Baker Hughes 2007 Annual Report Download - page 31

2007 Proxy Statement 13
Annual Incentive Plan
The Annual Incentive Plan provides Senior Executives with
the opportunity to earn cash bonuses based on the achieve-
ment of specific Company-wide, business unit, division or
function and individual performance goals. The Compensation
Committee designs the annual incentive component of our
compensation program to align Senior Executive pay with our
annual (short-term) performance. Incentive bonuses are gener-
ally paid in cash in March of each year for the prior fiscal year’s
performance. The payouts for Senior Executives are targeted
to pay out at the median (50th percentile) of the Survey Data
in years when we reach expected financial performance levels.
If we reach, but do not exceed, the financial performance tar-
gets for any given year, the incentive payout should be at the
median of the Survey Data. However, the Annual Incentive
Plan is designed so that in years that financial performance
significantly exceeds our financial performance targets, the
payouts of the short-term incentive program should reach
the 75th percentile of the Survey Data. The incentive target
percentage represents the Senior Executive’s annual bonus
opportunity if the annual performance goals of the Annual
Incentive Plan are achieved.
The Annual Incentive Plan sets forth a set of financial and
non-financial metrics for each Senior Executive. These metrics
are selected to drive annual performance. Each metric has a
weight within the plan, and the sum of the weights is 100%.
In 2007, financial metrics comprised 80% of the target incen-
tive and non-financial metrics comprised 20% of the target
incentive. The metrics in the Annual Incentive Plan for the
2007 performance period included the financial metrics of
BVA and EPS and the non-financial metrics of health and
safety and individual performance.
The metrics for the Annual Incentive Plan for the 2007
performance period were modified from 2006 in the following
ways: voluntary turnover was removed as one of the incentive
plan metrics, the health and safety metric was adjusted from
a weight of 3% to 5% and the individual performance com-
ponent was increased from a weight of 5% to 15%. The
Compensation Committee established the voluntary turnover
measure in 2006 as part of a strategic plan to reduce turnover
and increase management awareness of turnover statistics in a
time of growth in headcount and increased business activity. It
was not necessary to continue the turnover metric in 2007 as
turnover percentages across the Company improved. The health
and safety metric was given greater weight in the Annual Incen-
tive Plan to continue to encourage compliance with all health
and safety programs and promote the well-being of the work-
force. The weight of the individual performance component
was increased to allow greater differentiation of incentive pay-
outs based on individual achievement of goals.
Performance targets for all metrics are established at levels
that are achievable but still challenge the Company and the
individual Senior Executives to perform well. 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. Performance targets for each of the
Senior Executives are reviewed annually by the Compensation
Committee and the target percentages are based upon an
extensive review of the Survey Data and an assessment of
the Senior Executives’ job descriptions and responsibilities.
Each of the Senior Executives received an annual bonus
in 2008 based on their individual contributions to the 2007
performance as shown in the Summary Compensation Table
on page 23. The maximum annual award possible under the
Annual Incentive Plan is $4,000,000. The following table
shows the Annual Incentive Plan weightings for each of the
Senior Executives. The differences in percentages are based
upon job description and responsibility and are reviewed by
the Compensation Committee in light of the Survey Data.
2007 Annual Incentive Plan Weightings for Named Executive Officers(1)
Mr. Deaton Mr. Clark Mr. Ragauss Mr. Crain Mr. Barr
Target Incentive Compensation (% of Base Salary) 100% 80% 65% 65% 60%
Metric
Financial Result (BVA and EPS) 80% 80% 80% 80% 80%
Health and Safety Results 5% 5% 5% 5% 5%
Individual Performance 15% 15% 15% 15% 15%
(1) For 2008 the Target Incentive Compensation as a percentage of Base Salary for Messrs. Deaton, Ragauss, Crain and Barr will be 120%, 80%, 75% and 70%,
respectively. The metric percentage for 2008 will remain the same for Mr. Clark who, based upon his retirement effective January 31, 2008, will only be eligible
to participate in a prorated bonus under the Company’s Annual Incentive Plan for the one month of service in 2008.