39 Old Ridgebury Road

Danbury, Connecticut 06810-5113

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD APRIL 22, 2008

 

Dear Praxair Shareholder:

 

The Annual Meeting of Shareholders of Praxair, Inc. will be held at 9:30 a.m. on Tuesday, April 22, 2008 in the Grand Ballroom of the Sheraton Danbury, 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 February 28, 2008 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 using one of the following methods:

 

 

The giving of such proxy does not affect your right to vote in person if you attend the meeting.

 

We encourage 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.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

JAMES T. BREEDLOVE,

Senior Vice President, General Counsel and

Secretary

 

March 14, 2008

 

 

WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE PROMPTLY COMPLETE AND SUBMIT A PROXY, EITHER BY INTERNET, BY TELEPHONE OR BY MAIL.

 

PROXY STATEMENT
TABLE OF CONTENTS

 

 

39 Old Ridgebury Road

Danbury, Connecticut 06810-5113

 

PROXY STATEMENT

 

Annual Meeting of Shareholders

 

Tuesday, April 22, 2008

 

 

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 Sheraton Danbury, 18 Old Ridgebury Road, Danbury, Connecticut on April 22, 2008, at 9:30 a.m. or any adjournment or postponement thereof (the “Annual Meeting”). This Proxy Statement and the enclosed form of proxy are first being sent to shareholders on or about March 14, 2008. The enclosed proxy is solicited on behalf of the Board of Directors of Praxair.

 

 

Eight directors will be elected to serve until the 2009 annual meeting of shareholders, and until their successors are elected and qualify. The terms of the following seven present directors expire this year and each of them has been nominated for re-election for a one-year term: Edward G. Galante, Ira D. Hall, Raymond W. LeBoeuf, Larry D. McVay, Wayne T. Smith, H. Mitchell Watson, Jr., and Robert L. Wood. Mr. Angel’s and Ms. Gargalli’s terms expire in 2009. They were elected in 2006 for three-year terms under Praxair’s previous “staggered” or “classified” board structure that is being phased-out through 2009. Beginning with the 2009 annual meeting, all director nominees may be elected to a one-year term and until his or her successor is elected and qualifies.

 

In addition, Nance K. Dicciani has been nominated for election as a director for the first time at the Annual Meeting. If elected, Ms. Dicciani’s term will begin on September 1, 2008, as she cannot join the Board until then due to prior commitments. As your Board has already approved Ms. Dicciani for service on the Board, it believes that it is a good practice to have shareholders vote upon her election at the Annual Meeting rather than the Board electing her after the Annual Meeting.

 

Ronald L. Kuehn, Jr. and G. Jackson Ratcliffe, Jr. will retire from the Board pursuant to your Board’s director retirement policy. Messrs. Kuehn and Ratcliffe have served on the Board since the Company first became a public company in 1992, and the Company thanks them for their valuable and dedicated service.

 

Your Board recommends that Edward G. Galante, Ira D. Hall, Raymond W. LeBoeuf, Larry D. McVay, Wayne T. Smith, H. Mitchell Watson, Jr., and Robert L. Wood, each be elected to serve for a one-year term, and that Nance K. Dicciani be elected for a term beginning on September 1, 2008, and in each case until the 2009 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. Biographical data on these nominees and the other members of the Board of Directors is presented beginning at page 20 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 the vote of the holders of a majority of the shares of Praxair common stock present in person or by proxy and entitled to vote at the Annual Meeting. See the vote counting rules on page 4 of this Proxy Statement.

 

Your Board has approved an amendment to Article VI, Section A of Praxair’s Restated Certificate of Incorporation and deems it advisable that shareholders approve the amendment. The purpose of the amendment is to conform the Restated Certificate of Incorporation to the director election standards that your Board recently adopted by amending Praxair’s Bylaws to require that directors be elected (i) by a majority vote of the shareholders in uncontested elections, and (ii) by a plurality vote of the shareholders in contested elections, as more fully discussed below.

 

In December 2007, your Board adopted a majority vote standard for the election of directors by amending Article I, Section 6 of Praxair’s Bylaws to require that in uncontested elections, director nominees be elected by a majority of the votes cast at an annual meeting (i.e., the director nominees must receive more “for” votes than “against” votes). In contested elections (i.e., when there are more director nominees than the number of Board seats approved by the Board), the amended Bylaws require that director nominees be elected by a plurality vote. Prior to the amendment, the Bylaws required directors to be elected by a plurality of the votes cast in uncontested and contested elections. Under plurality voting, director nominees receiving the most “for” votes are elected and, in uncontested elections and unlike majority voting, votes cast to withhold authority to vote have no impact. The Board also amended its Corporate Governance Guidelines to require that an incumbent director who does not receive the requisite majority vote must tender his/her resignation (See “Corporate Governance and Board Practices — Director Election and Resignation Policy” below).

 

The proposed amendment to the Restated Certificate of Incorporation would clarify that the applicable director election standards are those set forth in the Bylaws, including (i) the majority vote standard in uncontested elections, and (ii) the plurality vote standard in contested elections. Currently, the Restated Certificate of Incorporation does not have a plurality vote standard for contested elections, and it is uncertain how a contested election would be resolved under applicable law. Therefore, if adopted, the amendment would conform the Restated Certificate of Incorporation to the director majority vote standard in the Bylaws, and also preserve the plurality vote standard in the Bylaws in the case of a contested election.

 

The text of the proposed amendment to the Restated Certificate of Incorporation is attached as Appendix 3 to this Proxy Statement. The Bylaws, as amended, were filed in their entirety as Exhibit 3.02 to Praxair’s Form 8-K dated December 12, 2007 filed with the Securities and Exchange Commission (“SEC”). For ease of reference, Article I, Section 6 of the Bylaws, as amended, is set forth in Appendix 4.

 

If approved by our shareholders, the amendment would become effective as soon as reasonably practicable after the Annual Meeting by the filing of an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware.

Your Board recommends that you vote FOR this item 2, the proposal to amend the Certificate of Incorporation regarding the election of directors by majority vote.

 

In order for this proposal to be adopted by the shareholders, at least a majority of the issued and outstanding shares of Praxair common stock entitled to vote on the matter must be voted in its favor. See the vote counting rules at page 4 of this Proxy Statement.

 

By New York Stock Exchange (“NYSE”) and SEC rules, selection of the Company’s independent auditor is the direct responsibility of the Audit Committee. Your 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 will seek to understand the reasons for such failure and will take those views into account in this and future appointments. 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 at page 16 of this Proxy Statement under the caption “The Independent Auditor.”

 

Your Board recommends that you vote FOR this item 3, 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 4 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.

 

Who are the Shareholders Entitled to Vote at this Meeting?

 

Common Stock shareholders of record at the close of business on February 28, 2008 will be entitled to vote at the Annual Meeting. As of that date, a total of 313,273,617 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 and mailing it in the postage-paid envelope provided. Check your proxy card or the information forwarded by your bank, broker or other holder of record to see which options are available to you. Please be aware that, if you vote over the Internet, you may incur costs such as telecommunication and Internet access charges for which you will be responsible. The Internet and telephone voting procedures are designed to authenticate shareholders and to allow shareholders to confirm that their instructions have been properly recorded.

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 4 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 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.

 

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, Inc., 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.

 

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. Those 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 you 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 2008 Annual Report, meeting notice, and the proxy statement for the 2009 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 Investor Relations Department at Praxair, Inc., 39 Old Ridgebury Road, M-2, Danbury, CT 06810-5113.

 

SEC and NYSE rules allow Praxair to provide shareholders the proxy statement and annual report by posting them on an Internet site without the above-described consent from you. However, Praxair would notify shareholders by mail of this Internet availability, and you would still be able to request a paper copy. For the 2008 Annual Meeting, Praxair will not suspend mail deliveries of the proxy statement and annual report as permitted under these rules.

 

If you share an address with another shareholder, you may receive only one set of proxy materials (including this Proxy Statement and the annual report to shareholders) unless you have provided contrary instructions. If you wish to receive a separate set of proxy materials now or in the future, you may contact us at the address cited above. Similarly, if you share an address with another shareholder and have received multiple copies of our proxy materials, you may contact us at the above address to request delivery of a single copy of these materials.

 

Praxair does not presently know of any person who is the beneficial owner of more than five percent of Praxair’s Common Stock.

 

The table below sets forth the beneficial ownership of Praxair’s Common Stock as of February 28, 2008 by each Director, Director nominee, and certain Executive Officers. No Director, Director nominee, or Executive Officer of Praxair beneficially owned more than 1% of Praxair’s common stock, and Directors, Director nominees, and Executive Officers of Praxair as a group (21 persons) beneficially owned approximately 1% of the outstanding shares as of that date.

 

(1) Reported shares include 22,952 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 stock.

 

(3) Stock Options represent shares that may be acquired upon exercise of options exercisable within 60 days of February 28, 2008.

 

(4) Ms. Dicciani has been nominated for election as a director for the first time at the Annual Meeting. Messrs. Galante and McVay were elected as directors effective December 1, 2007, and January 1, 2008, respectively.

 

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, your Board has adopted the following policies and practices, among others:

 

Business Integrity and Ethics. One of your 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 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, Chief Financial Officer, and Controller.

 

Director Independence. Your 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. Your Board has applied these standards to all of the incumbent non-management directors, and to Ms. Dicciani who has been nominated for election as a director for the first time, and has determined that all of them are independent. Your 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. The independent directors elected Claire W. Gargalli as Executive Session Presiding Director effective January 1, 2008. Ms. Gargalli presides over private meetings of the non-management directors and performs other duties, including conducting a performance review of the Chief Executive Officer. Mr. LeBoeuf had served in this capacity from 2005-2007.

 

Mandatory Director Retirement. Your 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/her 72nd birthday. As noted above, Ronald L. Kuehn, Jr. and G. Jackson Ratcliffe, Jr. will retire from the Board in 2008 in accordance with this policy. Your Board also has a policy against service on the Board by an officer of the Company after his/her retirement, resignation or removal as an officer.

 

Limits to Service on Other Boards. Your 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 Chief Executive Officer may not serve on more than two other public company boards.

 

Director Nomination Process. For a description of your Board’s policy regarding nominees for election as directors, see “The Governance & Nominating Committee” on page 18 of this Proxy Statement.

 

Director Election and Resignation Policy. In December 2007, your Board adopted amendments to Praxair’s Bylaws that 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). Your Board also amended its Corporate Governance Guidelines to require that any director nominee who is then serving as a Director must tender his or her resignation if he/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. Your Board believes that the most efficient means for shareholders and other interested parties to raise issues and questions and to get a response 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 sales or other solicitations and any which contain offensive material. A summary of communications received will be periodically provided to the Executive Session Presiding Director who will make the final determination regarding the disposition of any such communication.

 

Your 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, Your 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 2007 annual meeting.

 

Policy Statement on Rights Agreements. Your 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. Your 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 5 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 transition period; and most substantially exceed the guideline. In addition, any new non-management director must, no later than the effective date of his/her election, acquire, using his/her own personal resources, shares of the Company’s stock equal in value to the base cash retainer then in effect.

 

Executive Stock Ownership Guidelines. Your 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 their compliance periods. Stock ownership of the five most highly compensated Executive Officers in 2007 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 your 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 your Board by way of Board and Committee presentations and directors have unrestricted access to management for management assessment and development as well as for information gathering.

 

CEO Performance Evaluation. Your Board has in place a process whereby the Executive Session Presiding Director conducts a performance review at least annually of the Chief Executive Officer 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 your 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. Throughout the year, management reports to your Board on the status of significant strategic initiatives and issues.

 

Board Effectiveness Assessment. As set forth in the Corporate Governance Guidelines and under the leadership of the Governance & Nominating Committee, your Board assesses its effectiveness at least annually. 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. Your Board recognizes the importance of ensuring the independence of the Company’s independent auditor. See page 16 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 2007 and a description of the Company’s director compensation program, are presented at pages 52 to 53 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, 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 to 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. The employment of Mr. Ratcliffe’s son-in-law in a non-executive position as disclosed below under “Certain Relationships and Transactions” does not violate the Company’s Ethics Policy or the Board’s independence standards. In addition, his hiring predated the Board’s 2004 adoption of the self-imposed requirement that certain relationships reportable under SEC rules be pre-approved by a committee of independent and disinterested directors.

Certain Relationships and Transactions

 

When determining whether any director or nominee is independent, your 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 your Board in making independence determinations, it also applies the independence standards set forth in Appendix 2 to this Proxy Statement.

 

As noted above, Messrs. Kuehn and Ratcliffe are retiring from the Board and are not seeking reelection at the Annual Meeting. In 2007, the Board determined that each of them was independent and that the following transactions and relationships did not impair the ability of either of these directors to exercise independent judgement as a director: (a) ordinary course sales of products to, or purchases of products from, the company of which Mr. Kuehn is the non-executive Chairman that were no more than 1.4% of the other company’s, and less than 1% of Praxair’s, consolidated revenues for the last three fiscal years; and (b) the Company’s employment of Mr. Ratcliffe’s son-in-law in a non-executive position whose cash compensation was in the range of $115,000 to $135,000 for 2007.

 

In determining that each other non-management director and director nominee is independent, your Board considered the following circumstances and relationships of those directors and nominees who 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 companies of which Ms. Dicciani and Messrs. Smith and Wood are executive officers. The dollar value of these transactions is far below the limits set forth in your Board’s independence standards and, in each case for the last three fiscal years, were significantly less than 1% of either Praxair’s or the director’s or director nominee’s company’s consolidated revenues. Therefore, your Board has determined that such relationships are not material and do not otherwise impair the ability of either of these directors or the director nominee to exercise his/her 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 2007 with respect to transactions in the Company’s stock, except for one inadvertent late filing with respect to a stock option grant for Mr. Galante.

 

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 your 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, Communication with Audit Committees, as currently in effect.

 

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 Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect. 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 2007 and those planned for 2008. 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 reports 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 Annual Report on Form 10-K for the year ended December 31, 2007 to be filed with the SEC.

 

The Audit Committee

 

Raymond W. LeBoeuf, Chairman

Ira D. Hall

Ronald L. Kuehn, Jr.

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, 2007 and has been selected by your Board’s Audit Committee to serve in such capacity for the year ending December 31, 2008. 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 Praxair’s 151/2 years as a public company, it 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 3.4% of audit fees in 2007. 100% of the Audit-Related Fees, Tax Fees and All Other Fees disclosed below were pre-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 $6,170,000 and $5,795,000 for professional services rendered in 2007 and 2006, 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 $42,000 and $46,000 for assurance and related services rendered in 2007 and 2006, 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 $57,000 and $84,000 for professional services rendered in 2007 and 2006, 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 $110,000 and $169,000 for products and services rendered in 2007 and 2006, 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 your Board who meet the independence requirements of the NYSE and your 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 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 2007 executive compensation, the Compensation Committee engaged Towers Perrin LLP and Deloitte Consulting. The purpose of the

engagements was to provide to the Compensation Committee data, analysis and advice with regard to executive compensation. The scope of the consultants’ work is described 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.

 

 

 — Determine the performance-based variable compensation plan 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 following 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 award.

 

 

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

 

 — Determine terms and conditions 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.

 

Director Nominations

 

The Governance & Nominating Committee is comprised of five non-management directors who meet the independence requirements of the NYSE and your Board’s standard’s 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.

 

The Governance & Nominating Committee will consider candidate nominees for election as a director who are recommended by shareholders. Recommendations should be sent to the 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 recommendation must be received by the Secretary on or before the date specified on page 54 of this Proxy Statement under the caption “Shareholder Proposals for the 2009 Annual Meeting.”

The Governance & Nominating Committee believes that the minimum qualifications that must be met by any director nominee include a strong record of integrity and ethical conduct, a record of accomplishment, lack of conflicts that might interfere with the nominee’s exercise of independent judgment on matters affecting the Company or its shareholders, and a willingness and ability to represent all shareholders of the Company.

 

The qualities and skills necessary in a director nominee are governed by the specific needs of the Board at the time the Governance & Nominating Committee determines to add a director to the Board. The specific requirements of the Board will be determined by the Governance & Nominating Committee and will be based on, among other things, the Company’s then existing strategies and business, market, geographic and regulatory environments, and the mix of perspectives, experience and competencies then represented by the other Board members; and will take into account the Chief Executive Officer’s views as to areas in which management desires additional advice and counsel.

 

When the need to recruit a director arises, the Governance & Nominating Committee will consult the other directors, the Chief Executive Officer and, on occasion, fee-paid 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 requirements 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 would be interviewed by the Governance & Nominating Committee (or the Governance & Nominating Committee Chairman) and by the Chief Executive Officer.

 

Since the last annual meeting of shareholders Messrs. Galante and McVay were elected to the Board effective December 1, 2007 and January 1, 2008 respectively. In addition, Ms. Dicciani has been nominated for election as a director for the first time at this Annual Meeting. In selecting Messrs. Galante and McVay and Ms. Dicciani, the Governance & Nominating Committee followed the above-described process and engaged a recognized third-party search firm to identify for consideration potential Board candidates based on criteria developed by the Governance & Nominating Committee. Each of the foregoing persons was first identified to the Governance & Nominating Committee by this search firm.

 

The following pages present information about the persons who comprise Praxair’s Board of Directors, including the eight nominees for election. During 2007, the Board held seven meetings.

 

During his/her current term to-date, each nominee for reelection, and each of the continuing directors (Mr. Angel and Ms. Gargalli) attended 100% of all Board meetings and meetings of committees of which he or she is a member.

 

 

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, 52, See description under “The Board of Directors.”

 

James T. Breedlove, 60, 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, 46, 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.

 

Patrick M. Clark, 46, is a Vice President of Praxair, Inc. and its Controller. Prior to joining Praxair in those capacities in 2002, Mr. Clark was Vice President, Finance and Chief Financial Officer of Enodis North America, a subsidiary of Enodis Plc., a global manufacturer of food equipment.

 

James J. Fuchs, 55, 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. 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, 49, is an Executive Vice President of Praxair, Inc., overseeing Praxair’s South America and Asia regions, the electronics and healthcare businesses, the North American packaged gases business, 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, 44, 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, 48, 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, 51, 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.

 

Robert S. Vruggink, 50, is a Senior Vice President of Praxair, Inc. responsible for business development in assigned global regions. He served as President of Praxair Surface Technologies from 2003 to 2006. Mr. Vruggink joined Praxair in 2001 as area director for industrial gases in the U.S. southern region. Prior to joining Praxair, he had served in a wide variety of engineering and management assignments for Conoco and DuPont. He assumed his current position in 2006.

 

 

The Compensation & Management Development 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” purports to disclose the Compensation Committee’s deliberations and thinking in making executive compensation decisions and policy, it is accurate and materially complete.

 

The Compensation & Management Development Committee

 

Wayne T. Smith, Chairman
Edward G. Galante
Ronald L. Kuehn, Jr.
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 2007, 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 described under the heading “The Compensation & Management Development Committee” on pages 17 to 18 of this Proxy Statement. Certain facts described in this CD&A reflect Compensation Committee deliberations in executive 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; and

 

 

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 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 performance and other factors discussed below.

 

Base salary, along with retirement and other benefits, serve to attract and retain executive talent. Because at least 70% of NEOs’ target total direct compensation opportunity for 2007 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 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 the Company’s Compensation Deferral Program, 401(k) savings plan and Dividend Reinvestment and Stock Purchase Plan.

 

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 2007 included a formula that measured Company financial performance achieved against selected and pre-set financial measures. Except for this, individual compensation decisions in 2007 required considerable judgment and the balancing of many objective and 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 2007, the Compensation Committee engaged Towers Perrin LLP through August, 2007, and thereafter engaged Deloitte Consulting. As part of its new engagement, Deloitte Consulting performed a comprehensive review of the Company’s executive compensation practices and structure and reported its observations to the Compensation Committee in October 2007. In particular, Deloitte Consulting reported on market trends in executive compensation generally and among the Practices Tracking Group described below, and on certain aspects of the Company’s compensation practices.

 

The scope of Towers Perrin’s engagement included preparation, and presentation to the Compensation Committee in December 2006, of a report on executive compensation trends, a competitive compensation analysis covering the Company’s officers, various other materials related, for example, to the performance-based variable compensation program and long term incentive valuation. This work was considered in the Compensation Committee’s determination in December 2006 of the performance-based variable compensation program, certain salary adjustments and long-term incentives for 2007. Deloitte Consulting performed work similar in scope for the Compensation Committee’s determination of NEO compensation for 2008. Towers Perrin continues to provide competitive compensation data to the Company for benchmarking purposes. In advance of applicable Compensation Committee meetings, the CEO and certain management personnel reviewed the consultant’s analysis 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) based on that data. In its deliberations, including in private sessions with the consultant, the Compensation Committee requested the applicable 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 in 2007, the Compensation Committee selected benchmark companies with the assistance of Towers Perrin, LLP, its consultant in 2006. From a broader base of companies in selected industries (the Key Industry Group, consisting of 235 companies) for which the consultant maintained detailed compensation data, the Compensation Committee selected a smaller group as the Key Company Group. The Compensation Committee used the Key Company Group to assess competitive market compensation levels for NEO positions. The Compensation Committee also consulted market data from the broader Key Industry Group as a secondary check to ensure that market data from the Key Company Group was not impacted by any unusual or short-term factors. All data provided by the consultant to the Compensation Committee was adjusted to account for the differing scope of operations of comparator companies based on regression analysis. The companies in the Key Company Group were selected to represent the Company’s competitors, key customer segments and the markets for executive talent most applicable to the Company. The group was targeted at 25-30 members so as to provide meaningful but manageable data comparisons. For 2007, the 28 companies identified below were selected on the advice of Towers Perrin.

 

The companies in the Key Company Group were:

 

 

From the Key Company Group ten companies were selected to comprise the Compensation Committee’s Practices Tracking Group for use in benchmarking compensation and benefit-related practices such as forms of equity awards, stock ownership guidelines, perquisites and personal benefits, retirement and other termination arrangements, based on proxy statement disclosures. The Practices Tracking Group comprised key competitors as well as other companies that Towers Perrin and the Compensation Committee deemed appropriate for this purpose.

 

Application of Benchmark Data. For target total direct compensation opportunity, the Compensation Committee examined the median, as well as the 25th and 75th percentiles of benchmark company data for each NEO’s position. 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) due to the Individual NEO Factors described below, (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. Unless otherwise disclosed below, the value of total direct compensation opportunity targeted for each NEO in 2007 approximated the median as determined by the benchmarking process.

 

Individual NEO Factors

 

The Compensation Committee considered a number of qualitative factors relating to each NEO including, as applicable:

 

 

The Compensation Committee did not find it practical, nor did it attempt, to assign relative weights to the Individual NEO Factors or subject them to pre-defined, rigid formulas, and the importance and relevance of specific factors varied among each NEO. However, the market data and an individual’s performance were significant contributing factors to the pay decisions.

 

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 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. In late 2006, the Compensation Committee performed this review as part of its consideration of 2007 compensation and as part of its separate determinations of the amounts of target total direct compensation and the direct compensation elements. Based on this review, the Compensation Committee determined that the total compensation opportunity granted to each NEO

was consistent with its executive compensation objectives and, as a result, no changes were made to the compensation program.

 

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 late 2006 and determined that the aggregate of termination and severance payments and benefits to the NEOs was consistent with its executive compensation objectives, and as a result, no changes were made to these termination benefits.

 

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 that exceeds $1 million in any year unless the compensation is “performance-based.” While the Compensation Committee endeavors to structure compensation so that the Company may take a tax deduction, it does not have a policy requiring that compensation must be deductible and may 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 2007, 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 2007 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 2007 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 was established by the Compensation Committee considering both the benchmark data for equivalent positions in the Key Company Group and the Individual NEO Factors as described above. The salaries reported in the “Summary Compensation Table” reflect actual cash paid for the 2007 calendar year which includes the effect of adjustments to base salaries. Mr. Angel’s salary was increased from $650,000 to $1 million per year, effective January 1, 2007, to reflect his promotion to Chief Executive Officer on that date, and the increased responsibilities and leadership required of that position. The salary adjustments for Messrs. Sawyer, Malfitano and Fuchs as of November 1, 2006, and Mr. Breedlove as of April 1, 2007, ranged from 5%-10% of their salaries then in effect and no further adjustments to their 2007 salaries were made thereafter. These adjustments were based upon Mr. Sawyer’s promotion to Executive Vice President, Mr. Malfitano’s assumption of greater Company operating responsibilities, and Messrs. Breedlove’s and Fuchs’ promotions to Senior Vice Presidents.

 

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 2007 performance. Below is a description of how the Compensation Committee determined the 2007 annual performance-based variable compensation earned by each NEO under the Company’s Variable Compensation Plan. The Company uses the same criteria and methodology 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 2007 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 December 2006 considering both the benchmark data for equivalent positions in the Key Company Group and the Individual NEO Factors and ranged from 70% to 110% of salary.

 

Establishment of Financial Measures. In December 2006, 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 2007 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. These measures encourage “top line” revenue growth consistent with “bottom line” net income and positive cash flow. 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 adjustments to reported results based on differences between operating plan assumptions and actual results with respect to currency exchange rates and product price changes caused only by changes in certain raw material costs. Similar financial measures were established for the Company’s business units which, in the aggregate, totaled to the corporate consolidated target financial goals for 100% payout. Corporate consolidated financial results and the business unit financial results were weighted together in the formula by which performance-based variable compensation earned by the NEOs for financial performance is determined.

 

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 Compensation Committee set the 2007 target financial goals for 100% payout as follows: Sales Revenue: $8.825 billion (a 6% increase over 2006); Net Income: $1.070 billion (a 9% increase over 2006); and Working Capital as a percentage of sales: 13.8%, a 0.5 percentage point improvement from 2006.

 

The Compensation Committee designed the relationship between pay and performance so as to ensure that performance which significantly exceeded the target financial goals would be rewarded with well-above market benchmark 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. In setting the target goals for 100% target payout, the Compensation Committee strived to establish challenging but achievable goals. 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) people development, including diversity in hiring, retention and advancement, and

developing future leadership for the Company, (5) cost reductions and increases in productivity and efficiencies resulting from the Company’s Six Sigma and other initiatives, and (6) audit/compliance initiatives. The Compensation Committee may make a subjective adjustment of up to plus or minus 35 basis points to the performance-based variable compensation payout as determined by the performance against financial measures, based on 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.

 

Individual Performance. The Compensation Committee may adjust each NEO’s performance-based variable compensation (calculated based on the performance against financial and non-financial goals described above) based on its subjective evaluation of individual performance, determined, in part, by some of the Individual NEO Factors as described above.

 

2007 Results and Payout Based on Performance. Praxair had outstanding financial results for 2007, with reported sales revenue growth of 13%, reported net income growth of 19% and working capital at 13.7% of sales. As a result, the Company significantly exceeded each of the target financial goals set by the Compensation Committee, thus justifying a payout well above target. In making its payout determinations, the Compensation Committee also approved minor adjustments to reported results that might be appropriate to remove any positive or negative distortions due solely to currency exchange rates or product price changes based on raw material costs.

 

In order to verify the determination of the performance-based variable compensation payable for the 2007 plan year, 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. The report of the internal auditors confirmed to the Compensation Committee that the program was properly administered.

 

In addition to determining performance against financial measures, the Compensation Committee also determined that the Company’s performance against pre-established non-financial goals was excellent and, consequently, should be a positive factor in determining performance-based variable compensation. In particular, the Compensation Committee noted that the Company had (i) made significant progress in its safety record, including improvements in the number of lost work days and recordable injuries, (ii) begun and completed various domestic and international capital projects and joint ventures that would enhance the Company’s strategic position for the future, (iii) made progress in its employment diversity goals, including in hiring, advancement and retention, and (iv) enhanced productivity as a result of its Six Sigma and other initiatives. Finally, the Compensation Committee applied an individual performance adjustment to the payout for each NEO determined by the financial and non-financial measures, resulting in the total performance-based variable compensation award reported in the Summary Compensation Table.

 

Recapture Policy. The Compensation Committee has no established policy for the recapture of annual performance-based variable compensation payouts in the event of a later restatement of the results on which the payouts were based. However, the Compensation Committee will continue to monitor best practices and the need for such a policy, and will establish such a policy when it is appropriate, consistent with legal and practical considerations at that time.

 

Long Term Incentive Awards

 

The Company provides long term incentives in order to 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 awards made in February 2007.

 

Determining the Value to be Delivered. The 2007 target dollar value of long term incentives for each NEO was established by the Compensation Committee in December 2006 considering the benchmark data for equivalent positions in the Key Company Group. Individual NEO Factors as described above also

were considered. In determining the target dollar value of long term incentives to be delivered in 2007 to NEOs, the Compensation Committee did not deem relevant the number or value of incentives then held by NEOs or the amount of previous gains received by NEOs from exercises of options, or in Mr. Angel’s case, the vesting of previously-granted restricted stock.

 

Determining the Form of Award. In December 2006, the Compensation Committee reviewed alternative forms of long term equity incentives taking into account, among other factors, market trends and practices, the potential shareholder dilution effect of equity grants, and the intended purposes of such incentives. The Compensation Committee determined that a mix of stock options (75% of the target value) and performance share awards (25% of the target value) was the most appropriate vehicle for the 2007 grants. The Compensation Committee decided that this mix would motivate executives to increase the Company’s stock price and focus attention on internal performance metrics that are expected to drive medium-term revenue and net income growth. The material terms of the long term incentive grants are discussed after the “Grants of Plan-Based Awards” table below under the heading “Additional Information Regarding Plan-Based Awards.”

 

The Compensation Committee judged at that time 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 value acts both as a retention incentive 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 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 wealth over their ten-year term encourage long term decision-making.

 

The performance shares awards further serve as an incentive to deliver strong business results and increase shareholder value. They also help the Company meet its competitive talent retention objectives. The awards granted in 2007 vest after two years from the grant date, and the potential payout of the number of target shares of each award is dependent on the Company’s combined 2007 and 2008 financial performance as measured against the corporate consolidated business financial goals that the Compensation Committee determines for performance-based variable cash compensation for each of those years.

 

Determining the Amount of Award. In January 2007, the Compensation Committee determined the number of option shares and performance shares to be granted to each NEO. The number of option shares was based on Towers Perrin’s estimated valuation of the Company’s options using a binomial valuation model and applying that per-option value to the dollar value to be delivered to each NEO as previously determined. The number of performance shares was based on Towers Perrin’s estimated valuation of the shares considering the performance payout factors and applying that per-share value to the dollar value to be delivered 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 specifically approve the long term incentives to be granted to NEOs and all other executive officers. The Compensation Committee sets the actual grant date of these long term incentives 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. Separate stock option grants and other equity awards may occur on other dates throughout each year as part of hiring new employees or to reflect promotions.

 

Consistent with this practice, on January 22, 2007, the Compensation Committee established February 27, 2007 as the grant date for NEOs’ and other eligible employees’ options and performance share awards, coinciding with the Board’s next scheduled meeting date. This grant date was established so that:

 

 

Long Term Incentives for 2008.  Because of the sharp increase in the price of the Company’s stock in 2007, the estimated grant-date value of each stock option and performance share increased significantly and therefore, the number of stock options and performance shares to be awarded to each NEO for 2008 would have declined by a substantial margin. The substantial reduction in the number of shares to be awarded raised a concern about the perceived value of the total long term incentives being awarded to the NEOs and other key employees for 2008 and the potential adverse impact on employee morale and retention. As a result, in February 2008, in addition to granting time-vested stock options and performance shares, the Compensation Committee also granted performance-vesting stock options to the NEOs and other key employees for 2008 in order to serve as an additional retention incentive. To assure a strong alignment with shareholders’ interests, these additional stock options vest only if the Company achieves cumulative earnings per share growth of 33% over 2007 earnings per share during the three-year period ending December 31, 2010. If the Company fails to meet the cumulative earnings per share goal, all of these performance-vesting stock options will not vest and are immediately forfeited. The number of performance-vesting stock options awarded to the NEOs increased each NEO’s total direct compensation opportunity for 2008 to approximately the 75^th percentile, if vesting of the additional award occurs.

 

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 2007. 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 an 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, dental, relocation and vacation.

 

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 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 equitable 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 Plan. The Company maintains an unfunded Supplemental Retirement Income Plan (“Supplemental Plan”) for the primary purpose of providing 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 Plan. The incremental benefits paid under the Supplemental Plan 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

 

Any U.S. employee eligible to participate in the annual performance-based variable compensation plan, including each NEO, is eligible to participate in the Company’s Compensation Deferral Program. Contributions, earnings, withdrawals and year-end balances for 2007 for each NEO under the Compensation Deferral Program are reported in the “Non-Qualified Deferred Compensation” table below.

 

The primary benefit to participants in this plan is that 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 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. An NEO’s account balance in the plan at any point in time reflects the value of the Company contributions noted above and his deferred compensation as if he had invested it, at the time it was earned, in Praxair stock or a fixed income security, as the NEO chose. 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 to not extend perquisites or personal benefits to employees other than for limited and specifically defined business purposes. The incremental costs to the Company in 2007 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” and further detailed in an accompanying supplemental table). The Compensation Committee exercises oversight over the perquisites and personal benefits that are made available to NEOs. Accordingly, the Compensation Committee reviewed 2007 Company expenses, regardless of amount, including expenses related to security arrangements, 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, for 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”). For 2007, Mr. Angel has voluntarily refused to accept any such tax reimbursements from the Company.

 

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 2007, and their costs to the Company, were reasonable and properly disclosed to shareholders.

 

Severance and Change-in-Control Arrangements

 

Severance Plan

 

All U.S. exempt employees, including NEOs, participate in the Company’s severance plan. This plan pays to a terminated employee a severance payment calculated based on the employee’s time in service and salary rate at the time of termination. The maximum payment is 260 working days’ pay. This benefit applies only to terminations by the Company other than for cause.

 

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/her employment within two years thereafter by the Company without cause or by the executive for good reason (a so-called “double trigger”). The purpose of these agreements is, 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. In 2006, the Compensation Committee reviewed with its compensation consultant the material terms and provisions of these agreements, including the types and amounts of potential payments and other benefits, compared to companies in the Practices Tracking Group providing similar types of agreements. Based on this review, the Compensation Committee determined that such arrangements were at that time generally comparable to those provided by companies in the Practices Tracking Group and provide a legitimate and reasonable benefit to the Company and to its shareholders.

 

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 2007 and 2006. The six tables following the Summary Compensation Table provide more detailed information about the various types of NEO compensation for 2007, 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) These are the amounts that the Company recognized as compensation expense in its financial statements for each year as determined under Statement of Financial Accounting Standards 123R (“FAS 123R”). The Stock Awards amounts are the expense for outstanding performance share grants made to each NEO in February 2007 and, for Mr. Angel, a restricted stock grant made prior to 2007. The Option Awards amounts are the expense for options granted in 2007 and in certain prior years. The assumptions used in computing the Option Awards amounts are included in Note 15 to the Company’s 2007 financial statements in the 2007 Annual Report to Shareholders and Form 10-K. For Stock Awards that are performance share grants, the assumptions used in computing the expense are also included in Note 15. For Stock Awards that are restricted stock grants, the Company determines the value (the number of shares granted times the fair market value of the Company’s stock on the date of grant) and then recognizes this as expense ratably over the vesting term.

 

The Stock Awards and Option Awards column amounts were not actually paid to any NEO in 2007 or 2006. The value of any of Mr. Angel’s restricted stock that vested in 2007 is reported in the “Option Exercises and Stock Vested” table below; no performance share grants vested in 2007. 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 2007 is reported in the “Option Exercises and Stock Vested” table below.

 

(2) In 2007 and 2006, 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 2008 (for 2007 performance) and February 2007 (for 2006 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.” Certain NEOs elected to defer a portion of this payment under the Company’s Compensation Deferral Program described after the “Nonqualified Deferred Compensation” table below. Any amounts deferred are included in the amounts reported above.

 

(3) 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 2007 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.

 

(4) Amounts shown in this column are detailed in the “All Other Compensation” table below.

 

(5) 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 2007 or 2006. 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 2007 (being Salary, Non-equity Incentive Plan Compensation and All Other Compensation) was: Mr. Angel: $3,919,152 (44% of Total Compensation reported); Mr. Malfitano: $1,599,146 (43% of Total Compensation reported); Mr. Sawyer: $1,461,371 (40% of Total Compensation reported); Mr. Fuchs: $1,122,940 (43% of Total Compensation reported); and Mr. Breedlove: $1,079,843 (53% of Total Compensation reported).

 

(6) Mr. Angel was appointed as the Chief Executive Officer effective January 1, 2007, and as the Chairman effective May 1, 2007.

 

(7) Because compensation information for Mr. Breedlove is being presented for the first time since the SEC adopted new executive compensation disclosure rules in 2006, only 2007 compensation information is provided.

 

 

This table provides more detail regarding the amounts disclosed in the “All Other Compensation” column for 2007 in the Summary Compensation Table.

 

2007 All Other Compensation

 

 

(1) Includes the Company’s incremental costs of providing financial planning services to Messrs. Angel, Malfitano and Fuchs and, for Mr. Malfitano, a contribution on his behalf to a Brazilian government retirement program. 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. During 2007, the aggregate unreimbursed incremental cost to the Company for Mr. Angel’s personal use of corporate aircraft was $71,060. 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 did not use the aircraft for personal travel.

 

The Company maintains certain country club memberships for business entertainment purposes which memberships, by club rules, are 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 2007, no amounts are reported in the table.

 

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.

 

(2) Under Federal tax rules, the Company imputes income to each NEO for the value of the perquisites listed in the first column. The amounts listed in this column are payments that were made to NEOs as reimbursement for the taxes on imputed income. Mr. Angel did not accept any such tax reimbursements for 2007, and the Compensation Committee has determined that no such tax reimbursements will be provided to any executive officer for 2008.

 

(3) The amounts in this column are Company matching contributions to the Company’s 401(k) Savings Plan and Company contributions to the Compensation Deferral Program. See the description of the Compensation Deferral Program under the “Nonqualified Deferred Compensation” table below.

 

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

 

									Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(2)									Estimated Future Payouts Under Equity Incentive Plan Awards(3)
																														All Other
																											All Other Stock			Option			Exercise or
						Compen-																					Awards:			Awards:			Base			Grant Date
						sation																					Number of			Number of			Price of			Fair Value of
						Committee																					Shares of			Securities			Option			Stock and
						Approval			Threshold									Threshold									Stock or			Underlying			Awards			Option
Name			Grant Date			Date(1)			($)			Target($)			Maximum($)			(#)			Target(#)			Maximum(#)			Units(#)			Options(#)(4)			($/Sh)			Awards(5)
Stephen F. Angel									—			$1,100,000			$5,170,000			—			—			—			—			—			—			—
			2/27/2007			1/22/2007			—			—			—			—			20,560			41,120			—			—			—			$1,263,823
			2/27/2007			1/22/2007			—			—			—			—			—			—			—			308,300			$61.47			$3,382,051
Ricardo S. Malfitano									—			$440,000			$2,068,000			—			—			—			—			—			—			—
			2/27/2007			1/22/2007			—			—			—			—			6,160			12,320			—			—			—			$378,655
			2/27/2007			1/22/2007			—			—			—			—			—			—			—			92,500			$61.47			$1,014,725
James S. Sawyer									—			$420,000			$1,974,000			—			—			—			—			—			—			—
			2/27/2007			1/22/2007			—			—			—			—			6,160			12,320			—			—			—			$378,655
			2/27/2007			1/22/2007			—			—			—			—			—			—			—			92,500			$61.47			$1,014,725
James J. Fuchs									—			$297,500			$1,398,250			—			—			—			—			—			—			—
			2/27/2007			1/22/2007			—			—			—			—			4,620			9,240			—			—			—			$283,991
			2/27/2007			1/22/2007			—			—			—			—			—			—			—			69,400			$61.47			$761,318
James T. Breedlove									—			$304,500			$1,431,150			—			—			—			—			—			—			—
			2/27/2007			1/22/2007			—			—			—			—			4,500			9,000			—			—			—			$276,615
			2/27/2007			1/22/2007			—			—			—			—			—			—			—			67,400			$61.47			$739,378

 

(1) On January 22, 2007, the Compensation Committee approved the total number of stock options and target performance shares to be allocated among all eligible employees and specifically approved the stock options and target performance shares to be granted to NEOs and all other executive officers. The Compensation Committee set February 27, 2007 as the actual grant date of these options and target performance shares. 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-Determining the Grant Date.”

 

(2) The actual amount of performance-based variable compensation paid in February 2008 for 2007 performance is shown in the “Summary Compensation Table” under the “Non-Equity Incentive Plan Compensation” column for 2007. The amounts shown in these columns are the range of potential 2007 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 Compensation.”

 

(3) These are the target and maximum number of shares that may be earned under performance share awards made in February 2007. 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 awards.

 

(4) This column shows the number of shares underlying stock option grants made in February 2007 under the 2002 Praxair, Inc. Long Term Incentive Plan. 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 values of the option grants and performance share grants (valued at the target number of shares granted) made in February 2007 calculated in accordance with FAS 123R. They are neither amounts that were paid to any NEO nor what the Company recognized as compensation expense in 2007 under FAS 123R, which amounts are in the “Option Awards” and “Stock Awards” columns in the “Summary Compensation Table”. Those 2007 compensation expense amounts include certain options granted prior to 2007. See footnote (1) to the “Summary Compensation Table”.

Additional Information Regarding Plan-Based Awards

 

The 2007 option grants and performance share awards reported in the table above were made under the 2002 Praxair, Inc. Long Term Incentive Plan (the “Stock Plan”). Options and performance shares granted to NEOs are made on the same terms as grants to all other eligible employees. The material terms of these grants include:

 

Option Grant Terms

 

 

 

Performance Share 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.

2007 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

The table below shows each NEO’s outstanding option grants and unvested performance shares and restricted stock, if any, at the end of 2007. 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																		Equity			Equity Incentive
						Number of			Incentive Plan																		Incentive Plan			Plan Awards:
						Securities			Awards:												Number of						Awards:			Market or
			Number of			Underlying			Number of												Shares or						Number of			Payout Value of
			Securities			Unexercised			Securities												Units of			Market Value			Unearned			Unearned
			Underlying			Options(#)			Underlying												Stock That			of Shares or			Shares, Units			Shares, Units or
			Unexercised			Un-			Unexercised			Option						Option			Have Not			Units of Stock			or Other Rights			Other Rights
			Options(#)			exercisable			Unearned			Exercise			Option Grant			Expiration			Vested			That Have Not			That Have Not			That Have Not
Name			Exercisable(1)			(1)			Options(#)			Price($)			Date			Date			(#)(2)			Vested($)(3)			Vested(#)(4)			Vested($)(4)
Stephen F. Angel			350,000			0			0			$23.105			4/23/2001			4/23/2011			22,952			$2,036,072			20,560			$1,823,878
			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
			95,400			47,700			0			$44.250			2/22/2005			2/22/2015
			43,533			87,067			0			$53.980			2/28/2006			2/29/2016
			0			308,300			0			$61.470			2/27/2007			2/27/2017
Ricardo S. Malfitano			70,000			0			0			$22.010			2/21/2001			2/21/2011			0			$0			6,160			$546,454
			70,000			0			0			$27.625			12/31/2001			12/31/2011
			68,000			0			0			$26.425			2/28/2003			2/28/2013
			80,000			0			0			$36.580			2/24/2004			2/24/2014
			66,666			33,334			0			$44.250			2/22/2005			2/22/2015
			30,833			61,667			0			$53.980			2/28/2006			2/29/2016
			0			92,500			0			$61.470			2/27/2007			2/27/2017
James S. Sawyer			50,000			0			0			$36.580			2/24/2004			2/24/2014			0			$0			6,160			$546,454
			75,600			37,800			0			$44.250			2/22/2005			2/22/2015
			35,833			71,667			0			$53.980			2/28/2006			2/29/2016
			0			92,500			0			$61.470			2/27/2007			2/27/2017
James J. Fuchs			46,933			23,467			0			$44.250			2/22/2005			2/22/2015			0			$0			4,620			$409,840
			20,866			41,734			0			$53.980			2/28/2006			2/29/2016
			0			69,400			0			$61.470			2/27/2007			2/27/2017
James T. Breedlove			20,000			20,000			0			$44.270			11/15/2004			11/15/2014			0			$0			4,500			$399,195
			33,466			16,734			0			$44.250			2/22/2005			2/22/2015
			18,133			36,267			0			$53.980			2/28/2006			2/29/2016
			0			67,400			0			$61.470			2/27/2007			2/27/2017