Baker Hughes 2009 Annual Report Download - page 28

18 Baker Hughes Incorporated
safety goals and the reduction of per capita travel expenses by
at least 20 percent. The per capita travel expenses were actu-
ally reduced by greater than 20 percent by during 2009.
Mr. Barr’s 2009 individual performance goals included
goals relating to the successful implementation the Company
reorganization, implementation of standard performance met-
rics and achievement of safety goals.
The 2009 health and safety goals for Messrs. Deaton,
Craighead and O’Donnell were a motor vehicle accident rate
of less than or equal to 1.0. The rate is determined by multi-
plying the number of motor vehicle accidents by 1 million
hours, divided by the total kilometers driven. The actual motor
vehicle accident rate during 2009 was 1.03.
The Compensation Committee has determined to award
Messrs. Deaton, Ragauss, Crain, Barr, Craighead and O’Donnell
cash awards in the amounts of $940,000, $360,000, $240,000,
$70,000, $330,000 and $140,000, respectively, based upon
their performance as compared to their individual performance
goals. Given the Company’s strong performance with respect
to the implementation of the reorganization, the Compensa-
tion Committee strongly considered that performance factor in
determining the amounts of these cash awards.
The following table shows the discretionary bonus targets for
each of the Senior Executives. The differences in percentages are
based upon job description and responsibility and were reviewed
by the Compensation Committee in light of the Survey Data.
Long-Term Incentive Compensation
The long-term incentive program allows Senior Executives
to increase their compensation over a number of years as
stockholder value is increased as a result of a higher stock
price or sustained improvements in financial performance over
multiple years. Long-term incentives comprise the largest por-
tion of a Senior Executive’s compensation package and are
consistent with our at-risk pay philosophy. Currently, long-term
incentives generally are allocated to Senior Executives in the
following percentages: 30% Performance Units, 40% Stock
Options and 30% Restricted Stock. The Compensation Com-
mittee has approved targeting the 75th percentile of the Survey
Data with respect to long-term incentive awards because the
majority of long-term incentives are at risk and therefore jus-
tify a higher target percentage in relation to the Survey Data.
In 2002, the Compensation Committee and our Board of
Directors approved the 2002 D&O Plan for performance-
related awards for Senior Executives. Our stockholders
approved the 2002 D&O Plan in April 2002. An objective of
the 2002 D&O Plan was to align the interests of Senior Execu-
tives with stockholders and to provide a balanced long-term
incentive program. Beginning in 2005, the Compensation
Committee approved equity awards in shares of restricted
stock (or RSUs in non-United States jurisdictions) in addition
to the previously offered fixed-price stock options. Capitalized
terms used in this section discussing long-term incentive com-
pensation and not otherwise defined herein shall have the
meaning assigned to such term in the 2002 D&O Plan.
The Compensation Committee approves the total stock
options, restricted stock, performance units and cash-based
awards that will be made to Senior Executives as well as the
size of individual grants for each Senior Executive. The
amounts granted to Senior Executives vary each year and are
based on the Senior Executive’s performance, the Survey Data,
as well as the Senior Executive’s total compensation package.
Previous awards and grants, whether vested or unvested, have
no impact on the current year’s awards and grants.
Stock Options
An important objective of the long-term incentives is to
strengthen the relationship between the long-term value of
our stock price and the potential financial gain for employees.
Stock options provide Senior Executives with the opportunity
to purchase our Common Stock at a price fixed on the grant
date regardless of future market price. Stock options generally
vest and become exercisable one-third annually after the origi-
nal award date.
The exercise prices of the stock options granted to the
NEOs during fiscal year 2009 are shown in the Grants of Plan-
Based Awards Table on page 28. Additional information on
these grants, including the number of shares subject to each
grant, also is shown in the Grants of Plan-Based Awards Table.
Options generally are granted semi-annually, at the same
time as grants to the general eligible employee population,
typically in January and July. Option grants are made at Com-
pensation Committee meetings scheduled in advance to meet
appropriate deadlines for compensation-related decisions. Our
practice is that the exercise price for each stock option is the
market value on the date of grant. Pursuant to the 2002 D&O
Plan, the Option Price shall not be less than the fair market
value of the shares on the date of grant. The market value on
the date of grant is the closing price of our Common Shares on
the last trading day immediately preceding the date of grant.
In certain instances, stock options may vest on an acceler-
ated schedule. Retirement may trigger accelerated vesting if a
Senior Executive’s age plus years of service with us is greater
than or equal to 65 years. In this instance, all unvested options
will vest as of the retirement date, and the Senior Executive
2009 Discretionary Bonus 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 for discretionary bonuses as a percentage of Base Salary for Messrs. Deaton, Ragauss, Crain, Craighead and O’Donnell will
be 36%, 27%, 22.5%, 27% and 18%, respectively. Mr. Barr retired from employment with us on April 30, 2009. Accordingly, Mr. Barr will receive no bonus for 2010.
The amounts we paid to Mr. Barr in connection with his retirement are discussed below in the “Potential Payments Upon Termination or Change in Control” section
under the heading “Retirement Agreement With David H. Barr”.