Baker Hughes 2010 Annual Report Download - page 23

2 0 11 P r o x y S t a t e m e n t 11
Directors and the Audit/Ethics Committee. We subject the
following related persons to these procedures: directors, direc-
tor nominees, executive officers, individual 5% stockholders
and any immediate family members of these persons.
As outlined in Exhibit C to our Corporate Governance
Guidelines, attached as Annex A to this Proxy Statement, the
Board annually re-evaluates the independence of any “related
person” for any transactions, arrangements or relationships, or
any series of similar transactions, arrangements or relationships
in which any director, director nominee, executive officer, or
any immediate family member of those persons could be a
participant, the amount involved exceeds $120,000, and in
which any related person had or will have a direct or indirect
material interest.
The Company does not have a formal set of standards to
be substantively applied to each transaction reviewed by the
Audit/Ethics Committee and then the Board. However, the
standards utilized in its annual Director & Officer Questionnaire
to determine if a related party transaction exists are modeled
after Section 303A.02 of the New York Stock Exchange’s
Listed Company Manual. Instead of a formalized standard,
potential related party transactions are reviewed and judgment
is applied by the Board of Directors in accordance with its
duties under Delaware and other applicable law to determine
whether such transactions are in the best interests of the
Company and its stockholders. In addition to the discussion
under the “Business Code of Conduct” in this Proxy State-
ment, the “Baker Hughes Incorporated Policy for Director
Independence, Audit/Ethics Committee Members and Audit
Committee Financial Expert” are included as Exhibit C of the
Corporate Governance Guidelines, which are attached as
Annex A to this Proxy Statement. The Company utilizes stan-
dard accounting procedures to monitor its financial records
and determine whether a related person is involved in a busi-
ness relationship or transaction with the Company for which
disclosure is required.
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary, Compensation Highlights
and Program Objectives
Executive Summary
The purpose of our compensation program is to motivate
exceptional individual and organizational performance that is
in the long-term best interests of our stockholders. We use
traditional compensation elements of base salary, annual
incentives, long-term incentives, and employee benefits to
deliver attractive and competitive compensation. We bench-
mark both compensation and company performance in eval-
uating the appropriateness of pay. All of our executive pay
programs are administered by an independent compensation
committee, with assistance from an independent consultant.
We target the market median for fixed compensation, while
providing the opportunity for executives to earn upper quartile
incentive pay based on Company performance.
Our compensation programs include programs that are
designed specifically for (1) our most senior executive officers
(“Senior Executives”), which include the Principal Executive
Officer (“PEO”) who is the Chairman and Chief Executive Offi-
cer and other named executive officers (the “NEOs”) which
include the chief financial officer and the three other most
highly compensated executive officers and (2) employees who
are designated as executives of the Company (“Executives”),
which includes the Senior Executives and (3) a broad base
of Company employees. The Senior Executives are:
• Chad C. Deaton – Chairman & Chief Executive Officer
• Peter A. Ragauss – Senior Vice President &
Chief Financial Officer
• Martin S. Craighead – President & Chief Operating Officer
• Alan R. Crain – Senior Vice President & General Counsel
• John A. O’Donnell – Vice President and President,
Western Hemisphere Operations
The total compensation and benefits program for Senior
Executives consists of the following:
• Total Direct Compensation:
– base salaries
– short-term incentive compensation
– long-term incentive compensation
• Total Indirect Compensation:
– retirement, health and welfare benefits
– perquisites and perquisite allowance payments
2010 Compensation Highlights
Compensation administration is best understood in the
context of certain internal initiatives and external influences,
such as:
• The reorganization of the Company from product lines
to geomarkets to better address world demand for
oilfield services;
• The acquisition of BJ Services to enhance our position as
one of the leading oilfield service companies in the world;
• The unprecedented volatility in world financial and energy
markets; and
• The focus on fundamentals of profit margin, controllable
costs and balance sheet management in response to
extreme volatility in the market
The Compensation Committee reviewed all compensation
programs. The following are the highlights of this review:
• Responded to changes in the oilfield services market
brought about by mergers and acquisitions in order
to enhance comparability of compensation and perfor-
mance data;
• Performed a compensation related risk assessment to ensure
appropriate risk tolerance of compensation arrangements
in the Company;
• Enhanced the linkage between financial performance
measures in the Annual Incentive Compensation Plan and
the Company’s current business strategy by changes to the
Annual Incentive Compensation Plan;
• Increased the emphasis on the objective formula based
portion of the short-term annual incentive program over the
non-formula based portion (thereby increasing tax deduct-
ibility) as the business environment has normalized; and
• Implemented plan design changes to the non-qualified
retirement program to enhance the retentive value of the
plan and enhance its cost effectiveness.