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Information on the remuneration of the Executive Officers

pursuant to the AFEP-MEDEF Code

At its meeting on February 17, 2014, the Board of Directors of Air Liquide adopted the components of remuneration of the executive officers.

2013 financial year

On the basis of the financial statements drawn up for 2013, the Board of Directors set the amount of variable remuneration due to the executive officers for 2013.

For 2013, the variable portion could amount to a maximum of 170% of fixed remuneration for the Chairman and Chief Executive Officer and a maximum of 130% for the Senior Executive Vice-President. It was conditional on:

  • two financial criteria related to objectives concerning an increase in net earnings per share and return on capital employed, which together reflect the balance achieved each year between growth and return on investment; the objective of growth in EPS is set on a consistent basis with regard to historical performances; the objective of increase in ROCE is based on significant outperformance as compared to the weighted average cost of capital. An adjustment formula for each criterion is provided for in the event of an upward or downward variance with regard to the objective set.
  • personal objectives, shared by the two executive officers, related, in particular, to gradual implementation of the market-focused organization, preserving financial balances, pursuit of the CSR objectives, in particular safety, and human resources development.

The weight of each criterion expressed as a percentage of the fixed remuneration was as follows:

 Benoît PotierPierre Dufour
EPS65%50%
ROCE40%30%
Personal Objectives65%50%
Total (expressed as a percentage of fixed remuneration)170%130%

 

The Board of Directors proceeded with an assessment of the performance of the executive officers. The results obtained in 2013 were below the objectives set for the financial criteria of EPS and ROCE. The amount of the variable remuneration in respect of these two criteria amounts to 77.3% of the fixed remuneration for Benoît Potier and 58.9% of the fixed remuneration for Pierre Dufour. The performance of the executive officers as compared to their personal objectives was considered very good, with, in particular, the implementation of the market-focused organization, improvement of the rating and in terms of safety, a lost-time accident frequency rate in Gas & Services, on the basis of a constant scope, which is the lowest in the Group’s history. The amount of the variable remuneration in respect of the personal objectives represents 58.5% of the fixed remuneration for Benoît Potier and 45% of the fixed remuneration for Pierre Dufour. In total, the amount of the variable remuneration in respect of 2013 adopted by the Board, as shown in the table below, is -9.6% lower for Benoît Potier and -9.2% lower for Pierre Dufour as compared to the variable remuneration for 2012.

The total amount of gross remuneration is therefore as follows:

In thousands of euros (rounded off)Benoît PotierPierre Dufour
Fixed portion 11,100635
Variable portion1,493.8659.8

1 For Pierre Dufour, the amount includes the remuneration due in respect of his other functions and duties within the Group.

 

The total amount of fixed and variable remuneration for 2013 is -5.1% lower than in 2012 for Benoît Potier and -4.4% lower for Pierre Dufour.

Pierre Dufour, who is now in charge of the development of the Hub in Frankfurt, received, in addition, in his capacity as Managing Director, an amount of €150,000 paid by the German subsidiary, in addition to an indemnity corresponding to the benefits in kind under his previous contract in France.

2014 financial year

The Board determined the amounts of fixed remuneration and the applicable principles for determination of the variable remuneration of Benoît Potier and Pierre Dufour for 2014.

Fixed remuneration

It was decided that the amounts of fixed remuneration would be as follows:

In thousands of eurosBenoît PotierPierre Dufour
Fixed portion 11,100
(unchanged)
650
(+2.4%)

1 For Pierre Dufour, the amount includes the fixed remuneration due in his capacity as Managing Director of the German subsidiary (Air Liquide Global Management Services) in charge of the Hub in Frankfurt.

 

Variable remuneration

The Board decided that the variable remuneration for 2014 will continue to be based on financial criteria that are identical to those applied for previous financial years, i.e. the increase in earnings per share (excluding foreign exchange impact and exceptional items) and the Company’s return on capital employed after tax (ROCE).

In addition to this there will be personal objectives which will be related notably to the Group’s organization and short- and mid-term strategy, preserving financial balances, human resources development and pursuing Corporate Social and Environmental Responsibility objectives – now structurally included in the personal objectives set for the determination of the variable remuneration – and in particular those of safety and reliability, and with regard to indicators.

The weighting formula for the various components making up the variable remuneration and the maximum percentage of variable remuneration as compared to the fixed remuneration are unchanged for Pierre Dufour; they are changed as follows for Benoît Potier:

 Benoît Potier
EPS65%
ROCE45%
Personal Objectives70%
Total (expressed as a percentage of fixed remuneration)180%

 

Neither Benoît Potier nor Pierre Dufour receives directors’ fees in respect of their duties as directors as long as they hold an executive office.

Medium-term remuneration
On the basis of the financial statements adopted for the 2013 financial year submitted for the approval of the next Annual Shareholders’ Meeting, the Board of Directors recorded the rate of achievement of the performance conditions defined at the time of implementation of the stock option plan of October 14, 2011 and the ACAS plan for the conditional grant of shares to employees of September 27, 2012.
The 2011 stock option plan provided that the number of options that could effectively be exercised by the beneficiary of a conditional grant of options would depend on the level of achievement:

  • (i) for 65%, of the objective of growth in recurring EPS for the 2013 financial year as compared to that for financial year 2010 set at 115% in order to be able to exercise all the stock options subject to this criterion, and decreasing on a straight-line basis to 0% growth; the Board of Directors placed on record that growth in recurring EPS for the above-mentioned period amounted to 114.5%
  • (ii) for 35%, of an objective of total shareholder return, defined as the compound annual growth rate for an investment in Air Liquide shares with respect to financial years 2011, 2012 and 2013, set at 8% in order to be able to exercise all the options subject to this criterion, and decreasing on a straight-line basis to 4%. The Board of Directors recorded that the total shareholder return for the above-mentioned period was 8.77%.

Accordingly, the Board of Directors recorded that the total proportion of the options subject to conditions that could be exercised by the beneficiary was equal to 97.9%.

The 2012 ACAS plan for the conditional grant of shares to employees (of which the members of the executive management and of the Executive Committee are not beneficiaries) provided that the number of shares acquired would depend on the rate of achievement of the objective of growth in recurring EPS for the 2013 financial year as compared to recurring EPS for the 2011 financial year set by the Board at 110% for all the shares to vest, and decreasing on a straight-line basis to 0% growth. The Board of Directors placed on record that growth in recurring EPS for the above-mentioned period amounted to 106.2%. Accordingly, the Board of Directors recorded that the proportion of shares subject to performance conditions which will be definitively acquired by the beneficiaries will be 62%.

Stock ownership obligation
The executive officers are subject to an obligation to hold a number of shares equivalent respectively to double the annual gross fixed remuneration for the Chairman and Chief Executive Officer and to the annual gross fixed remuneration for the Senior Executive Vice-President. The Board noted that, at January 1, 2014, the stock ownership obligation is largely respected by each of the Executive Officers.

Regulated agreements

1. Termination indemnities

The terms of the agreements applicable to the two executive officers with regard to termination indemnities are as follows:

  • (i) only the cases of forced departure related to a change of strategy or a change in control may give rise to an indemnity;
  • (ii) the amount of the indemnity is set at 24 months of gross fixed and variable remuneration;
  • (iii) the amount of the indemnity due to Benoît Potier decreases gradually as he approaches the date at which he will reach the age limit defined in the Company’s articles of association; no indemnity will be paid to Pierre Dufour if he is entitled to claim his full pension entitlements in the short term at the date of forced departure;
  • (iv) the right to payment of the indemnity is subject to achievement of performance conditions.

Entitlement to a termination indemnity, and the amount of such indemnity, depend on the average of the annual variance between the Return On Capital Employed after tax (ROCE) and the Weighted Average Cost of Capital (WACC) (assessed using accounting net equity) over the last three financial years prior to the financial year in which the departure occurs. This variance in a highly capital-intensive business makes it possible to measure regular value creation.

At the time of renewal of the terms of office of the beneficiaries, the Board of Directors decided to increase the performance criteria on which payment of the indemnity is contingent.

An average variance over three years of 300 basis points (instead of 200 previously) between ROCE and WACC will now be required in order to be able to benefit from the total amount of the indemnity. The declining percentage formula is also made more exacting

Average variance (ROCE-WACC)As from May 7, 2014Proportion of the indemnity due
≥ 200 bp(a)≥ 300 bp100%
≥ 100 bp and < 200 bp≥ 200 bp and < 300 bp66%
≥ 50 bp and < 100 bp≥ 150 bp and < 200 bp50%
≥ 0 bp and < 50 bp≥ 100 bp and < 150 bp33%
≥ 0< 100 bp0%

(a) bp: basis point

In addition, concerning Pierre Dufour, it has been specified that the remuneration used as a basis for calculation of the indemnity is that received by M. Dufour on any basis whatsoever from any company of the Group. As in the past, the total amount of 24 months of remuneration will include the indemnities received from any subsidiary, including the non-competition indemnity, in the event of concomitant termination of the other functions he performs in the Group.
These changes will be effective at the close of the next Annual Shareholders’ Meeting and on the condition precedent of the renewal of the terms of office of Benoît Potier as director and Chairman and Chief Executive Officer and of Pierre Dufour as Senior Executive Vice-President.

2. Defined benefit pension plan

Following the implementation of the Group’s new operational organisation, changes have been made to the defined benefit pension plan applicable to senior managers and executives and executive officers, for the portion of the remuneration exceeding 24 times the annual social security. These changes are aimed at (i) limiting the basis for calculation of the pension annuity to the fixed and variable remuneration only (to the exclusion of any other form of remuneration) whether paid by the Company or any French or foreign subsidiary of the Group; (ii) making the payment of the annuity contingent on the decision to apply for an old age pension whether at the full rate or not.

The details concerning these agreements will be included in the 2013 reference document. The text of the undertakings with regard to termination indemnities is posted on the company’s website. These agreements will be put to the vote of the next Annual Shareholders’ Meeting.

“Say on Pay”
The Board of Directors adopted the draft resolutions and the summary tables showing the elements of remuneration due or allocated to Mr Benoît Potier, Chairman and Chief Executive Officer, and Mr Pierre Dufour, Senior Executive Vice-President, in respect of 2013, which will be put to the advisory vote of the shareholders at the Annual Shareholders’ Meeting on May 7, 2014.

Change in Pierre Dufour’s situation as from January 1, 2014
The Board of Directors took due note of the main terms of the service agreement entered into with the German subsidiary Air Liquide Global Management Services GmbH (ALGMS), which defines the conditions for performance by Pierre Dufour of the new office of Managing Director which was entrusted to him, effective as of January 1, 2014. Pursuant to this agreement, Pierre Dufour receives annual fixed remuneration and a variable portion limited to 130% of such fixed portion replacing the remuneration received under his previous employment contract. He receives an annual amount of €150,000 in addition to the indemnity corresponding to the benefits in kind under his previous contract in France.
In consequence, Pierre Dufour resigned from his employment contract with L’Air Liquide S.A. as of December 31, 2013 and therefore, since that date, no longer benefits from the protection of French employment law or from the collective defined contribution pension schemes, the death and disability benefits plan for senior managers and executives, and the collective life insurance plan, which have been replaced by plans which are equivalent overall in Germany within the scope of his new duties.