Baker Hughes 2009 Annual Report Download - page 30

20 Baker Hughes Incorporated
between the expected value level of performance and the over
achievement level of performance will be determined by inter-
polation. The payouts for results in excess of the over achieve-
ment level of performance will be determined by extrapolation.
Percentage of expected value Performance
Performance Level Target Amount Unit Value
Below Threshold 0–24% $ 0
Entry Level 25% $ 25
Expected Value Target 100% $ 100
Over Achievement 200% $ 200
The performance goals for the performance unit awards
granted in 2007 for the three-year performance period ending
on December 31, 2009 were not achieved. Accordingly, the
performance unit value of each performance unit granted in
2007 is $0. The amounts of the performance unit award pay-
ments for each of the Senior Executives for the three-year per-
formance period ending on December 31, 2009 are shown in
the Summary Compensation Table on page 27. Each of the
Senior Executives were granted performance unit awards dur-
ing 2007, 2008 and 2009.
Tax Implications
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the “Code”) places a limit of $1,000,000 on the
amount of compensation that may be deducted by the Com-
pany in any year with respect to the PEO and the other NEOs
other than Messrs. Ragauss unless the compensation is perfor-
mance-based compensation as described in Section 162(m) and
the related regulations, as well as pursuant to a plan approved
by the Company’s stockholders. We have qualified certain
compensation paid to Senior Executives for deductibility under
Section 162(m), including (i) certain amounts paid under our
Annual Incentive Plan and (ii) certain options and certain other
long-term performance-based stock or cash awards granted
pursuant to the 1998 Long-Term Incentive Plan and the 2002
D&O Plan. We may from time to time pay compensation to
our Senior Executives that may not be deductible, including
discretionary bonuses or other types of compensation.
Although the Compensation Committee has generally
attempted to structure executive compensation so as to pre-
serve deductibility, it also believes that there are circumstances
where the Company’s interests are best served by maintaining
flexibility in the way compensation is provided, even if it might
result in the non-deductibility of certain compensation under
the Code.
Although equity awards may be deductible for tax pur-
poses by the Company, the accounting rules pursuant to
FASB ASC Topic 718 require that the portion of the tax benefit
in excess of the financial compensation cost be recorded to
additional paid-in capital.
Employee Stock Purchase Plan
The purpose of the Employee Stock Purchase Plan is to
encourage and enable eligible employees to purchase our
stock at a discounted rate, thereby keeping the employees’
interests aligned with the interests of the stockholders. Senior
Executives may participate in this Employee Stock Purchase
Plan on the same basis as all other eligible employees.
Employees may elect to contribute on an after-tax basis
between 1% and 10% of their pay during an offering period
to purchase our Common Stock; provided however, that an
employee may not purchase Common Shares at a rate that
accrues in excess of $25,000 of fair market value of the stock
(determined at the date of grant) for any one calendar year
due to Internal Revenue Service restrictions. In no event may
an eligible employee purchase more than 2,000 shares under
the plan during an offering period. Starting in 2010, in addi-
tion to the foregoing limitations, an eligible employee may not
purchase shares of Common Stock during an offering period
in excess of the number of shares that may be purchased with
$5,000 at a per share purchase price of 85% of the fair mar-
ket value of our Common Stock on the first day of the offer-
ing period. Shares are purchased by eligible employees at a
15% discount of the fair market value of our Common Stock
on the first day of the offering period or the last day of the
offering period, whichever is lower. Prior to 2010 the offering
periods were calendar years. During 2010, the offering periods
are two six month periods, the first of which began on Janu-
ary 1 and the second of which begins on July 1.
Retirement, Health and Welfare Benefits
We offer a variety of health and welfare and retirement
programs to all eligible employees. The Senior Executives
generally are eligible for the same benefit programs on the
same basis as the rest of the broad-based employees. The
health and welfare programs are intended to protect employees
against catastrophic loss and encourage a healthy lifestyle. Our
health and welfare programs include medical, wellness, phar-
macy, dental, vision, life insurance, accidental death and dismem-
berment and disability coverages. Coverage under the life and
accidental death and disability programs offer benefit amounts
specific to Senior Executives. Senior Executives are eligible to
receive reimbursement for certain medical examination expenses.
Premiums for perquisite life and perquisite accidental death
and dismemberment insurance may be paid from a Senior
Executive’s perquisite allowance.
We offer retirement programs that are intended to supple-
ment the employee’s personal savings and social security. The
programs include the Baker Hughes Incorporated Thrift Plan
(“Thrift Plan”), which is a 401(k) plan, the Baker Hughes Incor-
porated Pension Plan (“Pension Plan”) and the Baker Hughes
Incorporated Supplemental Retirement Plan (“SRP”). All U.S.
employees, including Senior Executives, are generally eligible
for the Thrift Plan and the Pension Plan. Only U.S. Executives
are eligible for the SRP. Non-U.S. employees are covered under
different retirement plans. Senior Executives participate in the
Thrift Plan and Pension Plan on the same basis as other employ-
ees and in the SRP on the same basis as other Executives.
The Thrift Plan allows eligible employees to elect to con-
tribute from 1% to 50% of their eligible compensation to an
investment trust. Eligible compensation generally means all
wages, salaries and fees for services from the Company.
Employee contributions are matched in cash by us at the rate
of $1.00 per $1.00 employee contribution for the first 5% of