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2016 Performance Share and Stock Option Plans

As the regulatory constraints related to the increase in capital did not permit the annual grants to be made in September, it was therefore at its meeting on November 29, 2016 that the Board of Directors of L’Air Liquide adopted the 2016 performance share and stock option plans which are aimed, above and beyond incentive and mandatory profit sharing, at associating employees to a greater extent with the company’s performance.

Changes in the principles

The Board decided to continue the policy initiated in 2015 aimed at giving preference to performance shares rather than stock options in the volumes granted. Thus, for employees who up until now had received a mixed grant, the weight of performance shares has increased considerably as compared to that of options and, for many of them, performance shares have completely replaced stock options.

In the case of the executive officers, the Board decided that the grant of performance shares and stock options and its changes over time will from now on be evaluated in terms of the IFRS value (and no longer the volumes granted), for all recurring stock option and performance share plans combined, with the percentage of performance shares predominating in the total value granted.

On the basis of these principles, the Board of Directors made the following grants at its meeting on November 29, 2016:

2016 Stock Option Plan

The Board granted options to subscribe for shares in the Company in accordance with the following terms:

Exercise price

The exercise price is €93 (corresponding to the average of the opening trading prices for the Air Liquide share during the twenty trading sessions prior to the date of the Board of Directors’ meeting, rounded down to the nearest euro).

Volume of grants

  • Executive officers

      Volume IFRS value1 % of share capital
    Benoît Potier 60,000 options €619,440 0.015%
    1. As of November 29, 2016
     
  • Other beneficiaries
    The Board of Directors also decided to grant 83,240 options to 242 beneficiaries.

In total, it granted 143,240 options to subscribe for shares, representing 0.037% of the share capital in terms of the number of shares, to 243 beneficiaries, representing 0.36% of the workforce.

2016 Plan Regulations

Subject to the performance conditions that apply to both the performance share and stock option plans (defined below), the provisions of the 2016 Plan Regulations are essentially unchanged as compared to those of the 2015 Plan (term of the Plan: 10 years; lock-up period of 4 years; definition of a condition of continued employment/presence in the Group at the time of exercise of the options).

2016 Performance Share Plans

The Board awarded performance shares in accordance with the following terms:

Volume of awards

  • Executive officers

      Volume IFRS value2 % of share capital
    Benoît Potier 17,800 performance shares €1,275,281 0.005%
    2. Definitive IFRS value following the closure of accounts for 2016
     
  • Other beneficiaries
    The Board of Directors also decided to award 408,546 performance shares to 1,954 beneficiaries.

In total, it therefore awarded 426,346 performance shares representing 0.11% of the share capital to 1,955 beneficiaries, representing 2.87% of the workforce.

2016 Plan Regulations

Subject to the performance conditions that apply to both the performance share and stock option plans (defined below), the provisions of the 2016 “France” and “World” Performance Share Plan Regulations are essentially identical to those of the 2015 Plans and in particular:

  1. For France, the vesting period is set at 3 years and the holding period at 2 years. As for the “World” Plan, it provides for a vesting period of 4 years with no additional holding obligation.
  2. Definition of a condition of continued employment/presence at the end of the vesting period in order to receive the definitive award of shares.

Combined

On a combined basis, all 2016 Performance Share and Stock Option Plans combined, the grants decided by the Board on November 29, 2016 are as follows:

  • Executive officers

      Volume IFRS value1, 2 % of share capital
    Benoît Potier 60,000 stock options
    17,800 performance shares
    €619,440
    €1,275,2813
    0.015%
    0.005%
    Total €1,894,721 0.020%
    1. 2. As of November 29, 2016
    3. Definitive IFRS value following the closing of accounts for 2016

     
    The IFRS value of this grant, which represents a variation of +3.7% as compared to 2015, is close to, but still lower than, the value granted in 2013 (€1,957,000). It corresponds to an average annual increase since 2008, the year before the crisis, of 0.62%.
     
  • All the beneficiaries
      2016
    Total number of performance shares/performance share equivalents 474,093
    % of share capital 0.15%
    Number of beneficiaries 1,981
    % of workforce 2.9%
     
    The lists of employee beneficiaries were prepared with the aim of ensuring a certain rotation and an enlargement of the population of beneficiaries. 39.4% of the beneficiaries of the November 29, 2016 Plans are employees to whom no stock options/performance shares were granted over the last 5 years.

Performance conditions applicable to the 2016 Stock Option and Performance Share Plans

All the stock options and performance shares granted to any beneficiary within the scope of the November 29, 2016 Plans are subject to the following performance conditions that apply to both the Stock Option and Performance Share Plans. These conditions were adopted by the Board of Directors on February 15, 2016 and amended as communicated on March 24, 2016 in order to take account of the remarks made by certain shareholders.

The number of stock options that may be exercised out of the total number of stock options granted and the number of performance shares definitively awarded within the scope of the 2016 Plans will therefore depend:

(i) For 65% of the stock options/performance shares granted, on the rate of achievement of an objective, set by the Board, consisting of the average of the annual rates of growth in Group undiluted net earnings per share excluding foreign exchange impact and excluding exceptional items (“Recurring EPS”) for financial years 2016, 2017 and 2018. At the objective set, the grant is 100% then decreases on a straight-line basis to zero if there is no growth in EPS. In order to take into account the impact of the Airgas acquisition and its financing, the principle was adopted:

  • of calculating Recurring EPS on the basis of pro forma financial statements, which make it possible to take into account comparable data for the periods concerned (2016, 2017, 2018),
  • of increasing the objective in terms of the average of the annual rates of growth over this period. This objective, which was previously set at +5% per annum, has now been set at a level of growth within a range of +6% to +10% per annum. The precise objective will be communicated ex post.

(ii) For 35% of the stock options/performance shares granted:
For 50% of the stock options/performance shares referred to in sub-paragraph (ii): on an objective of Total Shareholder Return set by the Board, defined as the average annual growth rate of an investment in Air Liquide shares for financial years 2016, 2017 and 2018 (“AL TSR”). The absolute TSR objective remains unchanged as compared to the previous plans, i.e. +8% as already published. At the objective set, the grant is 100% then decreases on a straight-line basis, to a lower limit which remains significantly higher than the rate of return on capital.

For 50% of the stock options/performance shares referred to in sub-paragraph (ii): on the rate of Total Shareholder Return from an investment in Air Liquide shares, reinvested dividends – sourced from Bloomberg (“B TSR”), compared to a reference index made up of:

  • for half, the CAC 40 index, reinvested dividends (sourced from Bloomberg), and
  • for half, the Total Shareholder Return of the companies in the industrial gases sector (the average of Air Liquide, Linde, Praxair and Air Products), reinvested dividends (sourced from Bloomberg).

The objective with regard to the relative part of TSR is based on the average of the two indexes. The rate of achievement of the performance conditions will be 0% if Air Liquide TSR is lower than the average of the two indexes, 50% if it is equal to the average of the two indexes and 100% if it is more than 3% higher than the average of the two indexes, on the basis of a straight-line change. Any grant for a performance lower than the average of the two indexes is impossible.

In sum, the applicable performance conditions are as follows:

Weighting 65% 35%
Of which 50% Of which 50%
Performance conditions Average of annual growth rates in recurring Earnings per Share excluding foreign exchange impact and exceptional items for the period 2016/2017/2018 Total Shareholder Return, defined as the average annual growth rate of an investment in Air Liquide shares over 3 financial years Total Shareholder Return vs. 2 benchmarks as follows:
 
½ CAC 40 – ½ peers over 3 financial years
Objective Level of growth set within a range of +6% to + 10% per annum (the precise level will be communicated ex post)
 
Has increased as compared to +5% previously
Total Shareholder Return of 8%
  • 0% if the Air Liquide rate of return is lower than the average of the two indexes
  • 50% if the Air Liquide rate of return is equal to the average of the two indexes
  • 100% if the Air Liquide rate of return is more than 3% higher than the average of the two indexes
  • Change on a straight-line basis
Achievement of performance conditions This information will be published in 2019.

 
The rate of achievement of the performance conditions will be recorded by the Board at the time of its adoption of the financial statements for the 2018 financial year. The absolute TSR objective is communicated ex ante for the November 29, 2016 Plans. The precise objective set for EPS will be made public ex post, at the close of the Board meeting determining the rate of achievement of the performance conditions. The result achieved and the percentage of performance shares that vest/options that are exercisable will also be communicated.

Specificities relating to the executive officers

Limits on grant

Within the scope of the sub-limits authorized by the Annual Shareholders’ Meeting for 38 months, and most recently by the Combined Shareholders’ Meeting of May 12, 2016 (18th and 19th resolutions), the Board of Directors sets lower annual limits for grants to the executive officers, expressed (i) as a percentage of the capital and (ii) as a multiple of their remuneration, in accordance with the recommendations of the AFEP/MEDEF Code.

The limits set by the Board of Directors for 2016 are identical to those for 2015 and are as follows:

  • For all the executive officers:

    • the total number of performance shares granted to the executive officers in 2016 (for all Plans combined) cannot grant entitlement to a total number of shares exceeding 0.017% of the capital (namely an amount significantly lower than the average sub-limit on grants set at 0.15% of the capital for 38 months by the Annual Shareholders’ Meeting of May 12, 2016);
    • the total number of stock options granted to the executive officers in 2016 cannot grant entitlement to a total number of shares exceeding 0.05% of the capital (namely an amount significantly lower than the average sub-limit on grants set at 0.3% of the capital for 38 months by the Annual Shareholders’ Meeting of May 12, 2016).
  • For each executive officer individually: the limit relating to the total cumulative IFRS value of the stock options and performance shares granted in 2016 (for all stock option and performance share plans combined) to each executive officer is set at 1.5 times the amount of his maximum gross annual remuneration.

Other specific rules

The specific rules applicable to the executive officers defined at the time of the grant under the 2015 Plans were restated by the Board on November 29, 2016. They are applicable to the 2016 grants as follows:

  • Obligations regarding the restriction on the exercise of stock options and the sale of performance shares during the “blackout periods” surrounding the publication of the financial statements defined by the Company.
     
  • Commitment not to carry out hedging transactions with regard to the risk concerning stock options/shares resulting from the exercise of stock options and concerning the performance shares awarded, throughout the length of their term of office.
     
  • Share ownership obligations:
    • obligation to retain, in registered form, until the termination of their duties, a minimum quantity of shares corresponding to 50% of the capital gain on acquisition net of social charges and taxes for each exercise of stock options/final award of performance shares. This percentage will be adjusted downwards to 5% as soon as the quantity of shares held represents an amount equal to at least 3 times the executive officer’s fixed gross annual remuneration.
    • pursuant to the internal rule defined by the Board of Directors since 2008, obligation for the executive officers to hold, in a registered account, a number of shares equivalent to twice the fixed gross annual remuneration for the Chairman and Chief Executive Officer and the amount of fixed gross annual remuneration for the Senior Executive Vice-President. This obligation will remain in force until it is exceeded by the effect of the above-mentioned rules resulting from the French Commercial Code.

These obligations are in line with the recommendations of the AFEP/MEDEF Code of November 24, 2016.