Baker Hughes 2010 Annual Report Download - page 25

2 0 11 P r o x y S t a t e m e n t 13
Compensation Consultant
The Compensation Committee has retained Cogent
Compensation Partners, Inc. since 2008 as its independent
compensation consultant. Cogent advises the Compensation
Committee on matters related to the Senior Executives’ com-
pensation and general compensation programs, including
industry best practices. It is planned that this relationship will
continue during 2011.
Cogent provides the following consulting services to the
Compensation Committee:
• assists in the annual review and approval of the comparator
groups used to benchmark executive compensation levels;
• provides comparative market data on compensation prac-
tices and programs; and
• advises in:
– determining base salaries for Senior Executives;
– setting individual performance goals and award levels
for Senior Executives for the long-term incentive plan
performance cycle;
– compensation trends and regulatory matters affecting
compensation; and
– designing and determining individual grant levels for
Senior Executive long-term incentive awards.
Cogent periodically provides consulting services to the
Governance Committee, as follows:
• advises on policy covering the payment of director’s fees;
• advises on equity and non-equity compensation awards
to directors
Benchmarking
We compete primarily with oilfield service companies.
Because of the technical nature of the industry, cyclicality of
the markets, people intensity and capital requirements, these
companies provide the best competitive benchmarks. However,
due to market consolidation the number of similarly sized
oilfield service companies with which we compete for talent
has declined.
On April 28, 2010, we finalized our acquisition of BJ Services
Company and on August 27, 2010, Schlumberger Limited
completed the acquisition of Smith International, Inc. Both
BJ Services Company and Smith International, Inc. were direct
peers used for competitive benchmarking. The following chart
reflects changes made to the competitive benchmarking follow-
ing these transactions and how we use competitive information
to compare performance and compensation.
Using the Reference Group as well as the Peer Group data
(collectively, the “Survey Data”) addresses the need for both
statistical validity and industry influence in the data.
The Reference Group is comprised of industry peers and
companies in broader energy and general industry with similar
business characteristics, size, margins, competition for talent,
and other key compensable factors and is statistically mean-
ingful. The data is used to assess the competitive market value
for executive jobs, pay practices, validate targets for pay plans,
test the compensation strategy, observe trends and provide a
general competitive backdrop for decision making. The Peer
Group is comprised of four direct industry peers and the data
is used to provide a general, high level review, compare com-
pany performance in our industry, understand pay practices
and trends, compare plan design specifics, evaluate the effects
of the industry cycle on compensation and validate compensa-
tion targets.
Compensation
Performance
Reference Group
Determine the market
value of jobs
Evaluate relative
performance
• 20 companies – oilfield services, exploration & production, offshore drilling, oil and gas, and general industry:
• 4 companies – oilfield services only:
• Changed from 6 companies in 2009: removed BJ Services and Smith Intl. Inc. due to tranasactions
• Used to compare performance in order to determine the value of performance units and for general performance assessment
• Halliburton Co.
• National Oilwell Varco Inc.
• Schlumberger Ltd.
• Weatherford Intl. Ltd.
• Changed from 10 companies in 2009: added oil and gas companies and similarly-situated general industry companies
for statistical validity
• Used to identify and compare executive pay practices such as pay mix and magnitude, competitiveness, prevalence of
long-term incentive vehicles, etc.
• 3M Company
• Anadarko Petroleum Corp.
• Apache Corp.
• Danaher Corp.
• Deere & Co.
• Devon Energy Corp.
• Eaton Corp.
• Emersson Electric Co.
• Halliburton Co.
• Hess Corp.
• Honeywell Intl. Inc.
• Illinois Tool Works
• Johnson Controls Inc.
• National Oilwell Varco
• Raytheon Co.
• Schlumberger Ltd.
• Textron Inc.
• Transocean Ltd.
• Weatherford Intl. Ltd.
• Williams Cos. Inc.
Peer Group