Eduardo Menezes, 46, is a Vice President of Praxair, Inc. and President of Praxair Europe. He served as Managing Director of Praxair’s business in Mexico from 2004 to 2007, as Vice President and General Manager for Praxair Distribution, Inc. from 2003 to 2004 and as Vice President, U.S. West Region, for North American Industrial Gases, from 2000 to 2003. He assumed his current positions in 2007.

 

George P. Ristevski, 50, is a Vice President of Praxair, Inc. and President of Praxair Distribution, Inc. From 2002 to 2007 he was President of Praxair Healthcare Services, Inc. and from 2000 to 2002, he was Vice President and Controller for Praxair, Inc.

 

James S. Sawyer, 53, is an Executive Vice President and the Chief Financial Officer of Praxair, Inc. and oversees the surface technologies business. From 2003 to 2006, he served as a Senior Vice President and the Chief Financial Officer. Mr. Sawyer was designated the Company’s Chief Financial Officer in 2000.

 

Matthew J. White, 37, has been Vice President and Controller of Praxair, Inc. since August 2008. Before that, he was the Finance Director of Praxair’s North American Industrial Gases Division since 2004. From 2000 to 2004, he held various financial and accounting positions at Gentek, Inc., a diversified chemical, automotive and telecommunications holding company, including Group Controller of its Performance Products division. In 2004, Mr. White also served as Vice President of Finance at Fisher Scientific, a scientific and laboratory instruments distributor. He is a certified public accountant and a chartered financial analyst.

 

The Compensation & Management Development Committee (the “Compensation Committee”) reviewed and discussed with management the “Compensation Discussion and Analysis” below 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

 

Wayne T. Smith, Chairman

Nance K. Dicciani

Edward G. Galante

Robert L. Wood

 

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 the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the three other executive officers who had the highest total compensation for 2009, as set forth in the “Summary Compensation Table” below (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. A detailed description of the Compensation Committee’s responsibilities and processes is set forth under the heading “The Compensation & Management Development Committee” on pages 18 to 20 of this Proxy Statement. Certain facts described in this CD&A reflect Compensation Committee deliberations in private session, which the Compensation Committee has advised management are accurate and materially complete.

 

Praxair’s Executive Compensation Objectives and Approach

 

The Compensation Committee has established the following objectives for Praxair’s executive compensation program:

 

 

 — short term business performance, and

 

 — longer term shareholder value creation.

 

The Compensation Committee seeks to achieve these objectives by providing a competitive total compensation package designed to attract and retain high-performing, results-oriented executives. The compensation package includes (1) direct compensation of base salary, annual performance-based variable compensation and long term incentives, (2) certain retirement and other benefits generally available to other employees, (3) severance benefits, and (4) a limited value of perquisites. The Compensation Committee uses as a guide the median value of total direct compensation of the benchmarking market data discussed below. Total direct compensation actually earned, and the actual proportion of each direct compensation element to the total, may be more or less than the targeted

amounts depending upon the Company’s business and stock price performance and other factors discussed below.

 

A competitive base salary and variable compensation opportunity, along with retirement and other benefits, serve to attract and retain executive talent. Because at least 75% of NEOs’ target total direct compensation opportunity for 2009 is in the form of performance-based variable compensation and long-term incentives, executives are also motivated to deliver strong business performance and create shareholder value. These compensation elements are “at risk” and are dependent upon the Company’s achieving financial and other business goals set by the Compensation Committee and, for long term incentives, the Company’s stock price performance. Executive severance arrangements in the event of a change-in-control of the Company provide a retention incentive and encourage continuity of management.

 

In order to further align shareholder and executives’ interests, the Compensation Committee has established stock ownership guidelines for NEOs (see disclosure on details of these guidelines in the Corporate Governance and Board Practices section of this Proxy Statement under the caption “Executive Stock Ownership Guidelines”). NEOs may meet these guidelines by acquiring Company stock or stock-equivalent units through long term incentive grants, as well as through the Company’s Compensation Deferral Program, 401(k) savings plan, Dividend Reinvestment and Stock Purchase Plan and through other personal investments.

 

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. In December 2009, the Compensation Committee conducted a 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 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 risk decisions for short term, unsustainable gain, and (3) the Company’s stock ownership guidelines and the “recapture” policy described below also serve as disincentives for unacceptable risk-taking. Based upon this review, the Compensation Committee concluded that the Company’s incentive compensation programs are designed appropriately to provide reasonable assurance that they do not encourage excessive risk-taking.

 

Key Executive Compensation Factors and Considerations

 

The key factors that the Compensation Committee considers in determining NEO compensation are summarized below, followed by a discussion and analysis of the individual elements of NEO compensation. As described below, the determination of annual performance-based variable compensation for 2009 was made in part by use of a formula that measured Company financial performance achieved against selected and pre-set financial measures. Except for this formula, individual compensation decisions in 2009 required considerable judgment and the balancing of subjective considerations such as those listed in this section.

 

Compensation Consultant Analysis and Advice

 

The Compensation Committee engages an executive compensation consultant to provide data, analysis and advice. During 2009, the Compensation Committee engaged Deloitte Consulting. The scope of Deloitte Consulting’s engagement included advice on the determination of NEO compensation, preparation and presentation to the Compensation Committee of reports on executive compensation trends and various other materials related, for example, to the design of performance-based variable compensation programs, long term incentive program design changes, and review of plan documents.

In December 2008, Deloitte Consulting analyzed the compensation benchmarking study performed by management, reviewed other independent compensation data and gave advice on competitive compensation for the Company’s executive officers. In advance of applicable Compensation Committee meetings, the CEO and certain management personnel discussed the consultant’s analysis and the data to be presented at the meeting, and the CEO solicited the consultant’s views on his proposed recommendations for executive officer compensation (other than his own). In its deliberations, including in private sessions with the consultant, the Compensation Committee requested the consultant’s view of the CEO’s recommendations, as well as input on the CEO’s compensation.

 

Benchmarking

 

The Compensation Committee uses benchmark market data to help determine the appropriate amount of total direct compensation opportunity for each NEO and the elements of each NEO’s direct compensation.

 

Selection of Benchmark Companies. For determinations of compensation for 2009, the Compensation Committee utilized benchmark companies selected with advice of its compensation consultant. The benchmark companies comprised a Key Company Group and a Practices Tracking Group. The Key Company Group peers were selected with reference to the following financial measures: Market Capitalization, Revenue and Net Income and are generally similar in size to the Company in one or more of these measures. The Compensation Committee used the Key Company Group to assess competitive market compensation levels for NEO positions. For 2009, the 21 companies identified below were included in the Key Company Group:

 

 

The Compensation Committee also consulted market data from a broader Key Industry Group, comprised of companies included in a broad spectrum of manufacturing industries, in order to ensure that market data from the Key Company Group was not impacted by any unusual or short-term factors.

 

The Practices Tracking Group consists of companies that are in the same industry as the Company and/or are considered to be companies that our executives may consider for employment if they were to leave the Company. The Practices Tracking Group was used for an evaluation of executive compensation practices in the chemicals industry such as: forms of equity awards, stock ownership guidelines, perquisites and personal benefits, and retirement and other termination arrangements. For 2009 decisions, the Compensation Committee’s pay practices evaluation used a Practices Tracking Group comprised of the following companies: Air Products and Chemicals, Ashland, Celanese Corp, Chemtura Corporation, Dow Chemical, DuPont, Eastman Chemical, Huntsman Corp, Lubrizol, Monsanto and PPG Industries.

 

Application of Benchmark Data. For target total direct compensation opportunity, the Compensation Committee examined the median and the 75th percentiles of benchmark company data for each NEO’s position. When possible, data provided to the Compensation Committee was adjusted based on regression analysis to account for the differing scope of operations of comparator companies. Although the Compensation Committee uses the median as a guide for determining compensation levels, actual values set for any individual NEO may, from time to time, deviate from the median (a) to account for experience in the position, (b) because of year-to-year swings in market median data, (c) so as to maintain the desired internal equity among executive positions, and (d) to balance the mix of compensation elements deemed appropriate for each NEO. The value of total direct compensation opportunity targeted for each NEO in 2009 approximated the median of the Key Company and Key Industry groups as determined by the benchmarking process.

Recommendations of the Chief Executive Officer

 

The CEO does not determine the compensation of any of the executive officers, but he provides input to the Compensation Committee on such matters as:

 

 

Evaluation of Aggregate Compensation

 

Total Compensation and Benefits. The Compensation Committee considers whether the value of each NEO’s aggregate compensation package, in which all components of his direct compensation and benefits are viewed together using a “tally sheet” format, is consistent with the Compensation Committee’s executive compensation objectives. In December 2008, the Compensation Committee performed this review and determined that the total compensation opportunity granted to each NEO in 2008 was consistent with its executive compensation objectives and that no structural adjustments should be made to any component of the 2009 total compensation opportunity.

 

Termination Benefits. The Compensation Committee also considers the total payments and benefits that could be received by each NEO under various employment termination events, including retirement, voluntary resignation, and termination by the Company, including following a change-in-control of the Company. The Compensation Committee conducted this review in October 2008 and approved revised executive severance compensation agreements effective January 1, 2009 that reduced certain termination benefits available to NEOs when compared to those available under the then existing agreements. The revised agreements also required a nondisclosure, nonsolicitation and noncompetition agreement be executed in favor of the Company and included changes in order to comply with the requirements of Section 409A of the Internal Revenue Code. The terms of the revised executive severance compensation agreements are discussed below in the subsection titled “Change-in-Control Arrangements” and in the section titled “Potential Payments upon Termination or Change-in-Control.”

 

Other Considerations

 

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 below) so that the Company may take a tax deduction, it does not have a policy requiring that all compensation must be deductible and it may, from time to time, authorize compensation that is not tax deductible. Accounting treatments were reviewed but did not impact the selection and design of equity and equity-related compensation for 2009, although all such grants were made in a manner as to not require mark-to-market accounting treatment.

 

Analysis of the Use of Long Term Incentives. The Compensation Committee reviewed 2009 stock transactions by executive officers and their year-end holdings so as to monitor the executives’ use of long term incentives. The review included ensuring executives were within stock ownership guidelines, examining transactions for hedges or other risk-management techniques applied to stock-based incentives, and inspection for improper dispositions back to the Company or other self-dealing. Based on this review, the Compensation Committee determined that the long term incentives previously granted to NEOs continue to be used appropriately.

Elements of Direct Compensation for Executive Officers

 

The methods by which the amounts of 2009 direct compensation for NEOs were determined and the reasons therefor are described in the following sections for each element of direct compensation.

 

Salary

 

The salary level for each NEO is established by the Compensation Committee from its consideration of the benchmark data for equivalent positions in the Key Company Group and is typically effective April 1 of each year. The Compensation Committee also considered the impact of the global economic downturn and resulting cost reduction actions taken by the Company in late 2008. To demonstrate alignment of executive compensation with the Company’s cost reduction actions, the CEO recommended, and the Compensation Committee determined, that NEOs and other key employees would receive no base salary merit increases in 2009. The salaries reported in the “Summary Compensation Table” reflect actual cash paid for each calendar year.

 

Annual Performance-Based Variable Compensation

 

The performance-based variable compensation reported for each NEO (in the column of the “Summary Compensation Table” captioned “Non-Equity Incentive Plan Compensation”) represents that earned for 2009 performance. Below is a description of how the Compensation Committee determined the 2009 annual performance-based variable compensation earned by each NEO under the Company’s Variable Compensation Plan. The Company uses comparable criteria to determine performance-based variable compensation awarded to all eligible employees.

 

Target Performance-Based Variable Compensation Level. The target performance-based variable compensation level for 2009 for each NEO (meaning the amount of variable compensation, expressed as a percent of salary, that would be earned for 100% achievement of the financial performance mid-point goals) was established by the Compensation Committee in January 2009 and ranged from 75% to 120% of salary. The target for each NEO was established by the Compensation Committee primarily from its consideration of the benchmark data for equivalent positions in the Key Company Group (with secondary reference to the Key Industry Group, as described above).

 

Establishment of Financial Measures. In January 2009, the Compensation Committee selected three financial measures that it determined were appropriate to meet the compensation objectives of driving desired short term business performance for the 2009 plan year and increasing total shareholder return. These financial measures were the Company’s corporate consolidated results with respect to (1) sales revenue (2) net income, and (3) working capital as a percent of sales (defined as trade receivables, inventory and payables, excluding non-operating items such as deferred taxes and pensions), with each measure weighted equally. Sales revenue and net income are accounting items reported in accordance with GAAP in the Company’s public financial statements except that the Compensation Committee may approve certain adjustments to reported results based on differences between operating plan assumptions and actual results such as currency exchange rates and product price changes caused only by changes in certain raw material costs.

 

Establishment of Financial Goals. Mid-point goals were established for each financial measure which corresponded to a 100% payout of the target performance-based variable compensation. In addition, values were established for each financial measure representing minimum and maximum rewarded performance levels corresponding to potential payouts ranging from zero to 200% of target. The 2009 mid-point financial goals as set by the Compensation Committee in January 2009 are set forth in the table below under the caption “2009 Results and Payout Based on Performance.”

 

The Compensation Committee designed the relationship between pay and performance so as to ensure that performance which significantly outperformed the target financial goals would be rewarded with well-above target payout levels. Similarly, performance that did not meet the goals would reduce the performance-based variable compensation payout to as low as zero in the case of failure to meet the

pre-established minimum performance threshold. In setting the mid-point goals, the Compensation Committee sought to establish challenging but achievable goals that would motivate and reward the NEOs for the delivery of strong business results without encouraging excessive risk taking. The factors considered by the Compensation Committee in assessing the challenge inherent in the goals included:

 

 

Non-Financial Goals. The Compensation Committee also established non-financial goals with respect to (1) strategic positioning of the business for long term performance, (2) performance relative to peers, (3) safety and environmental compliance, including improvements in recordable injuries and lost workday rates, (4) employee engagement and people development, including diversity in hiring, retention and advancement, and career development for future leadership for the Company, (5) demonstrated organizational capabilities in productivity and efficiency resulting from the Company’s Six Sigma and other initiatives, and (6) audit/compliance initiatives and issues. Based on the CEO’s assessment of performance against non-financial goals, including evidence supporting that assessment, and its assessment of the Company’s performance of these non-financial goals plus consideration of unforeseen external factors beyond management’s control that may have helped or hindered management’s achievement of the financial goals, the Compensation Committee may make a subjective adjustment of up to plus or minus 35% to performance-based variable compensation payout as determined by the performance against financial measures.

 

Individual Performance. The Compensation Committee may make a positive or negative adjustment to each NEO’s performance-based variable compensation (calculated based on the performance against financial and non-financial goals described above) based on the CEO’s recommendations for individual performance adjustments for NEO’s other than himself, and its evaluation of individual performance, determined with reference to one or more of the qualitative factors described below. For 2009, an adjustment could have been applied resulting in a payout as low as zero or as high as 150% of the NEO’s performance-based variable compensation so calculated.

 

In evaluating individual performance, the Compensation Committee considers various qualitative factors relating to each NEO, examples of which may include:

 

 

Performance-Based Variable Compensation Illustration. To illustrate how the Compensation Committee made 2009 performance-based variable compensation determinations under the Variable Compensation Plan, assume the following hypothetical example: (1) a NEO’s base salary was $500,000 and his target performance-based variable compensation was 75% of base salary; (2) the Company achieved below target performance for each of the financial measures rendering a financial payout result of 65 percentage points; (3) the Compensation Committee determined that the Company’s achievement of non-financial goals supported a positive adjustment of 30 percentage points; and (4) the Compensation

Committee made an upward adjustment of 10% to the NEO’s performance-based variable compensation based upon his individual performance. The NEO’s performance-based variable compensation would have been $391,875, calculated as follows: $500,000 base salary times 75% times 95% (being the 65 percentage points for financial performance plus the 30 percentage points positive adjustment for non-financial performance) times 110% for individual performance.

 

Adjustments of Payouts Under Section 162(m). In January 2009, the Compensation Committee established an upper limit on performance-based variable compensation that could be paid to NEOs for 2009 under the shareholder-approved “Praxair, Inc. Plan for Determining Awards under Section 162(m)” (the “162(m) Plan”). For 2009, the Compensation Committee identified the participants in the 162(m) Plan and approved the maximum performance-based variable compensation payment that could be paid to each NEO based on budgeted Net Income performance. At the end of the performance period, 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 available under the 162(m) Plan to adjust the actual payment to a level it deemed appropriate for each NEO according to the methodology described above.

 

Recapture 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 (such as through the exercise of stock options or sale of equity securities) by, any or all elected officers of the Company, if and to the extent that:

 

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

 

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

 

2009 Results and Payout Based on Performance. Despite the difficult economic environment in 2009, management was able to leverage cost reduction and productivity initiatives to offset much of the impact of lower sales, resulting in actual net income exceeding 2008 net income. Sales were significantly below the mid-point goal, resulting in no payout related to that measure. Net Income and Working Capital results fell short of the mid-point goals only marginally and therefore contributed to a partial payout of variable compensation for these measures. The table below shows for each financial performance measure the Company’s 2008 and 2009 actual financial performance as adjusted under the Variable Compensation Plan, and the 2009 mid-point goals set by the Compensation Committee for a 100% payout.

 

 

The Compensation Committee engaged the Company’s internal audit department to verify that the Company’s performance against the pre-established corporate consolidated financial measures was

properly determined for 2009 performance-based variable compensation. The report of the internal auditors confirmed to the Compensation Committee that such performance was properly determined.

 

In addition to determining performance against financial measures, the Compensation Committee determined that the Company’s performance with respect to the pre-established non-financial goals was generally strong, and, consequently, should be a positive factor in determining performance-based variable compensation. For example, the Compensation Committee noted that the Company had (i) enhanced and leveraged productivity and efficiency programs as a result of Six Sigma and other initiatives, (ii) begun various international capital projects and joint ventures that would enhance the Company’s strategic position for the future, (iii) implemented enhanced career development programs to strengthen employee engagement and to support employment diversity goals, including hiring, advancement and retention, (iv) launched expanded compliance trainings and developed new control programs, and (v) continued improvements in the number of lost work days and recordable injuries. The Compensation Committee applied a positive adjustment of 30 percentage points to the variable compensation payout in recognition of the Company’s performance relative to the non-financial goals.

 

Positive adjustments were also made to the payouts of each NEO based upon his individual performance, resulting in the total performance-based variable compensation award reported in the Summary Compensation Table. Individual positive adjustments were based upon the Compensation Committee’s evaluation of NEO performance against factors that included those listed above under the subcaption “Individual Performance.” For 2009, the Compensation Committee determined that a positive adjustment for each NEO was supported by each NEO’s performance with respect to: (a) successfully addressing the effects of the economic downturn by taking actions to mitigate the negative impact the downturn could have had on his area, and (b) positioning his area for further improvements in productivity, employee development, compliance, and safety. However, 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. In 2009, none of these factors individually, nor any combination of them collectively, had any material impact on the total annual compensation for any NEO; nor was there any material variation in individual performance adjustments among the NEOs.

 

Long Term Incentive Awards

 

The Company provides long term incentives in order to motivate employees and thereby enhance long term shareholder value and to attract and retain executive talent. The long term incentive grants reported for each NEO in the “Grants of Plan-Based Awards” table below represent the stock option grants and performance share unit awards made in February 2009.

 

Determining the Value to be Delivered. The 2009 target dollar value of long term incentive awards for each NEO was established by the Compensation Committee in December 2008 primarily from its consideration of the benchmark data for equivalent positions in the Key Company Group (with secondary reference to the Key Industry Group, as described above). Retention of the NEOs was considered but did not have a material impact on value of the awards to be delivered. In determining the target dollar value of long term incentive awards to be delivered in 2009 to NEOs, the Compensation Committee did not deem relevant the number or value of equity awards then held by NEOs or the amount of previous gains realized by NEOs from exercises of options, the vesting of performance share units, or in Mr. Angel’s case, the vesting of previously-granted restricted stock.

 

Determining the Form of Award. The Compensation Committee determined that 2009 long term incentive awards should be a mix of time-vesting stock options (50% of the target value) and performance share unit awards with a three-year performance period (50% of the target value). It made this determination based in part on its review of market trends with Deloitte Consulting that indicated an increased use of diversified equity awards, and to address employee retention concerns resulting from the

reduced value of outstanding option awards resulting from the substantial decline in the Company’s stock price and in the stock market during an historic financial markets dislocation.

 

The Compensation Committee determined that stock options presented an appropriate balance of risk and reward in that stock options have no value unless the Company’s stock price increases above the option exercise price. The potential for future value acts both as a retention tool and an incentive to deliver strong business results that would be expected to increase the Company’s stock price, thereby creating shareholder value. The Compensation Committee also noted that, because of the Company’s historical record of excellent shareholder return performance, the Company’s executives place high value on stock options as a long term incentive vehicle. Finally, the Compensation Committee considered that the vesting terms, as well as the opportunity provided by stock options for substantial leveraged value from sustainable growth in shareholder value over their ten-year term, encourage long term decision-making.

 

To assure a strong alignment with shareholders’ interests, the performance share unit awards granted in February 2009 generally vest after three years from the grant date provided that the Company has attained a minimum level of cumulative earnings per share (“EPS”) growth for a three-year performance period beginning on January 1, 2009 and ending on December 31, 2011. A three-year performance period was believed to be an appropriate medium-term balance between the one-year performance-based variable compensation goals and the longer-term stock option share price growth goals. If EPS goals are met, the performance share unit awards will vest and will be settled in shares of Company common stock. The payment of shares will range from 50% to 150% of the individual’s “target” amount, depending upon the Company’s cumulative EPS growth for the performance period compared against pre-established EPS growth goals. If the EPS goals are not met, the awards will be forfeited. However, if as a result of materially adverse and unforeseen market conditions beyond the control of the Company, the Company’s cumulative EPS growth for the performance period does not meet the threshold level for payout but does exceed the average cumulative EPS growth in operating earnings of the companies included in the Materials Sector of the Standard & Poors 500 index for the same performance period, each participant will receive a payment of shares equal to 50% of his or her “target” award unless the Compensation Committee determines that no payment should be made.

 

Determining the Amount of Award. In January 2009, the Compensation Committee determined the number of option shares and performance share units to be granted to each NEO based on a target for the dollar value to be delivered to each NEO from long term incentive awards. The number of option shares was based on an estimated valuation of the Company’s options using a Black-Scholes valuation model and applying that per-option value to 50% of the dollar value to be awarded to each NEO. The number of performance share units was based on the estimated valuation of the shares and applying that per-share value to 50% of the dollar value to be awarded to each NEO, as previously determined.

 

Determining the Grant Date. The Compensation Committee’s practice has been to approve at its regular meeting in late January the total number of long term incentives to be allocated among all eligible employees, and to approve specific long term incentive awards to be granted to each NEO and the other executive officers. The Compensation Committee sets the actual grant date of these long term incentive awards as the date of the Board’s regular meeting in late February. The option exercise price of stock options is fixed at 100% of the closing price of the Company’s common stock on the NYSE on that February meeting date. For employees other than NEOs, separate stock option grants and other equity awards may occur on other dates throughout each year as part of hiring new employees, to address individual retention concerns, or upon promotions.

 

Consistent with this practice, on January 26, 2009, the Compensation Committee established February 24, 2009 as the grant date for NEOs’ and other eligible employees’ options and performance share unit awards, coinciding with the Board’s next scheduled meeting date. This grant date was established so that:

 

 

 

2010 Restricted Stock Unit Grants. In January 2010, the Compensation Committee approved long-term incentive awards to certain executive officers and other key members of management consisting of time-vesting restricted stock units. The awards were in addition to stock options and performance share units for 2010. The purpose of the additional award was to recognize the overall success of the recipients in addressing the effects on the Company of the global economic downturn in 2009. To assure continued alignment with shareholder interests, the Compensation Committee determined that restricted stock units vesting in three equal annual installments were the appropriate vehicle for these awards. The recipients of the awards included all of the NEOs except the CEO. The awards were granted on February 23, 2010, the same date on which the regular 2010 stock option and performance share unit grants were made.

 

Benefit Plans Available to Executive Officers

 

The Company’s practice is to make available to NEOs essentially the same benefit plans generally available to other employees in the U.S. Neither the financial resources of the NEO, nor the amount or form of present or past direct compensation paid to the NEO, was deemed by the Compensation Committee as relevant to any NEO’s continuing eligibility to participate in these plans in 2009. Except as discussed below, benefits for NEOs under these plans are available and calculated on the same basis as for the other plan participants. Adjustments are made so as to continue the benefits to all participants, including NEOs, to the extent that they would otherwise be limited by income or other restrictions imposed by the federal tax laws. From time to time, the Compensation Committee may approve certain other adjustments to be applied to a NEO when it is in the best interests of the Company such as to facilitate the recruitment of an executive. Any such adjustments that are in place for any NEO are disclosed in the tables in this Proxy Statement or their accompanying footnotes or narratives. In addition to the benefit plans listed below, employees, including NEOs, are eligible to participate in other Company plans such as the 401(k) Savings Plan, medical plan, dental plan, and relocation and vacation programs.

 

Retirement Plans

 

The benefits payable to NEOs under the Company’s retirement plans are described in the “Pension Benefits” table below and its accompanying footnotes and narrative. As described more fully therein, the Compensation Committee, with the advice of its independent consultant, has in the past approved certain additional pension retirement benefits for certain executives, including service year credits for Mr. Angel and minimum retirement benefits for Mr. Breedlove. These benefits were provided in order to attract these executives to the Company and/or to provide additional retention incentive by compensating them for benefits lost upon departure from their previous employers. Also described in the footnotes are certain adjustments for Messrs. Malfitano and Fuchs related to their service in Brazil and Canada, respectively, which adjustments are generally available to all similarly situated employees.

 

Tax-Qualified Pension Plan. The Company maintains a tax-qualified defined benefit pension plan for most U.S. employees, including the NEOs.

 

Supplemental Retirement Income Plans. The Company maintains non-qualified unfunded supplemental retirement income plans (“Supplemental Plans”) for the primary purpose of providing retirement benefits that would otherwise be paid to U.S. employees under the tax-qualified pension plan but for the application of certain federal tax law limitations. Because of their income levels, each NEO is eligible to participate in the Supplemental Plans. The incremental benefits paid under the Supplemental Plans are calculated in the same manner as the underlying tax-qualified pension plan and generally result in no greater benefit than if federal tax law limitations were not in place.

Compensation Deferral Program

 

U.S. employees eligible to participate in the Variable Compensation Plan, including the NEOs, are eligible to participate in the Company’s Compensation Deferral Program. Contributions, earnings, withdrawals and year-end balances for 2009 for each NEO under the Compensation Deferral Program are reported in the “Nonqualified Deferred Compensation” table below.

 

The primary benefit to participants in this plan is that income taxes on any compensation deferred into the plan, and on any earnings within the plan on those deferrals, are also deferred until the account is actually paid out to the individual. Contributions to the plan are voluntary and represent compensation already earned by the participant. The Company also makes contributions that would have been made on the employees’ behalf to the 401(k) Savings Plan but for the application of certain federal tax law limits under that plan. No preferential earnings opportunities are available under the plan to participants, including NEOs. A NEO’s account balance in the plan at any point in time reflects the value of his deferred compensation (and the Company contributions noted above) as if he had invested it, at the time it was earned, in Praxair stock or a fixed income security, as the NEO chose or as provided under the Compensation Deferral Program. Therefore, these balances are irrelevant to any present or future compensation decisions for the NEO or the amount of any severance payment that should be paid to NEOs.

 

Perquisites and Personal Benefits

 

The Company’s policy is not to extend perquisites or personal benefits to employees other than for limited and specifically defined business purposes. The incremental costs to the Company in 2009 of those benefits provided to NEOs that the SEC deems to be “perquisites and personal benefits” are reported in the “Summary Compensation Table” below (included in the amounts reported in the column captioned “All Other Compensation”). The Compensation Committee exercises oversight over the perquisites and personal benefits that are made available to NEOs. Accordingly, the Compensation Committee reviewed 2009 Company expenses, regardless of amount, that could be construed as a perquisite or personal benefit for each NEO. The purposes of this review included ensuring that:

 

 

The Compensation Committee determined that, beginning in 2008, the Company would no longer reimburse NEOs for any taxes imputed to them on the value of Company-provided perquisites and personal benefits (such reimbursements are typically called “tax gross-ups”).

 

In addition, the Company’s internal audit department performed its annual audit of executive officer expense reports for compliance with Company policies, and the independent auditors reviewed that work. Based on these reviews, the Compensation Committee determined that the perquisites and personal benefits available to NEOs in 2009, and their costs to the Company, were reasonable and properly disclosed to shareholders.

 

Severance and Change-in-Control Arrangements

 

Severance Plan

 

All full-time U.S. employees, including NEOs, are eligible to participate in the Company’s severance plan. This plan provides a terminated employee with a severance payment calculated based on the

employee’s time in service and salary rate at the time of termination. The maximum payment is generally limited to 26 weeks of base pay. This benefit applies only to terminations by the Company other than for cause. Under the plan, the Company retains the discretion to pay severance benefits in excess of this limit on a case by case basis.

 

Change-in-Control Arrangements

 

The Company has entered into identical executive severance compensation agreements with certain senior executives, including NEOs. These agreements provide for certain payments to be made to the executive in the event of both (1) a change-in-control of the Company (as defined in the agreements), and (2) the termination of his or her employment within two years thereafter by the Company without cause or by the executive for good reason (a so-called “double trigger”). The purposes of these agreements are, if an actual or threatened change-in-control occurs, to encourage retention of executives for continuity of management, and to keep executives focused on performing their duties rather than seeking immediate employment elsewhere. As a condition to entering into the executive severance compensation agreements, the Company requires each NEO to enter into a Nondisclosure, Nonsolicitation and Noncompetition Agreement under which the NEO agrees not to (a) disclose Company confidential information both during and after termination of his or her employment with the Company, (b) solicit the Company’s customers and employees for a period of two years following the NEO’s termination of employment with the Company for any reason, and (c) engage in any activities that compete with those of the Company for a period of two years following the NEO’s termination of employment. The Compensation Committee determined that these arrangements are generally comparable to those provided by companies in the Practices Tracking Group and provide a legitimate and reasonable benefit to the Company and its shareholders.

 

In December 2009, the Compensation Committee determined that, for any executive who becomes an officer of the Company on or after January 1, 2010, his or her executive severance compensation agreement would include fewer benefits than available to current executives. The material terms of the current and future executive severance compensation agreements are described in the Section below captioned “Potential Payments Upon Termination or Change-In-Control.”

 

The tables below present compensation information for NEOs and include footnotes and other narrative explanations important for your understanding of the compensation information in each table. The Summary Compensation Table summarizes key components of NEO compensation for 2009, 2008 and 2007. The five tables following the Summary Compensation Table provide more detailed information about the various types of NEO compensation for 2009, some of which are included in the Summary Compensation Table. The final table provides information regarding compensation that NEOs would receive when their employment with the Company terminates under various circumstances or upon a change-in-control.

 

 

(1) Amounts reported are actual salaries paid for the calendar year and include adjustments to base salary rates if applicable. Base salary adjustments are typically effective April 1 of each year.

 

(2) These amounts are the full grant date fair value of stock and option awards made for each year as determined under accounting standards related to share-based compensation. The Option Awards amounts are the values for options granted in each of the years. The Stock Awards amounts are the values for performance share unit grants made to each NEO in each of the years valued at the target number of shares granted. The maximum values of the performance share unit awards are: Mr. Angel: $4,552,664, $2,389,188, and $2,527,646 for 2009, 2008 and 2007, respectively; Mr. Malfitano: $1,357,353, $671,120 and $757,310 for 2009, 2008 and 2007, respectively; Mr. Sawyer: $1,313,432, $671,120, and $757,310 for 2009, 2008 and 2007, respectively; Mr. Fuchs: $962,901, $488,240 and $567,982 for 2009, 2008 and 2007, respectively; and Mr. Breedlove: $875,903, $479,850 and $553,230 for 2009, 2008 and 2007, respectively. The assumptions used in computing the Option Awards and Stock Awards amounts are included in Note 15 to the Company’s 2009 financial statements in the 2009 Form 10-K and Annual Report.

 

The Stock Awards and Option Awards column amounts were not actually paid to any NEO in any of the years. A performance share unit grant made in 2007 vested and was paid out in 2009. In addition, a stock option has value only if the Company’s stock price increases above the option

exercise price (an “in-the-money” option). If a NEO exercises an in-the-money option, he would then realize an actual gain. Any gain actually realized for options exercised in 2009, and the number of performance share units that vested in 2009 and the value realized upon vesting are reported in the “Option Exercises and Stock Vested” table below.

 

(3) In 2009, 2008, and 2007, the Company achieved certain financial and non-financial goals that the Compensation Committee set under the Company’s Variable Compensation Plan. Therefore, the Compensation Committee awarded each NEO performance-based variable compensation payments in February 2010 (for 2009 performance), February 2009 (for 2008 performance), and February 2008 (for 2007 performance). These amounts are reported as “Non-equity Incentive Plan Compensation.” See the detailed description of the Variable Compensation Plan in the preceding CD&A under the sub-heading “Annual Performance-Based Variable Compensation.”

 

(4) Amounts in this column are the annual increase in actuarial present value of retirement benefits payable under the Company’s Pension Program. These amounts were not actually paid to any NEO. See the detailed description of the Pension Program and how these amounts are calculated following the “Pension Benefits” table below. The total pension present value accrued for each NEO through 2009 under the Company’s Pension Program is also disclosed in that table.

 

No amounts accumulated under the Company’s Compensation Deferral Program earn above market or “preferential” interest or other earnings; therefore, no earnings are included in this column.

 

(5) The amounts in this column include Company matching contributions to the Company’s 401(k) Savings Plan and Company contributions to the Compensation Deferral Program described under the “Nonqualified Deferred Compensation” table below. Company plan contributions in 2009 were: $37,941 for Mr. Angel; $11,883 for Mr. Malfitano; $20,625 for Mr. Sawyer; $15,515 for Mr. Fuchs; and $22,467 for Mr. Breedlove. This column also includes any perquisites or personal benefits that exceeded $10,000 for any NEO during 2009, valued at the Company’s incremental costs. Such perquisites or personal benefits were: (1) financial planning services and physical examinations provided to Messrs. Angel and Malfitano, and (2) $77,428 for Mr. Angel’s personal use of corporate aircraft. For reasons of security and time management, the Board requires the Chief Executive Officer to use the Company’s corporate aircraft for personal use as well as business travel. The aircraft is available for the Company’s use through a time-share arrangement. The Company pays a fixed time-share charge for the right to use the aircraft, and a per-trip charge. The Company calculates the incremental aircraft costs for Mr. Angel’s personal use as the full amount of those per-trip charges attributable to his personal use. The fixed time-share charge is not included as an incremental cost, as the Company must pay this amount even if Mr. Angel does not use the aircraft for personal travel. Consistent with Company policy, NEOs were not reimbursed for any taxes imputed to them on the value of Company-provided perquisites or personal benefits.

 

In addition, the Company pays for or provides executive officer travel, lodging and related expenses incurred in connection with attending Company business related events, including Board meetings (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 if available. No amounts are reported in the table for these business expenses. The Company also maintains certain country club memberships for business entertainment purposes which memberships, by club rules, may be in an executive’s name. By Company policy, reimbursement of club costs is authorized only when membership and use of the club facilities are judged to be important to the conduct of the Company’s business. As no NEO made personal use of these club memberships during 2009, no amounts are reported in the table.

 

(6) The amount reported in the “Total” column is the sum of all of the columns. It includes the Stock Awards, Option Awards and Change in Pension Value amounts, which were not actually paid to any NEO in 2009, 2008, or 2007. The Stock Awards, Option Awards and Change in Pension Value amounts actually paid or provided in the future may be more or less than the reported amounts. The amount of compensation actually paid or provided to each NEO for 2009 (being Salary, Non-equity Incentive Plan Compensation and All Other Compensation) was: Mr. Angel: $2,405,039 (24% of Total Compensation reported); Mr. Malfitano: $1,067,023 (32% of Total Compensation reported); Mr. Sawyer: $1,019,425 (36% of Total Compensation reported); Mr. Fuchs: $799,355 (38% of Total Compensation reported); and Mr. Breedlove: $786,067 (38% of Total Compensation reported).

 

The following table provides more detailed information regarding the 2009 Non-Equity Incentive Plan Compensation, Stock Awards and the Option Awards reported in the Summary Compensation Table above.

 

Estimated Possible Payouts Under Non-

Estimated Future Payouts Under

All Other

Equity Incentive Plan Awards

Equity Incentive Plan Awards

Option

Exercise or

Grant Date

Compen-

Awards:

Base

Fair Value of

sation

All Other Stock

Number of

Price of

Stock and

Committee

Awards: Number of

Securities

Option

Option

Approval

Threshold

Threshold

Shares of Stock or

Underlying

Awards

Awards ($)

Name

Grant Date

Date(1)

($)

Target ($)

Maximum ($)

(#)

Target (#)

Maximum (#)

Units (#)

Options (#)

($/Sh)

(5)

Stephen F. Angel

Variable Cash Compensation(2)

0

1,242,000

4,378,050

Performance Share Units(3)

2/24/2009

1/26/2009

0

53,900

80,850

3,035,109

Time-Vesting Options(4)

2/24/2009

1/26/2009

281,510

60.92

2,266,156

Ricardo S. Malfitano

Variable Cash Compensation(2)

0

497,250

1,752,806

Performance Share Units(3)

2/24/2009

1/26/2009

0

16,070

24,105

904,902

Time-Vesting Options(4)

2/24/2009

1/26/2009

83,900

60.92

675,395

James S. Sawyer

Variable Cash Compensation(2)

0

467,500

1,647,938

Performance Share Units(3)

2/24/2009

1/26/2009

0

15,550

23,325

875,621

Time-Vesting Options(4)

2/24/2009

1/26/2009

81,200

60.92

653,660

James J. Fuchs

Variable Cash Compensation(2)

0

368,000

1,297,200

Performance Share Units(3)

2/24/2009

1/26/2009

0

11,400

17,100

641,934

Time-Vesting Options(4)

2/24/2009

1/26/2009

59,560

60.92

479,458

James T. Breedlove

Variable Cash Compensation(2)

0

345,000

1,216,125

Performance Share Units(3)

2/24/2009

1/26/2009

0

10,370

15,555

583,935

Time-Vesting Options(4)

2/24/2009

1/26/2009

54,120

60.92

435,666

 

(1) On January 26, 2009 the Compensation Committee approved the total number of time-vesting stock options and target performance share units to be allocated among all eligible employees and specifically approved the time-vesting stock options and target performance share units to be granted to NEOs and all other executive officers. The Compensation Committee set February 24, 2009 as the actual grant date of these awards. The option exercise price was 100% of the closing price of the Company’s common stock on the NYSE on that date. For a more detailed description of the Compensation Committee’s long term incentive grant practices, see the CD&A under the sub caption “Long Term Incentive Awards.”

 

(2) The actual amount of performance-based variable compensation paid in February 2010 for 2009 performance is shown in the “Summary Compensation Table” under the “Non-Equity Incentive Plan Compensation” column for 2009. The amounts shown in these columns are the range of potential 2009 payments that could have been made under the Company’s Variable Compensation Plan in accordance with the performance criteria determined by the Compensation Committee. As no minimum amount was payable, no “Threshold” amounts are reported. Target amounts are expressed as a percent of each NEO’s salary, assuming achieving 100% of Company financial goals. The Maximum amounts

are the maximum payments that could be made. However, payout at the maximum has never been attained. For more information, see the explanation in the CD&A under the sub-heading “Annual Performance-Based Variable Compensation.”

 

(3) These are the threshold, target and maximum number of shares that may be earned under performance share unit awards made in February 2009. See the explanation below this table and in the CD&A under the caption “Long Term Incentive Awards” for more information about the performance share unit awards.

 

(4) These are the number of shares underlying time-vesting stock option grants made in February 2009. See the explanation below this table and in the CD&A under the caption “Long Term Incentive Awards” for more information about the stock option grants.

 

(5) The amounts in this column are the full grant date fair values of the performance share units (valued at the target number of shares granted) and the time-vesting option grants, made in February 2009 calculated in accordance with accounting standards related to share-based compensation. They are neither amounts that were paid to any NEO nor what the Company recognized as compensation expense in 2009 under accounting standards related to share-based compensation.

 

Additional Information Regarding Plan-Based Awards

 

The 2009 option grants and performance share unit awards reported in the table above were made under the 2002 Praxair, Inc. Long Term Incentive Plan (the “Stock Plan”). Options and performance share units granted to NEOs are made on substantially the same terms as grants to all other eligible employees.

 

2009 Option Grant Terms

 

Time-vesting option grants were made to NEOs in 2009. The material terms of the grants are described below.

 

 

 

2009 Performance Share Unit Grant Terms

 

 

The Stock Plan defines “change-in-control” to mean, generally, (1) any consolidation or merger in which the Company is not the continuing or surviving corporation; (2) the liquidation of the Company or the sale of all or substantially all of the assets of the Company; (3) an acquisition by a person or group of more than 20% of the Company’s outstanding shares; or (4) a change in the majority composition of the Board not approved by two-thirds of the directors in office before the change.

 

The table below shows each NEO’s outstanding option grants and unvested performance share units and restricted stock, if any, at the end of 2009. For each outstanding option grant, the table shows the option shares that have vested (or that are “Exercisable”) and those not yet vested (or that are “Unexercisable”).

 

			Option Awards																		Stock Awards
									Equity
									Incentive Plan																		Equity			Equity Incentive
									Awards:																		Incentive Plan			Plan Awards:
						Number of			Number of												Number of						Awards:			Market or
			Number of			Securities			Securities												Shares or						Number of			Payout Value of
			Securities			Underlying			Underlying												Units of			Market Value			Unearned			Unearned
			Underlying			Unexercised			Unexercised												Stock That			of Shares or			Shares, Units			Shares, Units or
			Unexercised			Options (#)			Unearned			Option						Option			Have Not			Units of Stock			or Other Rights			Other Rights
			Options (#)			Un-			Options			Exercise			Option Grant			Expiration			Vested			That Have Not			That Have Not			That Have Not
Name			Exercisable(1)			exercisable(1)			(#)(2)			Price ($)			Date			Date			(#)(3)			Vested ($)(4)			Vested (#)(5)			Vested ($)(5)
Stephen F. Angel			50,000			0			0			23.105			4/23/2001			4/23/2011			23,917			1,920,774			68,140			5,472,323
			110,000			0			0			27.430			1/2/2002			1/2/2012
			100,000			0			0			26.425			2/28/2003			2/28/2013
			120,000			0			0			36.580			2/24/2004			2/24/2014
			143,100			0			0			44.250			2/22/2005			2/22/2015
			130,600			0			0			53.980			2/28/2006			2/29/2016
			205,533			102,767			0			61.470			2/27/2007			2/27/2017
			0			0			85,000			83.890			2/26/2008			2/26/2018
			65,066			130,134			0			83.890			2/26/2008			2/26/2018
			0			281,510			0			60.920			2/24/2009			2/24/2019
Ricardo S. Malfitano			68,000			0			0			26.425			2/28/2003			2/28/2013			0			0			20,070			1,611,822
			80,000			0			0			36.580			2/24/2004			2/24/2014
			100,000			0			0			44.250			2/22/2005			2/22/2015
			92,500			0			0			53.980			2/28/2006			2/29/2016
			61,666			30,834			0			61.470			2/27/2007			2/27/2017
			0			0			30,000			83.890			2/26/2008			2/26/2018
			18,266			36,534			0			83.890			2/26/2008			2/26/2018
			0			83,900			0			60.920			2/24/2009			2/24/2010
James S. Sawyer			25,000			0			0			44.250			2/22/2005			2/22/2015			0			0			19,550			1,570,061
			53,750			0			0			53.980			2/28/2006			2/29/2016
			30,833			21,584			0			61.470			2/27/2007			2/27/2017
			0			0			30,000			83.890			2/26/2008			2/26/2018
			9,133			38,314			0			83.890			2/26/2008			2/26/2018
			0			81,200			0			60.920			2/24/2009			2/24/2019
James J. Fuchs			62,600			0			0			53.980			2/28/2006			2/29/2016			0			0			14,310			1,149,236
			46,266			23,134			0			61.470			2/27/2007			2/27/2017
			0			0			22,000			83.890			2/26/2008			2/26/2018
			13,333			26,667			0			83.890			2/26/2008			2/26/2018
			0			59,560			0			60.920			2/24/2009			2/24/2019
James T. Breedlove			20,000			0			0			44.270			11/15/2004			11/15/2014			0			0			13,230			1,062,501
			20,200			0			0			44.250			2/22/2005			2/22/2015
			54,400			0			0			53.980			2/28/2006			2/29/2016
			44,933			22,467			0			61.470			2/27/2007			2/27/2017
			0			0			20,000			83.890			2/26/2008			2/26/2018
			13,100			26,200			0			83.890			2/26/2008			2/26/2018
			0			54,120			0			60.920			2/24/2009			2/24/2019