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Ecolab DEF 14A 2013

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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

Filed by the Registrant ý

Filed by a Party other than the Registrant o

Check the appropriate box:

o

 

Preliminary Proxy Statement

o

 

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

ý

 

Definitive Proxy Statement

o

 

Definitive Additional Materials

o

 

Soliciting Material under §240.14a-12

 

ECOLAB INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

ý

 

No fee required.

o

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
    (1)   Title of each class of securities to which transaction applies:
        
 
    (2)   Aggregate number of securities to which transaction applies:
        
 
    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
        
 
    (4)   Proposed maximum aggregate value of transaction:
        
 
    (5)   Total fee paid:
        
 

o

 

Fee paid previously with preliminary materials.

o

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

 

Amount Previously Paid:
        
 
    (2)   Form, Schedule or Registration Statement No.:
        
 
    (3)   Filing Party:
        
 
    (4)   Date Filed:
        
 

LOGO

NOTICE OF 2013
ANNUAL MEETING AND

PROXY STATEMENT

FOR MAY 2, 2013

GRAPHIC

   


TABLE OF CONTENTS

NOTICE

  ii

VOTING PROCEDURES

  1

STOCKHOLDER ACCESS

  3

 — Communications with Directors

  3

 — Future Stockholder Proposals and Director Nomination Process

  3

 — New Director Selection Process

  5

SECURITY OWNERSHIP

  6

 — Certain Beneficial Owners

  6

 — Executive Officers and Directors

  7

CORPORATE GOVERNANCE

  8

 — Corporate Governance Materials and Code of Conduct

  8

 — Board Structure

  8

 — Board Leadership Structure

  8

 — Board's Role on Risk Oversight

  8

 — Compensation Risk Analysis

  9

 — Director Attendance

  9

 — Board Committees

  9

DIRECTOR COMPENSATION FOR 2012

  11

 — Director Compensation Table

  11

 — Summary

  12

 — Stock Retention and Ownership Guidelines

  13

 — Changes Effective in 2013

  13

DIRECTOR INDEPENDENCE STANDARDS AND DETERMINATIONS

  13

 — "Independence" Standards

  13

 — "Independence" Determinations

  14

RELATED PERSON TRANSACTIONS

  14

PROPOSAL 1: ELECTION OF DIRECTORS

  14

COMPENSATION COMMITTEE REPORT

  22

COMPENSATION DISCUSSION AND ANALYSIS

  22

 — Introduction and Overview

  22

 — Program Objectives and Reward Philosophy

  26

 — Base Salaries

  28

 — Annual Cash Incentives

  29

 — Long-Term Equity Incentives

  32

 — Executive Benefits and Perquisites

  33

 — Executive Change-in-Control Policy

  34

 — Stock Retention and Ownership Guidelines

  34

 — Compensation Recovery

  34

 — Total Compensation Mix

  35

SUMMARY COMPENSATION TABLE FOR 2012

  36

GRANTS OF PLAN-BASED AWARDS FOR 2012

  37

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END FOR 2012

  39

OPTION EXERCISES AND STOCK VESTED FOR 2012

  40

PENSION BENEFITS FOR 2012

  41

NON-QUALIFIED DEFERRED COMPENSATION FOR 2012

  44

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL

  46

EQUITY COMPENSATION PLAN INFORMATION

  52

AUDIT COMMITTEE REPORT

  52

AUDIT FEES

  53

PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  54

PROPOSAL 3: APPROVAL OF THE AMENDED AND RESTATED ECOLAB INC. 2010 STOCK INCENTIVE PLAN

  54

PROPOSAL 4: ADVISORY VOTE TO APPROVE THE COMPENSATION OF EXECUTIVES DISCLOSED IN THIS PROXY STATEMENT

  63

PROPOSAL 5: STOCKHOLDER PROPOSAL REQUESTING EXECUTIVES TO RETAIN SIGNIFICANT STOCK

  64

PROPOSAL 6: STOCKHOLDER PROPOSAL REGARDING CONGRUENCY BETWEEN CORPORATE VALUES AND POLITICAL CONTRIBUTIONS

  66

OTHER MATTERS

  68

 — Proxy Solicitation Costs

  68

 — Section 16(a) Beneficial Ownership Reporting Compliance

  68

 — Householding Information

  69

 — Important Notice Regarding the Availability of Proxy Materials

  69

 — Voting by Plan Participants

  69

Table of Contents

GRAPHIC

March 18, 2013
Dear Fellow Stockholder:

You are cordially invited to join us for our Annual Meeting of Stockholders, to be held at 10:00 a.m. on Thursday, May 2, 2013, in the Auditorium of the Landmark Center, 75 West 5th Street, Saint Paul, Minnesota 55102. The Notice of Annual Meeting and the Proxy Statement that follow describe the business to be conducted at our Annual Meeting. We urge you to read both carefully.

We hope you plan to attend our Annual Meeting. However, if you will not be able to join us, we encourage you to exercise your right as a stockholder and vote. Please sign, date and promptly return the accompanying proxy card, or make use of either our telephone or Internet voting services. Stockholders not in attendance may listen to a broadcast of the meeting on the Internet. Webcast instructions will be available on-line at www.ecolab.com/investor.

Sincerely,

GRAPHIC

Douglas M. Baker, Jr.
Chairman of the Board
and Chief Executive Officer

YOUR VOTE IS IMPORTANT!
PLEASE SUBMIT YOUR PROXY TODAY.

      Your vote is a valuable part of the investment made in our Company, and is the best way to influence corporate governance and decision-making. Please take time to read the enclosed materials and vote!

      Whether or not you plan to attend the meeting, please complete the accompanying proxy and return it in the enclosed envelope. Or, you may vote by telephone or the Internet. If you attend the meeting, you may vote your shares in person even though you have previously returned your proxy by mail, telephone or the Internet.

PLEASE REFER TO THE ACCOMPANYING MATERIALS FOR VOTING INSTRUCTIONS.

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 2, 2013

To the Stockholders of Ecolab Inc.:

The Annual Meeting of Stockholders of Ecolab Inc. will be held on Thursday, May 2, 2013, at 10:00 a.m., in the Auditorium of the Landmark Center, 75 West 5th Street, Saint Paul, Minnesota 55102, for the following purposes (which are more fully explained in the Proxy Statement):

    (1)
    to elect as Directors to a one-year term ending in 2014 the 13 nominees named in the Proxy Statement;

    (2)
    to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current year ending December 31, 2013;

    (3)
    to approve amendments to the Ecolab Inc. 2010 Stock Incentive Plan;

    (4)
    to approve, on an advisory basis, the compensation of executives disclosed in this Proxy Statement;

    (5)
    to consider a stockholder proposal, if properly presented at the meeting, requesting the Compensation Committee to adopt a supplemental policy on stock retention requirements for senior executives;

    (6)
    to consider a stockholder proposal, if properly presented at the meeting, requesting the Board of Directors to adopt a new political contributions policy requiring political contributions to incorporate company values and requesting quarterly reporting on political expenditures; and

    (7)
    to transact such other business as may properly come before our Annual Meeting and any adjournment or postponement thereof.

Our Board of Directors has fixed the close of business on March 5, 2013 as the record date for the determination of stockholders entitled to notice of and to vote at the meeting.

    By Order of the Board of Directors

 

 


LOGO

 

 

James J. Seifert
Executive Vice President, General Counsel and Secretary

March 18, 2013

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ECOLAB INC.
370 Wabasha Street North, Saint Paul, Minnesota 55102

PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 2, 2013

The Board of Directors of Ecolab Inc. is using this Proxy Statement to solicit proxies from the holders of Ecolab Common Stock, par value $1.00 per share ("Common Stock"), for use at the 2013 Annual Meeting of Ecolab Stockholders. We are first mailing this Proxy Statement and accompanying form of proxy to Ecolab stockholders on or about March 18, 2013.

Meeting Time and Place — Thursday, May 2, 2013, at 10:00 a.m., in the Auditorium of the Landmark Center, 75 West 5th Street, Saint Paul, Minnesota 55102.

Purpose of the Meeting — is to vote on the following items:

(1)
to elect as Directors to a one-year term ending in 2014 the 13 nominees named in the Proxy Statement;

(2)
to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current year ending December 31, 2013;

(3)
to approve amendments to the Ecolab Inc. 2010 Stock Incentive Plan;

(4)
to approve, on an advisory basis, the compensation of executives disclosed in this Proxy Statement;

(5)
to consider a stockholder proposal, if properly presented at the meeting, requesting the Compensation Committee to adopt a supplemental policy on stock retention requirements for senior executives;

(6)
to consider a stockholder proposal, if properly presented at the meeting, requesting the Board of Directors to adopt a new political contributions policy requiring political contributions to incorporate company values and requesting quarterly reporting on political expenditures; and

(7)
to transact such other business as may properly come before our Annual Meeting and any adjournment or postponement thereof.

Record Date — The record date for determining the holders of Common Stock entitled to vote at our Annual Meeting is the close of business on March 5, 2013.

Shares Entitled to Vote — As of March 5, 2013, the record date for the meeting, there were 295,609,986 shares of Common Stock outstanding. Each share of Common Stock is entitled to one vote. Common Stock held by Ecolab in our treasury is not counted in shares outstanding and will not be voted.


Note — References in this Proxy Statement to "Ecolab," "the Company," "we," or "our" are to Ecolab Inc.


VOTING PROCEDURES

Quorum — A quorum of stockholders is necessary to hold a valid meeting. The presence in person or by proxy at the meeting of holders of a majority of the outstanding shares of Common Stock entitled to vote at the meeting is a quorum. Abstentions and broker non-votes count as present for establishing a quorum. Common Stock held by Ecolab in our treasury does not count toward a quorum.


Broker Non-Votes — Generally, broker non-votes occur on a proposal when a broker is not permitted under applicable rules to vote on that proposal without instruction from the beneficial owner of the Common Stock and no instruction is given. Broker non-votes are not counted as votes cast for any purpose in determining whether a matter has been approved. To ensure that their views are represented at the meeting, we strongly urge all beneficial owners to provide specific voting instructions on all matters to be considered at the meeting to their record-holding brokers.

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How to Vote by Proxy — You may vote in person by ballot at our Annual Meeting or by submitting a valid proxy. We recommend you submit your proxy even if you plan to attend the Annual Meeting. If you attend the Annual Meeting, you may vote by ballot, thereby canceling any proxy previously submitted.

Voting instructions are included on your proxy card. If you properly complete your proxy and submit it to us in time to be tabulated, one of the individuals named as your proxy will vote your Common Stock as you have directed. You may vote for or against each proposal, or you may abstain from voting on a proposal. With respect to the election of directors, you may vote for or against each nominee, or you may abstain from voting on the election of one or more nominees.


Revoking Your Proxy — You may revoke your proxy at any time before it is voted by:

timely delivery of a valid, later-dated proxy, including a proxy given by telephone or Internet;

timely delivery of written notice to our Corporate Secretary before the Annual Meeting, stating that you have revoked your proxy; or

voting by ballot at our Annual Meeting.


Treatment of Abstentions — Shares voting "Abstain" will have no effect on the election of directors. For the other proposals to be voted on at the Annual Meeting, abstentions are treated as shares present or represented and voting, and therefore have the same effect as negative votes.


Vote Tabulation — The vote on each proposal will be tabulated as follows:

    Proposal 1: Election of Directors — Each nominee will be elected by a majority of the votes cast in uncontested elections. We currently expect that the election of directors at our meeting will be uncontested. Under the majority voting standard, a nominee must receive a number of "FOR" votes that exceeds 50% of the votes cast with respect to that director's election. Votes cast with respect to a nominee include votes FOR or AGAINST a nominee and exclude abstentions and broker non-votes.

    In a contested election, directors will be elected by a plurality vote. A contested election is an election in which the number of candidates for election as directors exceeds the number of directors to be elected. Under the plurality standard, the 13 nominees receiving the most number of "FOR" votes will be elected as directors.

    If an uncontested nominee for director does not receive an affirmative majority of "FOR" votes, he or she will be required to promptly offer his or her resignation to the Board's independent Governance Committee. That committee will then make a recommendation to the Board as to whether the offered resignation should be accepted or rejected, or whether other action should be taken. The Board will publicly announce its decision regarding the offered resignation and the rationale behind it within 90 days after the election results have been certified. Any director who offered his or her resignation will not be permitted to vote on the recommendation of the Governance Committee or the Board's decision with respect to his or her resignation.

    Unless a contrary choice is specified, proxies solicited by our Board of Directors will be voted FOR the election of the 13 nominees named in this Proxy Statement. If, for any reason, any nominee becomes unavailable for election prior to our Annual Meeting, the proxies solicited by our Board of Directors will be voted FOR such substituted nominee as is selected by our Board of Directors, or our Board of Directors, at its option, may reduce the number of directors to constitute the entire Board.

    Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm — The affirmative vote of a majority of the total votes cast by holders of shares present in person or represented by proxy at the Annual Meeting and entitled to vote will constitute ratification of the appointment of PricewaterhouseCoopers LLP. Unless a contrary choice is specified, proxies solicited by our Board of Directors will be voted FOR ratification of the appointment of PricewaterhouseCoopers LLP.

    Proposal 3: Approve Amendments to the Ecolab Inc. 2010 Stock Incentive Plan — The affirmative vote of a majority of the total votes cast by holders of shares present in person or represented by proxy at the Annual Meeting will constitute approval of the amendments of the Company's 2010 Stock Incentive Plan; provided, in compliance with New York Stock Exchange rules, the total votes cast on the proposal (including abstentions) represent over 50% of our total outstanding shares entitled to vote on the proposal. Unless a contrary choice is specified, proxies solicited by our Board of Directors will be voted FOR the amendments of the 2010 Stock Incentive Plan.

    Proposal 4: Advisory Vote to Approve the Compensation of Executives Disclosed in this Proxy Statement — The affirmative vote of a majority of the total votes cast by holders of shares present in person or represented by proxy at the Annual Meeting and entitled to vote will constitute approval of the compensation of executives disclosed in this Proxy Statement. Unless a contrary choice is specified,

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    proxies solicited by our Board of Directors will be voted FOR approval of the compensation of executives disclosed in this Proxy Statement.

    Proposal 5: Stockholder Proposal Requesting Executives to Retain Significant Stock — The affirmative vote of a majority of the total votes cast by holders of shares present in person or represented by proxy at the Annual Meeting and entitled to vote will constitute approval of the proposal. Unless a contrary choice is specified, proxies solicited by our Board of Directors will be voted AGAINST the proposal.

    Proposal 6: Stockholder Proposal Regarding Congruency Between Corporate Values and Political Contributions — The affirmative vote of a majority of the total votes cast by holders of shares present in person or represented by proxy at the Annual Meeting and entitled to vote will constitute approval of the proposal. Unless a contrary choice is specified, proxies solicited by our Board of Directors will be voted AGAINST the proposal.


Discretionary Voting — We are not currently aware of any other business to be acted upon at our Annual Meeting. If, however, other matters are properly brought before the Annual Meeting, or any adjournment or postponement of the Annual Meeting, your proxy includes discretionary authority on the part of the individuals appointed to vote your Common Stock or act on those matters according to their best judgment, including to adjourn the Annual Meeting.


Adjournments — Adjournment of our Annual Meeting may be made for the purpose of, among other things, soliciting additional proxies. Any adjournment may be made from time-to-time by approval of the holders of Common Stock representing a majority of the votes present in person or by proxy at the Annual Meeting, whether or not a quorum exists, without further notice other than by an announcement made at the Annual Meeting. We do not currently intend to seek an adjournment of the Annual Meeting.


STOCKHOLDER ACCESS

Communications with Directors — Our stakeholders and other interested parties, including our stockholders and employees, can send substantive communications to our Board using the following methods published on our website at www.ecolab.com/investors/corporate-governance:

to correspond with the Board's Lead Director, please complete and submit the on-line "Contact Lead Director" form;

to report potential issues regarding accounting, internal controls and other auditing matters to the Board's Audit Committee, please complete and submit the on-line "Contact Audit Committee" form; or

to make a stockholder recommendation for a potential candidate for nomination to the Board, please submit an e-mail to the Board's Governance Committee, in care of our Corporate Secretary, at investor.info@ecolab.com.

All substantive communications regarding governance matters or potential accounting, control, compliance or auditing irregularities are promptly relayed or brought to the attention of the Lead Director or Chair of the Audit Committee following review by our management. Communications not requiring the substantive attention of our Board, such as employment inquiries, sales solicitations, questions about our products and other such matters, are handled directly by our management. In such instances, we respond to the communicating party on behalf of the Board. Nonetheless, our management periodically updates the Board on all of the on-line communications received, whether or not our management believes they are substantive. In addition to on-line communications, interested parties may direct correspondence to our Board of Directors, our Board Committees or to individual directors at our headquarters address, repeated at the top of page 1 of this Proxy Statement.


Future Stockholder Proposals and Director Nomination Process — Any stockholder proposal, other than those for director nominations, must comply with advance notice procedures set forth in Article II, Section 4 of our By-Laws. As described in more detail below, stockholder proposals for director nominations must comply with Article II, Section 3 of our By-Laws. Under our By-Laws, to be in proper written form, the stockholder's notice to our Corporate Secretary must set forth as to each matter such stockholder proposes to bring before the Annual Meeting a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting and as to the stockholder giving the notice and any Stockholder Associated Person (i.e., any person acting in concert, directly or indirectly, with such stockholder and any person controlling, controlled by or under common control with such stockholder) (i) the name and record address of such person, (ii) the number of shares beneficially owned by the stockholder, (iii) the nominee holder for, and number of, shares owned beneficially but not of record by such person, (iv) whether and the extent to which any hedging or other transaction or series of transactions has been entered into, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such person with respect to any shares beneficially owned,

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(v) the name and address of any other stockholder supporting the proposal, (vi) a description of all arrangements or understandings between or among such persons in connection with the proposal, and (vii) a representation by the stockholder that he or she intends to appear at the Annual Meeting to present the business. Any ownership information shall be supplemented by the stockholder giving the notice not later than ten (10) days after the record date for the meeting as of the record date. This summary is qualified in its entirety by reference to the full text of our By-Laws, which can be found on our website at www.ecolab.com/investors/corporate-governance. If the presiding Chairperson of the Annual Meeting of Stockholders determines that business, or a nomination, was not brought before the meeting in accordance with the By-Law provisions, that business will not be transacted or the defective nomination will not be accepted.

Deadline for Inclusion in the Proxy Statement — All proposals to be considered by the Board for inclusion in the Proxy Statement and form of proxy for next year's Annual Meeting of Stockholders expected to be held on May 8, 2014, must be received by the Corporate Secretary at our headquarters address, repeated at the top of page 1 of this Proxy Statement, no later than November 18, 2013.

Deadline for Consideration — Stockholder proposals not included in a proxy statement for an annual meeting as well as proposed stockholder nominations for the election of directors at an annual meeting must each comply with advance notice procedures set forth in our By-Laws in order to be properly brought before that annual meeting of stockholders. In general, written notice of a stockholder proposal or a director nomination must be received by the Corporate Secretary not less than 120 days nor more than 150 days prior to the anniversary date of the preceding annual meeting of stockholders. With regard to next year's Annual Meeting of Stockholders, expected to be held on May 8, 2014, the written notice must be received between December 9, 2013 and January 8, 2014 inclusive.

Director Nomination Process — Our Board's Governance Committee has, under its Charter, responsibility for director nominee functions, including review of any director nominee candidates recommended by stockholders. The Governance Committee has the authority to:

Review and recommend to the Board of Directors policies for the composition of the Board, including such criteria as:

size of the Board;

diversity of experience, employment, background and other relevant factors of Board members;

the proportion of the Board to be comprised of non-management directors;

qualifications for new or continued membership on the Board, including experience, employment, background and other relevant considerations; and

director retirement requirements or standards.

Review any director nominee candidates recommended by stockholders.

Identify, interview and evaluate director nominee candidates and have sole authority to:

retain and terminate any search firm to be used to assist the Committee in identifying director candidates; and

approve the search firm's fees and other retention terms.

Recommend to the Board:

the slate of director nominees to be presented by the Board for election at the Annual Meeting of Stockholders;

the director nominees to fill vacancies on the Board; and

the members of each Board Committee.

Any stockholder nomination for directors must comply with the advance notice procedures set forth in Article II, Section 3 of our By-Laws. Under our By-Laws, to be in proper written form, the stockholder's notice to our Corporate Secretary must set forth as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address, residence address and record address of the person, (ii) the principal occupation or employment of the person, (iii) the number of shares owned beneficially or of record by the person, (iv) any information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the "Exchange Act", and the rules and regulations promulgated thereunder, (v) the nominee holder for, and number of, shares owned beneficially but not of record by the person, (vi) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, has been made, the effect or intent of which is to mitigate loss to or

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manage risk or benefit of share price changes for, or to increase or decrease the voting power of, the person with respect to any shares beneficially owned, (vii) to the extent known, the name and address of any other stockholder supporting the nominee for election or reelection as a director on the date of such stockholder's notice, (viii) a description of all arrangements or understandings between or among persons pursuant to which the nomination(s) are to be made by the stockholder and (ix) a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice. Any ownership information shall be supplemented by the stockholder giving the notice not later than ten (10) days after the record date for the meeting as of the record date. The notice must be accompanied by a written consent of the proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Company unless nominated in accordance with the foregoing procedures. This summary is qualified in its entirety by reference to the full text of our By-Laws, which can be found on our website at www.ecolab.com/investors/corporate-governance.

In terms of our principles for composition of the Board generally, and qualifications for director nominees specifically, we refer you to our Corporate Governance Principles, which can be found on our website at www.ecolab.com/investors/corporate-governance. Under these provisions, for example:

no more than three Board members will be from current management. These management members normally would be the Chief Executive Officer, the Chairman (if an employee of the Company and not the CEO) and the President (if an employee of the Company and not the CEO), but may be any other officer deemed appropriate by the Board;

it is desired that the members of the Board represent a geographical dispersion and variety of business disciplines so as to bring to the work of the Board a diversity of experience and background, with the predominance of members being chief or executive officers from different industries; and

a continuing effort is made to seek well-qualified women and minority group members for the Board, but these persons must be sought out and evaluated as individuals rather than as representatives of specific groups.

Other criteria relevant to service as a director of our Company are also set forth in our Corporate Governance Principles.

All directors are encouraged to submit to the Governance Committee the name of any person deemed qualified to serve on the Board, together with information on the candidate's qualifications. The Governance Committee screens and submits to the full Board the names and biographical information of those persons considered by the Committee to be viable candidates for election as directors. The same evaluation process and criteria are used by the Committee (i) for recommendations for director candidates submitted by stockholders in accordance with our Restated Certificate of Incorporation and By-Laws and (ii) for recommendations submitted by any other source, such as a director or a third-party search firm.


New Director Selection Process — In 2012, the Governance Committee began a search for an additional director in light of the fact that Mr. Sanders would be retiring at the 2013 Annual Meeting. Given the Company's significant business in the energy sector, and the fact that Mr. Sanders, a former executive at ExxonMobil Corporation, was retiring, the Board considered it extremely valuable that a new director have energy industry experience. Accordingly, the Governance Committee hired a third party search firm to assist in the identification and evaluation of candidates who had energy industry experience and who were chief executive officers or headed a large business within a larger corporation and to ensure that women and people of color were represented in the search. Stephen I. Chazen, President and Chief Executive Officer of Occidental Petroleum Corporation, was identified as a leading candidate by the search firm. See Mr. Chazen's biography and qualifications on page 16. Other candidates were also identified by the search firm, and Ecolab directors additionally identified potential candidates. Mr. Chazen was subsequently interviewed by our Chairman and Chief Executive Officer, Chair of the Governance Committee, Lead Director and other members of the Governance Committee. Following the interview process and the vetting of other potential candidates, Mr. Chazen was recommended by the Governance Committee to the full Board for nomination as a director.

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SECURITY OWNERSHIP

Certain Beneficial Owners — The following table sets forth information as to entities which have reported to the Securities and Exchange Commission ("SEC") or have advised us that they are a "beneficial owner," as defined by the SEC's rules and regulations, of more than 5% of our outstanding Common Stock.

   
Title of
Class

  Name and Address
of Beneficial Owner

  Amount and
Nature of
Beneficial
Ownership

  Percent of
Class(1)

 
   
Common   William H. Gates III
One Microsoft Way
Redmond, WA 98052
    32,286,819 (2)   10.9%  

Common

 

BlackRock Inc.
40 East 52nd Street
New York, NY 10022

 

 

14,991,055

(3)

 

5.1%

 

Common

 

The Vanguard Group, Inc.
100 Vanguard Blvd.
Malvern, PA 19355

 

 

14,735,939

(4)

 

5.0%

 
   
(1)
The percent of class is based on the number of voting shares outstanding as of March 5, 2013.

(2)
This information is based on Amendment No. 5 to the Schedule 13D filed jointly with the SEC on May 7, 2012 by Cascade Investment, L.L.C., which we refer to as Cascade, William H. Gates III, whom we refer to as Mr. Gates, the Bill and Melinda Gates Foundation Trust, which we refer to as the Trust, and Melinda French Gates, whom we refer to as Mrs. Gates, and a Form 4 relating to Mr. Gates filed with the SEC on June 7, 2012. Mr. Gates reports that he has sole power to vote or direct the vote, and to dispose or to direct the disposition, of 27,920,394 shares of Ecolab common stock beneficially owned by Cascade, as the sole member of such entity. Additionally, the Schedule 13D reports that Mr. Gates and Mrs. Gates share the power to vote or direct the vote, and to dispose or to direct the disposition, of 4,366,425 shares of Ecolab common stock beneficially owned by the Trust, as co-trustees of such entity.

(3)
This information is based on the Schedule 13G filed on January 30, 2013 by BlackRock Inc., which we refer to as BlackRock. BlackRock reports that, as of December 31, 2012, they have sole power to vote or direct the vote, and to dispose or to direct the disposition of 14,991,055 shares of Ecolab common stock.

(4)
This information is based on the Schedule 13G filed on February 12, 2013 by The Vanguard Group, Inc., which we refer to as Vanguard. Vanguard reports that, as of December 31, 2012, they have sole power to vote or direct the vote of 477,135 shares, sole power to dispose or to direct the disposition of 14,272,218 shares and shared power to dispose or direct the disposition of 463,721 shares.

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Executive Officers and Directors — In general, "beneficial ownership" includes those shares of our Common Stock which a director or executive officer has the power to vote or transfer, as well as stock options that are exercisable currently or within 60 days and stock underlying stock units that may be acquired within 60 days. On March 5, 2013, our current executive officers and directors beneficially owned, in the aggregate, 3,982,665 shares of Common Stock constituting approximately 1.3% of our shares outstanding. As required by SEC disclosure rules, "shares outstanding" for this purpose includes options exercisable within 60 days and stock underlying stock units that may be acquired within 60 days by such executive officers and directors. The detail of beneficial ownership is set forth in the following table.

 
Name of Beneficial Owner
  Amount and
Nature of
Beneficial
Ownership

  Percentage of
Outstanding Shares
Beneficially Owned

 

Named Executive Officers

       

Douglas M. Baker, Jr. (Principal Executive Officer)

  1,717,178 (1)(2)(4) *

Daniel J. Schmechel (Principal Financial Officer)

  236,848 (1)(2) *

Thomas W. Handley

  333,711 (1)(2) *

Stephen M. Taylor

  82,260 (2) *

Michael A. Hickey

  175,100 (2) *

Steven L. Fritze (former Principal Financial Officer)

  595,765 (1)(2)(4) *

Directors and Nominees

       

Barbara J. Beck

  35,189 (2)(3) *

Leslie S. Biller

  126,158 (2)(3) *

Stephen I. Chazen

  0   *

Jerry A. Grundhofer

  117,059 (2)(3)(4) *

Arthur J. Higgins

  24,254 (2)(3) *

Joel W. Johnson

  157,899 (2)(3)(4) *

Michael Larson

  5,140 (2)(3)(5)    *(5)

Jerry W. Levin

  81,866 (2)(3) *

Robert L. Lumpkins

  105,837 (2)(3)(4) *

C. Scott O'Hara

  19,717 (2)(3)(4) *

Victoria J. Reich

  24,043 (2)(3)(4) *

Daniel S. Sanders

  52,511 (3) *

Mary M. VanDeWeghe

  15,832 (3) *

John J. Zillmer

  36,461 (2)(3) *

Current Directors and Executive Officers as a Group (26 persons)

  3,982,655 (4)(5) 1.3%(4)(5)
 
*
Indicates beneficial ownership of less than 1% of our outstanding Common Stock.

(1)
Includes the following shares held by officers in the Ecolab Savings Plan and ESOP as of the last Plan report: Mr. Baker, 9,719; Mr. Schmechel, 4,995; Mr. Handley, 988; Mr. Hickey, 6,933; and Mr. Fritze, 23,741.

(2)
Includes the following shares which could be purchased under Company-granted stock options within 60 days from March 5, 2013 including, in the case of retirement-eligible officers, options vesting upon retirement from the Company: Mr. Baker, 1,351,266; Mr. Schmechel, 153,999; Mr. Handley, 272,200; Mr. Taylor, 64,745; Mr. Hickey, 137,899; Mr. Fritze, 407,600; Ms. Beck, 22,700; Mr. Biller, 43,300; Mr. Grundhofer, 43,300; Mr. Higgins, 12,500; Mr. Johnson, 46,065; Mr. Larson, 4,500; Mr. Levin, 48,386; Mr. Lumpkins, 36,600; Mr. O'Hara, 15,900; Ms. Reich, 14,700; Mr. Sanders, 5,400; Ms. VanDeWeghe, 5,400; and Mr. Zillmer, 31,000.

(3)
Includes the following interests in stock units under our 2001 Non-Employee Director Stock Option and Deferred Compensation Plan: Ms. Beck, 12,489; Mr. Biller, 28,419; Mr. Grundhofer, 38,619; Mr. Higgins, 6,754; Mr. Johnson, 43,526; Mr. Larson, 640; Mr. Levin, 28,059; Mr. Lumpkins, 25,341; Mr. O'Hara, 2,817; Ms. Reich, 8,343; Mr. Sanders, 821; Ms. VanDeWeghe, 2,614; and Mr. Zillmer, 5,461. The stock units are Common Stock equivalents which may not be voted or transferred. They are included in the table because in certain circumstances they will be paid in the form of Common Stock within 60 days after a director leaves the Board.

(4)
Beneficial ownership includes shares held by or on behalf of family members of certain directors or executive officers. Includes 28,000 shares of Mr. Baker, 7,100 shares of Mr. Grundhofer, and 42,445 shares of Mr. Johnson, indirectly held in foundations by those respective persons in which they have no economic interest but have voting authority and/or power of disposition; 69,925 shares of Mr. Baker, 64,403 shares of Mr. Fritze, 4,684 shares of Mr. Lumpkins, 1,000 shares of Mr. O'Hara, and 1,000 shares of Ms. Reich held in trusts over which they have voting authority and/or power of disposition; 30,895 shares held for executive officers in Company-sponsored employee benefit plans as of the last plan reports; and 2,522,855 shares to which these persons have the right to acquire beneficial ownership within 60 days of March 5, 2013 including, in the case of retirement-eligible officers, options vesting upon retirement from the Company.

(5)
Mr. Larson is the chief investment officer to William H. Gates III and has voting and investment power with respect to 27,920,394 shares of Ecolab common stock held by Cascade Investment, LLC ("Cascade"), an entity wholly-owned by Mr. Gates, and 4,366,425 shares of Ecolab common stock held by the Bill & Melinda Gates Foundation Trust (the "Trust"). Mr. Larson disclaims beneficial ownership of any shares held by Cascade or the Trust.

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CORPORATE GOVERNANCE

Corporate Governance Materials and Code of Conduct — Our Company is managed under the overall direction of our Board of Directors for the benefit of all stockholders. Written materials concerning policies of our Board of Directors, corporate governance principles and corporate ethics practices, including our Code of Conduct as last amended in November 2012, are available on our website at www.ecolab.com/investors/corporate-governance.

We intend to promptly disclose on our website should there be any amendments to, or waivers by the Board of Directors of, the Code of Conduct.


Board Structure — Under our Corporate Governance Principles, the optimal size of the Board is between 11 and 15 members, in order to facilitate effective discussion and decision-making, adequate staffing of Board Committees, and a desired mix of diversified experience and background. Our Board of Directors currently consists of 14 members; however, two of our directors, Mr. Sanders and Mr. O'Hara, will be retiring from the Board as of the 2013 Annual Meeting of Stockholders, and we have nominated Mr. Chazen as a new director. Accordingly, the Board has taken action to reduce the size of the Board to 13 members effective immediately prior to the time of the 2013 Annual Meeting. Pursuant to the Restated Certificate of Incorporation, as of the 2013 Annual Meeting of Stockholders, our Board will no longer be classified and each director will be subject to annual election. The 13 nominees, if elected, will serve a one-year term ending as of the 2014 Annual Meeting expected to be held on May 8, 2014.


Board Leadership Structure — Our Board of Directors is led by Douglas M. Baker, Jr., our Chairman, who is also our Chief Executive Officer. Mr. Baker was named President in 2002 and Chief Executive Officer in 2004. In 2006, upon the retirement of our former Chairman of the Board, Mr. Baker was elected by the Board as Chairman. In December 2011, upon completion of the Nalco merger, Mr. Baker relinquished the office of President.

As stated in our Corporate Governance Principles, the Board believes that it is best not to have a fixed policy on whether the offices of Chairman and Chief Executive Officer are to be held by one person or not. In making the determination to appoint Mr. Baker to Chairman, the Board considered numerous factors, including the benefits to the decision-making process with a leader who is both Chairman and Chief Executive Officer, the significant operating experience and qualifications of Mr. Baker, the importance of deep Ecolab knowledge, which Mr. Baker's years at Ecolab have provided him, in exercising business judgment in leading the Board, the size and complexity of our business, the significant business experience and tenure of our directors and the qualifications and role of our Lead Director. Based on these factors, the Board determined that it was in the best interests of the Company and its stockholders to appoint Mr. Baker Chairman in addition to his duties as Chief Executive Officer.

In accordance with our Corporate Governance Principles, the Board has appointed Jerry W. Levin as Lead Director. Responsibilities of the Lead Director include presiding over meetings of the independent directors; acting as a liaison between the Chairman and the independent directors; review of information sent to the Board; review of meeting agendas for the Board; and review of meeting schedules to assure that there is sufficient time for discussion of all agenda items. The Lead Director may at his discretion also call meetings of the independent directors. Mr. Baker works closely with Mr. Levin to establish Board agendas and to ensure the smooth operation of the Board. Mr. Levin is particularly well qualified to serve as our Lead Director. He is independent and is our longest serving director, with 21 years of continuous service on the Board, so he has considerable knowledge of our business. As detailed in Mr. Levin's biography and qualifications on page 19, Mr. Levin also has extensive public company board experience. His long history with the Company combined with his leadership skills and operating experience makes him an effective Lead Director.


Board's Role on Risk Oversight — The Board of Directors, in exercising its overall responsibility to direct the business and affairs of the Company, has established various processes and procedures with respect to risk management. First, annually as a core agenda item of the full Board, management presents the Board a comprehensive and detailed risk assessment for the Company after following a vigorous enterprise risk review and analysis. Pursuant to the risk assessment, the Company has categorized the most relevant risks as follows: strategic, operating, reporting and compliance. As part of the annual risk assessment, the Board determines whether any of the Company's overall risk management process or control procedures requires modification or enhancement.

Strategic risk, which relates to the Company properly defining and achieving its high-level goals and mission, as well as operating risk, the effective and efficient use of resources and pursuit of opportunities, is regularly monitored and managed by the full Board through the Board's regular and consistent review of the Company's operating performance and strategic plan. For example, at each of the Board's six regularly scheduled meetings throughout the year, management provided the Board presentations on the Company's various business units as well as the Company's performance as a whole. Agenda items were included for significant

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developments as appropriate, for example, significant acquisitions such as the acquisition of Champion Technologies announced in October 2012, important market developments and management succession. Pursuant to the Board's established monitoring procedures, Board approval is required for the Company's strategic plan and annual plan which is reported on by management at each Board meeting. Similarly, significant transactions, such as acquisitions and financings are brought to the Board for approval.

Reporting risk, which relates to the reliability of the Company's financial reporting, and compliance risk, relating to the Company's compliance with applicable laws and regulations, are primarily overseen by the Audit Committee. The Audit Committee meets at least five times per year and, pursuant to its charter and core agendas, receives input directly from management as well as the Company's independent registered public accounting firm, PricewaterhouseCoopers LLP, regarding the Company's financial reporting process, internal controls and public filings. The Committee also receives regular updates from the Company's General Counsel and Corporate Compliance Officer regarding any Code of Conduct issues or legal compliance concerns and annually receives a summary of all Code of Conduct incidents during the preceding year from the General Counsel. See "Board Committees — Audit Committee" below for further information on how the Audit Committee fulfills, and assists the Board of Directors' oversight of, reporting and compliance risks.

The Company believes that its leadership structure, discussed in detail above, supports the risk oversight function of the Board. While the Company has a combined Chairman of the Board and Chief Executive Officer, we have a Lead Director, strong directors chair the various Board Committees involved in risk oversight, there is open communication between management and directors, and all directors are actively involved in the risk oversight function.


Compensation Risk Analysis — In 2010, the Compensation Committee established an annual process and criteria for assessing risk in our compensation programs and directed management to apply that process and criteria to all compensation plans and practices that have the potential to give rise to behavior that creates risks that are reasonably likely to have a material adverse effect on the Company and to report the results to the Compensation Committee. As part of the process in 2012, the Company took the following steps to complete the assessment: (1) we agreed on a materiality framework for determining which compensation plans and practices to review; (2) we inventoried plans and practices that fell within the materiality framework; (3) we reviewed the identified plans and practices against our evaluation framework established in consultation with the Compensation Committee's independent compensation consultant, Frederic W. Cook & Co., Inc.; (4) we identified factors, processes or procedures in place which may mitigate any risks in identified plans and practices; and (5) the Compensation Committee reviewed the results of the analysis with Frederic W. Cook & Co., Inc. Our risk assessment revealed that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on the Company. In making this determination, we took into account the compensation mix for our employees as well as various risk control and mitigation features of our programs, including varied and balanced performance targets, review procedures for incentive pay calculations, appropriate incentive payout caps, the Company's rights to cancel incentive awards for employee misconduct, discretionary authority of the Compensation Committee to reduce award pay-outs, internal controls around customer and distributor pricing and contract terms, our stock ownership guidelines, prohibition on hedging Company stock and our compensation recovery ("clawback") policy.


Director Attendance — There were eight meetings of the Board of Directors during the year ended December 31, 2012. Each incumbent director attended at least 80% of all Board meetings and meetings held by all Committees on which he or she served. Overall attendance at Board and Committee meetings was 96%. Directors are expected, but are not required, to attend our Annual Meeting of Stockholders. All directors then serving who were continuing to serve following the meeting attended last year's Annual Meeting.


Board Committees — Our By-Laws permit the Board of Directors to designate Committees, each comprised of three or more directors, to assist the Board in carrying out its duties. The Board annually reviews its Committee structure as well as the Charter and composition of each Committee and makes modifications as necessary. The Charters for the Board's five standing Committees — Audit, Compensation, Finance, Governance and Safety, Health and Environment Committees — were last reviewed and approved by the Board in May 2012. The Charters of each of our Committees are available on our website at www.ecolab.com/investors/board-of-directors. The separately designated standing Audit Committee meets the requirements of Section 3(a)(58)(A) of the Exchange Act. The members of the Audit, Compensation and Governance Committees meet the "independence" and other requirements established by the rules and regulations of the SEC, the Internal Revenue Code of 1986, as amended (the "IRS Code"), the New York Stock Exchange and our Board, as applicable.

Audit Committee — The Audit Committee members are Mses. Reich and VanDeWeghe and Messrs. Johnson (Chair), Lumpkins (Vice Chair) and Sanders. The Committee met five times during 2012. In addition, either the full Audit Committee or the Committee Chair, as representative of the Committee (and at their election the other members of the Audit Committee), discussed the interim financial information contained in each

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quarterly earnings announcement for the first three calendar quarters of 2012 with our Chief Financial Officer, Controller and Assistant Controller and with our independent registered public accounting firm, prior to each of our quarterly earnings announcements. The Committee met to discuss the financial information contained in the fourth quarter and full year 2012 earnings announcement prior to dissemination of that press release and it being furnished to the SEC on a Form 8-K in February 2013. The Form 10-K for the year ended December 31, 2012 was also discussed by the Committee at its February 2013 meeting.

    The Committee fulfills, and assists the Board of Directors' oversight of, its responsibilities to monitor (i) the quality and integrity of our consolidated financial statements and management's financial control of operations; (ii) the qualifications, independence and performance of the independent accountants; (iii) the role and performance of the internal audit function; and (iv) our compliance with legal and regulatory requirements. The Committee meets regularly and privately with our management and internal auditors and with our independent registered public accounting firm, PricewaterhouseCoopers LLP.

    A report of the Audit Committee is found under the heading "Audit Committee Report" at page 52.

    The Board of Directors has determined that each member of the Audit Committee is "independent" and meets the independence and other requirements of Sections 303A.02 and 303A.07(b) of the listing standards of the New York Stock Exchange, and Rule 10A-3 under the Exchange Act, as well as of our Board. The Board has determined that each member of the Committee is an "audit committee financial expert" under the SEC's rules and should be so designated. Further, the Board has determined, in its business judgment, that each member of the Committee has "accounting and related financial management expertise" and is "financially literate" under the New York Stock Exchange's listing standards.

Compensation Committee — The Compensation Committee members are Messrs. Biller, Grundhofer (Chair), Higgins, Levin (Vice Chair) and Zillmer. The Committee met five times during 2012. The principal functions of this Committee are to (i) review and approve or recommend to the Board, as applicable, with respect to the establishment, amendment and administration of any compensation plans, benefits plans, severance arrangements and long-term incentives for directors and any executive officers (including the CEO); (ii) review and approve our overall compensation policy and annual executive salary plan, including CEO compensation; and (iii) administer our director stock option and deferred compensation plans, executive and employee stock incentive plans, stock purchase plans and cash incentive programs. The Committee may not delegate its primary responsibilities with respect to overseeing executive officer compensation. A report by the Committee is located on page 22 of this Proxy Statement.

    To assist the Committee in the design and review of the executive and director compensation programs, the Committee has selected and retained Frederic W. Cook & Co., Inc. ("Cook & Co."), an independent compensation consulting firm, which reports directly to the Committee. As requested from time to time on behalf of the Committee, Cook & Co. provides the Committee with market data regarding various components of executive and director compensation, reviews methodology on which compensation is based and designed, and informs the Committee of market trends in executive and director compensation. Cook & Co. performs no services for us other than those performed on behalf of the Committee.

    The Committee has considered the independence of Cook & Co. in light of SEC rules and NYSE listing standards. In connection with this process, the Committee has reviewed, among other items, a letter from Cook & Co. addressing the independence of Cook & Co. and the members of the consulting team serving the Committee, including the following factors: (i) other services provided to us by Cook & Co., (ii) fees paid by us as a percentage of Cook & Co.'s total revenue, (iii) policies or procedures of Cook & Co. that are designed to prevent conflicts of interest, (iv) any business or personal relationships between the senior advisor of the consulting team with a member of the Committee, (v) any Ecolab stock owned by the senior advisor, and (vi) any business or personal relationships between our executive officers and the senior advisor. The Committee discussed these considerations and concluded that the work performed by Cook & Co. and its senior advisor involved in the engagement did not raise any conflict of interest.

    The Board of Directors has determined that each member of the Compensation Committee meets the independence requirements of the SEC (including Rule 16b-3), the New York Stock Exchange, Section 162(m) of the IRS Code and of our Board.

Finance Committee — The current Finance Committee members are Mses. Beck and VanDeWeghe and Messrs. Biller (Chair), Grundhofer (Vice Chair), Larson and O'Hara. The Committee met seven times during the past year. The principal functions of this Committee are to review and make recommendations to the Board concerning (i) management's financial and tax policies and standards; (ii) our financing requirements, including the evaluation of management's proposals concerning funding to meet such requirements; (iii) dividends; (iv) our capital expenditure budget; and (v) adequacy of insurance coverage. The Committee also evaluates specific acquisition, divestiture and capital expenditure projects from a financial standpoint.

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The Committee also oversees a management committee which is charged with monitoring the performance of trust assets held in our benefit plans.

Governance Committee — The Governance Committee members are Messrs. Higgins, Johnson, Levin (Vice Chair), Sanders (Chair) and Zillmer. The Committee met six times during the past year. Certain functions of the Governance Committee are described on page 4 of this Proxy Statement under the heading "Director Nomination Process." In addition, the principal functions of this Committee include: (i) lead the annual review of Board performance and effectiveness; (ii) review the Board's organizational structure and operations (including appointing a lead director for executive sessions of non-management directors) and its relationship to senior management; (iii) review issues of senior management succession; (iv) lead the annual Chief Executive Officer performance review and oversee the evaluation process for senior management; (v) review Certificate of Incorporation, By-Law or stockholder rights plan issues or changes in fundamental corporate charter provisions; (vi) review various corporate governance matters (including any necessary modifications to the Corporate Governance Principles); (vii) review and recommend to the Board with respect to director independence determinations and review, approve or ratify reportable related person transactions; (viii) receive reports from management with regard to relevant social responsibility issues and report to the Board as appropriate; (ix) review our Company's efforts to achieve its affirmative action and diversity goals; (x) review director orientation, training and continuing education; (xi) review our political contributions policy as well as our corporate contributions; and (xii) undertake special projects which do not fall within the jurisdiction of other committees of the Board.

    The Board of Directors has determined that each member of the Governance Committee meets the "independence" requirements of the SEC, the New York Stock Exchange and of our Board.

Safety, Health and Environment Committee — The members of the Safety, Health and Environment Committee are Mses. Beck (Vice Chair) and Reich and Messrs. Larson, Lumpkins (Chair) and O'Hara. The Committee met four times during 2012. This new Committee monitors compliance with applicable safety, health and environmental ("SHE") laws and regulations. The principle functions of this Committee include: (i) review SHE policies, programs and practices, SHE risks, SHE statistics, pending SHE matters and industry best practices; (ii) review regulatory, environmental and health and safety trends, issues and concerns which affect or could affect Ecolab's SHE practices; (iii) review and recommend to the Board with respect to implementation and compliance with policies with respect to Ecolab's SHE practices; and (iv) review and recommend to the Board with respect to Ecolab's Sustainability Report.


DIRECTOR COMPENSATION FOR 2012

Director Compensation Table — The following table summarizes the compensation that our non-employee directors received during 2012.

 
            Name
  Fees
Earned
or Paid
in Cash(1)
($)

  Stock
Awards(2)
($)

  Option
Awards(3)
($)

  Total
($)

 

Barbara J. Beck

  $100,000   $50,000   $48,868   $198,868

Leslie S. Biller

  $110,000   $50,000   $48,868   $208,868

Jerry A. Grundhofer

  $115,000   $50,000   $48,868   $213,868

Arthur J. Higgins

  $102,500   $50,000   $48,868   $201,368

Joel W. Johnson

  $120,000   $50,000   $80,855   $250,855

Michael Larson(4)

  $92,163   $42,720   $57,870   $192,753

Jerry W. Levin

  $125,000   $50,000   $48,868   $223,868

Robert L. Lumpkins

  $120,000   $50,000   $48,868   $218,868

Paul J. Norris(5)

  $34,066   $17,033   0   $51,099

C. Scott O'Hara

  $100,000   $50,000   $48,868   $198,868

Victoria J. Reich

  $110,000   $50,000   $48,868   $208,868

Daniel S. Sanders(6)

  $120,000   $50,000   $69,444   $239,444

Mary M. VanDeWeghe(6)

  $110,000   $50,000   $69,444   $229,444

John J. Zillmer

  $100,000   $50,000   $48,868   $198,868
 
(1)
Represents annual retainer of $100,000 earned during 2012, plus additional fees paid to the respective Chairs of Board Committees and to members of the Audit Committee; includes retainer and fees, if any, deferred at the election of directors pursuant to the 2001 Non-Employee Director Stock Option and Deferred Compensation Plan (the "2001 Plan"), as described in footnote (2) below. The dollar amount of retainer and fees deferred by applicable directors during 2012 is as follows: Ms. Beck, $100,000; Mr. Grundhofer, $115,000; Mr. Higgins, $102,500; Mr. Johnson, $120,000; Ms. Reich, $110,000; and Ms. VanDeWeghe, $110,000.

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(2)
Represents the crediting by the Company of $50,000 (or a pro rata portion thereof) to a deferred stock unit account under the 2001 Plan during 2012. The features of the deferred stock unit account are described under footnote (3) to the "Security Ownership — Executive Officers and Directors" table at page 7 and the director compensation deferral paragraph under the "Summary" heading below.

(3)
Represents the full grant date fair value of each option award, computed in accordance with FASB ASC Topic 718 (entitled "Compensation — Stock Compensation"). The value has been determined by application of the lattice (binomial)-pricing model, based upon the terms of the option grant to directors. Mr. Johnson received reload options totaling 6,782 shares (valued at $31,987). The issuance of these reload options were not new discretionary grants by the Company, rather the issuance results from rights that were granted as part of the original option grants made under the 2001 Plan. The respective reload options are immediately exercisable in full and expire on the expiration date of the original grant. The reload feature was eliminated for new grants under the 2001 Plan as amended effective May 2004. Director stock options granted in May 2012 to directors have a ten-year contractual exercise term and vest 25% at the end of each three-month period following the date of grant. Key assumptions include: risk-free rate of return; expected life of the option, expected stock price volatility and expected dividend yield. The specific assumptions used in the valuation of these options is summarized in the table below:

   
         Grant Date
  Risk Free Rate
  Expected Life
  Expected Volatility
  Expected Dividend Yield
   
 

05/03/2012 (all)

  1.12%   6.17 years   22.77%   1.25%
 

03/15/2012 (Johnson)

  0.21%   1.07 years   22.76%   1.17%
 

03/15/2012 (Johnson)

  0.15%   0.58 years   22.76%   1.17%
 

03/15/2012 (Johnson)

  0.21%   0.82 years   22.76%   1.17%
   

    As of December 31, 2012, the aggregate number of stock options held by each director named in the table above is as follows: Ms. Beck, 22,700; Mr. Biller, 43,300; Mr. Grundhofer, 43,300; Mr. Higgins, 12,500; Mr. Johnson, 46,065; Mr. Larson, 4,500; Mr. Levin, 48,386; Mr. Lumpkins, 36,600; Mr. Norris, 0; Mr. O'Hara, 15,900; Ms. Reich, 14,700; Mr. Sanders, 5,400; Ms. VanDeWeghe, 5,400 and Mr. Zillmer, 31,000.

(4)
Mr. Larson was appointed to the Board in February 2012, and received a pro-rated portion of compensation for 2012. Mr. Larson received an initial stock option grant in May 2012 valued at $9,002 under FASB ASC Topic 718 to reflect his pro-rated service commencing in February, as well as his periodic stock option grant valued at $48,868.

(5)
Mr. Norris retired from the Board on May 3, 2012 and received a pro-rated portion of compensation for 2012.

(6)
Mr. Sanders and Ms. VanDeWeghe each received an initial stock option grant in May 2012 valued at $20,576 under FASB ASC Topic 718 to reflect their pro-rated service commencing in December 2011, as well as their periodic stock option grants valued at $48,868.


Summary — During 2012, members of the Board of Directors who are not employees of the Company were entitled to receive base annual compensation valued at $205,000 as follows:

An annual retainer of $100,000;

$50,000 annually in the form of stock units (which are described under footnote (3) to the "Security Ownership — Executive Officers and Directors" table at page 7 and the director compensation deferral paragraph below); and

Stock options having a grant date fair value of approximately $55,000.

We also paid the following supplemental retainers to the Lead Director, committee chairs and members of the Audit Committee:

 
Type
  Amount
 

Lead Director

  $25,000

Audit Committee Chair

  $20,000

Audit Committee Member

  $10,000

Compensation Committee Chair

  $15,000

Finance Committee Chair

  $10,000

Governance Committee Chair

  $10,000

Safety, Health and Environment Committee Chair

  $10,000
 

All reasonable travel, telephone and other expenses incurred by directors on behalf of Ecolab were reimbursed.

Non-employee directors may elect to defer some, or all, of the cash portion of their annual retainer and additional fees in a cash account or a deferred stock unit account until cessation of Board service. Amounts deferred in the cash account earn interest at market rates and amounts deferred in the stock unit account are credited with dividend equivalents. Upon cessation of Board service, deferred amounts (whether in the interest-bearing account or in the stock unit account) are paid in a lump sum or in equal installments to a maximum of ten years as elected by the director. Amounts deferred after January 1, 2005 must be paid in a lump sum. A distribution from a cash account will be made in cash only and a distribution from a stock unit account will be made in shares of Common Stock only. The aggregate number of stock units held by each non-employee director is set forth under footnote (3) to the "Security Ownership — Executive Officers and Directors" table at page 7.

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Director stock option grants are made on the date of the Annual Meeting of Stockholders, and have an exercise price which is the average of the high and low market price on the date of grant. We believe that the use of the average of the high and low market price on the date of the grant removes same day stock volatility. We do not have a program, plan, or practice to time stock option grants to directors in coordination with the release of material non-public information. Director stock options vest 25% at the end of each three-month period following the grant date.

The options granted to directors under the 2001 Plan may be transferred to defined family members or legal entities established for their benefit, and with respect to options granted through May 2004, provide for a one-time automatic grant of a reload stock option if the optionee exercises the original stock option by tendering shares of previously owned Common Stock of the Company. The reload stock option is for the same number of shares tendered to exercise the original stock option and the number of shares required to be withheld to satisfy minimum statutory tax obligations, has an exercise price equal to the fair market value of our Common Stock on the reload grant date, and is immediately exercisable at any time during the remaining exercise term of the original stock option. The reload feature under the 2001 Plan was eliminated in 2004.


Stock Retention and Ownership Guidelines — We have in place stock retention and ownership guidelines to encourage our directors to accumulate a significant ownership stake so they are vested in maximizing long-term stockholder returns. Our guidelines provide that our directors own Company stock with a market value of at least five times the annual retainer. Until the stock ownership guideline is met, the director is expected to retain 100% of all after-tax profit shares from stock option exercises. For purposes of complying with our guidelines, stock is not considered owned if subject to an unexercised stock option. Shares owned outright, legally or beneficially, by a director or his or her immediate family members residing in the same household and deferred stock units in the director's deferral plan count towards meeting the guidelines. Our directors may not enter into any risk hedging arrangements with respect to Company stock. Our directors are in compliance with our guidelines by either having achieved the ownership guideline or, if the guideline is not yet achieved, by retaining 100% of all after-tax profit shares from any stock option exercises.


Changes Effective in 2013 — The Committee reviews our compensation program for non-employee directors annually. Based upon the recommendation of the Compensation Committee's independent consultant, Frederic W. Cook & Co., Inc., we made the following change effective as of January 1, 2013: increased stock unit awards from $50,000 to $72,500 to align the cash/equity pay mix for directors with the market. Effective in 2013, the change to the stock unit awards will increase total annual director compensation from $205,000 per year to $227,500 per year, excluding committee retainers, and is within the median range of our competitive market. For director compensation, we define our competitive market as a group of 23 comparison companies for compensation benchmarking and the median range as within 10% of the median for total annual director compensation. The companies comprising our comparison group are the same as the executive compensation comparison group and are set forth at page 27 of this Proxy Statement.


DIRECTOR INDEPENDENCE STANDARDS AND DETERMINATIONS

"Independence" Standards — Pursuant to the Board of Directors' policy a director is not independent if:

    (i)
    The director is, or has been within the last three years, an employee of the Corporation, or an immediate family member is, or has been within the last three years, an executive officer, of the Corporation.

    (ii)
    The director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the Corporation, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).

    (iii)
    (A) The director is a current partner or employee of a firm that is the Corporation's internal or external auditor; (B) the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and personally works on the Corporation's audit; or (D) the director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on the Corporation's audit within that time.

    (iv)
    The director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Corporation's present executive officers at the same time serves or served on that company's compensation committee.

    (v)
    The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Corporation for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company's consolidated gross revenues.

The Board of Directors' independence policy is also available on our website at www.ecolab.com/investors/Board-of-Directors.

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"Independence" Determinations — In February 2013, the Governance Committee undertook a review of director independence by examining the nature and magnitude of transactions and relationships during 2012, 2011 and 2010 between each director serving during 2012 or director nominee, as the case may be (or any member of his or her immediate family or the company he or she is employed by and its subsidiaries and affiliates), and Ecolab, its subsidiaries and affiliates. Appropriate scrutiny is given to any situation which could be reasonably considered a material relationship. Both the existence and nature of the relationship are considered. The relationships include, among others, commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. Ecolab also endeavors to identify, quantify and evaluate ordinary course commercial transactions between Ecolab and any company that employs a director or director nominee, including subsidiaries and affiliates of the company. In this regard, the Board's Governance Committee has reviewed the following transactions between Occidental Petroleum Corporation, which Mr. Chazen serves as President and Chief Executive Officer, and Ecolab and determined that the transactions do not exceed the Board's categorical "independence" standards described above or adversely affect the nominee for "independence" status as the combined impact of the transactions is immaterial to both organizations.

    During 2012, Ecolab's sales to Occidental Petroleum and its affiliates were approximately $60 million, and Ecolab's purchases from Occidental Petroleum and its affiliates were approximately $15 million. Ecolab believes all sales to, and purchases from, Occidental Petroleum were made in the ordinary course, at arm's length, and at prices and on terms customarily available. Further, the nominee had no personal interest in, nor received any personal benefit from, such commercial transactions.

Based on the review of the Governance Committee, the Board of Directors has determined that the following directors, including those on the slate of nominees for election to the Board at this year's Annual Meeting (other than Mr. Baker), are, and have been since January 1, 2012, or the date which they became an Ecolab director if later than January 1, 2012, independent in accordance with the listing standards of the New York Stock Exchange, the rules and regulations of the SEC, applicable law, and the Board's "independence" policy: Barbara J. Beck, Leslie S. Biller, Stephen I. Chazen, Jerry A. Grundhofer, Arthur J. Higgins, Joel W. Johnson, Michael Larson, Jerry W. Levin, Robert L. Lumpkins, Paul J. Norris (retired from the Board in May 2012), C. Scott O'Hara, Victoria J. Reich, Daniel S. Sanders, Mary M. VanDeWeghe and John J. Zillmer.

The Board determined that Douglas M. Baker, Jr. is not "independent," due to his status as the current Chief Executive Officer.


RELATED PERSON TRANSACTIONS

The Governance Committee of the Board of Directors is responsible for reviewing, approving or ratifying transactions in excess of $120,000 with the Company's executive officers or directors, including their immediate family members, or any greater than 5% stockholder known to us. Our practices and procedures for identifying transactions with related persons are located in the charter of the Governance Committee. The Governance Committee considers the related person's relationship to the Company and interest in the transaction; the material facts of the transaction, including the proposed aggregate value of such transaction; the benefits to the Company of the proposed related person transaction; if applicable, the availability of other sources of comparable products or services; an assessment of whether the proposed related person transaction is on terms that are comparable to the terms available to an unrelated third party or to employees; and such other factors and information as the Governance Committee may deem appropriate. The Governance Committee determined that there were no such transactions with related persons during 2012, nor any currently anticipated transactions.


PROPOSAL 1: ELECTION OF DIRECTORS

Our Board of Directors currently consists of 14 members; however, two of our directors, Mr. Sanders and Mr. O'Hara will be retiring from the Board as of the 2013 Annual Meeting of Stockholders, and Mr. Chazen is being nominated as a new director. Accordingly, the Board has taken action to reduce the size of the Board to 13 members effective immediately prior to the time of the 2013 Annual Meeting. Pursuant to the Restated Certificate of Incorporation, as of the 2013 Annual Meeting of Stockholders, our Board will no longer be classified and each director will be subject to annual election. The 13 nominees, if elected, will serve a one-year term ending as of the 2014 Annual Meeting expected to be held on May 8, 2014.

Pursuant to the recommendation of the Governance Committee, Mses. Beck, Reich and VanDeWeghe and Messrs. Baker, Biller, Chazen, Grundhofer, Higgins, Johnson, Larson, Levin, Lumpkins and Zillmer were nominated for election as Directors. The Board of Directors has no reason to believe that any of the named nominees is not available or will not serve if elected.

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Board of Directors' Recommendation — The Board of Directors recommends a vote FOR the election of the 13 nominees named in this Proxy Statement. Unless a contrary choice is specified, proxies solicited by our Board of Directors will be voted FOR each of the nominees named in this Proxy Statement.

The following information with regard to business experience, qualifications and directorships has been furnished by the respective director nominees or obtained from our records.

 
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS (TERM ENDING 2014)
 

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DOUGLAS M. BAKER, JR., age 54.

Biography — Chairman of the Board and Chief Executive Officer of Ecolab. Director of Ecolab since 2004.

Since joining Ecolab in 1989, Mr. Baker has held various leadership positions within our Institutional, Europe and Kay operations. Mr. Baker was named Ecolab's President and Chief Operating Officer in August 2002, was promoted to President and Chief Executive Officer in July 2004, and added the position of Chairman of the Board in May 2006. Mr. Baker relinquished the office of President in December 2011 upon completion of the Nalco merger. Prior to joining Ecolab in 1989, Mr. Baker was employed by The Procter & Gamble Company in various marketing and management positions.

Qualifications — Mr. Baker has more than 20 years of Ecolab marketing, sales and general management experience, including leadership roles in Ecolab's Institutional, Europe and Kay businesses before becoming Ecolab's Chief Operating Officer in 2002 and Chief Executive Officer in 2004. He has deep and direct knowledge of Ecolab's businesses and operations. In addition, his experience at The Procter & Gamble Company included various marketing and management positions, including in the institutional market in which Ecolab operates.

Other directorships held during the past five years — Director of Target Corporation and U.S. Bancorp.

    


 

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BARBARA J. BECK, age 52.

Biography — Chief Executive Officer, Learning Care Group, Inc., a leading for-profit early education/child care provider in North America. Director of Ecolab since 2008. Vice Chair of the Safety, Health and Environment Committee and member of the Finance Committee.

Prior to joining Learning Care Group in March 2011 as Chief Executive Officer, Ms. Beck spent nine years as an executive of Manpower Inc., a world leader in the employment services industry. From 2006 to 2011, Ms. Beck was President of Manpower's EMEA operations, overseeing Europe (excluding France), the Middle East and Africa. She previously served as Executive Vice President of Manpower's U.S. and Canada business unit from 2002 to 2005. Prior to joining Manpower, Ms. Beck was an executive of Sprint, a global communications company, serving in various operating and leadership roles for 15 years.

Qualifications — Ms. Beck has extensive North American and European general management and operational experience, including as a current CEO, allowing her to contribute to Ecolab's strategic vision particularly as it relates to Europe, the Middle East and Africa. With her Manpower knowledge of the impact of labor market trends on global and local economies combined with her knowledge of employment services, which tends to be a leading economic indicator, she provides timely insight into near-term projections of general economic activity. As an executive at Sprint, Ms. Beck obtained experience in the information technology field which is relevant to Ecolab's development of its ERP systems as well as field automation tools.

Other directorships held during the past five years — None.


 

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LESLIE S. BILLER, age 64.

Biography — Chairman of the Board of Sterling Financial Corporation, the bank holding company for Sterling Savings Bank, a Pacific Northwest regional community bank. Also, Chief Executive Officer of Harborview Capital, a private investment and consultive company. Director of Ecolab since 1997. Chair of the Finance Committee and member of the Compensation Committee.

After holding various positions with Citicorp and Bank of America, Mr. Biller joined Norwest Corporation in 1987 as Executive Vice President in charge of strategic planning and acquisitions for Norwest Banking. He was appointed Executive Vice President in charge of South Central Community Banking in 1990. Mr. Biller served as President and Chief Operating Officer of Norwest Corporation from February 1997 until its merger with Wells Fargo & Company in November 1998. Mr. Biller retired as Vice Chairman and Chief Operating Officer of Wells Fargo & Company in October 2002. He became Chairman of Sterling Financial Corporation in 2010.

Qualifications — Throughout his career in banking, including as Vice Chair and Chief Operating Officer of Wells Fargo, Mr. Biller gained extensive public company senior management and board experience. Having spent a significant part of his career in international assignments in Europe, he is familiar with operating businesses in that region, which allows him to provide advice and guidance relevant to our significant European operations. He has extensive knowledge and experience in banking, treasury and finance, which enables him to provide insight and advice on financing, treasury and enterprise risk management areas. As a chemical engineer, he is familiar with chemicals manufacturing and distribution, which allows him to relate well to our operations.

Other directorships held during the past five years — Director of Sterling Financial Corporation, Knowledge Schools Inc. and Knowledge Universe Education. Formerly a director of PG&E Corporation.

    


 

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STEPHEN I. CHAZEN, age 66.

Biography — President and Chief Executive Officer of Occidental Petroleum Corporation, an oil, natural gas and chemicals producer. Nominee for director.

Mr. Chazen became President and Chief Executive Officer of Occidental Petroleum Corporation in May 2011. He previously served as Occidental's President and Chief Operating Officer from 2010 to 2011 and President and Chief Financial Officer from 2007 to 2010. He was Executive Vice President and Chief Financial Officer from 1999 to 2007. Prior to joining Occidental in 1994, Mr. Chazen was a Managing Director in Corporate Finance and Mergers and Acquisitions at Merrill Lynch. Mr. Chazen is a Director of the American Petroleum Institute.

Qualifications — With nearly 20 years of senior management experience with a major oil and gas company, Mr. Chazen has significant direct experience in the energy sector, one of the Company's most significant end markets. As a chief executive of Occidental, Mr. Chazen is intimately familiar with the competitive landscape and trends within the energy sector as well as the regulatory framework. In addition to his important industry experience, through his more than 30-year career at Occidental and Merrill Lynch and his experience as a director of other public companies, Mr. Chazen possesses knowledge and experience in corporate management, strategy, mergers and acquisitions, public company governance and board practices.

Other directorships held during the past five years — Occidental Petroleum Corporation. Formerly a director of Lyondell Chemical Company, Premcor Inc. and Washington Mutual, Inc.


 

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JERRY A. GRUNDHOFER, age 68.

Biography — Chairman of the Board of Santander Holdings USA, Inc. and its wholly-owned subsidiary Sovereign Bank, a Northeastern United States regional bank, and Chairman Emeritus and retired Chairman of the Board of U.S. Bancorp, a financial services holding company. Director of Ecolab since 1999. Chair of the Compensation Committee and Vice Chair of the Finance Committee.

Following an extensive career in the commercial banking industry, including serving as Vice Chairman of the Board of BankAmerica Corporation, Mr. Grundhofer joined Star Banc Corporation as President and Chief Executive Officer in 1993, assuming the Chairman post in December 1993. In November 1998, Star Banc acquired Firstar Corporation and he assumed the position of President and Chief Executive Officer of Firstar Corporation. In 2001, following a merger of Firstar Corporation and U.S. Bancorp, Mr. Grundhofer was named President and CEO of U.S. Bancorp and added the position of Chairman of the Board in 2003. Mr. Grundhofer retired as CEO in 2006, and as Chairman of the Board in December 2007.

Qualifications — Mr. Grundhofer has more than 40 years leadership experience in the banking and financial services industry, including as Chairman and Chief Executive Officer of U.S. Bancorp. His senior operating experience and public company board experience give him an understanding for leading a public company and allow him to provide strategic vision to the Company. He has extensive knowledge and experience in banking, treasury and finance, which enables him to provide insight and advice on financing, treasury and enterprise risk management areas. He also possesses extensive experience with mergers and acquisitions.

Other directorships held during the past five years — Chairman of the Board of Santander Holdings USA, Inc. and its wholly-owned subsidiary Sovereign Bank. Formerly a director of Citibank, N.A., Citigroup, Lehman Brothers Inc. and The Midland Company.


 

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ARTHUR J. HIGGINS, age 57.

Biography — Consultant, Blackstone Healthcare Partners of The Blackstone Group. Director of Ecolab since 2010. Member of the Compensation and Governance Committees.

Mr. Higgins joined The Blackstone Group in 2010. Prior to that Mr. Higgins served as Chairman of the Board of Management of Bayer HealthCare AG, a developer and manufacturer of human and animal health products, and Chairman of the Bayer HealthCare Executive Committee. Prior to joining Bayer HealthCare in 2004, Mr. Higgins served as Chairman, President and Chief Executive Officer of Enzon Pharmaceuticals, Inc. from 2001 to 2004. Prior to joining Enzon Pharmaceuticals, Mr. Higgins spent 14 years with Abbott Laboratories, most recently as President of the Pharmaceutical Products Division from 1998 to 2001. He is a past member of the Board of Directors of the Pharmaceutical Research and Manufacturers of America (PhRMA), of the Council of the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) and President of the European Federation of Pharmaceutical Industries and Associations (EFPIA).

Qualifications — Mr. Higgins has extensive leadership experience in the global healthcare market. Through leadership positions with large healthcare developers and manufacturers in both the United States and Europe, Mr. Higgins has gained deep knowledge of the healthcare market and the strategies for developing and marketing products in this highly regulated area. This knowledge and industry background allows him to provide valuable insight to Ecolab's growing Healthcare business, which is developing in both the U.S. and Europe. In addition, his global perspective from years of operating global businesses and his background in working with high growth companies fits well with Ecolab's ambitions for global growth and provide him experiences from which to draw to advise the Company on strategies for sustainable growth. In his role as Chief Executive Officer of Bayer HealthCare he gained significant exposure to enterprise risk management as well as quality and operating risk management necessary in a highly regulated industry such as healthcare.

Other directorships held during the past five years — Director of Zimmer Inc. and Resverlogix Corp.


 

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JOEL W. JOHNSON, age 69.

Biography — Retired Chairman of the Board and Chief Executive Officer of Hormel Foods Corporation, a processor and marketer of meat and food products. Director of Ecolab since 1996. Chairman of the Audit Committee and member of the Governance Committee.

Following an extensive career at General Foods Corporation, Mr. Johnson joined Hormel Foods Corporation in 1991 as Executive Vice President — Sales & Marketing. He advanced to President in 1992, Chief Operating Officer and Chief Executive Officer in 1993 and Chairman of the Board in 1995. Mr. Johnson retired as Chief Executive Officer of Hormel in 2005 and as Chairman in 2006.

Qualifications — Mr. Johnson's tenure as Chairman and Chief Executive Officer of Hormel Foods, a public company with global operations, provides him with directly relevant operating experience. As the former leader of a food products company, Mr. Johnson has insights into one of Ecolab's major end-markets. In addition, with Hormel, he has experience with and understanding of the complexities of operating a global manufacturing company in a regulated environment like the one in which Ecolab operates (e.g., EPA, FDA and USDA). His roles on the boards of Hormel, Meredith Corporation and U.S. Bancorp have provided him with significant public company board experience.

Other directorships held during the past five years — Director of the Meredith Corporation and U.S. Bancorp. Formerly a director of Hormel Foods Corporation.


 

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MICHAEL LARSON, age 53.

Biography — Chief Investment Officer to William H. Gates III. Director of Ecolab since February 2012. Member of the Finance and Safety, Health and Environment Committees.

Mr. Larson has been Chief Investment Officer for Mr. Gates and the Business Manager of Cascade Investment L.L.C., since 1994. He is responsible for Mr. Gates' non-Microsoft investments as well as the investment assets of the Bill & Melinda Gates Foundation Trust. Previously, Mr. Larson was at Harris Investment Management, Putnam Management Company and ARCO.

Qualifications — With 30 years of portfolio management experience, Mr. Larson has deep investment expertise and broad understanding of the capital markets, business cycles and capital efficiency and allocation practices. He also has served on several other public company boards providing him relevant corporate governance experience. In addition, as a professional investor and as the investment officer of the Company's largest shareholder, Mr. Larson brings a long-term shareholder perspective to the Board.

Other directorships held during the past five years — Director of AutoNation, Inc., Republic Services, Inc., Grupo Televisa,  S.A.B. and Fomento Mexicano Economico, S.A.B. de C.V. In addition, he is Chairman of the Board of Trustees for Western Asset/Claymore Inflation-Linked Securities & Income Fund and Western Asset/Claymore Inflation-Linked Opportunities & Income Fund. Formerly a director of Pan American Silver Corp.


 

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JERRY W. LEVIN, age 68.

Biography — Chairman and Chief Executive Officer of Wilton Brands Inc., a consumer products company. Also Chairman of JW Levin Partners LLC, a private investment and advisory firm. Director of Ecolab since 1992. Lead Director, Vice Chair of the Governance Committee and Vice Chair of the Compensation Committee.

Mr. Levin served in a number of senior executive positions with The Pillsbury Company from 1974 through 1989. In 1989, he joined MacAndrews & Forbes Holdings,  Inc., which controlled Revlon, Inc. and The Coleman Company, among other companies. From 1989 through 1997, Mr. Levin served in various capacities at the Coleman Company, Inc., Revlon, Inc., Revlon Consumer Products Corporation and the Cosmetic Center, Inc., including as Chairman and/or Chief Executive Officer. Mr. Levin served as Chairman and Chief Executive Officer of American Household, Inc. (formerly known as Sunbeam Corporation) from 1998 to 2005. He joined the Board of Sharper Image in July 2006, and served as interim CEO from September 2006 to April 2007. He became Chairman and Chief Executive Officer of Wilton Brands in 2009.

Qualifications — Mr. Levin has more than 30 years of public company operating experience, including as Chairman and/or Chief Executive Officer of Coleman, Revlon and American Household, and has served on numerous public company boards. In addition to his experience leading companies, he has a background and expertise in mergers and acquisitions, which allows him to provide the company guidance and counsel for its acquisition program. He has experience in operating companies in diverse industries, giving him a unique perspective to provide advice to the Company regarding its many operating units. In addition, with 20 years on Ecolab's Board, Mr. Levin is our longest serving director and has developed a deep knowledge of our business. His long history with the Company, combined with his leadership skills and operating experience, makes him particularly well suited to be our Lead Director.

Other directorships held during the past five years — Director of Saks Incorporated and U.S. Bancorp. Formerly a director of American Household, Inc., Sharper Image and Wendy's Inc.


 

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ROBERT L. LUMPKINS, age 69.

Biography — Chairman of the Board of The Mosaic Company, a leading producer and marketer of crop and animal nutrition products and services. Director of Ecolab since 1999. Chair of the Safety, Health and Environment Committee and Vice Chair of the Audit Committee.

Mr. Lumpkins, who retired as Vice Chairman and a director of Cargill Inc. in 2006, began his career with Cargill in 1968, and served in various finance and general management positions. Named President of the Financial Services Division in 1983 and Chief Financial Officer for Cargill Europe in 1988. Served as Chief Financial Officer of Cargill from 1989 to 2005, and elected to Cargill's Board of Directors in 1991. Elected Vice Chairman in 1995.

Qualifications — Mr. Lumpkins' nearly 40-year career at Cargill, a large and diverse global industrial company, which operates in the food industry and chemicals industry, provides him with background in two industries relevant to Ecolab. His service in various domestic and international senior operating and financial roles at Cargill, including as Chief Financial Officer, allows him to contribute both strategic direction and sophisticated financial management advice to the Company. As Chairman of the Board of Mosaic, he also has current experience leading a public company Board.

Other directorships held during the past five years — Chairman of The Mosaic Company and director of Airgas, Inc. Formerly a director Webdigs Inc.


 

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VICTORIA J. REICH, age 55.

Biography — Former Senior Vice President and Chief Financial Officer of United Stationers Inc., a broad line wholesale distributor of business products. Director of Ecolab since 2009. Member of the Audit and Safety, Health and Environment Committees.

From 2007 to 2011 Ms. Reich was Senior Vice President and Chief Financial Officer of United Stationers Inc. Prior to joining United Stationers, Ms. Reich spent ten years as an executive with Brunswick Corporation, last serving as President — Brunswick European Group, and previously as Senior Vice President and Chief Financial Officer. Before joining Brunswick, Ms. Reich was employed for 17 years at General Electric Company in various financial management positions.

Qualifications — As a former Chief Financial Officer of a public company, Ms. Reich possesses relevant financial leadership experience with respect to all financial management disciplines relevant to the Company, including public reporting, strategic planning, treasury, IT and financial analysis. Her financial management background at United Stationers, Brunswick and General Electric, combined with her experience in European general management at Brunswick, enables her to provide strategic input as well as financial discipline. United Stationers operates a cleaning supplies distribution business which provided Ms. Reich familiarity with the institutional market, one of our largest end-markets.

Other directorships held during the past five years — Director of H&R Block, Inc.


 

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MARY M. VANDEWEGHE, age 53.

Biography — Chief Executive Officer and President of Forte Consulting Inc., a financial and management consulting firm, and Professor at Georgetown University McDonough School of Business. Director of Ecolab since December 2011. Member of the Audit and Finance Committees.

Prior to returning to Forte Consulting in 2009, Ms. VanDeWeghe was Senior Vice President of Finance for Lockheed Martin from 2006 to 2009. Her responsibilities included Corporate Treasury, Mergers & Acquisitions, Investor Relations, Corporate and Competitive Financial Analysis, and Investment Management. From 1996 to 2006, she was CEO and President of Forte Consulting, providing financial and management consulting to corporate and government clients. During that time period, she also served as executive in residence and finance professor at the University of Maryland Smith School of Business. She began her career in 1983 at J.P. Morgan, where she held positions in corporate finance, capital markets and general management, and rose to the rank of Managing Director. During her tenure at J.P. Morgan, she covered clients in a variety of industries including energy, mining, chemicals and health care.

Qualifications — Through her role in financial management at Lockheed Martin as well as her work in consulting and investment banking, Ms. VanDeWeghe gained directly relevant experience in corporate governance, financial analysis and strategy, mergers and acquisitions, and capital markets. As a former director of Nalco, Ms. VanDeWeghe possesses deep knowledge with respect to the water treatment and energy services businesses that Ecolab gained with the 2011 Nalco merger.

Other directorships held during the past five years — Director of Brown Advisory. Formerly a director of Nalco Holding Company.


 

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JOHN J. ZILLMER, age 57.

Biography — Retired President and Chief Executive Officer of Univar Inc., a global distributor of industrial chemicals and related specialty services. Director of Ecolab since 2006. Member of the Compensation and Governance Committees.

Mr. Zillmer joined Univar in 2009 as president and Chief Executive Officer. In 2012, he stepped down as President and CEO and became Executive Chairman until December 2012 when he retired from Univar. Prior to joining Univar, Mr. Zillmer served as Chairman and Chief Executive Officer of Allied Waste Industries, a solid waste management business, from 2005 until the merger of Allied Waste with Republic Services, Inc. in December 2008. Before Allied Waste, Mr. Zillmer spent 30 years in the managed services industry, most recently as Executive Vice President of ARAMARK Corporation, a provider of food, uniform and support services. During his eighteen-year career with ARAMARK, Mr. Zillmer served as President of ARAMARK's Business Services division, the International division and the Food and Support Services group. Prior to joining ARAMARK, Mr. Zillmer was employed by Szabo Food Services until Szabo was acquired by ARAMARK in 1986.

Qualifications — As Chief Executive Officer of Univar and previously Allied Waste, Mr. Zillmer has experience leading both public and large private companies. With Univar, he became intimately familiar with the chemical market, including with respect to chemicals that Ecolab uses to manufacture its products. He also has extensive knowledge of the environmental aspects of chemicals manufacturing and distribution. His experience leading various ARAMARK operations has given him deep knowledge of the institutional market, particularly the contract catering segment, which is a large market for the Company. His roles on the boards of Reynolds American, Allied Waste and United Stationers have provided him with significant public company board experience.

Other directorships held during the past five years — Director of Reynolds American Inc. Formerly a director of Allied Waste Industries, Inc., Casella Waste Systems, Inc., Pathmark Stores Inc. and United Stationers Inc.


 

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EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the following Compensation Discussion and Analysis of the Company with management. Based on their review and discussion, the Compensation Committee recommended to the Board of Directors, and the Board has approved, the inclusion of the Compensation Discussion and Analysis in both the Company's Annual Report on Form 10-K for the year ended December 31, 2012, and the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 2, 2013.

Dated: February 22, 2013   Les S. Biller
Jerry A. Grundhofer
  Arthur J. Higgins
Jerry W. Levin
  John J. Zillmer


COMPENSATION DISCUSSION AND ANALYSIS

INTRODUCTION AND OVERVIEW

The Company's compensation programs have contributed to its strong growth and returns over the past decade. The mix of annual salary, annual cash incentive bonus and long-term incentives, as more fully described in this Compensation Discussion and Analysis, has motivated executives to meet the Company's annual growth targets (in most years, strong revenue and operating income growth accompanied by double-digit EPS, or adjusted EPS, growth) while balancing necessary investments in the business in order to achieve attractive, long-term shareholder returns. Evidence of the Company's consistently strong performance can be seen in both our financial performance and stock appreciation over the past decade. For the ten-year period from January 1, 2003 to December 31, 2012, the Company's sales have increased 215% and its adjusted earnings per share have increased 210%. During this same ten-year period, our stock price has appreciated 191% versus the S&P 500's 62% increase. More recently, 2012 reported sales and adjusted earnings per share (earnings per share excluding the impact of special gains and charges and discrete tax items and, in 2011, the dilutive impact of the Nalco merger)(1) increased 74% and 17%, respectively, over 2011. Our 2012 share performance (up 24% for the year) has outperformed the S&P 500 for the ninth consecutive year and eleven of the last twelve years.

The chart below depicts our 10-year earnings performance from January 1, 2003 through December 31, 2012 and our stock price performance versus the S&P 500 Composite Index over the same period.

GRAPHIC


(1)
A reconciliation of 2012 earnings per share to 2012 adjusted earnings per share is as follows: 2012 reported earnings per share were $2.35; excluding the impact of special gains and charges ($0.65) partially offset by discrete tax items (+$0.03), adjusted earnings per share were $2.98. (Per share amounts do not necessarily sum due to rounding.) Reported and adjusted earnings per share for the years 2003 through 2012 are provided in our 2012 Annual Report. We believe that in this context adjusted diluted earnings per share is a more meaningful measure of the Company's underlying business performance than reported diluted earnings per share because it eliminates the effect of nonrecurring items such as special gains from the sale of assets as well as special charges such as charges from restructuring activities.

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Highlights — Some of the key components of our compensation programs that have contributed to our successful track record of business results are briefly highlighted below and discussed in more detail throughout this Compensation Discussion and Analysis:

Pay-for-Performance and Pay Risk Philosophy.  We emphasize pay-for-performance and structure our programs to provide incentives for executives to drive business and financial results. We believe that the pay of our executives, particularly our principal executive officer, correlates well with our total shareholder returns; and while our incentive programs help to drive results, they do so without encouraging excessive risk taking that would threaten the long-term growth of our business (see "Total Compensation Mix" on page 35, "Annual Cash Incentives" on page 29, "Long-term Equity Incentives" on page 32 and "Corporate Governance — Compensation Risk Analysis" on page 9);

Compensation Mix.  We utilize a mix of compensation elements — salary, annual cash incentive bonus and long-term incentives — that is within the median range for the mix of executive compensation provided by the market survey data we review in determining compensation (see "Total Compensation Mix" on page 35);

Total Compensation Philosophy.  We provide executives with competitive total compensation that is within the median range of our size-adjusted competitive market (see "Program Objectives and Reward Philosophy" on page 26);

2012 Compensation Actions.  We took the following compensation actions with respect to our named executive officers in 2012:

Excluding salary adjustments for promotions, changes of responsibility and the buyout of perquisites, base salaries increased between 2.5% and 5.6% and on average 3.1% versus 2011 (see "Base Salaries" on page 28);

Annual cash incentive bonus payouts were between 136% and 181% of target, and averaged 150% of target (see "Annual Cash Incentives" on page 29); and

Long-term incentive awards, consisting of stock options and performance-based restricted stock units, were granted in the same proportion as prior years and were within the median range of our competitive market for each named executive officer with a limited exception for our newly-appointed Chief Financial Officer, who was below the median (see "Long-Term Equity Incentives" on page 32).

Performance-Based Compensation.  At least 70% of each of our named executive officers' 2012 target compensation was performance based (88% in the case of our principal executive officer), with the majority of the performance-based compensation coming in the form of long-term incentives (see "Total Compensation Mix" on page 35);

Setting Performance Targets.  We utilize a robust planning process to establish financial and business performance metrics for incentive plans that, while challenging, are designed to be achievable for the participant when we meet our performance goals, and appropriately balance short-term results with necessary investments to achieve our long-term goals. These performance measures are fully disclosed in this Proxy Statement (see "Annual Cash Incentives" on page 29);

Performance Measures.  We use numerous performance measures to determine the amount of incentive compensation an executive will receive under both short-term and longer-term performance based incentive programs, including adjusted earnings per share, business unit sales and operating income and return on invested capital. Again, this approach balances annual financial objectives with long-term value creation and avoids reliance on a single metric that could unduly cause our executives to focus on limited components of our business (see "Annual Cash Incentives" on page 29 and "Long-term Equity Incentives" on page 32);

Long-term Incentives.  A significant portion of our executives' compensation is derived from long-term equity based compensation awards granted each year. Our long-term incentive program is designed so that approximately 50% of the value is delivered in the form of performance-based restricted stock units (PBRSUs) with the remaining 50% of the value delivered in the form of stock options. Under such awards, our executives' compensation increases in an appropriate relationship with the increase in the value of our Company, promoting our pay-for-performance philosophy. In addition, the PBRSU component can only be earned when our performance on return on invested capital (adjusted for the impact of purchase accounting and special charges relating to the Nalco merger) is above our weighted average cost of capital. This further aligns compensation with performance and shareholder value creation (see "Long-term Equity Incentives" on page 32);

Stock Ownership Guidelines.  We have established stock ownership guidelines that encourage executives to retain a significant long-term position in our stock and thereby align their interests with the interests of our stockholders (see "Stock Retention and Ownership Guidelines" on page 34);

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Change-in-Control Benefits.  We have in place a balanced change-in-control severance policy that provides our officers severance at two times the sum of base compensation plus annual incentive pay at target following a change in control and termination of employment (a so-called "double-trigger"), with no tax gross-ups (see "Executive Change-in-Control Policy" on page 34); and

Risk Mitigation Features.  Our programs contain other features to mitigate against our executives taking excessive risk in order to maximize pay-outs, including varied and balanced performance targets, discretionary authority of the Compensation Committee to reduce award pay-outs, bonus caps at 200% of target and a Policy on Reimbursement of Incentive Payments (or so-called "clawback" policy) (see "Compensation Recovery" on page 34 and "Corporate Governance — Compensation Risk Analysis" on page 9).

The Compensation Committee of the Board of Directors oversees the design and administration of our executive compensation programs according to the processes and procedures discussed in the Corporate Governance section of this Proxy Statement, located at page 10 hereof. The Committee is advised by an independent compensation consultant as it deems appropriate.


2012 Say-on-Pay Results — At the 2012 Annual Meeting, Ecolab stockholders approved on an advisory basis the compensation of our named executive officers disclosed in that year's proxy statement, with more than 97% of the total votes cast by holders of shares represented at the meeting voting in favor of our executive compensation proposal. The Compensation Committee took this overwhelmingly favorable shareholder support into account in deciding to retain the overall structure and philosophy of our compensation plans and programs in 2012.


Changes in 2012 — We made two notable changes to our compensation programs in 2012.

First, prior to the merger of the Company and Nalco Holding Company ("Nalco") on December 1, 2011, each company utilized a different compensation benchmarking methodology. We have developed a new benchmarking methodology to use for the combined Ecolab and Nalco group. While the methodology was developed after the establishment of 2012 base salaries and annual incentive compensation, the new methodology was utilized for determining long-term equity incentives beginning in 2012 and will additionally be used for establishing base salaries, annual incentive compensation as well as long-term incentives beginning in 2013 (see "Program Objectives and Reward Philosophy" on page 26).

Second, effective January 1, 2013, we made changes to the Company's U.S. qualified and non-qualified retirement plans to provide for a unified platform of retirement benefits for eligible employees. We believe that these changes will facilitate talent mobility and provide a competitive benefit within established financial parameters. In connection with these changes, in 2013 eligible legacy Nalco employees began accruing cash balance pension benefits under the Company's Pension Plan (described at page 41), and select legacy Nalco executives became newly eligible to participate in the Mirror Pension Plan (described at page 42). The Company's broad-based tax-qualified defined contribution/401(k) retirement plans were amended effective January 1, 2013, to provide an enhanced matching contribution for certain individuals who became participants in the Pension Plan after January 1, 2007. Similar changes were made to the Mirror Savings Plan, a nonqualified plan described at page 44 and in 2013 select legacy Nalco executives became newly eligible to participate in this plan. The new matching contribution is equal to (i) 100% of the amount of the participant's deferrals that do not exceed 4% of covered compensation plus (ii) 50% of the participant's deferrals that exceed 4% but do not exceed 8% of covered compensation. None of the named executive officers is eligible for the enhanced matching contribution under any of the deferred compensation plans.

In addition to the above changes, two changes which were approved in 2011 to our executive perquisites program — elimination of (1) the Executive Allowance and (2) Executive Financial Planning services — became effective January 1, 2012. The Executive Allowance perquisite was eliminated with a corresponding salary increase; however, generally the Executive Financial Planning services perquisite was eliminated without a corresponding salary increase. From a financial perspective, the cumulative effects of these changes are generally neutral to the executives and the Company; however, the changes provide greater transparency to the executives' total cash compensation.

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Program Elements — The principal elements of our executive compensation programs for 2012 are illustrated below:

GRAPHIC

*
Total compensation is defined as the sum of base salary, target annual cash incentives and the grant date present value of long-term equity incentives, and does not necessarily tie to the values disclosed in the Summary Compensation Table and supplemental tables. The average of the total compensation for the remaining named executive officers excludes our former Chief Financial Officer, Steven L. Fritze, who retired at the end of 2012 and did not receive long-term equity incentive grants during the year. The chart is not drawn to scale for any particular named executive officer.

Our philosophy is to position the aggregate of these elements of compensation in the median range of our competitive market, adjusted for the Company's current size. For annual cash incentives, our philosophy generally is to also position them at a level commensurate with the Company's performance based on adjusted earnings per share compared to EPS growth in the Standard & Poor's 500. We position annual cash incentives and long-term incentives to provide lower than median compensation for lower than competitive market performance and higher than median compensation for higher than competitive market performance. This approach provides motivation to executives without incentivizing inappropriate risk-taking to achieve pay-outs, as we believe that the Company's prospects for growth are generally at least as favorable as the average of the S&P 500. For stock options, our grant processes do not permit backdating and, as described under Long-Term Equity Incentives, are granted on the same date as the Compensation Committee approval date.

This Compensation Discussion and Analysis contains statements regarding incentive targets and goals. These targets and goals are disclosed in the limited context of the Company's compensation programs and should not be understood to be statements of management's expectations or estimates of results or other guidance.

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PROGRAM OBJECTIVES AND REWARD PHILOSOPHY

In General — We use executive compensation (i) to support our corporate vision and long-term financial objectives, (ii) to communicate the importance of our business results, (iii) to retain and motivate executives important to our success and (iv) to reward executives for contributions at a level reflecting our performance. Our executive compensation program, that is the compensation package as a whole as well as each element of compensation, is designed to be market competitive in order to attract, motivate and retain our executives in a manner that is in the best interests of our stockholders. Our executive compensation program is further designed to reinforce and complement ethical and sustainable management practices, which is supported in part by our compensation recovery (or "clawback") policy, promote sound risk management and align management interests (such as sustainable long-term growth) with those of our stockholders. We believe that our long-term equity incentive program, which typically accounts for at least half of our named executive officers' total annual compensation, is an effective tool in aligning our executives' interests with those of our stockholders and incentivizing long-term value creation.


Competitive Market — We define our competitive market to be a broad range of general industry companies, as reflected in third party surveys in which we participate. We use surveys published by Aon Hewitt and Towers Watson as the primary sources of competitive data because we have determined these to be the best sources for credible, size-adjusted market data for general industry companies. Due to the high correlation between annual sales revenue and compensation, we size adjust the competitive market compensation data and use the median to set our targeted parameters, which we refer to as the median range. We define the median range as within 15% of the median for base salaries and within 20% of the median for annual cash incentive targets and long-term incentive targets.

Additionally, beginning with long-term equity incentives granted in 2012, for purposes of benchmarking compensation for the named executive officers we utilize competitive data from a comparison group of 23 companies constructed from a screening process conducted by the Compensation Committee's independent compensation consultant, Frederic W. Cook & Co., based on input from the Company and the Compensation Committee with respect to the selection criteria (the "Peer Group"). The Peer Group is comprised of companies in the Chemicals, Containers & Packaging, Paper Products, Oil & Gas Equipment & Services and Industrial Conglomerates industries under the Global Industry Classification Standards (GICS) taxonomy with annual revenues of one-fourth to four times the annual revenues of the Company, within a reasonable size range in various other measures such as annual operating income, total employees and market capitalization, and meeting several other criteria, such as inclusion in the Company's primary GICS industry classification and positioning the Company near the median in terms of size. The Peer Group will similarly be used in conjunction with the market surveys for establishing base salaries and annual incentive compensation beginning in 2013.

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The companies comprising the Peer Group as well as the information on each that the Compensation Committee reviewed at the time the Peer Group was determined is set out below:

   
 
  Trailing 4Q ($ mil.)   Latest Qtr ($ mil.)    
   
   
 
 
  Latest FYE
Total
Employees

  03/30/2012
Market
Capital

   
 
Company Name
  Net
Revenue

  Operating Inc.
(EBIT)

  Total
Assets

  Total
Equity

  Composite Percentile Rank
 
   

Schlumberger

  $ 39,540   $ 6,732   $ 55,201   $ 31,263     113,000   $ 93,332     100 %

3M

  $ 29,611   $ 6,178   $ 31,616   $ 15,420     84,198   $ 61,998     92 %

DuPont

  $ 38,437   $ 4,910   $ 48,492   $ 8,593     70,000   $ 49,464     88 %

Halliburton

  $ 24,829   $ 4,737   $ 23,677   $ 13,198     68,000   $ 30,568     77 %

Danaher

  $ 16,091   $ 2,703   $ 29,949   $ 16,905     59,000   $ 38,743     77 %

National Oilwell Varco

  $ 14,658   $ 2,978   $ 25,515   $ 17,619     49,975   $ 33,713     73 %

Baker Hughes

  $ 19,831   $ 2,985   $ 24,847   $ 15,746     57,700   $ 18,352     73 %

International Paper

  $ 26,034   $ 2,349   $ 26,993   $ 6,620     61,500   $ 15,342     66 %

Monsanto

  $ 12,425   $ 2,679   $ 20,423   $ 11,041     26,100   $ 42,705     62 %

Praxair

  $ 11,252   $ 2,462   $ 16,356   $ 5,488     26,261   $ 34,223     54 %

Potash

  $ 8,715   $ 3,922   $ 16,257   $ 7,847     5,486   $ 39,236     52 %

Mosaic

  $ 11,153   $ 2,749   $ 15,937   $ 11,811     7,700   $ 23,523     51 %

Ecolab

  $ 11,284   $ 1,184   $ 16,697   $ 6,051     40,200   $ 18,021     50 %

PPG Industries

  $ 14,885   $ 1,682   $ 14,382   $ 3,249     38,400   $ 14,618     45 %

Agrium

  $ 15,470   $ 2,237   $ 13,140   $ 6,424     14,800   $ 13,631     43 %

Air Products & Chemicals

  $ 10,113   $ 1,608   $ 14,391   $ 5,909     18,900   $ 19,334     42 %

Cameron International

  $ 6,959   $ 912   $ 9,362   $ 4,707     22,500   $ 13,014     29 %

CF Industries

  $ 6,098   $ 2,745   $ 8,975   $ 4,547     2,500   $ 11,959     25 %

Sherwin-Williams

  $ 8,766   $ 784   $ 5,229   $ 1,517     32,988   $ 11,286     24 %

Ashland

  $ 6,999   $ 207   $ 12,513   $ 4,065     15,000   $ 4,781     20 %

Sealed Air

  $ 5,641   $ 566   $ 11,497   $ 2,958     26,300   $ 3,709     19 %

Eastman Chemical

  $ 7,178   $ 1,017   $ 6,184   $ 1,870     10,000   $ 7,130     18 %

Celanese

  $ 6,763   $ 755   $ 8,518   $ 1,341     7,600   $ 7,241     11 %

Airgas

  $ 4,608   $ 545   $ 5,159   $ 1,649     14,000   $ 6,794     8 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75th Percentile

  $ 17,961   $ 2,982   $ 25,181   $ 12,504     58,350   $ 36,483        

Mean

  $ 15,046   $ 2,541   $ 19,331   $ 8,686     36,170   $ 25,856        

Median

  $ 11,252   $ 2,462   $ 15,937   $ 6,424     26,261   $ 18,352        

25th Percentile

  $ 7,089   $ 965   $ 10,429   $ 3,657     14,400   $ 11,623        

Ecolab Rank

    50 %   29 %   59 %   47 %   64 %   49 %      
   
Companies are ranked in descending order based on overall average percentile rank.

All financial and market data are taken from Standard & Poor's Compustat Service.

Revenue excludes non-operating income, gain on sale of securities or fixed assets, discontinued operations, excise taxes and royalty income.

Operating income (EBIT) excludes special items such as restructuring charges.

Ecolab revenue reflects fiscal year 2011 pro forma amount assuming the Nalco merger had been completed on January 1, 2010 as reported in the Ecolab Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Ecolab number of employees reflects amount as of December 31, 2011 as reported in the Ecolab Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Ecolab operating income reflects fiscal year 2010 pro forma amount assuming the Nalco merger had been completed on January 1, 2010 as reported in the Ecolab Inc. Prospectus Supplement dated December 6, 2011 to the Prospectus dated December 2, 2011.

Ecolab total assets and total stockholder's equity reflect September 30, 2011 pro forma amounts assuming the Nalco merger had been completed on January 1, 2010 as reported in the Ecolab Inc. Prospectus Supplement dated December 6, 2011 to the Prospectus dated December 2, 2011.

We used two surveys for benchmarking 2012 base salary and annual cash incentive compensation. The 2011 Towers Watson CDB Executive Compensation Survey includes over 400 corporate entities that range in revenue from approximately $1 billion to over $40 billion. Including subsidiaries, this survey includes over 800 participants. We also used the 2011 Aon Hewitt TCM Executive Regression Analysis Survey, which includes over 300 corporate entities that range in revenue from approximately $100 million to $400 billion. For benchmarking long-term incentives, we used the average of the competitive data yielded by the Peer Group, the Towers Watson survey and the Frederic W. Cook & Co. 2012 Survey of Long-Term Incentives. The Frederic W. Cook & Co. survey has 68 participants which range in revenue from $4.8 billion to $467 billion.

We size adjust the survey data by inserting the annual revenue for the Company (for use with the principal executive officer and the principal financial officer) or the applicable business unit (for use with the leaders of particular business units) into a statistical regression model supplied by the survey providers, which then computes the size-adjusted median by position for base salaries and annual cash incentives. We use the average of the size-adjusted medians from the two surveys as the standard by which we set base salary and annual cash incentive targets. For long-term incentive guidelines, we calculate the size-adjusted median by applying the median LTI value as a percentage of salary from the Towers Watson and Frederic W. Cook & Co. surveys and the Peer Group data to the size-adjusted base salary.

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Compensation Process — For the named executive officers, the Compensation Committee reviewed and approved all elements of 2012 compensation taking into consideration recommendations from our principal executive officer (but not for his own compensation), as well as competitive market guidance and feedback provided by the Compensation Committee's independent compensation consultant and our human resources staff regarding individual performance, time in position and internal pay comparisons. The Compensation Committee reviewed and approved all elements of 2012 compensation for our principal executive officer taking into consideration the Board's performance assessment of the principal executive officer and recommendations, competitive market guidance and feedback from the Compensation Committee's independent compensation consultant and our human resources staff. Recommendations with respect to the compensation of our principal executive officer are not shared with our principal executive officer.


Regulatory Considerations — We monitor changes in the regulatory environment when assessing the financial efficiency of the various elements of our executive compensation program. We have designed and administered our annual cash incentives, particularly our stockholder-approved Management Performance Incentive Plan, which we refer to as the MPIP, and long-term equity incentive plans in a manner that is intended to preserve the federal income tax deductibility of the associated compensation expense.

The MPIP is designed to meet the requirements of Internal Revenue Code Section 162(m) regarding performance-based compensation and is administered by the Compensation Committee, who selects the participants each year, establishes the annual performance goal based upon performance criteria that it selects, the performance target and a maximum annual cash award dependent on achievement of the performance goal. For 2012, the Compensation Committee selected diluted earnings per share as the performance measure under the MPIP. The Compensation Committee certifies the extent to which the performance goal has been met and the corresponding amount of the award earned by the participants, with the ability to exercise downward discretion to lower, but not raise, the award to an amount based upon the metrics used for our broader-based Management Incentive Plan cash incentive and to recognize individual performance. In effect, the MPIP establishes the maximum bonus payouts for the named executive officers, while the Management Incentive Plan criteria are used by the Compensation Committee to guide the exercise of its downward discretion in determining the actual pay-outs which have historically been (and were in 2012) well below the MPIP maximum permitted payouts. As described under Long-Term Equity Incentives below, the Compensation Committee has similarly positioned the performance-based restricted stock units to meet the requirements of Section 162(m).

We have designed and administered our deferred compensation, equity compensation and change-in-control severance plans to be in compliance with federal tax rules affecting nonqualified deferred compensation. In accordance with FASB Accounting Standards Codification 718, Compensation — Stock Compensation, for financial statement purposes, we expense all equity-based awards over the service period for awards expected to vest, based upon their estimated fair value at grant date. Accounting treatment has not resulted in changes in our equity compensation program design for our named executive officers.


BASE SALARIES

In General — The Compensation Committee reviews base salaries for the named executive officers and other executives annually in December effective for the following fiscal year, and increases are based on changes in our competitive market, changes in scope of responsibility, individual performance and time in position. Our philosophy is to pay base salaries that are within the median range of our size-adjusted competitive market. When an executive officer is new to his/her position, his/her initial base salary will likely be at the low end of the median range but, if performance is acceptable, his/her base salary will be increased over several years to arrive at the median.


Salary Increases — For 2011 and 2012, annualized base salary rates for the named executive officers are summarized below:

 
   
  Components of Fiscal Year 2012 Increases    
 
 
   
  Merit    
   
   
 
 
  Fiscal Year
2011

  Perquisite
Buyout

  Promotion/
Scope

  Fiscal Year
2012 Total

 
Name
  Increase
  %
 
   

Douglas M. Baker, Jr.

  $ 1,000,000   $ 25,000     2.5 % $ 25,000         $ 1,050,000  

Daniel J. Schmechel(1)

  $ 325,000   $ 8,100     2.5 % $ 13,500   $ 103,400   $ 450,000  

Thomas W. Handley(2)

  $ 475,000   $ 11,900     2.5 % $ 13,500   $ 19,600   $ 520,000  

Stephen M. Taylor

  $ 450,000   $ 25,000     5.6 %   N/A (3)       $ 475,000  

Michael A. Hickey(4)

  $ 400,000   $ 10,000     2.5 % $ 13,500   $ 16,500   $ 440,000  

Steven L. Fritze

  $ 520,000   $ 16,500     3.2 % $ 13,500         $ 550,000  
   
(1)
Effective January 1, 2012, Mr. Schmechel received a 2.5% merit increase plus a 4.1% increase reflecting the increased scope of his responsibilities following the Nalco merger. His salary was subsequently increased by 11.1% effective June 16, 2012 and 12.5% on October 1, 2012 as Mr. Schmechel transitioned to the position of Chief Financial Officer.

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(2)
Effective January 1, 2012, Mr. Handley received a 2.5% merit increase plus a 4.1% increase reflecting the increased scope of his responsibilities in 2011 when he assumed responsibility for our Asia Pacific/Latin America operations.

(3)
Mr. Taylor did not receive the executive allowance perquisite prior to its elimination effective January 1, 2012.

(4)
Effective January 1, 2012, Mr. Hickey received a 2.5% merit increase plus a 4.1% promotion increase reflecting his appointment as Executive Vice President and President — Institutional in 2011.


Our Analysis — For 2012, base salaries accounted for approximately 12% of total compensation for the principal executive officer and 25% on average for the four other named executive officers other than Mr. Fritze (who, as noted in the footnote to the Program Elements illustration on page 25, did not receive all of the elements comprising total compensation). 2012 base salary rates were within the median range for all of our named executive officers with the exception of Mr. Schmechel, who is below the median range due to being newly promoted to the role of Chief Financial Officer in October 2012. In general, the 2012 merit salary increases for our named executive officers were in line with the principles used to deliver the Company's U.S. salary increases broadly. The base salaries were additionally adjusted in connection with the elimination of an executive cash allowance perquisite effective January 1, 2012, and in certain cases changes in responsibilities and scope since our executives' last salary increase in January 2011. Mr. Schmechel's 2012 salary increases recognized his increased responsibilities as he transitioned to his role as Chief Financial Officer effective October 1, 2012.


ANNUAL CASH INCENTIVES

In General — To determine the 2012 award payments (which were paid in March 2013), the Committee reviewed the performance of the named executive officers and other executives at its February 2013 meeting. With respect to the 2012 awards, the Committee established a performance goal under the MPIP to determine maximum pay-out potential and then used the goals described below with respect to the Management Incentive Plan (or MIP) to determine whether and to what degree the actual payout amount for each named executive officer's annual cash incentive award will be less than the maximum permitted amount.


Target Award Opportunities — Under the MIP, we establish annual target award opportunities expressed as a percentage of base salary paid during the year and various award payment limits expressed as a percentage of the target award. Our annual cash incentive targets are set within the median range relative to our competitive market for each position with the exception of Mr. Schmechel, who is below the median range due to being newly promoted to the role of Chief Financial Officer in October 2012, and the annual cash incentive plan is structured so that lower performance results in below market payouts and superior performance drives payouts above the median range. For 2012, target award opportunities were within the median range for all our named executive officers ranging from 70% to 135% of base salary. Minimum and maximum payout opportunities ranged from 0% to 200% of target award opportunity, respectively.


Performance Measures — Under the MIP, we use a mix of overall corporate, business unit and individual performance measures to foster cross-divisional cooperation and to assure that executives have a reasonable measure of control over the factors that affect their awards. This performance measure mix varies by executive position. For 2012, the performance measure mix for the named executive officers is summarized in the table on page 31.


Performance Goals and Achievement — Under the MIP, several performance goals are used, including goals measuring overall corporate performance as well as goals for specific business unit performance for those executives who are responsible for these business units. Overall corporate performance in 2012 was based on adjusted earnings per share goals. The Company uses adjusted earnings per share as a measure because it is most closely aligned with our strategy of delivering profitable growth and increased stockholder value. We define adjusted diluted earnings per share as diluted earnings per share excluding discrete tax items and special gains and charges. See footnote (1) on page 22 for a reconciliation of 2012 reported diluted earnings per share to 2012 adjusted diluted earnings per share. We believe that adjusted diluted earnings per share is a better measure of the Company's underlying business performance than reported diluted earnings per share because it eliminates the effect of nonrecurring items such as special gains from the sale of assets as well as special charges from restructuring activities. In addition, a total company measure of performance such as adjusted diluted earnings per share is used as one of the performance measures with respect to our named executive officers who manage particular business units because it reinforces our Circle the Customer — Circle the Globe strategy and fosters cross-divisional cooperation.

In establishing these goals for 2012 we took into consideration our prior year results, overall economic and market trends, other large companies' performance expectations and our anticipated business opportunities, investment requirements and the competitive situation. For 2012, the adjusted diluted earnings per share goals were: payout at 40% of the target award opportunity (minimum level) at $2.63; payout at 100% of the target award opportunity (target level) at $2.85; payout at 140% percent of the target award opportunity (140% level) at $3.00; and payout at 200% of the target award opportunity (maximum level) at $3.08.

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Payouts for results between performance levels are interpolated on a straight-line basis. Actual 2012 adjusted earnings per share were $2.98 resulting in the achievement of the adjusted earnings per share goal at 135% of target; however, the Compensation Committee approved a payout at $2.99, resulting in achievement of the adjusted earnings per share goal at 137% of target. The $0.01 adjustment was due to the delayed passage of the 2012 R&D tax credit in early January 2013 instead of during the fourth quarter of 2012, as had been expected when the adjusted earnings per share goals were established. Due to the delayed approval by Congress, the $0.01 per share R&D tax credit benefit will now be recorded as a discrete tax item in the first quarter of 2013 and not included in our 2012 results. The Compensation Committee made the adjustment in recognition that business performance was in line with the higher payout level and Management had no control over the delayed passage of the R&D tax credit, and the Company ultimately realized the tax benefit.

For two of our named executive officers (Messrs. Taylor and Hickey), who each manage a particular business unit for us, as indicated in the table on page 31, 70% of their annual cash incentive is based upon their respective 2012 business unit performance goal which is measured against the achievement of revenue and operating income goals. For Mr. Taylor and Mr. Hickey, the revenue and operating income goals are weighted equally. The 2012 revenue goal for Mr. Taylor was 6.5% growth over 2011 revenue for payout at the minimum level, 10.4% growth for payout at the target level, 12.9% growth for payout at the 140% level and 18.2% growth for payout at the maximum level; and for Mr. Hickey it was 1.4% growth over 2011 revenue for payout at the minimum level, 2.7% growth for payout at the target level, 3.5% growth for payout at the 140% level and 6.0% growth for payout at the maximum level. The 2012 operating income goal for Mr. Taylor was 25.1% growth over 2011 operating income for payout at the minimum level, 27.0% growth for payout at the target level, 28.4% growth for payout at the 140% level and 32.8% growth for payout at the maximum level; and for Mr. Hickey 1.6% growth over 2011 operating income for payout at the minimum level, 6.4% growth for payout at the target level, 9.5% growth for payout at the 140% level and 12.7% growth for payout at the maximum level. No pay-out is made with respect to the business unit revenue goal unless the business unit achieves at least the minimum level on its operating income goal. Pay-outs for results between these two performance levels are interpolated on a straight-line basis.

Mr. Handley was promoted to President and Chief Operating Officer effective September 20, 2012. Prior to that, he managed our Global Food & Beverage and Asia Pacific/Latin America business units. Since Mr. Handley's promotion was made at the end of the third quarter, his annual cash incentive targets were not changed for 2012 following his promotion and 45% of his annual cash incentive is based upon 2012 Global Food & Beverage performance and 25% on Asia Pacific/Latin America performance. The performance of each unit is measured against the achievement of revenue and operating income goals measured at fixed currency rates established at the beginning of the year, which eliminates the impact of currency movements on the cash incentive calculation. Mr. Handley's revenue goal and operating income goal are weighted equally. For Global Food & Beverage, the 2012 revenue goal for Mr. Handley was 1.8% growth over 2011 revenue for payout at the minimum level, 3.7% growth for payout at the target level, 5.0% growth for payout at the 140% level and 7.5% growth for payout at the maximum level. The 2012 Global Food & Beverage operating income goal for Mr. Handley was 2.0% growth over 2011 operating income for payout at the minimum level, 7.3% growth for payout at the target level, 10.9% growth for payout at the 140% level and 17.3% growth for payout at the maximum level. For Asia Pacific/Latin America, the 2012 revenue goal for Mr. Handley was 4.1% growth over 2011 revenue for payout at the minimum level, 6.9% growth for payout at the target level, 8.8% growth for payout at the 140% level and 13.0% growth for payout at the maximum level. The 2012 Asia Pacific/Latin America operating income goal for Mr. Handley was 7.7% growth over 2011 operating income for payout at the minimum level, 15.0% growth for payout at the target level, 19.9% growth for payout at the 140% level and 27.4% growth for payout at the maximum level. No pay-out is made with respect to the business unit revenue goal unless the business unit achieves at least the minimum level on its operating income goal. Pay-outs for results between these performance levels are interpolated on a straight-line basis.

For our two named executive officers who served as principal financial officer during 2012 (Messrs. Fritze and Schmechel), 30% of their annual cash incentive is based upon performance of individual performance goals. This component of staff position awards under the MIP is set at 30% of the performance measure mix for annual cash incentives so that achievement of these goals is a component of the award but remains balanced against achievement of corporate performance goals. The 2012 individual performance objectives for Messrs. Fritze and Schmechel are specific, qualitative, achievable with significant effort and, if achieved, provide benefit to the Company. Mr. Fritze's and Mr. Schmechel's individual performance goals covered key objectives relating to leading the Finance organization, these include organizational and strategic initiatives, including developing talent and projects to increase efficient service delivery. Mr. Fritze and Mr. Schmechel achieved 137% and 130% of their individual target performance goals, respectively. The Compensation Committee, with input from the principal executive officer, approved the annual cash incentives as shown on the table on page 31, including the component based on Mr. Fritze's and Mr. Schmechel's achievement of their respective 2012 individual performance goals.

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2012 Annual Incentive Compensation Pay-Out Summary — The table below illustrates the calculation of the 2012 annual cash incentive pay-outs based on the targets and performance achievements described above (pay-out amounts are rounded up to the nearest $1,000, except in the case of pay-out amounts for our principal executive officer which are rounded up to the nearest $10,000):

   
 
   
  MIP
Target
Award
Opportunity
(% of
Base Salary)

   
   
   
   
   
   
   
   
 
 
  2012
Base
Salary

  Performance Measure Mix   MIP
Target
Pay-Out
Level

  MIP
Performance
Achieved

  Pay-Out
Based on
MIP
Performance

  Compensation
Committee
Adjustments(1)

   
 
 
  Actual
Payout

 
 
  EPS
  Business Unit
  Individual
 
   

Douglas M. Baker, Jr.

  $ 1,050,000     135 %   100 %             $ 1,420,000     135 % $ 1,920,000   $ 30,000   $ 1,950,000  
   

Daniel J. Schmechel

  $ 394,167     50–70% (2)   70 %             $ 158,000     135 % $ 216,000              

                            30 % $ 69,000     130 % $ 92,000              
                                                             

                                            $ 308,000   $ 3,000   $ 311,000  
   

Thomas W. Handley

  $ 520,000     75 %   30 %             $ 117,000     135 % $ 158,000              

                      70 %       $ 274,000     147 % $ 403,000              
                                                             

                                            $ 561,000   $ 3,000   $ 564,000  
   

Stephen M. Taylor

  $ 475,000     75 %   30 %             $ 107,000     135 % $ 145,000              

                      70 %       $ 249,000     200 % $ 498,000              
                                                             

                                            $ 643,000   $ 2,000   $ 645,000  
   

Michael A. Hickey

  $ 440,000     70 %   30 %             $ 92,000     135 % $ 125,000              

                      70 %       $ 216,000     178 % $ 385,000              
                                                             

                                            $ 510,000   $ 2,000   $ 512,000  
   

Steven L. Fritze

  $ 550,000     75 %   70 %             $ 284,000     135 % $ 391,000              

                            30 % $ 124,000     137 % $ 170,000              
                                                             

                                            $ 561,000   $ 5,000   $ 566,000  
   
(1)
The Compensation Committee exercised its discretion as provided under the MIP and adjusted the Company's performance achievement with respect to adjusted earnings per share from the actual adjusted earnings per share achieved of $2.98 to $2.99, and as a result, the adjusted earnings per share pay out was adjusted from 135% of target to 137% of target. The amounts shown in this column represent the increase in the named executive officers' 2012 cash incentive as a result of the adjustment. The adjustment was due to the delayed passage of the 2012 R&D tax credit in early January 2013 instead of the expected passage during the fourth quarter of 2012; an assumption which the target levels were based upon. Due to the delayed approval by Congress, the $0.01 per share R&D tax credit benefit will now be recorded as a discrete tax item in the first quarter of 2013 and not included in our 2012 results. See "Annual Cash Incentives — Performance Goals and Achievement", starting on page 29 for a further discussion of the reasons for the adjustment.

(2)
Mr. Schmechel's target award opportunity changed throughout 2012 as he transitioned to the role of Chief Financial Officer as follows: 50% for 5.5 months, 60% for 3.5 months and 70% for 3 months.


Discretionary Adjustments — To recognize individual performance, the Compensation Committee also may increase or decrease a named executive officer's payout from the level recommended by applying the MIP performance metrics (but always subject to the maximum permitted MPIP payout), with input from the principal executive officer (other than as to his own award), based on the individual performance of the named executive officer. This is done to recognize either inferior or superior individual performance in cases where this performance is not fully represented by the performance measures. As described under "Annual Cash Incentives — Performance Goals and Achievement", starting on page 29, and footnote (1) of the "Performance Measure Mix" table above, the Compensation Committee exercised its discretion as provided under the MIP and adjusted the Company's performance achievement with respect to adjusted earnings per share. As a result, the cash incentive pay outs for our named executive officers were adjusted upward from the level recommended by applying the MIP performance metrics. The adjustments were made due to the delayed passage of the 2012 R&D tax credit in early January 2013 instead of during the fourth quarter of 2012, as had been expected when the financial goals for 2012 adjusted earnings per share were established. Due to the delayed approval by Congress, the $0.01 per share R&D tax credit benefit will now be recorded as a discrete tax item in the first quarter of 2013 and not included in our 2012 results. The Compensation Committee made the adjustment in recognition that business performance was in line with the higher payout level and Management had no control over the delayed passage of the R&D tax credit, and the Company ultimately realized the tax benefit.

The Compensation Committee reviews and approves all adjustments to our overall corporate results and significant adjustments to our business unit performance results. Other than as described above, for 2012 the Committee did not make any adjustments to our results when determining performance achievement.


Our Analysis — In 2012 the Compensation Committee set the minimum, target and maximum levels of the adjusted EPS component of the annual incentive so that the intended relative difficulty of achieving the various levels is consistent with the past several years taking into account current prospects and market considerations. Target award opportunities in 2012 accounted for approximately 18% of total compensation on average for the named executive officers receiving all elements of our compensation program and were

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within the median range of our competitive market for each position. Actual award payments for the named executive officers averaged 150% of target award opportunities. The difficult economic environment for several of our businesses, together with the complexities of integrating the Ecolab and Nalco businesses following the December 2011 Nalco merger, made our executives' performance goals challenging. The 2012 award payouts are indicative of the achievement of strong underlying earnings growth and good business performance during the year.


LONG-TERM EQUITY INCENTIVES

In General — The Compensation Committee granted long-term equity incentives to our named executive officers and other executives in December 2012, consistent with its core agenda and past practice of granting these incentives at its regularly scheduled December meeting. For 2012, our long-term equity incentive program consisted of an annual grant of stock options and performance-based restricted stock units, weighted approximately equally in terms of grant value.

Our program continues to be based on pre-established grant guidelines that are calibrated annually to our competitive market. Grant guidelines for 2012 for the named executive officers were developed on a position-by-position basis using competitive data from the Peer Group and market data from the Towers Watson CDB Long-Term Incentive Plan report for general industry companies and the Frederic W. Cook & Co. 2012 survey of Long-Term Incentives. The survey data represent the median range of long-term incentive values adjusted for size based on revenue. The average of the three data points is used for determining the guideline.

Actual grants may be above or below our guidelines based on our assessment of individual performance and future potential. Generally, long-term equity incentives are granted on the same date as our Compensation Committee approval date and in no event is the grant date prior to the approval date.


Stock Options — Our stock options have a 10-year contractual exercise term from the date of grant and vest ratably over three years. Our stock options have an exercise price which is the average of the high and low market price on the date of grant. We believe that the use of the average of the high and low market price on the date of the grant removes potential same day stock volatility. We do not have a program, plan or practice to time stock option grants to executives in coordination with the release of material non-public information. From time-to-time, in addition to our annual grants, we may make special grants of stock options to our named executive officers and other executives in connection with promotions and recruitment, and for general retention purposes. During 2012, we made one special grant of stock options to one of our named executive officers, Mr. Taylor. In connection with his leadership of our Global Energy business, Mr. Taylor was granted an option to purchase 97,900 shares of our common stock, which vests on the third anniversary of the date of grant, in addition to his annual long-term incentive grants. The option, together with a restricted stock unit award discussed on page 33, was granted for retention purposes in recognition of our significant investment in our Global Energy business and the significant growth opportunity which the business represents. The option and award are a significant financial incentive for Mr. Taylor to realize the full potential of our pending acquisition of Champion, which as a global business in a highly dynamic market, presents significant leadership challenges as Champion is integrated with Ecolab.


Performance-Based Restricted Stock Units — Our performance-based restricted stock units, or PBRSUs, cliff vest after three years, subject to attainment of three-year average annual return on invested capital (ROIC) goals over the performance period. We selected ROIC as the performance measure because it reinforces focus on capital efficiency throughout the organization, is highly correlated with shareholder returns, matches well with our long-standing corporate goal of achieving consistent return on beginning equity and is understood by our external market. We define ROIC as the quotient of after-tax operating income divided by the sum of short-term and long-term debt and shareholders' equity, less cash and cash equivalents. The PBRSU awards provide for adjustment of the ROIC calculation in the event of a large acquisition (such as the Nalco merger) or other significant transaction or event approved by the Board. Considering the significant impact of purchase accounting and special gains and charges related to the Nalco and Champion transactions on the ROIC calculation, for the 2013 to 2015 performance cycle, ROIC is measured excluding the purchase accounting impact and special gains and charges related to these transactions, and is also adjusted for acquisitions and certain other unusual, non-recurring charges during the performance period. The Compensation Committee established an ROIC goal for the executive officers to determine maximum payout potential, with the ability to exercise downward discretion to reduce the actual payout in accordance with the ROIC goals described below. For the 2013 to 2015 performance cycle, 40% of the PBRSUs granted may be earned subject to attainment of a threshold goal of 10% average annual ROIC over the cycle and 100% of the PBRSUs may be earned subject to attainment of a target goal of 15% average annual ROIC over the cycle, with straight-line proration for performance results between threshold and target goals. No PBRSUs may be earned if ROIC is below the threshold goal, and no more than 100% of the PBRSUs may be earned if ROIC is above the target goal; accordingly, target and maximum are equal. Importantly, the threshold goal exceeds our cost of capital thereby ensuring that value is created before awards are earned. Excluding the impact of purchase accounting

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and special gains and charges related to the Nalco transaction, the Company's annual ROIC for 2012 was 17%. Dividend equivalents are not paid or accrued during the performance period.


Pay-out of Performance-Based Restricted Stock Units Vesting in 2012 — The PBRSUs granted by the Committee in December 2009 for the 2010 to 2012 performance cycle vested on December 31, 2012 and the Committee has determined the pay-out for such PBRSUs, including with respect to Messrs. Baker, Schmechel Handley, Hickey and Fritze, to be at 100% of the target opportunity. For the PBRSUs granted in December 2009, the target payout would be earned upon attainment of an average annual ROIC of 15% over the 2010 through 2012 performance cycle. Consistent with the established formula and definition of ROIC, the Company's average annual ROIC over the cycle excluding the impact of purchase accounting and special gains and charges relating to the Nalco transaction was 18.2%. Based upon this performance, the Committee approved pay-out of 100% of the PBRSUs. The number of PBRSUs vested and the value realized at vesting is shown in the Option Exercises and Stock Vested for 2012 table on page 40.


Restricted Stock — From time-to-time, we may make special grants of restricted stock or restricted stock units subject only to service-based vesting to our named executive officers and other executives in connection with promotions and recruitment, and for general retention purposes. During 2012, we made one special grant of restricted stock units to one of our named executive officers, Mr. Taylor. In connection with his leadership of our Global Energy business, Mr. Taylor was granted 21,540 restricted stock units in addition to his annual long-term incentive grants. The award vests as to 50% of the units on the third anniversary of the date of grant, the next 25% of the units on the fourth anniversary of the date of grant and the remaining 25% of the units on the fifth anniversary of the date of grant. The restricted stock unit award, together with a stock option discussed on page 32, were granted for retention purposes in recognition of our significant investment in our Global Energy business and the significant growth opportunity which the business represents. The option and award are a significant financial incentive for Mr. Taylor to realize the full potential of our pending acquisition of Champion, which as a global business in a highly dynamic market presents significant leadership challenges as Champion is integrated.


Our Analysis — For the last completed fiscal year, long-term equity incentives, excluding special grants, accounted for approximately 71% of total target compensation for the principal executive officer and 56% on average for the other named executive officers other than Mr. Fritze (who retired and did not receive long-term equity incentives in 2012), which is consistent with our competitive market. Actual grants to the named executive officers were within the median range for all our named executive officers with the exception of Mr. Schmechel, who is below the median range due to being newly promoted to the role of Chief Financial Officer in October 2012, and Mr. Fritze, who retired at year-end and did not receive a grant. Our annual practice of granting equity incentives in the form of stock options and PBRSUs is similar to our competitive market, where other forms of long-term equity and cash compensation are typically awarded in addition to, or in lieu of, stock options. Our selective use of restricted stock or restricted stock units as a retention or recruitment incentive is consistent with our competitive market. We believe that our overall long-term equity compensation cost is within a reasonable range of our competitive market as to our named executive officers and also our other employees.


EXECUTIVE BENEFITS AND PERQUISITES

In General — Our named executive officers participate in all of the same health care, disability, life insurance, pension, and 401(k) benefit plans made available generally to the Company's U.S. employees. In addition, our named executive officers are eligible to participate in a deferred compensation program, restoration plans for the qualified 401(k) and pension plans, an executive disability and life benefit and, with respect to certain of our named executive officers, a supplemental retirement benefit. The non-qualified retirement plans supplement the benefits provided under our tax-qualified plans, taking into account compensation and benefits above the IRS limits for qualified plans. These plans are described in more detail on pages 41 to 45. In the case of Mr. Taylor, he does not participate in these plans, but rather Mr. Taylor participates in certain plans offered to localized employees by a non-US subsidiary. Mr. Taylor also continues to participate in the same executive death benefit plan that he participated in prior to the Nalco merger. The named executive officers also receive limited perquisites described in more detail in footnote (6) to the Summary Compensation Table.


Our Analysis — We review our executive benefits and perquisites program periodically to ensure it remains market competitive for our executives and supportable to our stockholders. Following action taken in 2011, two executive perquisites were eliminated starting in 2012. The Executive Allowance was eliminated with a corresponding salary adjustment, while the Executive Financial Planning services perquisite was eliminated generally without a corresponding adjustment. Excluding allowances provided to Mr. Taylor related to his localization in a non-U.S. subsidiary, perquisites account for 1% of total compensation for the principal executive officer and the other named executive officers receiving all elements of our compensation program in 2012. Executive benefits and perquisites are consistent with our competitive market.

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EXECUTIVE CHANGE-IN-CONTROL POLICY

In General — The terms of our Change-In-Control Severance Compensation Policy, including the events constituting a change in control under our policy, are described on pages 50 and 51. Our policy applies to all elected officers, including the named executive officers, except those who are covered by separate change-in-control or similar agreements with the Company or a subsidiary, a circumstance which arises only in the case of an executive having such an agreement with a company we acquire. Such an executive will become covered automatically under the Company's change-in-control policy when the existing agreements terminate or expire. The only current officers who are covered by separate change-in-control agreements are those officers who were former officers of Nalco, including Mr. Taylor, whose agreement expires on July 31, 2013, at which time he will become covered by the Company's policy.


Our Analysis — We review our change-in-control protection periodically to ensure it continues to address the best interests of our stockholders. Our analysis indicates that our change-in-control policy, which is structured as a so-called "double-trigger" policy, promotes the interests of stockholders by mitigating executives' concerns about the impact a change-in-control may have on them thereby allowing the executives to focus on the best interests of stockholders under such circumstances.


STOCK RETENTION AND OWNERSHIP GUIDELINES

In General — We have in place stock retention and ownership guidelines to encourage our named executive officers and other executives to accumulate a significant ownership stake so they are vested in maximizing long-term stockholder returns. Our guidelines provide that the principal executive officer own Company stock with a market value of at least six times current base salary. The Company also requires other corporate officers to own Company stock with a market value of at least three times current base salary. Until the stock ownership guideline is met, our principal executive officer, principal financial officer and president are expected to retain 100% of all after-tax profit shares from exercise, vesting or payout of equity awards. Our other officers are expected to retain 50% of all after-tax profit shares from exercise, vesting or payout of equity awards. For purposes of complying with our guidelines, stock is not considered owned if subject to an unexercised stock option or unvested performance based restricted stock unit. Shares owned outright, legally or beneficially, by an officer or his or her immediate family members residing in the same household and shares held in the 401(k) plan count towards meeting the guideline. Our named executive officers and other officers may not enter into any risk hedging arrangements with respect to Company stock.


Our Analysis — Our analysis indicates that our stock retention and ownership guidelines are consistent with the design provisions of other companies disclosing such guidelines, as reported in public SEC filings and as periodically published in various surveys and research reports. Our analysis further indicates that our named executive officers are in compliance with our guidelines by either having achieved the ownership guideline or, if the guideline is not yet achieved, by retaining 100% or 50%, as applicable, of all after-tax profit shares from any stock option exercises or restricted stock unit vesting.


COMPENSATION RECOVERY

The Company's Board of Directors has adopted a policy requiring the reimbursement of annual cash incentive and long-term equity incentive payments made to an executive officer due to the executive officer's misconduct, as determined by the Board. Each of our executive officers has agreed in writing to this policy. This policy was filed with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 as Exhibit (10)W.

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TOTAL COMPENSATION MIX

In General — The table below illustrates how total compensation for our named executive officers for 2012 was allocated between performance based and fixed components, how performance based compensation is allocated between annual and long-term components and how total compensation is allocated between cash and equity components:

   
2012 Total Compensation Mix
(base salary, target annual incentives, and long-term equity incentives valued in total at grant)

 
   
 
  Percent of
Total Compensation
that is:

  Percent of
Performance Based
Total Compensation
that is:

  Percent of
Total Compensation
that is:

 
   
Name
  Performance Based(1)
  Fixed(2)
  Annual(3)
  Long-Term(4)
  Cash Based(5)
  Equity Based(6)
 
   

Douglas M. Baker, Jr.

    88%     12%     19%     81%     29%     71%  

Daniel J. Schmechel

    70%     30%     30%     70%     52%     48%  

Thomas W. Handley

    80%     20%     19%     81%     36%     64%  

Stephen M. Taylor

    74%     26%     26%     74%     45%     55%  

Michael A. Hickey

    75%     25%     23%     77%     42%     58%  

Steven L. Fritze(7)

    N/A      N/A      N/A      N/A      N/A      N/A   
   
(1)
Target annual incentives plus long-term equity incentives divided by total compensation.

(2)
Base salary divided by total compensation.

(3)
Target annual incentives divided by target annual incentives plus long-term equity incentives.

(4)
Long-term equity incentives divided by target annual incentives plus long-term equity incentives.

(5)
Base salary plus target annual incentives divided by total compensation.

(6)
Long-term equity incentives divided by total compensation.

(7)
This chart is not relevant with respect to Mr. Fritze, who retired as Chief Financial Officer at the end of 2012 and did not receive all of the compensation components.


Our Analysis — Our analysis indicates that total compensation mix for our named executive officers on average is generally consistent with the competitive market. The principal executive officer receives a higher proportion of his total compensation allocated to performance based components than non-performance based components and more allocated to equity based compensation than cash based compensation compared to the other named executive officers. The higher emphasis on performance based compensation for the principal executive officer is designed to reward him for driving company performance and creating long-term shareholder value that is a greater responsibility in his position than in the positions of the other named executive officers, and is consistent with the competitive market for the CEO position. The level of compensation of Mr. Baker reflects the many responsibilities of serving as chief executive officer of a public company. Accordingly, Mr. Baker's median range competitive pay levels (including long-term equity awards) reflect his broader scope and greater responsibilities compared to our other named executive officers.

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SUMMARY COMPENSATION TABLE FOR 2012

The following table shows cash and non-cash compensation for the years ended December 31, 2012, 2011 and 2010 for the persons serving as the Company's "Principal Executive Officer" and "Principal Financial Officer" during the year ended December 31, 2012 and for the next three most highly-compensated executive officers who were serving in those capacities at December 31, 2012.

   
Name & Principal Position
  Year
  Salary(1)
($)

  Bonus
($)

  Stock
Awards(2)
($)

  Option
Awards(3)
($)

  Non-Equity
Incentive Plan
Compensation(1,4)
($)

  Change in
Pension Value and
Non-qualified
Deferred
Compensation
Earnings(5)
($)

  All Other
Compensation(6)
($)

  Total
($)

 
   
Douglas M. Baker, Jr.     2012   $ 1,050,000     0   $ 2,956,325   $ 2,711,830   $ 1,950,000   $ 3,037,398   $ 161,199   $ 11,866,752  

Chairman of the Board and

    2011   $ 1,000,000     0   $ 2,441,456   $ 2,113,100   $ 1,900,000   $ 2,565,328   $ 217,591   $ 10,237,475  

Chief Executive Officer

    2010   $ 1,000,000     0   $ 1,904,531   $ 1,677,848   $ 2,020,000   $ 2,651,968   $ 200,200   $ 9,454,547  

(principal executive officer)

                                                       
   
Daniel J. Schmechel(7)     2012   $ 394,167     0   $ 345,259   $ 315,780   $ 311,000   $ 266,132   $ 194,089   $ 1,826,427  

Chief Financial Officer

    2011                                  

(principal financial officer)

    2010                                  
   
Thomas W. Handley     2012   $ 520,000     0   $ 788,674   $ 722,970   $ 564,000   $ 590,368   $ 76,121   $ 3,262,133  

President and Chief Operating Officer

    2011   $ 475,000     0   $ 537,014   $ 465,300   $ 528,000   $ 515,571   $ 96,735   $ 2,617,620  
      2010   $ 450,000     0   $ 412,755   $ 363,656   $ 557,000   $ 393,159   $ 94,058   $ 2,270,628  
   
Stephen M. Taylor(7)(8)     2012   $ 474,971     0   $ 1,919,214   $ 1,807,425   $ 645,000   $ 51,696   $ 163,806   $ 5,062,112  

Executive Vice President and

    2011                                  

President — Global Energy

    2010                                  
   
Michael A. Hickey(7)     2012   $ 440,000     0   $ 492,835   $ 451,510   $ 512,000   $ 780,194   $ 59,512   $ 2,736,051  

Executive Vice President and

    2011                                  

President — Global Institutional

    2010                                  
   
Steven L. Fritze(9)     2012   $ 621,923     0     0     0   $ 566,000   $ 1,154,871   $ 73,970   $ 2,416,764  

Former Chief Financial Officer

    2011   $ 520,000     0   $ 610,099   $ 528,000   $ 466,000   $ 1,191,599   $ 92,746   $ 3,408,444  

(former principal financial officer)

    2010   $ 510,000     0   $ 504,733   $ 573,498   $ 525,000   $ 1,280,801   $ 95,982   $ 3,490,014  
   
(1)
Includes amounts deferred under Section 401(k) of the Internal Revenue Code pursuant to the Company's Savings Plan and ESOP, amounts deferred under a non-qualified mirror 401(k) deferred compensation plan maintained by the Company for a select group of executives, and any salary reductions per Section 125 or Section 132(f)(4) of the Internal Revenue Code.

(2)
Represents the aggregate grant date fair value of performance-based restricted stock unit (PBRSU) award grants during the year in accordance with FASB ASC Topic 718, based on the average daily share price of the Company's Common Stock at the date of grant, adjusted for the absence of future dividends, and assuming full (maximum) achievement of applicable performance criteria over the performance period. The PBRSU awards cliff-vest after three years, subject to attainment of three-year average annual return on invested capital goals for the Company over the performance period. See Note 10 to the Company's Consolidated Financial Statements for the year ended December 31, 2012, included as Exhibit (13) to the Company's Annual Report on Form 10-K for the year ended December 31, 2012, for further discussion of the assumptions used in determining these values. See footnote (1) to the Grants of Plan-Based Awards for 2012 table on page 37 for a description of the specific performance goals for the PBRSUs. In addition to his regular PBRSU award, Mr. Taylor, received a special restricted stock unit award of 21,540 units in December 2012 as a retention incentive that is included in the amount reported for Mr. Taylor in the table above. Mr. Taylor's special restricted stock unit award was valued at $1,426,379 and his regular PBRSU award was valued at $492,835 in accordance with FASB ASC Topic 718. The special restricted stock unit award vests 50% on the third anniversary of the date of grant, and 25% on each of the fourth and fifth anniversaries of the date of grant, subject to continued employment and the post-termination and change-in-control provisions generally described at pages 46 through 51 under the heading "Potential Payments Upon Termination or Change-in-Control." See page 33 for a further explanation of this award. Due to Mr. Fritze's planned retirement date of December 31, 2012, he was not granted any stock-based awards in 2012.

(3)
Represents the aggregate grant date fair value of stock option grants during the year in accordance with FASB ASC Topic 718 but with no discount for estimated forfeitures. The value of grants has been determined by application of the lattice (binomial)-pricing model. Key assumptions include: risk-free rate of return, expected life of the option, expected stock price volatility and expected dividend yield. See Note 10 to the Company's Consolidated Financial Statements for the year ended December 31, 2012, included as Exhibit (13) to the Company's Annual Report on Form 10-K for the year ended December 31, 2012, for further discussion of the assumptions used in determining these values. The specific assumptions used in the valuation of the options granted in 2012 are summarized in the table below:

   
Grant Date
  Risk Free Rate
  Expected Life (years)
  Expected Volatility
  Expected Dividend Yield
 
   
12/05/2012     0.84 %   6.14     22.84     1.29 %
   

In addition to his regular stock option grant, Mr. Taylor received a special stock option grant to acquire 97,900 shares in December 2012 as an additional retention incentive that is included in the amount reported for Mr. Taylor in the table above. Mr. Taylor's special stock option was valued at $1,355,915 and his regular stock option was valued at $451,510 in accordance with FASB ASC Topic 718. Both of Mr. Taylor's options have a ten-year term. Mr. Taylor's regular stock option vests on a cumulative basis as to one-third of the shares subject to the option on each of the first three anniversaries of the grant date, while his special stock option vests as to 100% of the shares on the third anniversary of the grant date. See page 32 for a further explanation of Mr. Taylor's special stock option. Due to Mr. Fritze's planned retirement date of December 31, 2012, he was not granted an option award in 2012. Due to Mr. Fritze's planned retirement date of December 31, 2012, he was not granted an option award in 2012. During 2010, Mr. Fritze received reload options totaling 29,895 shares (valued at $129,146). The issuance of these reload options were not new discretionary grants by the Company; rather, the issuance results from rights that were granted as part of their original option grants made under the Company's 1997 and 2002 Stock Incentive Plans. The respective reload options expire on the expiration date of their original grant. The reload feature was eliminated for grants subsequent to 2002.

(4)
Represents the annual cash incentive awards earned and paid in respect of 2012 under the Company's Management Incentive Plan ("MIP") and the Company's Management Performance Incentive Plan ("MPIP"). The MIP and MPIP are discussed in the Compensation Discussion and Analysis beginning at page 29 and as part of the table entitled "Grants of Plan-Based Awards For 2012" at page 37.

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(5)
Represents the change in the actuarial present value of the executive officer's accumulated benefit under the Company's defined benefit plans as of December 31, 2012 over such amount as of December 31, 2011. The Company's defined benefit plans include the Pension Plan, the Mirror Pension Plan and the Supplemental Executive Retirement Plan which are discussed beginning at page 41 and as part of the table entitled Pension Benefits for 2012. Mr. Taylor is an inactive participant in a broad-based pension plan covering certain United Kingdom employees. The change in the actuarial present value during 2012 for Mr. Taylor's benefit is primarily attributable to changes in actuarial assumptions and the passage of time and does not reflect any additional accruals for service or compensation in 2012. There are no "above market" earnings under the non-qualified mirror 401(k) deferred compensation plan maintained by the Company for a select group of executives because all earnings under this plan are calculated at the same rate as earnings on one or more externally managed investments available to participants in the Company's broad-based tax qualified deferred compensation plans.

(6)
Amounts reported as All Other Compensation include:

(a)
Payment by the Company of certain perquisites, including costs relating to the following: (i) executive physical examinations for each of the named executive officers except Messrs. Taylor and Hickey; (ii) financial planning in the case of Mr. Taylor; (iii) allowances in connection with Mr. Taylor's localization at a non-U.S. subsidiary, including dependent education ($36,958), housing ($69,004), a cost of living equalization payment ($33,244), and storage fees.

(b)
Pursuant to the Company's tax equalization policy, the Company paid $83,606 in foreign taxes, tax preparation fees, and a gross-up on foreign income of $66,893, on behalf of Mr. Schmechel, in connection with income earned during a previous international assignment.

(c)
Payment by the Company of life insurance premiums in 2012 for: Mr. Baker, $40,724; Mr. Schmechel, $14,848; Mr. Handley, $32,456; Mr. Hickey, $21,432, Mr. Taylor, $18,720; and Mr. Fritze, $26,056.

(d)
Payment of matching contributions made by the Company for 2012 as follows: (i) maximum matching contributions of $10,000 to Messrs. Baker, Schmechel, Handley, Hickey and Fritze made by the Company under the Company's tax-qualified defined contribution 401(k) Savings Plan and ESOP available generally to all employees; and (ii) matching contributions made or to be made by the Company on base salary and annual cash incentive award earned in respect of 2012 that the executive deferred under a non-qualified mirror 401(k) deferred compensation plan maintained by the Company for a select group of executives, in the following amounts: Mr. Baker, $110,000; Mr. Schmechel, $18,207; Mr. Handley, $33,360; Mr. Hickey, $28,080 and Mr. Fritze, $37,517. Mr. Taylor did not participate in these plans in 2012.

(e)
The Company maintains a self-funded, supplemental long-term disability benefit plan for a select group of executives. No specific allocation of cost is made to any named executive officer prior to the occurrence of a disability.

(7)
Messrs. Schmechel, Taylor and Hickey were not named executive officers in 2011 or 2010.

(8)
Mr. Taylor's salary and allowances in connection with his localization at a non-U.S. subsidiary are denominated in United Arab Emirates dirham and have been converted into U.S. dollars for reporting in this table based on a conversion rate of 1.0AED=3.672$U.S. Mr. Taylor's change in pension benefit is accrued in British pounds and is reported based on a conversion rate of 1GBP=1.6013$U.S. on November 30, 2012, and a conversion rate of 1GBP=1.5704$U.S. on November 30, 2011, using pension measurement dates of November 30, 2012 and November 30, 2011, consistent with the Company's assumptions under FASB ASC Topic 715 for financial reporting regarding international retirement plans.

(9)
Mr. Fritze's stated salary includes $71,923 of accrued but unused vacation paid out on his retirement date of December 31, 2012, in accordance with a broad-based Company policy.


GRANTS OF PLAN-BASED AWARDS FOR 2012

   
 
   
   
   
   
   
   
   
   
  All Other
Option
Awards:
Number of
Securities
Underlying
Options(3,4)
(#)

   
   
 
 
   
  Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards
  Estimated Future Payouts
Under Equity
Incentive Plan Awards(1,4)
  All Other
Stock
Awards:
Number of
Shares of Stock or Units(2)
(#)

  Exercise or
Base
Price of
Option
Awards(5)
($/Sh)

  Grant Date
Fair Value of
Stock and
Option
Awards(6)
($)

 
Name
  Grant
Date

  Threshold
($)

  Target
($)

  Maximum
($)

  Threshold
(#)

  Target
(#)

  Maximum
(#)

 
   
Douglas M. Baker, Jr. (PEO)                                                                    
MPIP(7)     N/A     568,000     1,420,000     2,840,000     0     0     0     0     0     0     0  
2010 Stock Incentive Plan     12/05/2012     0     0     0     0     0     0     0     195,800   $ 71.54   $ 2,711,830  
2010 Stock Incentive Plan     12/05/2012     0     0     0     17,228     43,070     43,070     0     0     0   $ 2,956,325  
   
Daniel J. Schmechel (PFO)                                                                    
MIP(7)     N/A     92,000     228,000     456,000     0     0     0     0     0     0     0  
2010 Stock Incentive Plan     12/05/2012     0     0     0     0     0     0     0     22,800   $ 71.54   $ 315,780  
2010 Stock Incentive Plan     12/05/2012     0     0     0     2,012     5,030     5,030     0     0     0   $ 345,259  
   
Thomas W. Handley                                                                    
MPIP(7)     N/A     156,000     391,000     782,000     0     0     0     0     0     0     0  
2010 Stock Incentive Plan     12/05/2012     0     0     0     0     0     0     0     52,200   $ 71.54   $ 722,970  
2010 Stock Incentive Plan     12/05/2012     0     0     0     4,596     11,490     11,490     0     0     0   $ 788,674  
   
Stephen M. Taylor                                                                    
MIP/MPIP(7)     N/A     143,000     356,000     712,000     0     0     0     0     0     0     0  
2010 Stock Incentive Plan     12/05/2012     0     0     0     0     0     0     0     32,600   $ 71.54   $ 451,510  
2010 Stock Incentive Plan     12/05/2012     0     0     0     2,872     7,180     7,180     0     0     0   $ 492,835  
2010 Stock Incentive Plan     12/05/2012     0     0     0     0     0     0     0     97,900   $ 71.54   $ 1,355,915  
2010 Stock Incentive Plan     12/05/2012     0     0     0     0     0     0     21,540     0     0   $ 1,426,379  
   
Michael A. Hickey                                                                    
MPIP(7)     N/A     123,000     308,000     616,000     0     0     0     0     0     0     0  
2010 Stock Incentive Plan     12/05/2012     0     0     0     0     0     0     0     32,600   $ 71.54   $ 451,510  
2010 Stock Incentive Plan     12/05/2012     0     0     0     2,872     7,180     7,180     0     0     0   $ 492,835  
   
Steven L. Fritze (Former PFO)                                                                    
MPIP(7)     N/A     166,000     413,000     826,000     0     0     0     0     0     0     0  
   
(1)
Amounts reflect the threshold, target and maximum number of shares of Company Common Stock that may be earned pursuant to performance-based restricted stock unit (PBRSU) awards granted in 2012. The PBRSU awards cliff-vest after three years, subject to attainment of performance goals over a three-year performance period of 2013 to 2015. For the 2013 to 2015 performance cycle, 40% of the PBRSUs granted may be earned subject to attainment of a threshold goal of 10% average annual return on invested capital excluding purchase accounting relating to the Nalco merger (ROIC) over the performance cycle and 100% of the PBRSUs may be earned subject to attainment of a target goal of 15% average annual ROIC over the cycle, with straight-line proration for performance results between threshold and target goals. No PBRSUs may be earned if ROIC is below the threshold goal, and no more than 100% of the PBRSUs may be earned if ROIC is above the target goal; accordingly, target and

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    maximum are equal. Dividend equivalents are not paid or accrued during the performance period. See the discussion of performance-based restricted stock units in the Compensation Discussion and Analysis at page 32 for more information on these awards.

(2)
Reflects the number of units granted to Mr. Taylor under a restricted stock unit award. The award will vest, subject to continued employment, as to 50% of the units on the third anniversary of the date of grant, and 25% of the grant amount on each of the fourth and fifth anniversaries of the date of grant, subject to continued employment. Dividends are not paid or accrued on unvested units.

(3)
Options granted in 2012 have a ten-year contractual exercise term and vest (or will be exercisable) over three years, on a cumulative basis, as to one third of the option shares on the first and second anniversaries of the date of grant and as to the remaining option shares on the third anniversary. The Company awarded Mr. Taylor a special stock option grant of 97,900 shares in December 2012. This option award vests 100% on the third anniversary of the grant and has a ten year term.

(4)
If a holder terminates employment at or after age 55 with five or more years of continuous employment, stock options held at least six months will become immediately exercisable in full and the service-based vesting conditions on PBRSU awards held at least six months shall be deemed satisfied but vesting will remain subject to attainment of the performance goals; all unvested restricted stock unit awards will terminate and be forfeited. A discussion of the consequences of a change-in-control on outstanding options, PBRSU awards and restricted stock awards, is at page 50 under the heading "Change-in-Control."

(5)
Generally, our stock options are granted on the same date as our Compensation Committee approval date (except that in 2011, the grant date of December 1, 2011 was one day following the Committee approval date because the Nalco merger closed on December 1, 2011 and the Committee wished to grant options to legacy Nalco executives contemporaneous with grants to legacy Ecolab executives), and have an exercise price which is the average of the high and low market price on the date of grant. We believe that the use of the average of the high and low market price on the date of the grant removes potential same day stock volatility.

(6)
Represents the grant date fair value of each equity award, computed in accordance with FASB ASC Topic 718. With respect to stock options, the value has been determined by application of the lattice (binomial)-pricing model, based upon the terms of the option grant and Ecolab's stock price performance history as of the date of the grant. Key assumptions include: risk-free rate of return, expected life of the option, expected stock price volatility and expected dividend yield. The specific assumptions used in the valuation of these options are located in footnote (3) to the Summary Compensation Table at page 36.


With respect to PBRSUs, the value has been determined based on the maximum award payout, consistent with the estimate of aggregate compensation cost to be recognized over the three-year vesting period of the award. See footnote (1) above for a description of the performance goals and performance period.

(7)
The Company maintains annual cash incentive programs for executives referred to as the Management Incentive Plan or MIP and Management Performance Incentive Plan or MPIP, which are discussed in the Compensation Discussion and Analysis beginning at page 29. In 2009, the Company's stockholders approved the version of the MPIP applicable for 2012, an annual incentive plan under which awards are intended to qualify as performance based under Internal Revenue Code Section 162(m). As required under the terms of the MPIP, the Compensation Committee of the Board ("Committee") selected each of Messrs. Baker, Handley, Hickey and Fritze, to participate in the MPIP for 2012 for the period January 1, 2012, through December 31, 2012, established the 2012 performance goal based upon the performance criteria of adjusted diluted earnings per share ("EPS"), an EPS performance target of a designated amount, and a maximum permitted cash payout of 300% of the participant's base salary for the period of participation in 2012 to the extent the goal is achieved. The MPIP permits the Committee to exercise downward discretion and pay an amount which is less than the amount of the maximum permitted payout that may have been earned by the participant. In applying this downward discretion, the Committee is guided by applying operating metrics established under the MIP at the beginning of 2012. In the case of the named executive officer participants, the potential payouts that could be earned under the MIP for 2012 and that would be used to guide the Committee's discretion under the MPIP are noted in the MPIP and/or MIP row of the above table. Actual payouts to each of the named executive officers with respect to 2012 are included under the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table at page 36. Mr. Taylor was a participant in the MIP until May 3, when he was selected to participate in the MPIP for the balance of the year. Mr. Schmechel was a participant in the MIP during 2012. Refer to the Compensation Discussion and Analysis beginning at page 29 for more detail regarding the MPIP and MIP performance goals. Each award is subject to and interpreted in accordance with the terms and conditions of the MPIP or MIP, as applicable, and no amount will be paid under the MPIP or the MIP unless and until the Committee has determined the extent to which the applicable performance goal has been met, the corresponding amount of the award earned by the participant and the degree to which the Committee chooses to exercise its permitted discretion under the MPIP.

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Table of Contents


OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END FOR 2012

 
   
  Option Awards
   
   
   
   
  Stock Awards
   
   
 
   
Name
  Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable

  Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)

  Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)

  Option
Exercise
Price
($)

  Option
Expiration
Date

  Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)

  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)

  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested(2)
(#)

  Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested(2)
($)

 
   
Douglas M. Baker, Jr.     293,100     0     0   $ 45.240000     12/06/16     0     0     0     0  
(PEO)     310,000     0     0   $ 49.420000     12/05/17     0     0     0     0  
      421,000     0     0   $ 35.630000     12/03/18     0     0     0     0  
      156,400     0     0   $ 45.665000     12/02/19     0     0     0     0  
      106,733     53,367     0   $ 48.055000     12/01/20     0     0     41,620   $ 2,992,478  
      64,033     128,067     0   $ 55.595000     12/01/21     0     0     46,100   $ 3,314,590  
      0     195,800     0   $ 71.540000     12/05/22     0     0     43,070   $ 3,096,733  
   
Daniel J. Schmechel     27,100     0     0   $ 34.500000     12/09/14     0     0     0     0  
(PFO)     25,200     0     0   $ 34.075000     12/07/15     0     0     0     0  
      16,500     0     0   $ 45.240000     12/06/16     0     0     0     0  
      21,500     0     0   $ 49.420000     12/05/17     0     0     0     0  
      34,400     0     0   $ 35.630000     12/03/18     0     0     0     0  
      14,500     0     0   $ 45.665000     12/02/19     0     0     0     0  
      9,666     4,834     0   $ 48.055000     12/01/20     0     0     3,760   $ 270,344  
      5,133     10,267     0   $ 55.595000     12/01/21     0     0     3,690   $ 265,311  
      0     22,800     0   $ 71.540000     12/05/22     0     0     5,030   $ 361,657  
   
Thomas W. Handley     36,600     0     0