Baker Hughes 2009 Annual Report Download - page 27

2009 Proxy Statement 17
range of assumptions used to build our annual budget. We
did not perform specific analysis on the probability of the
achievement of the target performance goals given that the
market is difficult to predict. Rather, we relied upon our expe-
rience in setting these goals guided by our objective of setting
a reasonably attainable and motivationally meaningful goal.
Performance targets for each of the Senior Executives are
reviewed annually by the Compensation Committee and the
target percentages are based upon an extensive review of the
Survey Data and an assessment of the Senior Executives’ job
descriptions and responsibilities.
The EPS goals established by the Compensation Commit-
tee for 2009 were $0.88, $1.76 and $2.64 for the entry value,
expected value and over achievement levels of performance,
respectively. The non-GAAP EPS for purposes of determining
the Incentive Amount for 2009 was $1.57. This level of perfor-
mance resulted in bonus payments based upon 83.4% of the
target incentive compensation threshold.
Each of the Senior Executives will receive an annual bonus
in 2010 based on his individual contributions to the 2009 per-
formance as shown in the Summary Compensation Table on
page 27. The maximum annual award possible under the
Annual Incentive Plan is $4,000,000. The following table
shows the Annual Incentive Plan target incentive compensa-
tion for each of the Senior Executives. The differences in per-
centages are based upon job description and responsibility and
are reviewed by the Compensation Committee in light of the
Survey Data.
Discretionary Bonuses
Because of the significant market uncertainty the Compen-
sation Committee implemented the use of a second element
in the annual incentive compensation program for 2009. This
element is discretionary bonuses based upon the achievement
of non-financial performance goals. These goals were estab-
lished primarily to encourage focus on balance sheet manage-
ment and the implementation of our strategic reorganization.
During 2009 the Compensation Committee established non-
financial performance goals for each of our Senior Executives
based upon the metrics of inventory reduction, receivables
reduction, the implementation of the reorganization and indi-
vidual performance. The guidelines for assessing performance
under the discretionary portion of the annual incentive pro-
gram were not formulaic; however, the Compensation Com-
mittee considered management’s objectives of inventory
reduction of $296.5 million and receivables reduction of
$501.5 million as expected results. The actual inventory
reduction and receivables reduction results for 2009 were
$185.7 million and $415.2 million, respectively. The measures
for evaluating the success of the implementation of the reorgani-
zation and individual performance were subjective. These cash-
based awards were made under the 2002 Director & Officer
Long-Term Incentive Plan (the “2002 D&O Plan”) to certain of
our Senior Executives based upon their achievement of non-
financial goals during 2009.
At the beginning of 2009 the PEO sets specific individual
non-financial performance goals for each Senior Executive
other than himself. The Compensation Committee established
non-financial performance goals for the PEO at the beginning
of 2009. Based upon the achievement of those performance
goals the Senior Executives had the opportunity to earn discre-
tionary bonuses.
Mr. Deaton’s 2009 individual performance goals included
goals pertaining to driving the Company’s reorganization from
a product line focus to a geographic focus, recruitment of key
positions and diversification of the management team, realiza-
tion of efficiency gains in information technology, health safety
& environment and supply chain, achievement of safety goals,
and the implementation of the monitor’s recommendations.
Mr. Craighead’s 2009 individual performance goals
included goals relating to the successful implementation of the
Company reorganization, cost containment associated with
the reorganization, promotion of teamwork and collaboration
across regions, geomarkets and product lines, implementation
of standard performance metrics, achievement of safety goals,
diversity and inclusion goals and the development of geomar-
ket specific talent and indigenization strategies.
Mr. Ragauss’ 2009 individual performance goals included
goals relating to development of management information
and corresponding support systems, development and imple-
mentation of common financial processes, realization of effi-
ciency gains, implementation of the monitor’s recommendations
and the implementation of financial shared services outsourcing.
Mr. Crain’s 2009 individual performance goals included
goals relating to alignment of the legal function across product
lines, regions and key geomarkets, appropriate structure of legal
entities to enable the implementation of the new organization,
improvement of staffing of the legal organization with local and
regional personnel, implementation of the monitor’s recommen-
dations, and research & development strategy and optimization.
Mr. O’Donnell’s 2009 individual performance goals
included goals relating to the successful implementation of
the Company reorganization, cost containment associated with
the reorganization, promotion of teamwork and collaboration
across regions, geomarkets and product lines, achievement of
2009 Annual Incentive Plan Targets for Named Executive Officers(1)
Mr. Deaton Mr. Ragauss Mr. Crain Mr. Barr Mr. Craighead Mr. O’Donnell
Target Incentive Compensation (% of Base Salary) 60% 43.3% 37.5% 35% 41.7% 28.3%
(1) For 2010 the Target Incentive Compensation as a percentage of Base Salary for Messrs. Deaton, Ragauss, Crain, Craighead and O’Donnell will be 84%, 63%, 52.5%,
63% and 42%, respectively. Mr. Barr retired from employment with us on April 30, 2009. Accordingly, the bonus that Mr. Barr received for 2009 was prorated based
upon his service for us through April 30, 2009. The amounts we paid to Mr. Barr in connection with his retirement are discussed below under the heading “Retirement
Agreement With David H. Barr”.