Baker Hughes 2004 Annual Report Download - page 35

The฀Compensation฀Committee฀consists฀of฀five฀non-
employee,฀independent฀directors฀(as฀defined฀in฀Annex฀A฀to฀this฀
Proxy฀Statement)฀who฀have฀no฀“interlocking”฀relationships฀(as฀
defined฀by฀the฀SEC).฀The฀Compensation฀Committee’s฀overall฀
goal฀is฀to฀develop฀executive฀compensation฀policies฀that฀support฀
the฀Company’s฀strategic฀business฀objectives฀and฀consider฀current฀
competitive฀market฀practices.฀The฀Compensation฀Committee฀
reviews฀and฀approves฀the฀design฀of,฀assesses฀the฀effectiveness฀
of฀and฀oversees฀executive฀compensation฀programs฀and฀other฀
matters.฀The฀Compensation฀Committee฀also฀reviews฀and฀
approves฀all฀compensation฀and฀incentive฀programs฀for฀senior฀
executives฀and฀evaluates฀CEO฀performance.
Compensation฀Philosophy
The฀Company’s฀primary฀business฀objective฀is฀to฀maximize฀
stockholder฀value฀over฀the฀long-term.฀The฀Company฀has฀dev-
eloped฀a฀comprehensive฀business฀strategy฀that฀emphasizes฀
financial฀and฀organizational฀performance฀and฀continuing฀฀
market฀leadership฀and฀best฀in฀class฀products฀and฀services.
The฀following฀compensation฀policies฀are฀intended฀to฀facili-
tate฀the฀achievement฀of฀the฀Company’s฀business฀strategies:
•฀ Drive฀and฀reward฀strong฀business฀performance฀which฀sup-
ports฀the฀Company’s฀core฀values฀and฀creates฀superior฀value฀
for฀stockholders฀and฀executives.
•฀ Provide฀senior฀executives฀a฀significant฀percentage฀of฀total฀
pay฀that฀is฀at-risk฀compensation฀to฀ensure฀management฀is฀
focused฀on฀the฀long-term฀interests฀of฀stockholders฀while฀
balancing฀short-฀and฀long-term฀business฀goals.
•฀ Encourage฀executives฀to฀maintain฀significant฀stock฀holdings฀
to฀align฀interests฀with฀those฀of฀stockholders฀and฀require฀
senior฀executive฀officers฀to฀own฀from฀two฀to฀five฀times฀
their฀base฀salary฀in฀Company฀Common฀Stock.฀
•฀ Design฀competitive฀total฀compensation฀and฀rewards฀which฀
enhance฀the฀Company’s฀ability฀to฀attract฀and฀retain฀knowl-
edgeable฀and฀experienced฀executives.
•฀ Target฀compensation฀and฀incentive฀levels฀that฀reflect฀฀
competitive฀market฀practices.
An฀independent฀compensation฀consultant฀provides฀com-
petitive฀market฀data฀which฀includes฀current฀compensation฀and฀
benefit฀trends.฀The฀consultant฀reviews฀and฀provides฀survey฀
data฀to฀the฀Committee฀to฀compare฀the฀Company’s฀executive฀
compensation฀with฀compensation฀levels฀at฀companies฀in฀peer฀
and฀general฀industry฀groups.฀The฀Compensation฀Committee฀
reviews฀and฀approves฀the฀selection฀of฀companies฀used฀for฀
compensation฀comparison฀purposes.฀
The฀companies฀in฀the฀S&P฀500฀Oil฀and฀Gas฀Equipment฀
and฀Services฀Index฀in฀the฀Performance฀Graph฀included฀in฀this฀
Proxy฀Statement฀are฀included฀in฀the฀group฀of฀companies฀used฀
for฀compensation฀comparisons.฀The฀Committee฀believes฀the฀
Company’s฀market฀for฀both฀compensation฀comparison฀and฀
executive฀talent฀purposes฀consists฀of฀companies฀with฀national฀
and฀international฀business฀operations฀and฀similar฀sales฀vol-
umes,฀employment฀levels฀and฀operations฀in฀comparable฀lines฀
of฀business.
The฀key฀components฀of฀the฀executive฀compensation฀pro-
gram฀are฀base฀salary,฀annual฀and฀long-term฀incentives฀and฀
benefits.฀All฀executive฀officers฀are฀also฀entitled฀to฀participate฀
in฀the฀executive฀benefits฀and฀perquisite฀plan.฀
The฀Compensation฀Committee฀regularly฀reviews฀all฀ele-
ments฀of฀an฀executive’s฀total฀compensation฀package.฀Total฀
compensation฀opportunity฀is฀targeted฀between฀the฀50th฀and฀
75th฀percentile฀based฀on฀performance.฀Executives฀can฀be฀
rewarded฀at฀the฀upper฀end฀of฀the฀range฀based฀on฀individual฀
or฀company฀performance,฀as฀well฀as฀the฀executive’s฀experience฀
and฀expertise.฀
Section฀162(m)฀of฀the฀Internal฀Revenue฀Code฀places฀a฀
limit฀of฀$1,000,000฀on฀the฀amount฀of฀compensation฀that฀may฀
be฀deducted฀by฀the฀Company฀in฀any฀year฀with฀respect฀to฀the฀
Company’s฀Chief฀Executive฀Officer฀and฀its฀four฀other฀highest฀
paid฀executive฀officers,฀unless฀the฀compensation฀is฀perfor-
mance-based฀compensation฀as฀described฀in฀Section฀162(m)฀
and฀the฀related฀regulations.฀The฀Company฀has฀qualified฀cer-
tain฀compensation฀paid฀to฀executive฀officers฀for฀deductibility฀
under฀Section฀162(m),฀including฀compensation฀expense฀related฀
to฀options฀granted฀pursuant฀to฀the฀Company’s฀1993฀Stock฀
Option฀Plan,฀and฀options฀and฀other฀long-term฀performance-
based฀stock฀or฀cash฀awards฀granted฀pursuant฀to฀the฀Company’s฀
Long-Term฀Incentive฀Plan฀and฀the฀Baker฀Hughes฀Incorporated฀
2002฀Director฀&฀Officer฀Long-Term฀Incentive฀Plan.฀The฀Com-
pany฀may฀from฀time฀to฀time฀pay฀compensation฀to฀its฀executive฀
officers฀that฀may฀not฀be฀deductible.
Base฀Salaries
Executive฀base฀salaries฀are฀targeted฀at฀median฀levels฀of฀the฀
peer฀and฀general฀industry฀group.฀Base฀salaries฀are฀determined฀by฀
evaluating฀an฀executive’s฀level฀of฀responsibility฀and฀experience,฀
company-wide฀performance฀and฀internal฀and฀external฀equity.
After฀evaluating฀the฀competitive฀market฀data,฀increases฀to฀
base฀salaries,฀if฀any,฀are฀driven฀primarily฀by฀individual฀perfor-
mance.฀Individual฀performance฀considers฀the฀executive’s฀efforts฀
in฀achieving฀business฀results;฀promoting฀the฀Company’s฀core฀
values฀and฀keys฀to฀success;฀continuing฀educational฀and฀man-
agement฀training;฀improving฀product฀quality;฀developing฀rela-
tionships฀with฀customers,฀suppliers฀and฀employees;฀and฀
demonstrating฀leadership฀abilities฀among฀co-workers.
In฀April฀2004,฀Mr.฀Michael฀E.฀Wiley฀announced฀that฀he฀
would฀not฀seek฀re-election฀to฀the฀Board฀of฀Directors฀when฀
his฀term฀expired฀in฀2005,฀at฀the฀next฀stockholders’฀meeting.฀
Mr.฀Wiley฀also฀intended฀to฀retire฀as฀Chief฀Executive฀Officer฀by฀
that฀date.฀A฀Special฀Committee฀of฀the฀Board฀of฀Directors฀was฀
formed฀in฀connection฀with฀the฀selection฀of฀a฀new฀Chairman฀and฀
Chief฀Executive฀Officer.฀Mr.฀Chad฀C.฀Deaton฀was฀selected฀by฀the฀
Special฀Committee฀and฀approved฀by฀the฀Compensation฀Com-
mittee฀and฀Board฀of฀Directors฀to฀replace฀Mr.฀Wiley฀as฀Chairman฀
and฀Chief฀Executive฀Officer฀effective฀October฀25,฀2004.฀
The฀base฀salary฀for฀Mr.฀Wiley,฀Chairman฀of฀the฀Board฀
and฀Chief฀Executive฀Officer,฀was฀not฀increased฀in฀2004฀and฀
remained฀at฀$1,014,300฀per฀year.฀This฀salary฀was฀established฀
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