Baker Hughes 2004 Annual Report Download - page 37

Mr.฀Wiley’s฀retirement฀from฀the฀Company฀on฀October฀25,฀
2004,฀these฀options฀were฀vested฀and฀in฀accordance฀with฀his฀
restated฀employment฀agreement฀will฀expire฀in฀2007.
Mr.฀Deaton฀was฀awarded฀a฀stock฀option฀grant฀of฀
75,000฀shares฀of฀Common฀Stock,฀effective฀October฀25,฀2004,฀
at฀an฀exercise฀price฀equal฀to฀the฀fair฀market฀value฀of฀the฀stock฀
on฀the฀date฀prior฀to฀the฀respective฀date฀of฀grant.฀The฀option฀
vests฀and฀becomes฀exercisable฀one-third฀each฀year฀beginning฀
October฀25,฀2005.฀On฀October฀25,฀2004,฀Mr.฀Deaton฀was฀also฀
awarded฀80,000฀shares฀of฀restricted฀Common฀Stock,฀which฀
vests฀25฀percent฀on฀each฀of฀October฀25,฀2006,฀2007,฀2008฀
and฀2009.฀These฀grants฀were฀made฀to฀furnish฀an฀incentive฀for฀
Mr.฀Deaton฀to฀create฀stockholder฀value฀over฀the฀long-term.
In฀fiscal฀year฀2004,฀the฀Compensation฀Committee฀also฀
awarded฀grants฀of฀options฀to฀certain฀of฀the฀Company’s฀senior฀
executives,฀including฀Messrs.฀Finley,฀Clark,฀Crain฀and฀Wall฀to฀
furnish฀an฀incentive฀for฀top฀performance฀for฀the฀mutual฀bene-
fit฀of฀the฀employees,฀the฀Company฀and฀stockholders.฀In฀addi-
tion,฀during฀fiscal฀2004฀Messrs.฀Clark,฀Crain฀and฀Wall฀received฀
awards฀of฀40,000,฀10,000฀and฀10,000฀restricted฀shares฀of฀
Common฀Stock,฀respectively.฀Mr.฀Clark’s฀award฀vests฀25฀per-
cent฀on฀each฀of฀October฀27,฀2007฀and฀2008฀with฀the฀remain-
ing฀50฀percent฀vesting฀on฀October฀27,฀2009.฀Mr.฀Crain’s฀award฀
vests฀on฀April฀28,฀2008.฀Mr.฀Wall’s฀award฀vests฀on฀March฀2,฀2008.฀
In฀2002,฀the฀Compensation฀Committee฀and฀the฀Compa-
ny’s฀Board฀of฀Directors฀approved,฀subject฀to฀stockholder฀
approval,฀the฀Baker฀Hughes฀Incorporated฀2002฀Director฀&฀Offi-
cer฀Long-Term฀Incentive฀Plan฀for฀performance-related฀awards฀
for฀senior฀executives฀in฀order฀to฀maintain฀a฀strong฀link฀to฀
stockholders฀and฀to฀provide฀a฀more฀balanced฀long-term฀incen-
tive฀program.฀The฀Company’s฀stockholders฀approved฀this฀plan฀
in฀April฀2002.
The฀performance-related฀awards฀for฀2003-2004฀under฀
the฀plan฀provided฀for฀a฀comparison฀of฀Baker฀Hughes’฀relative฀
total฀shareholder฀return฀to฀a฀group฀of฀industry฀peer฀companies฀
(5฀comparators).฀With฀respect฀to฀prior฀awards฀under฀the฀plan,฀
if฀the฀Company฀ranked฀first฀or฀second฀in฀relative฀total฀share-
holder฀return฀for฀the฀applicable฀two-year฀period,฀as฀compared฀
to฀the฀rankings฀of฀designated฀oilfield฀services฀competitors,฀the฀
Company฀would฀issue฀shares฀of฀restricted฀stock฀equal฀to฀a฀dol-
lar฀value฀specified฀for฀each฀participating฀executive฀and฀for฀
each฀ranking.฀If฀company-wide฀performance฀ranks฀third฀or฀
lower,฀no฀awards฀were฀earned.฀For฀the฀two-year฀period฀ending฀
December฀31,฀2004,฀the฀applicable฀rankings฀were฀not฀
achieved฀and฀no฀restricted฀stock฀was฀earned฀and฀issued.
In฀December฀2003,฀the฀Compensation฀Committee฀entered฀
into฀an฀engagement฀with฀a฀separate฀independent฀executive฀
compensation฀consultant฀for฀the฀purpose฀of฀reviewing฀the฀
Company’s฀executive฀equity฀compensation฀program.฀The฀Com-
mittee฀received฀and฀reviewed฀the฀recommendations฀from฀the฀
consultant฀in฀2004฀for฀which฀the฀Committee฀has฀taken฀into฀
consideration฀in฀its฀overall฀compensation฀program.฀Based฀upon฀
the฀advice฀of฀the฀consultant,฀the฀more฀appropriate฀measure฀
for฀the฀performance-related฀awards฀would฀be฀to฀include฀addi-
tional฀companies฀in฀the฀comparison.฀Thus,฀the฀plan฀was฀
changed฀for฀the฀2004-2006฀performance-related฀awards.฀
In฀2004,฀the฀Compensation฀Committee฀approved฀perfor-
mance-related฀awards฀for฀senior฀executives฀under฀the฀plan.฀
If฀the฀Company’s฀total฀shareholder฀return฀for฀the฀three-year฀
period฀ending฀December฀31,฀2006฀equals฀or฀exceeds฀the฀
median฀of฀the฀total฀shareholder฀returns฀of฀the฀Morgan฀Stanley฀
Oil฀Services฀Index฀companies฀(29฀comparators)฀for฀the฀period,฀
the฀Company฀will฀issue฀shares฀of฀Common฀Stock฀equal฀to฀the฀
participant’s฀number฀of฀target฀shares฀of฀Common฀Stock฀for฀฀
the฀performance฀award฀multiplied฀by฀the฀applicable฀percent-
age฀target฀earned฀factor฀for฀the฀Morgan฀Stanley฀Oil฀Services฀
Index฀companies.฀
Summary
The฀Compensation฀Committee฀believes฀the฀executive฀com-
pensation฀program฀provides฀a฀competitive฀total฀compensation฀
opportunity฀with฀a฀significant฀performance฀orientation.฀The฀
annual฀incentive฀plan฀is฀designed฀to฀evaluate฀and฀reward฀
achievement฀of฀specific฀objectives฀that฀drive฀the฀success฀of฀
the฀Company.฀The฀long-term฀incentive฀awards฀link฀executives฀
directly฀to฀stockholders฀and฀reward฀the฀Company’s฀executives฀
for฀continuing฀positive฀stock฀performance฀on฀an฀absolute฀and฀
relative฀basis.฀
H.฀John฀Riley,฀Jr.฀(Chairman)
Larry฀D.฀Brady
Edward฀P.฀Djerejian
Claire฀W.฀Gargalli
Charles฀L.฀Watson
COMPENSATION฀COMMITTEE฀INTERLOCKS฀฀
AND฀INSIDER฀PARTICIPATION
The฀Company’s฀Compensation฀Committee฀consists฀of฀
Messrs.฀Riley,฀Brady,฀Djerejian฀and฀Watson฀and฀Ms.฀Gargalli,฀all฀
of฀whom฀are฀non-management฀directors.฀None฀of฀the฀Com-
pensation฀Committee฀members฀has฀served฀as฀an฀officer฀of฀the฀
Company,฀and฀none฀of฀the฀Company’s฀executive฀officers฀has฀
served฀as฀a฀member฀of฀a฀compensation฀committee฀or฀board฀
of฀directors฀of฀any฀other฀entity,฀which฀has฀an฀executive฀officer฀
serving฀as฀a฀member฀of฀the฀Company’s฀Board฀of฀Directors.
CORPORATE฀PERFORMANCE฀GRAPH
The฀following฀graph฀compares฀the฀yearly฀percentage฀
change฀in฀the฀Company’s฀cumulative฀total฀stockholder฀return฀
on฀its฀Common฀Stock฀(assuming฀reinvestment฀of฀dividends฀
into฀Common฀Stock฀at฀the฀date฀of฀payment)฀with฀the฀cumula-
tive฀total฀return฀on฀the฀published฀Standard฀&฀Poor’s฀500฀Stock฀
Index฀and฀the฀cumulative฀total฀return฀on฀Standard฀&฀Poor’s฀
500฀Oil฀and฀Gas฀Equipment฀and฀Services฀Index฀over฀the฀pre-
ceding฀five-year฀period.฀The฀following฀graph฀is฀presented฀pur-
suant฀to฀SEC฀rules.฀The฀Company฀believes฀that฀while฀total฀
stockholder฀return฀is฀an฀important฀corporate฀performance฀
indicator,฀it฀is฀subject฀to฀the฀vagaries฀of฀the฀market.฀In฀addition฀
to฀the฀creation฀of฀stockholder฀value,฀the฀Company’s฀executive฀
compensation฀program฀is฀based฀on฀financial฀and฀strategic฀
results฀and฀the฀other฀factors฀set฀forth฀and฀discussed฀above฀
in฀the฀“Compensation฀Committee฀Report.”
Proxy฀Statement฀฀฀฀฀21