An error occurred during the execution of xp_cmdshell. A call to 'LogonUserW' failed with error code: '1385'

The message for the error code is:

Logon failure: the user has not been granted the requested logon type at this computer.

Actually logon type means "log on as a batch job". The proxy account should have this privilege on the sql server local computer.

Go to "All Programs-->Administrative Tools-->Local Security Policy", navigate to "Local Policies-->User Rights Assignment", find out "log on as a batch job" policy. Add the account which you added in Server proxy account.