Baker Hughes 2010 Annual Report Download - page 27

2 0 11 P r o x y S t a t e m e n t 15
In addition to the considerations detailed above, the deci-
sion to increase the salaries for Senior Executives was based
on a review of the Survey Data, individual performance related
to the merger with BJ Services and specific individual perfor-
mance as further described in the “Discretionary Bonuses”
section on page 16. The Survey Data indicated that the salaries
for the Senior Executive group averaged 94% of the market
median. In 2009, Messrs. Ragauss, Craighead and O’Donnell
received salary increases based on the Survey Data and an
increased level of responsibility. When approving base salary
increases for 2010, the Compensation Committee also took
into account the fact that the other Senior Executives did
not receive a base salary increase in 2009 as annual salary
increases were postponed indefinitely for the overall organiza-
tion due to the uncertain financial environment at that time.
Short-Term Incentive Compensation
The short-term incentive compensation program provides
Senior Executives with the opportunity to earn cash bonuses
based on the achievement of specific Company-wide, business
unit, functional and individual performance goals. The Compen-
sation Committee designs the short-term incentive program
to incentivize Senior Executives to attain certain short-term
performance goals. As previously described, the payouts for
Senior Executives under the short-term incentive compensation
program are targeted to provide compensation at the market
median (50th percentile) of the Survey Data in years when we
reach expected performance levels. Incentive bonuses are gen-
erally paid in cash in March of each year for the prior fiscal
year’s performance.
The short-term incentive opportunity for Senior Executives
is based on formulaic and non-formulaic performance goals.
Greater weight is placed on the formula based component
of the short-term incentive to reflect the Company’s goal
of providing a meaningful link between compensation and
Company performance.
Annual Incentive Compensation Plan
The Annual Incentive Compensation Plan is designed so
that in years in which our financial performance significantly
exceeds our financial performance targets, the payouts for the
Annual Incentive Compensation Plan could exceed the market
median of the Survey Data, and correspondingly, the payouts
could be lower than the market median of the Survey Data
in years in which our performance falls meaningfully short of
expected results.
In 2010, the financial metric for the Annual Incentive
Compensation Plan changed to operating profit before interest
and taxes from earnings per share. We continue to manage
the Company’s profitability as measured by earnings per share,
however, we believe that in 2010, using operating profit
before interest and taxes as the financial metric allowed
us to more accurately set profitability goals throughout the
organization. Such goals were set prior to the merger with
BJ Services and exclude the effects of such merger.
The Compensation Committee approves three perfor-
mance levels with respect to achievement of the established
financial metric: entry level, expected value, and over achieve-
ment. Performance targets are established at levels that chal-
lenge the individual Senior Executive to perform at a high
level. Targets are set such that only exceptional performance
will result in payouts above the target incentive and poor
performance will result in no incentive payment.
As detailed in the chart below, entry level is the minimum
level of financial performance for which the Compensation
Committee approves any annual incentive payout and the pay-
out is 25% of target incentive compensation. If our financial
performance is less than the entry level threshold, there is no
payout for that fiscal year. If our financial performance reaches
the expected value level, the payout equals 100% of target
incentive compensation. If our financial performance reaches
the over achievement level, the payout equals 200% or above.
Achievement between any level results in a payout that is
determined by interpolation between payout levels or extrap-
olation for exceeding the over achievement level.
Performance Level Definition Payout Level % of Target 2010 Operating Profit Before Interest and Tax Targets
Entry level Minimum achievement level for payout 25% Payout $ 923,000,000
Expected value Performance meets expected value 100% Payout $ 1,120,000,000
Over achievement Performance exceeds expected value 200% Payout or above $ 1,318,000,000
Our 2010 operating profit before interest and tax was
$1,107,000,000 resulting in a payout of 95 percent of
target, which is received in 2011 and reflected for each
Senior Executive in the Summary Com pensation Table on
page 25. The following table shows the 2010 annual incen-
tive target compensation for each of the Senior Executives.
The bonus target for each Senior Executive is reviewed
by the Compensation Committee each year and is set at
market median in light of the Survey Data.
2010 Annual Incentive Compensation Plan Targets
for Senior Executives
Senior Executives Target Incentive Compensation % of Base Salary
C. Deaton 84%
P. Ragauss 63%
M. Craighead 63%
A. Crain 52.5%
J. O’Donnell 42%