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.              )

NOTICE OF 2007
ANNUAL MEETING AND

PROXY STATEMENT

FOR MAY 4, 2007

TABLE OF CONTENTS

March 30, 2007

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 Friday, May 4, 2007 in the McKnight Theatre of the Ordway Center for the Performing Arts, 345 Washington 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,

Douglas M. Baker, Jr.

Chairman of the Board,

President and Chief Executive Officer

PLEASE REFER TO THE ACCOMPANYING MATERIALS FOR VOTING INSTRUCTIONS.

370 Wabasha Street North   St. Paul, MN 55102-1390

PROXY STATEMENT 2007      i

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 4, 2007

To the Stockholders of Ecolab Inc.:

The Annual Meeting of Stockholders of Ecolab Inc. will be held on Friday, May 4, 2007 at 10:00 a.m. in the McKnight Theatre of the Ordway Center for the Performing Arts, 345 Washington Street, Saint Paul, Minnesota 55102, for the following purposes (which are more fully explained in the Proxy Statement):

(1)           to elect four Class III Directors to a term ending in 2010;

(2)       to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current year ending December 31, 2007; and

(3)       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 20, 2007 as the record date for the determination of stockholders entitled to notice of and to vote at the meeting.

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.

March 30, 2007

ii      PROXY STATEMENT 2007

ECOLAB INC.

370 Wabasha Street North, Saint Paul, Minnesota 55102

PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 4, 2007

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 Annual Meeting of Ecolab Stockholders. We are first mailing this Proxy Statement and accompanying form of proxy to Ecolab stockholders on or about March 30, 2007.

·       Meeting Time and Place — Friday, May 4, 2007 at 10:00 a.m., Central Time, in the McKnight Theatre of the Ordway Center for the Performing Arts, 345 Washington Street, Saint Paul, Minnesota 55102.

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

(1)            to elect four Class III Directors to a term ending in 2010;

(2)        to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current year ending December 31, 2007; and

(3)        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 20, 2007.

·       Shares Entitled to Vote — As of March 20, 2007, the record date for the meeting, there were 249,303,196 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.

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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.

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 each nominee, or you may withhold voting authority on 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.

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

·       Proposal 1: Election of Directors — Each nominee will be elected by a plurality of the votes cast. The four director nominees receiving the highest vote totals will be elected. Shares represented by proxies that contain instructions to “withhold” voting authority on one or more nominees will not affect the election of nominees receiving a plurality of the votes cast. It is intended that proxies solicited by our Board of Directors will (unless otherwise directed) be voted FOR the election of the four 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 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. Therefore, abstentions and broker non-votes do not count as votes either for or against ratification of the appointment. Unless a contrary choice is specified, proxies solicited by our Board of Directors will be voted FOR ratification of the appointment of PricewaterhouseCoopers LLP.

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.

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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/investor/governance:

·       to correspond with the Board’s Presiding Director, please complete and submit the on-line “Contact Presiding 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 or auditing irregularities are promptly relayed or brought to the attention of the Presiding 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 must comply with advance notice procedures set forth in Article II, Section 4 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 (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting that business at the Meeting, (ii) the name and address of the stockholder, (iii) the number of shares owned by the stockholder, (iv) a description of any arrangements between the stockholder and any other person in connection with the proposed business and any material interest of the stockholder in the business, and (v) a representation by the stockholder that he or she intends to appear at the Annual Meeting to present the business. 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/investor/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

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Meeting of Stockholders expected to be held in May 2008, including any stockholder nominations for the election of directors, 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 December 1, 2007.

·       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 90 days nor more than 135 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 in May 2008, the written notice must be received between December 21, 2007 and February 4, 2008 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 in accordance with our Restated Certificate of Incorporation and By-Laws. 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 in accordance with our Restated Certificate of Incorporation and By-Laws.

—                  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

4      PROXY STATEMENT 2007

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 and residence of the person, (ii) the principal occupation or employment of the person, (iii) the number of shares owned by the person, and (iv) any other information relating to the person that would be required to be disclosed in our proxy statement or other filings made in connection with solicitations of proxies for election of directors under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, as to the stockholder, the notice must set forth (i) the name and address of the stockholder, (ii) the number of shares owned by the stockholder, (iii) a description of any arrangements between the stockholder and the proposed nominee and any other person pursuant to which the nomination is being made by the stockholder, (iv) a representation by the stockholder that he or she intends to appear at the annual meeting to nominate the person named in the notice, and (v) any other information relating to the stockholder that would be required to be disclosed in our proxy statement or such Exchange Act filings. 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/investor/governance.

In terms of policies 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/investor/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.

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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.

(1)       The percent of class is based on the number of voting shares outstanding as of March 20, 2007.

(2)      As reported to the SEC by Henkel KGaA on a Form 4 filed November 16, 2006. Henkel KGaA is a partnership limited by shares organized under the laws of Germany. The Company understands that the majority of the voting stock of Henkel KGaA is controlled by the members of the Henkel family. Shares of our Common Stock beneficially owned by Henkel KGaA are subject to an agreement containing certain restrictions pertaining to, among other things, maximum shareholding, transfer and voting rights. For a description of the agreement, see the information found at page 15 under the heading “Stockholder Agreement.”

(3)      As reported to the SEC by Henkel Corporation on a Form 4/A filed November 16, 2006. Henkel Corporation, a Delaware corporation, is an indirect, wholly-owned subsidiary of Henkel KGaA. Shares of our Common Stock beneficially owned by Henkel Corporation are bound by the terms of the agreement between the Company and Henkel KGaA described at page 15 under the heading “Stockholder Agreement.”

(4)      Beneficial ownership of these shares as of December 31, 2006 was reported on a Schedule 13G dated February 14, 2007. According to such Schedule 13G, dispositive authority was as follows:  Mr. Johnson, FMR Corp. and the Fidelity funds each report sole power over 13,646,422 shares; and Mr. Johnson and FMR Corp. each sole power over 187,938 shares. According to such Schedule 13G, Mr. Johnson and FMR Corp. each report sole power to vote over 187,938 shares (Mr. Johnson and FMR Corp. report no voting power over 14,025,730 shares.)  Beneficial ownership of these shares was reported as follows: 13,646,422 shares by Fidelity Management & Research Company; 11,400 shares by Fidelity Management Trust Company; 5,208 shares by Strategic Advisors, Inc; 176,538 shares by Pyramis Global Advisors Trust Company; and 374,100 shares by Fidelity International Limited. Mr. Edward C. Johnson 3d serves as Chairman of FMR Corp. Members of Mr. Johnson’s family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR Corp.

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 phantom stock units that may be acquired within 60 days. On March 20, 2007, our current executive officers and directors owned, in the aggregate, 4,265,936 shares of Common Stock constituting approximately 1.7% of our shares outstanding. As required by SEC disclosure rules, “shares outstanding” for this purpose includes options exercisable within

6      PROXY STATEMENT 2007

60 days and stock underlying phantom 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.

*        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, 8,711; Mr. Fritze, 21,566; Mr. Bell, 15,318; Mr. Miller, 1,555 and Mr. Snedeker, 4,734.

(2)      Includes the following shares which could be purchased under Company-granted stock options within 60 days from March 20, 2007 including, in the case of retirement-eligible officers, options vesting upon retirement from the Company: Mr. Baker, 918,457; Mr. Fritze, 391,533; Mr. Bell, 406,877; Mr. Miller, 227,866; Mr. Snedeker 148,000; Mr. Biller, 66,549; Mr. De Schutter, 20,750; Mr. Grundhofer, 56,500; Mr. Hamelmann, 38,900; Mr. Johnson, 88,913; Mr. Levin, 78,147; Mr. Lumpkins, 82,208; Ms. Pritchard, 20,750; Mr. Rorsted, 8,300; and Mr. Zillmer, 4,800.

(3)      Includes the following interests in stock units under our 2001 Non-Employee Director Stock Option and Deferred Compensation Plan: Mr. Biller, 21,664; Mr. De Schutter, 1,998; Mr. Grundhofer, 20,687; Mr. Hamelmann, 5,675; Mr. Johnson, 24,621; Mr. Levin, 21,331; Mr. Lumpkins, 12,006; Ms. Pritchard, 6,248; Mr. Rorsted, 3,055; and Mr. Zillmer, 441. 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)      Includes 6,354 shares held by or on behalf of family members of certain directors or executive officers; 26,841 shares of Mr. Biller and 2,000 shares of Ms. Pritchard held in trusts over which they have shared voting authority and/or shared power of disposition; 87,469 shares held for executive officers in Company-sponsored employee benefit plans as of the last plan reports; and 3,458,202 shares to which these persons have the right to acquire beneficial ownership within 60 days of March 20, 2007 including, in the case of retirement-eligible officers, options vesting upon retirement from the Company.

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, are available on our website at www.ecolab.com/investor/governance.

Copies of our Code of Conduct, as last amended in 1995 and supplemented by our Code of Ethics for Senior Officers and Finance Associates adopted in 2003, will be mailed free of

PROXY STATEMENT 2007      7

charge to any stockholder upon request to the Corporate Secretary at our headquarters in St. Paul. 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 or the Code of Ethics for Senior Officers and Finance Associates.

Board Structure — Under our Restated Certificate of Incorporation, the number of directors is determined exclusively by the Board. Currently, the Board has fixed the number of directors at 12.  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.

Pursuant to our agreement with Henkel KGaA (“Henkel”) described at page 15 under the heading “Stockholder Agreement,” Henkel is entitled to designate a number of persons to be nominated for election to our Board of Directors proportionate to Henkel’s shareholding in the Company, rounded down to the nearest whole number. As of March 20, 2007, Henkel beneficially owned approximately 29.1% of our outstanding Common Stock and was accordingly entitled to designate three directors. Messrs. Stefan Hamelmann, Kasper Rorsted and Hans Van Bylen have been elected to the Board pursuant to designation by Henkel. (Mr. Ulrich Lehner resigned from our Board in February 2007 and Henkel designated Mr. Van Bylen to take his place.)

Director Attendance — There were six meetings of the Board of Directors during the year ended December 31, 2006. Each director attended at least 75% of all Board meetings and meetings held by all Committees on which he or she served, except for John J. Zillmer. Mr. Zillmer was elected to the Board by stockholders on May 12, 2006, and due to a pre-existing conflict, of which the Chairman was aware at the time of appointment, missed the October 2006 Board and Committee meetings. As a result, his aggregate attendance for 2006 was 63.6%. Overall attendance at Board and Committee meetings was 92.3%. Directors are expected, but are not required, to attend our Annual Meeting of Stockholders. All directors then serving attended last year’s Annual Meeting.

The Board has appointed a Presiding Director to lead non-management directors during executive sessions of the Board. Currently, the Chair of the Governance Committee, Jerry W. Levin, serves as the Presiding Director.

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 Board believes its current Committee structure, comprised of standing Audit, Compensation, Finance and Governance Committees, is appropriate. The Charters of these Committees are available on our website at www.ecolab.com/investor/governance. The Charters were last amended and approved by the Board in February 2007. 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 Messrs. De Schutter, Johnson (Chairman), Lumpkins (Vice Chairman) and Zillmer. The Committee met eight times during the past year. In addition, the Committee Chair, as representative of the Committee, discussed the interim financial information contained in each quarterly

8      PROXY STATEMENT 2007

earnings announcement for the first three calendar quarters of 2006 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 (and seven of our other directors, as the full Board was invited to participate) met to discuss the financial information contained in the fourth quarter and full year 2005 earnings announcement prior to dissemination of that press release and it being furnished to the SEC on a Form 8-K in February 2006. The Form 10-K for the year ended December 31, 2005 was discussed by the Committee at its regularly scheduled February 2006 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” on page 45.

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(a) of the listing standards of the New York Stock Exchange, and Rule 10A-3 under the Exchange Act, as well as of our Board. In reviewing these requirements, the Board and the Governance Committee each reviewed Mr. De Schutter’s simultaneous service as a member of four public company audit committees (including the Ecolab Audit Committee) during fiscal 2006, and determined that such service did not impair his ability to effectively serve on Ecolab’s Audit Committee. Mr. De Schutter currently serves on a total of three public company audit committees (including Ecolab), having resigned from one public company audit committee effective January 1, 2007. The Board has also 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 Ms. Pritchard and Messrs. Biller, Grundhofer (Chair), and Levin (Vice Chair). The Committee met six times during the past year. The principal functions of this Committee are to (i) review and recommend to the Board 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) or other employees; (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.

To assist the Committee in the design and review of the executive and director compensation programs, the Board has selected and retained Frederic W. Cook & Co., Inc., an independent compensation consulting firm, which reports directly to the

PROXY STATEMENT 2007      9

Committee. As requested from time to time on behalf of the Committee, Frederic W. Cook & Co., Inc. 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. Frederic W. Cook & Co, Inc. performs no services for us other than those performed on behalf of the Committee. A report by the Committee is located on page 22 of this Proxy Statement.

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 Ms. Pritchard (Vice Chair) and Messrs. Biller (Chair), Grundhofer, Hamelmann and Rorsted. The Committee met six 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. The Committee monitors our investor relations program and 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. De Schutter (Vice Chair), Johnson, Levin (Chair), Lumpkins and Zillmer. The Committee met five 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 presiding 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 the Corporation’s efforts to achieve its affirmative action and diversity goals; (x) review the Corporation’s environmental practices, including compliance with The Ecolab Environmental Principles; (xi) review director orientation, training and continuing education; 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.

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DIRECTOR COMPENSATION FOR 2006

(1)       Represents annual retainer of $60,000 earned during 2006, plus additional fees paid to the respective Chairs of Board Committees; includes amounts, 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 fees deferred into Common Stock equivalents by applicable directors during 2006 is as follows: Mr. Howard, $11,538; Mr. Johnson, $69,240; Mr. Lumpkins, $62,192; Ms. Pritchard, $60,000; and Mr. Rorsted, $60,000.

(2)      Represents Common Stock equivalents (“stock units”) credited to a deferred stock unit account under the 2001 Plan during 2006 and payable in the form of Common Stock after a director leaves the Board. In addition, under the 2001 Plan, non-employee directors may elect to defer some, or all, of the cash portion of their director’s fees until cessation of Board service, which deferrals are reported in column (b) in the above table. Deferred amounts either earn interest at market rates or are invested in a stock unit account at the election of the director. Quarterly dividend equivalents are accrued on deferred stock unit balances. 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 up to a maximum of ten years as elected by the director. Amounts deferred after January 1, 2005 must be paid in a lump sum.

As of December 31, 2006, the aggregate number of stock units held by each non-employee director named in the table above is as follows:  Mr. Biller, 21,664; Mr. De Schutter, 1,998; Mr. Grundhofer, 20,687; Mr. Hamelmann, 5,675; Mr. Howard, 0; Mr. Johnson, 24,621; Mr. Lehner 5,675; Mr. Levin, 21,331; Mr. Lumpkins, 12,006; Ms. Pritchard, 6,248; Mr. Rorsted, 3,055; Mr. Schuman, 0; and Mr. Zillmer, 441.

(3)      Represents the dollar amount of stock options recognized for financial statement reporting purposes with respect to 2006 in accordance with Statement of Financial Accounting Standards No. 123 (Revised 2004), Share Based Payment (“SFAS 123R”), but with no discount for estimated forfeitures. The value has been determined by application of the lattice (binomial)-pricing model, based upon the terms of the option grant to directors dated May 12, 2006. 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:

As of December 31, 2006, the aggregate number of non-employee director stock options held by each director named in the table above is as follows:  Mr. Biller, 66,549; Mr. De Schutter, 20,750; Mr. Grundhofer, 56,500; Mr. Hamelmann, 38,900; Mr. Howard, 26,500; Mr. Johnson, 88,913; Mr. Lehner, 38,900; Mr. Levin, 78,147; Mr. Lumpkins, 82,208; Ms. Pritchard, 20,750; Mr. Rorsted, 8,300; Mr. Schuman, 0; and Mr. Zillmer, 4,800.

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(4)      Amounts reported as All Other Compensation include:

(a)    Payment by the Company of spousal travel and travel-related expenses in the case of Mr. Biller, Mr. De Schutter, Mr. Grundhofer, Mr. Howard, Mr. Lehner, Ms. Pritchard and Mr. Schuman.

(b)    Payment by the Company of travel and travel-related expenses in the case of Mr. Howard and Mr. Schuman.

(c)    Payment by the Company’s charitable foundation of a designated charitable gift in the case of Mr. Schuman of $550,000, as provided by the transition arrangements described in footnote (8) below. Up to $100,000 remains to be designated by Mr. Schuman under this legacy program.

(d)    Payment by the Company, under a consulting agreement with Mr. Schuman, as described in footnote (8) to this table, of (i) $25,935 for a leased vehicle, and (ii) $153,428 for Mr. Schuman’s costs in setting up and maintaining an office, of which $60,535 is office rent and $75,707 is the cost, including the value of benefits, for his administrative assistant.

(5)      Represents the sum of amounts in columns (b), (c), (d) and (g).

(6)      Mr. Howard retired from the Board in February 2006, and received a pro-rated portion of compensation for 2006.

(7)      Mr. Rorsted joined the Board in August 2005 and per the terms of the 2001 Plan received an initial stock option grant in May 2006 valued at $94,205 under SFAS 123R to reflect his pro-rated service during 2005 ($39,725) as well as his 2006 service ($54,480).

(8)      Mr. Schuman retired from the Board in May 2006. As previously disclosed in our Proxy Statements for 2005 and 2006, compensation paid to Mr. Schuman was made pursuant to the terms of transition arrangements dated February 28, 2004, as amended January 1, 2006, relating to Mr. Schuman’s retirement following 49 years of service to the Company. As part of his transition agreement and consistent with the Company’s past practice for retiring CEOs, Mr. Schuman consults with the Company under a ten-year arrangement, in consideration for which the Company (i) provides him with a leased vehicle, (ii) reimburses him for his costs in setting up and maintaining an office, (iii) reimburses him for his reasonable consulting-related expenses, and (iv) provides him with financial planning services and annual physical exams.

(9)      Mr. Zillmer was elected to the Board in May 2006, and received a pro-rated portion of compensation for 2006.

Summary — Effective January 1, 2006, members of the Board of Directors who are not employees of the Company receive base annual compensation valued at $145,000 as follows:

·       an annual retainer of $60,000;

·       $30,000 annually in the form of stock units (which are described under footnote (3) to the “Security Ownership — Executive Officers and Directors” table on page 7); and

·       stock options having an economic value of approximately $55,000.

Chairs of the Board’s Compensation, Finance and Governance Committees each receive an additional fee of $6,000 per year. The Chair of the Audit Committee receives $11,000 per annum. All reasonable travel, telephone and other expenses incurred by directors on behalf of Ecolab are reimbursable.

Director stock options have a ten-year contractual exercise term and vest immediately on the date of grant. 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.

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

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at any time during the remaining exercise term of the original stock option. The reload feature was eliminated under the 2001 Plan as amended effective May 2004.

DIRECTOR INDEPENDENCE STANDARDS AND DETERMINATIONS

“Independence” Standards — Pursuant to the Board of Directors’ policy, a director is not independent if:

·       the director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer, of the Company;

·       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 $100,000 in direct compensation from the Company, 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);

·       (i) the director or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor; (ii) the director is a current employee of such a firm; (iii) the director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or (iv) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time;

·       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 Company’s present executive officers at the same time serves or served on that company’s compensation committee; or

·       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 Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1,000,000 or 2% of such other company’s consolidated gross revenues.

“Independence” Determinations — In February 2007, the Governance Committee undertook a review of director independence by examining the nature and magnitude of transactions and relationships during 2006, 2005 and 2004 between each director serving since January 1, 2006 (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, including those transactions reported below under “Stockholder Agreement” and “Related Person Transactions” with respect to Henkel’s designees to our Board (Messrs. Hamelmann, Lehner, Rorsted and Van Bylen). 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, including subsidiaries and affiliates of the company. The Board’s Governance Committee has reviewed the following immaterial transactions between certain directors’ companies and Ecolab, and determined that none of the transactions exceeds the Board’s categorical “independence” standards described above, or adversely affects the director’s “independence” status.

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·       Joel W. Johnson, a director, is the retired Chairman of the Board and Chief Executive Officer of Hormel Foods Corporation, a multinational manufacturer and marketer of consumer-branded meat and food products. During 2006, Ecolab’s sales to Hormel and its affiliates were approximately $2,181,537, which is less than 0.04% of Hormel’s consolidated gross revenues. Ecolab believes all sales to Hormel were made in the ordinary course, at arm’s length, and at prices and on terms customarily available. Further, the director had no personal interest in, nor received any personal benefit from, such commercial transactions.

·       Jerry A. Grundhofer, a director, is the Chairman of the Board of U.S. Bancorp, a financial services holding company. During 2006, Ecolab’s sales to U.S. Bancorp and its affiliates were approximately $56,000. In addition, Ecolab purchased services in the amount of approximately $181,000 from U.S. Bancorp and its affiliates. Ecolab believes all sales to and purchases from U.S. Bancorp were in the ordinary course, at arm’s length, and at prices and on terms customarily available. Further, the director had no personal interest in, nor received any personal benefit from, such commercial transactions.

·       Robert L. Lumpkins, a director, is the Chairman of the Board of The Mosaic Company, a producer of crop and animal nutrition products and services.  Mr. Lumpkins is also the retired Vice Chairman of Cargill, Inc., a global agricultural, food, financial and industrial products company. During 2006, Ecolab’s sales to Mosaic and its affiliates were approximately $36,000. During 2006, Ecolab’s sales to Cargill and its affiliates were approximately $7,315,000. In addition, Ecolab purchased products in the amount of approximately $5,811,000 from Cargill and its affiliates. These transactions were less than 0.02% of Cargill’s consolidated gross revenues. Ecolab believes all sales to, and purchases from, Mosaic and Cargill were made in the ordinary course, at arm’s length, and at prices and on terms customarily available. Further, the director had no personal interest in, nor received any personal benefit from, such commercial transactions.

·       Beth M. Pritchard, a director, is the President and Chief Executive Officer of Dean & DeLuca, Inc., a retailer of gourmet and specialty foods. During 2006, Ecolab’s sales to Dean & DeLuca and its affiliates were approximately $63,000. Ecolab believes all sales to Dean & DeLuca were in the ordinary course, at arm’s length, and at prices and on terms customarily available. Further, the director had no personal interest in, nor received any personal benefit from, such commercial transactions.

·       John J. Zillmer, a director, is the Chairman of the Board and Chief Executive Officer of Allied Waste Industries, Inc., a solid waste management company. During 2006, Ecolab sales to Allied Waste Industries and its affiliates were approximately $90,000. Ecolab believes all sales to Allied Waste Industries were in the ordinary course, at arm’s length, and at prices and on terms customarily available. Further, the director 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, are, and have been since January 1, 2006, “independent” and meet the independence and other requirements of the listing standards of the New York Stock Exchange, the rules and regulations of the SEC, applicable law, and the Board’s “independence” standards:  Les S. Biller, Richard U. De Schutter, Jerry A.

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Grundhofer, James J. Howard, Joel W. Johnson, Jerry W. Levin, Robert L. Lumpkins, Beth M. Pritchard and John J. Zillmer.

In view of the materiality of the relationships, arrangements and transactions between Ecolab and Henkel, including the Stockholder Agreement and Related Party Transactions described below, the Board has determined that Henkel’s designees to our Board since January 1, 2006 (Stefan Hamelmann, Ulrich Lehner, Kasper Rorsted and Hans Van Bylen) are not “independent.”  In addition, the Board determined that Douglas M. Baker, Jr. and Allan L. Schuman are not “independent,” due to their status as current and former executive officers, respectively.

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 which is available on our website at www.ecolab.com/investor/governance.

With respect to 2006, the Board’s Governance Committee has considered, among other factors, the information below concerning transactions and arrangements between the Company and Henkel KGaA, including subsidiaries and affiliates of the Company and Henkel. In accordance with the Company’s practices and procedures regarding related person transactions, the Governance Committee has ratified these transactions and arrangements for 2006.

Stockholder Agreement — In a filing with the SEC, Henkel KGaA reported that it and an affiliate of Henkel owned 72,692,552 shares of our Common Stock as set forth in the table of “Security Ownership — Certain Beneficial Owners” located on page 6.

Henkel’s equity ownership in the Company is subject to an agreement (“Stockholder’s Agreement”) containing certain restrictions pertaining to, among other things, Henkel’s acquisition, transfer and voting rights of our Common Stock. Generally, the Stockholder’s Agreement terminates when Henkel owns less than 2% of our voting shares. Pursuant to the Stockholder’s Agreement, Henkel is precluded from acquiring more than 35% of our outstanding Common Stock or from acting, alone or in concert with others, to control or influence the Company.

Henkel may sell its shares of our Common Stock under certain conditions specified in the Stockholder’s Agreement, subject to our right of first refusal. Any disposition by Henkel of any shares of our Common Stock would be effected in an orderly manner in accordance with the Stockholder’s Agreement, including our right of first refusal.

Henkel has agreed to vote its shares in the case of election of our directors, certain stockholder proposals, compensation and certain matters pertaining to the independent publicly traded nature of the Company, in accordance with the recommendations or directions of our Board. In all other cases, except with respect to certain “strategic transactions,”  Henkel may vote, at its option, either in accordance with the recommendation of our Board or pro rata in the same manner and proportion that votes of our stockholders (other than Henkel and our officers or directors) have been cast. Any vote with respect to “strategic transactions,” (for example a disposition, recapitalization, liquidation or consolidation of the Company or other transactions which could reasonably be expected to have a material effect upon Henkel’s investment in our Common Stock) may be cast at

PROXY STATEMENT 2007      15

Henkel’s sole discretion. Henkel also is entitled to designate nominees for election to our Board of Directors proportionate to the percentage of its holding of our voting securities (rounded down to the nearest whole number). Currently, Henkel has designated three of our directors. Those directors are Messrs. Stefan Hamelmann, Kasper Rorsted and Hans Van Bylen. Further information concerning Henkel directorships is found on page 17 under the heading “Proposal to Elect Directors.”

In addition, the Stockholder’s Agreement provides that beginning in 2011 Henkel will be permitted to make proposals to our Board of Directors to acquire all, but not less than all, of our outstanding voting shares at certain times, and under terms and conditions set forth in the Stockholder’s Agreement.

Related Person Transactions — On November 30, 2001, we acquired the 50% of the Henkel-Ecolab joint venture (“Henkel-Ecolab”) which we did not already own, from our joint venture partner, Henkel, for a purchase price of approximately €483,500,000, or approximately $432,700,000 at November 30, 2001 exchange rates, plus $6,500,000 of direct transaction related expenses. As of February 28, 2007, in connection with the acquisition, we had an outstanding claim for indemnification from Henkel for certain liabilities which, in the aggregate, amounted to €1,475,000 (or approximately $1,948,000 at February 2007 exchange rates). The acquisition is referred to herein as the “Transaction.”

As a part of the Transaction, Henkel agreed to continue for up to two years, subject to mutually agreed year-to-year extensions, to provide to our European businesses certain services and products which Henkel previously provided to Henkel-Ecolab prior to the Transaction on financial and other terms substantially similar to those in place prior to the closing of the Transaction. These include leased office space; certain accounting, finance, payroll, human resources, information and other administrative services; and contract manufacturing and supply agreements.

Pursuant to an Intellectual Property Agreement entered into in connection with the Transaction: (i) Henkel transferred certain trademarks and patents used by Henkel-Ecolab to us and we granted a perpetual royalty-free license back to Henkel to use such transferred intellectual property outside of the cleaning and sanitizing field; and (ii) Henkel granted a perpetual (in a limited number of cases, the license for certain trademarks is limited to five years) royalty-free license to us to use certain other trademarks, patents and technology used by Henkel-Ecolab which were not transferred to us.

In connection with the Transaction, Ecolab and Henkel also entered into an Environmental Agreement dated December 7, 2000 under which Henkel agreed to indemnify Ecolab for certain environmental liabilities associated with the parties’ former joint venture in Europe. Reimbursement from Henkel has been requested for €647,924 (or approximately $855,000) spent for such environmental liabilities prior to December 31, 2006.

Pursuant to a Brand License Agreement, Henkel granted Ecolab a license for certain Henkel trademarks to use on products for sale to retail customers who sell to both commercial and household end-use customers. Ecolab believes this license agreement was made in the ordinary course, at arm’s length, and on terms customarily available.

During 2006, 2005 and 2004, we sold products and services in the amounts of approximately $5,726,000, $3,574,000 and $3,222,000, respectively, to Henkel and its affiliates, and purchased products and services in the amounts of approximately $66,040,000, $65,279,000 and $70,946,000, respectively, from Henkel and its affiliates. Ecolab believes its sales to and purchases from Henkel were made in the ordinary course, at arm’s length, and at prices and on terms customarily available. The payments for products

16      PROXY STATEMENT 2007

and services include amounts paid to Henkel and its affiliates for administrative services and for products under supply arrangements by our affiliates in approximately 25 countries outside of Europe where we formerly acquired industrial and institutional cleaning and sanitizing businesses from Henkel.

PROPOSAL TO ELECT DIRECTORS

Our Board of Directors is divided into three classes. The members of each class are elected to serve a three-year term with the terms of office of each class ending in successive years. The Board of Directors currently consists of 12 members.

Pursuant to the agreement between us and Henkel KGaA described at page 15 under the heading “Stockholder Agreement,” Henkel is entitled to designate a number of persons to be nominated for election to our Board of Directors proportionate to Henkel’s shareholding in the Company rounded down to the nearest whole number. As of March 20, 2007, Henkel beneficially owned approximately 29.1% of our outstanding Common Stock and was accordingly entitled to designate three directors. Messrs. Stefan Hamelmann, Kasper Rorsted and Hans Van Bylen have been appointed to the Board pursuant to designation by Henkel.

The term of current Class III Directors, expires with this Annual Meeting of Stockholders. Pursuant to the recommendation of the Governance Committee, Ms. Pritchard and Messrs. De Schutter, Johnson and Van Bylen were nominated by the Board of Directors for election as Class III Directors. Class III Directors being elected at the current Annual Meeting will serve until the 2010 Annual Meeting expected to be held in May 2010. The directors of Class I and Class II will continue in office. The Board of Directors has no reason to believe that any of the named nominees is not available or will not serve if elected. The Board of Directors recommends a vote FOR the election of the four nominees named in this Proxy Statement.

The following information with regard to business experience has been furnished by the respective directors or nominees or obtained from our records.

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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, that the Compensation Discussion and Analysis be included in both the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 and the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held May 4, 2007.

COMPENSATION DISCUSSION AND ANALYSIS

Overview — This Compensation Discussion describes the material elements of compensation awarded to each of our executive officers who served as named executive officers during 2006. This Compensation Discussion focuses on the information contained in the following tables and related footnotes and narrative primarily for 2006, but we also describe compensation actions taken during 2005 and 2007 to the extent it enhances the understanding of our executive compensation disclosure for 2006.

The Compensation Committee of the Board of Directors oversees the design and administration of our executive compensation program according to the processes and procedures discussed in the Corporate Governance section of this proxy statement, located at pages 9 and 10 hereof.

The principal elements of our executive compensation program for 2006 were:

·       base salary;

·  annual cash incentives;

·       long-term equity incentives in the form of stock options and the selective use of restricted stock;

·       special benefits and perquisites; and

·       a change-in-control severance policy.

Our special benefits and perquisites utilized by the named executive officers in 2006 consisted of:

·       nonqualified savings and retirement plans;

·       supplemental life and disability insurance; and

·       company automobile, financial counseling, physical examinations, spousal travel, relocation expenses and, for the principal executive officer, a club membership.

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Our philosophy is to position the aggregate of these elements at the median of our competitive market, adjusted for the Company’s current size. For annual cash incentives, our philosophy is to also position them at a level commensurate with the Company’s performance based on diluted earnings per share compared to the Standard & Poor’s 500. We position annual cash incentives and stock options to provide lower than median compensation for lower than competitive market performance and higher than median compensation for higher than competitive market performance. Generally, this philosophy of commensurate aggregate pay is the same philosophy for executive positions throughout the world, based on representative compensation elements in the local marketplace. For stock options, our grant processes do not permit backdating but, as described under Long-Term Equity Incentives, are granted on the same date as the Compensation Committee approval date.

PROGRAM OBJECTIVES AND REWARD PHILOSOPHY

In General — We use executive compensation to support our corporate vision, communicate the importance of our business results, retain executives important to our success and 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 both fair to our executives and supportable to our stockholders. Our executive compensation program is further designed to reinforce and compliment ethical and sustainable management practices, and to align management interests (such as sustainable long-term growth) with those of our stockholders.

Competitive Market — We define our competitive market to be the size-adjusted median of a broad range of general industry manufacturing and service companies, as provided by third party surveys (in which we participate) of over 350 companies with sales that range from less than $500 million to more than $10 billion. We use surveys published by Hewitt Associates and Towers Perrin 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. We annually assess the reasonableness of our total compensation levels and mix relative to this competitive benchmark. Since no explicit peer group exists based on our size and business type, we periodically verify the reasonableness of the survey information used for our named executive officers by compiling proxy statement compensation information from other industry sources, such as the Standard & Poor’s 500 Materials Industry Group, of which we are a component.

Compensation Process — For the named executive officers other than the principal executive officer, the Compensation Committee reviews and approves all elements of compensation taking into consideration recommendations from our principal executive officer, as well as competitive market guidance and feedback provided by our human resources staff and independent compensation consultants. The Compensation Committee reviews and approves all elements of 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 Board’s independent compensation consultants and the Company’s human resources staff. Recommendations with respect to the compensation of our principal executive officer are not shared with our principal executive officer during this process.

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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 preserves our federal income tax deductions. 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. The MPIP 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 2006, 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 lower, but not raise, the award based upon the same underlying operable metrics used for our Management Incentive Plan cash incentive and to recognize individual performance.

BASE SALARIES

In General — We provide the opportunity for our named executive officers and other executives to earn a market competitive annual base salary. We provide this opportunity to attract and retain high caliber talent for the position, to recognize that similar base salary rates are almost universally provided at other companies that we compete with for talent, and to provide a base wage that is not subject to performance risk. We review 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, individual performance, and time in position. Our philosophy is to pay a base salary that is the median of our size-adjusted competitive market. When an executive officer is new to his/her position, his/her initial base salary will likely be significantly less than the median but, if performance is acceptable, his/her base salary will be increased over several years to arrive at the median.

Salary Increases — For 2006 and 2007, annualized base salary rates for the named executive officers are summarized below:

Our Analysis — For 2006, base salaries accounted for approximately 14% of total compensation for the principal executive officer and 30% on average for the other named executive officers, excluding Mr. Iannuzzi, which is consistent with our competitive market with the exception of the principal executive officer who received proportionately less of his total compensation in base salary. For 2006, we define total compensation as the sum of base salary, target annual incentives, and long-term equity incentives valued in total at grant. Normally, the annualized percentage increases are consistent with executive base

24      PROXY STATEMENT 2007

salary increases in our competitive market. However, in 2006 three of our named executive officers, including the principal executive officer, received more aggressive increases to bring them closer to the market median of their position, consistent with our philosophy and supported by their performance. The annualized base salary rates after the increases are within approximately 91% of our competitive market for the principal executive officer and 94% on average for the other named executive officers. Mr. Iannuzzi left our employ effective January 31, 2007. As part of the transition, Mr. Iannuzzi resigned as an executive officer effective November 30, 2006. Mr. Iannuzzi’s compensation is denominated in euros and has been converted to U.S. dollars at the exchange rate of one euro to 1.2451 dollars, the same exchange rate used for the Company’s financial reporting.

ANNUAL CASH INCENTIVES

In General — We provide the opportunity for our named executive officers and other executives to earn a market competitive annual cash incentive award. We provide this opportunity to attract and retain high caliber talent for the position, to recognize that similar annual cash incentive awards are almost universally provided at other companies with which we compete with for talent, and to motivate executives to achieve our annual business goals. Our bonus targets are set at the market median for each position, and the bonus plan is structured so that lower performance results in below market payouts and superior performance drives payouts above the market median.  We review annual cash incentive awards for the named executive officers and other executives annually in February to determine award payments for the last completed fiscal year and we establish award opportunities in December for the next fiscal year. These annual cash incentive awards are administered under our Management Incentive Plan (or MIP) and our MPIP.

Target Award Opportunities — Under the MIP, we establish annual target award opportunities expressed as a percentage of base salary paid during the fiscal year, and threshold and maximum award payment limits expressed as a percentage of the target award. For 2006, target award opportunities for the named executive officers ranged from 50% to 110% of base salary.

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 2006, the performance measure mix for the named executive officers is summarized below:

Performance Goals — Under the MIP, overall corporate performance is based on diluted earnings per share goals. In establishing these performance goals, we take into consideration a variety of factors, the most material of which include our prior year results, our expected economic and market influences, other large companies’ performance expectations and our

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anticipated business opportunities, investment requirements and competitive situation. For 2006, as in past years, we have established threshold performance goals which provide no payment without growth in diluted earnings per share. Our target and maximum diluted earnings per share goals require low double-digit to mid-teen double digit growth, respectively.

For three of our named executive officers (Messrs. Miller, Snedeker and Iannuzzi), who manage particular business units for us, 70% of their annual cash incentive is based upon business unit performance. One-half of the business unit performance component is based on achievement of the revenue goal and one-half is based on achievement of the operating income goal. In establishing these performance goals under the MIP, we take into consideration a variety of factors, the most material of which include prior year results and our growth opportunities, investment requirements and market influences. Over the past three years, the payout percentage for performance against business unit goals for these named executive officers has ranged from 89% to 194% of target with an average payout percentage of 131% of the target award opportunity for the three year period for the business unit performance component. Generally, the Compensation Committee sets the threshold, target and maximum levels such that the intended relative difficulty of achieving the target level is consistent from year to year.

For two of our named executive officers (Messrs. Fritze and Bell), who hold staff positions (principal financial officer and general counsel, respectively), 30% of their annual cash incentive is based upon performance of individual performance goals. This component of staff position awards under the MIP was initiated in 2006 and set at 30% of the performance measure mix for annual cash incentives so that achievement of these goals is a significant component of the award but remains balanced against achievement of corporate performance goals. This portion of the staff position awards is funded based on achievement of the Company’s operating income goal, which further ties the annual cash incentive to Company performance. As a result, the failure to achieve the Company’s operating goal would limit the ultimate amount of the award linked to the individual performance goals. The 2006 individual performance goals for our principal financial officer and the general counsel are specific, measurable, achievable with significant effort and, if achieved, provide benefit to the Company. The Compensation Committee, with input from the principal executive officer, approved the annual cash inventive as shown at page 32, including the component based on the principal financial officer’s and general counsel’s achievement of their respective 2006 performance goals.

Discretionary Adjustments — To recognize individual performance, the Compensation Committee also may increase or decrease a named executive officer’s MIP award, 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. Such discretionary increases were made in the cases of Messrs. Miller and Snedeker. In the case of Mr. Miller, the discretionary increase brought him to the maximum MIP award payout to recognize his superior performance in driving the outstanding results in one of his businesses. In the case of Mr. Snedeker, the discretionary increase brought him to the maximum MIP award payout to reflect the MIP award he would have received if based on the results of only those businesses he managed for the entire year.

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Under the MIP, the Compensation Committee may also make adjustments to our overall corporate and business unit performance results. These adjustments may exclude all or a portion of both the positive or negative effect of external events that are outside the control of our executives, such as natural disasters, litigation, or regulatory changes in accounting or taxation standards. These adjustments may also exclude all or a portion of both the positive or negative effect of unusual or significant events that are within the control of our executives but that are undertaken with an expectation of improving the long-term financial performance of our Company, such as restructurings, acquisitions, or divestitures. If such adjustments are made, the basis of MIP performance results may differ from the numbers reported in our financial statements. For example, in 2005 we adjusted our overall corporate results for the impact of Statement of Financial Accounting Standard No. 123 (Revised 2004), Share-Based Payment (SFAS 123R), the new accounting standard for expensing stock options, by $0.10 per share and the impact of the American Jobs Creation Act by $0.01 per share, so that the full year diluted earnings per share before such adjustments was $1.34 per share and after such adjustments was $1.23 per share, as reported in our 2005 Annual Report. This was done to neutralize the impact of a new accounting standard and to take advantage of new legislation enacted after our performance goals were established so that performance against the goals was measured and rewarded on a consistent basis. For 2006, the Compensation Committee made no adjustments to our corporate diluted earnings per share results.

The Compensation Committee reviews and approves all adjustments to our overall corporate and our business unit performance results.

Actual Award Payments — Based on our performance in 2006, award payments made in early 2007 to our named executive officers for 2006 performance ranged from 141% to the maximum 200% of the target.

Our Analysis — For the last completed fiscal year, target award opportunities accounted for approximately 17% of total compensation on average for the named executive officers, which is consistent with our competitive market. Actual award payments for the named executive officers, including the principal executive officer and excluding Mr. Iannuzzi, averaged 197% of target award opportunities, which is consistent with our Company’s performance, measured by diluted earnings per share, relative to our internal operating plans, measured by revenue and operating income, and our external comparisons to large companies generally.

LONG-TERM EQUITY INCENTIVES

In General — We provide the opportunity for our named executive officers and other executives to earn a market competitive long-term equity incentive award. We provide this opportunity to attract and retain high caliber talent for the position, to recognize that similar long-term equity incentives are almost universally provided at other companies that we compete with for talent, and to motivate executives to make decisions that focus on long-term growth and thus increase stockholder value. When our executives deliver sustained returns to our stockholders, stock options permit an increase in their own compensation. However, unless our stock price increases after the grants are made, the stock options deliver no value to the option holders.  We review long-term equity incentives for our named executive officers and other executives annually at our regularly scheduled meeting in December.

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Stock Options — For 2006, our long-term equity incentive program consisted of an annual grant of standard stock options and the selective use of restricted stock. Our stock option program is based on pre-established grant guidelines that are calibrated to our competitive market every year. Actual grants may be above or below our guidelines based on our assessment of individual performance and future potential. Our stock options are granted on the same date as our Compensation Committee approval date, 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. 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. Generally, our stock options 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.  Please see footnote (1) to the Grants of Plan Based Awards For 2006 table for a description of certain post-termination and change-in-control provisions. If a change-in-control occurs, options that are outstanding for at least six months from the date of grant become immediately exercisable in full.

Restricted Stock — From time-to-time, we may make special grants of restricted stock to our named executive officers and other executives in connection with promotions and recruitment, and for general retention purposes.

During 2006, we made no special grants of restricted stock to our named executive officers because no event occurred that suggested a need.

Our Analysis — For the last completed fiscal year, long-term equity incentives accounted for approximately 70% of total compensation for the principal executive officer and 54% average for the other named executive officers, excluding Mr. Iannuzzi, which is consistent with our competitive market with the exception of the principal executive officer who received proportionally more of his total compensation in long-term incentives. Actual grants to the named executive officers, including the principal executive officer, and excluding Mr. Iannuzzi, averaged 105% of our guideline amounts. Our normal annual practice of granting equity incentives entirely in the form of stock options is different than 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 as a retention incentive is consistent with our competitive market. We believe that our overall long-term equity compensation share usage, potential dilution, and compensation cost are within a reasonable range of our competitive market as to our named executive officers and also our other employees. We continue to emphasize stock options in our long-term equity incentive program because we believe (1) stock options properly align management’s interests and goals with the stockholders’ interests and goals, and (2) stock options focus management on sustainable long-term growth.

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EXECUTIVE BENEFITS AND PERQUISITES

In General — We provide the opportunity for our named executive officers and other executives to receive a market competitive executive benefits and perquisites program. We provide this opportunity to attract and retain high caliber talent for the position, to recognize that similar executive benefits and perquisites are commonly provided at other companies that we compete with for talent, and to help maximize the time key executives are able to spend on our business. We review our executive benefits and perquisites program periodically to ensure it remains fair to our executives and supportable to our stockholders. For the last completed and current fiscal years, we provided the following executive benefits and perquisites to our named executives officers:

European Executive Benefits and Perquisites — Luciano Iannuzzi, our former Executive Vice President — Europe, Africa and Middle East, headquartered in Europe, received benefits under a separate program. Mr. Iannuzzi’s benefits are generally mandated by an Italian collective bargaining agreement specific to senior executives (dirigenti) of industrial companies in Italy. These benefits include health insurance, life and accident insurance and participation in a retirement plan administered by an Italian employer association and designated representatives of the dirigenti. The retirement plan requires annual contributions of approximately 4% of compensation, up to the specified compensation limit, by both the employer and employee. Mr. Iannuzzi is also covered by a supplemental health insurance plan which is available to all Ecolab executives in Italy. During 2006, Mr. Iannuzzi worked on foreign assignment in Germany and was entitled to specific expatriate assignment benefits including tax equalization (using Italy as the home country), a cost of living allowance, automobile, tax return preparation and the payment of relocation expenses.

Our Analysis — Executive benefits and perquisites account for a nominal amount of total compensation for the named executive officers, which is consistent with our competitive market.

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EXECUTIVE CHANGE-IN-CONTROL POLICY

In General — We provide the opportunity for our named executive officers to be protected under a market competitive change-in-control policy. We provide this opportunity to attract and retain high caliber talent for the position, to recognize that similar change-in-control protections are commonly provided at other companies that we compete with for talent, and to ensure the impartiality and objectivity of our named executive officers in event of a change-in-control situation so that our stockholder interests are protected. We review this change-in-control protection periodically to ensure it remains fair to our executives and supportable to our stockholders. For the last completed and current fiscal years, our change-in-control policy for the named executive officers is summarized at page 34.

Our Analysis — Our analysis indicates that our change-in-control policy is consistent with the design provisions and benefit levels of other companies disclosing such protections, as reported in public SEC filings and as periodically published in various surveys and research reports.

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 suggest that the principal executive officer own company stock with a market value of at least five times current base salary and that other corporate officers own company stock with a market value of at least three times current base salary. Until the stock ownership guideline is met, the corporate officer is expected to retain 100% of all after-tax profit shares from stock option exercises. For purposes of complying with our guidelines, stock is considered owned if held within a 401(k) and is not considered owned if subject to an unexercised stock option. Our named executive officers and other officers may not pledge owned shares as security or enter into any risk hedging arrangements.

Our Analysis — Our analysis indicates that our stock 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% of all after-tax profit shares from any stock option exercises.

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TOTAL COMPENSATION MIX

In General — The table below illustrates how total compensation for our named executive officers for 2006 was allocated between performance and non-performance based components, how performance based compensation is allocated between annual and long-term components and how total compensation is allocated between cash and equity components:

(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

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 high 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 competitive market.

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SUMMARY COMPENSATION TABLE FOR 2006

The following table shows cash and non-cash compensation for the year ended December 31, 2006 for the persons serving as the Company’s “Principal Executive Officer” and “Principal Financial Officer” during the year ended December 31, 2006 and for the next three most highly-compensated executive officers who were serving in those capacities at December 31, 2006. In addition, the table includes Mr. Iannuzzi, who would have been one of the next three most highly compensated executive officers but for the fact that he was not an executive officer at December 31, 2006.

(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 discretionary awards made in respect of 2006 as described at page 26.

(3)                   Represents the dollar amount of stock options recognized for financial statement reporting purposes with respect to 2006 in accordance with SFAS 123R but with no discount for estimated forfeitures. The value of grants issued after October 1, 2005 have been determined by application of the lattice (binomial)-pricing model. Prior to October 1, 2005 The Black-Scholes option-pricing model was used. The respective option grant dates reflected in the table are: Mr. Baker, December 11, 2003, December 9, 2004, December 7, 2005, October 24, 2006 and December 6, 2006;  Mr. Fritze, December 11, 2003, December 9, 2004, December 7, 2005 and December 6, 2006; Mr. Bell, December 11, 2003, December 9, 2004, December 7, 2005 and December 6, 2006; Mr. Miller, December 11, 2003, December 9, 2004, December 7, 2005 and December 6, 2006; Mr. Snedeker, December 11, 2003, December 9, 2004, December 7, 2005 and December 6, 2006; and Mr. Iannuzzi, December 11, 2003, December 9, 2004, December 7, 2005. 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:

(4)                  Represents the annual cash incentive awards earned and paid in respect of 2006 under the Company’s Management Incentive Plan (“MIP”) and, if applicable, the Company’s Management Performance Incentive Plan (“MPIP”). The MIP and MPIP are discussed in the

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Compensation Discussion and Analysis at page 25 and as part of the table entitled “Grants of Plan — Based Awards For 2006” at page 34.

(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, 2006 over such amount as of December 31, 2005. The Company’s defined benefit plans include the Pension Plan, the Mirror Pension Plan and the Supplemental Executive Retirement Plan which are discussed at page 37 as part of the table entitled Pension Benefits For 2006. There are no “above market” earnings under the Company’s non-qualified mirror 401(k) deferred compensation plan maintained by the Company for a select group of executives because all earnings under that plan are calculated at the same rate as earnings on externally managed investments available to participants of the Company’s broad-based tax qualified deferred compensation plan. Mr. Iannuzzi does not participate in any Company defined benefit plan.

(6)                   Amounts reported as All Other Compensation include:

(a)               Payment by the Company of certain perquisites, including costs relating to the following: (i) a company automobile for each of the named executive officers; (ii) executive physical examinations in the case of Messrs. Baker, Fritze and Bell; (iii) financial planning in the case of Messrs. Baker ($26,000 reimbursed in 2006), Bell, Miller and Snedeker; (iv) moving expenses and relocation allowances in the case of Mr. Snedeker ($36,713 and $55,558, respectively reimbursed in 2006); (v) spousal travel in the case of each of the named executive officers; (vi) cost of living allowance and expenses for home leave, housing and utilities, property management fees and tax preparation fees relating to a foreign assignment in the case of Mr. Snedeker; (vii) payment of a contest trip award in the case of Mr. Snedeker; and (viii) club membership in the case of Mr. Baker.

(b)               Payment by the Company of life insurance premiums in 2006 for each of the named executive officers in the following amounts:  Mr. Baker, $18,017; Mr. Fritze, $18,213; Mr. Bell, $26,862; Mr. Miller, $25,607; and Mr. Snedeker, $30,379.

(c)               Payment by the Company of tax gross-ups in connection with certain perquisites for each of the named executive officers, including, in the case of Mr. Baker, $10,679, and, in the case of Mr. Snedeker, $123,584 for tax equalization and other gross — ups in connection with a foreign assignment.

(d)               Payment of matching contributions made by the Company for 2006 as follows:  (i) maximum matching contributions of $8,800 to each of the named executive officers 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 2006 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, $93,600; Mr. Fritze, $28,160; Mr. Bell, $19,928; Mr. Miller, $22,000; and Mr. Snedeker, $16,948.

(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.

(f)                 In 2006, Mr. Iannuzzi was on assignment in Germany. Mr. Iannuzzi received tax equalization benefits of $1,345,647, most of which relates to the payment of German income tax on the exercises of stock options while on assignment. He also received (i) $52,294 in expatriate housing benefits, (ii) $12,381 in relocation benefits, (iii) $37,130 in other expatriate assignment benefits, (iv) $2,460 in company-provided insurance benefits, and (iv) $45,005 in benefits required by the applicable Italian collective agreement for local executives.

Mr. Iannuzzi entered into a termination agreement on November 7, 2006 which provided for his relocation back to Italy and certain specified severance benefits valued at $1,517,341. These benefits include a one-time severance indemnity of $627,530, continued salary through January 31, 2007(his effective termination date) of $27,748 and a non-competition payment of $149,412 payable in 12 bi-monthly installments beginning in July 2007. In addition, Mr. Iannuzzi will receive a prorated 2007 incentive bonus of $32,373 and a payout of unused vacation. Mr. Iannuzzi will be entitled to receive a severance indemnity required under Italian employment law in the amount of $236,014. The termination agreement provides that Mr. Iannuzzi will be eligible for continuing tax equalization on amounts that are subject to German income tax during 2007, including his 2006 MIP cash incentive award. Such tax equalization payments are expected to amount to $218,023 (which amount has been included as a part of his All Other Compensation).

(7)                Consistent with SFAS 123R, the dollar amount shown is the amount expensed in 2006 for option awards to the named executive officers. As applied to all named executive officers, except Messrs. Bell and Snedeker, SFAS 123R requires that the dollar amount of the option award reflect the 36-month vesting period. Because Messrs. Bell and Snedeker are retirement eligible, the full grant date value of this award is expensed at the time of grant (versus approximately one-third of the value in the case of the other named executive officers) resulting in the amount of his option awards appearing relatively higher than if his award was expensed in the same manner as the other named executive officers.

(8)               Mr. Iannuzzi’s compensation is denominated in euros and has been converted into U.S. dollars at the exchange rate of one euro to 1.2451 dollars, the same exchange rate used for the Company’s financial reporting.

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GRANTS OF PLAN-BASED AWARDS FOR 2006