DEF 14A 1 proxystatement2016.htm DEF 14A DEF 14A


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.    )

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Soliciting Material Pursuant to §240.14a-12
 
BAKER HUGHES INCORPORATED
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BAKER HUGHES INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 24, 2016
To the Stockholders of Baker Hughes Incorporated:

The Annual Meeting of the Stockholders of Baker Hughes Incorporated (the “Company,” “Baker Hughes,” “we,” “us” or “our”) will be held in the R. C. Baker Room located at 6760 Concord Park Drive, Houston, Texas on Tuesday, May 24, 2016, at 9:00 a.m., Houston, Texas Time, for the purpose of considering and voting on:

1.
The election of directors;

2.
An advisory vote related to the Company's executive compensation program;

3.
The ratification of Deloitte & Touche LLP as the Company's independent registered public accounting firm for fiscal year 2016;

4.
A stockholder proposal regarding a majority vote standard for all non-binding stockholder proposals;

5.
Such other business as may properly come before the meeting and any reconvened meeting after an adjournment thereof.

The Board of Directors has fixed April 1, 2016 as the record date for determining the stockholders of the Company entitled to notice of, and to vote at the meeting and any reconvened meeting after an adjournment thereof, and only holders of Common Stock of the Company of record at the close of business on that date will be entitled to notice of, and to vote at the meeting and any reconvened meeting after an adjournment.

You are invited to attend the meeting in person. Whether or not you plan to attend in person, we urge you to promptly vote your shares by telephone, by the Internet or, if this Proxy Statement was mailed to you, by completing, signing, dating and returning it as soon as possible in the enclosed postage prepaid envelope in order that your vote may be cast at the Annual Meeting of the Stockholders (the "Annual Meeting"). You may revoke your proxy any time prior to its exercise, and you may attend the meeting and vote in person, even if you have previously returned your proxy.

By order of the Board of Directors,

M. Lee Whitley
Vice President and Corporate Secretary

Houston, Texas
April 14, 2016

TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE (i) VOTE YOUR SHARES BY TELEPHONE OR THE INTERNET, OR (ii) IF YOU RECEIVED A PAPER COPY, THEN SIGN, DATE AND RETURN YOUR PROXY AS PROMPTLY AS POSSIBLE. AN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE.




PROXY STATEMENT
TABLE OF CONTENTS
Proxy Statement
Voting Securities
Proposal No. 1 Election of Directors
Director Compensation
Corporate Governance
Stock Ownership
Charitable Contributions
Certain Relationships and Related Transactions
Compensation Discussion and Analysis
Summary Compensation Table
Grants of Plan-Based Awards
Outstanding Equity Awards at Fiscal Year-End
Option Exercises and Stock Vested
Pension Benefits
Nonqualified Deferred Compensation
Potential Payments Upon Change in Control or Termination
Compensation Committee Report
Compensation Committee Interlocks and Insider Participation
Proposal No. 2 Advisory Vote on Executive Compensation
Audit/Ethics Committee Report
Fees Paid to Deloitte & Touche LLP
Proposal No. 3 Ratification of the Company's Independent Registered Public Accounting Firm
Proposal No. 4 Stockholder Proposal Regarding a Majority Vote Standard for All Non-Binding Stockholder Proposals
Annual Report
Incorporation by Reference
Stockholder Proposals
Other Matters
 
 
Baker Hughes Incorporated Corporate Governance Guidelines
Baker Hughes Incorporated Charter of the Audit/Ethics Committee of the Board of Directors





Proxy Statement

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Baker Hughes Incorporated, a Delaware corporation, to be voted at the Annual Meeting scheduled to be held on Tuesday, May 24, 2016 and at any and all reconvened meetings after adjournments thereof.

Information About the Notice of Internet Availability of Proxy Materials

In accordance with rules and regulations of the Securities and Exchange Commission (the “SEC”), we now furnish to our stockholders proxy materials, including our 2015 Annual Report on Form 10-K/A of the Company (the “Annual Report”) to Stockholders, on the Internet. On or about April 14, 2016, we will send electronically an annual meeting package personalized with profile and voting information (“Electronic Delivery”) to those stockholders that have previously signed up to receive their proxy materials via the Internet. On or about April 14, 2016, we will begin mailing a Notice of Internet Availability of proxy materials (the “E-Proxy Notice”) to those stockholders that previously have not signed up to receive their proxy materials on the Internet. If you received the E-Proxy Notice by mail, you will not automatically receive a printed copy of the proxy materials or the Annual Report to Stockholders. If you received the E-Proxy Notice by mail and would like to receive a printed copy of our proxy materials or Annual Report to Stockholders, you should follow the instructions for requesting such materials included in the E-Proxy Notice.

Stockholders may sign up to receive future proxy materials and other stockholder communications electronically instead of by mail. In order to receive the communications electronically, you must have an e-mail account, access to the Internet through an Internet service provider and a web browser that supports secure connections. Visit www.proxyvote.com for additional information regarding electronic delivery enrollment.

Stockholder of Record; Shares Registered in Your Name

If on April 1, 2016 (the "record date"), your shares were registered directly in your name with our transfer agent, Computershare Shareowner Services LLC, you are considered a stockholder of record with respect to those shares, and we sent the proxy materials directly to you. You may vote by proxy over the Internet at the following Internet address: www.proxyvote.com, or if you properly request and receive a proxy card by mail or email, over the phone by calling Broadridge Financial Solutions ("Broadridge") at 1-800-690-6903. Proxies submitted through Broadridge by the Internet or telephone must be received by 11:59 p.m. Eastern time (10:59 p.m. Central time) on May 23, 2016. The giving of a proxy will not affect your right to vote in person if you decide to attend the meeting.

Beneficial Owner; Shares Registered in the Name of the Broker, Bank or Other Agent

If on April 1, 2016, your shares were held in "street name" in an account at a brokerage firm, bank or other nominee holder, then you are considered the beneficial owner of the shares and the proxy materials were forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As the beneficial owner, you have the right to direct the organization on how to vote the shares held in your account. You may direct the vote of these shares by the Internet or telephone by following the instructions on the voting form enclosed with the proxy materials from the bank or brokerage firm. Votes directed by the Internet or telephone through such a program must be received by Broadridge by 11:59 p.m. Eastern time (10:59 p.m. Central time) on May 23, 2016. Directing the voting of your shares will not affect your right to vote in person if you decide to attend the meeting; however, you must first request a legal proxy from your broker either on the Internet or use the voting form that accompanies this Proxy Statement. Requesting a legal proxy prior to the deadlines described above will automatically cancel any voting directions you have previously given by the Internet or by telephone with respect to your shares.

Voting

Shares for which proxies have been executed will be voted as specified in the proxies. If no specification is made, the shares will be voted FOR the election of nominees listed herein as directors, FOR the advisory vote related to the Company's executive compensation program, FOR the ratification of Deloitte & Touche LLP as the Company's independent registered public accounting firm for fiscal year 2016 and AGAINST the stockholder proposal regarding a majority vote standard for all non-binding stockholder proposals. If any

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additional matter should be presented properly at the Annual Meeting, it is intended that the enclosed proxy will be voted in accordance with the discretion of the persons named in the proxy.

Proxies may be revoked at any time prior to the exercise thereof by filing with the Company's Corporate Secretary, at the Company's executive offices, a written revocation or a duly executed proxy bearing a later date. The executive offices of the Company are located at 2929 Allen Parkway, Suite 2100, Houston, Texas 77019. For a period of at least ten days prior to the Annual Meeting, a complete list of stockholders entitled to vote at the Annual Meeting will be available for inspection during ordinary business hours at the Company's executive offices by stockholders of record for proper purposes.

Solicitation of Proxies

The Company will bear the cost of any solicitation of proxies, whether by Internet or mail. In addition to solicitation, certain of the directors, officers and regular employees of the Company may, without extra compensation, solicit proxies by telephone, facsimile and personal interview. The Company has retained D.F. King & Co., Inc. to assist in the solicitation of proxies from stockholders of the Company for an anticipated fee of $8,500, plus out-of-pocket expenses.

Attendance

Only stockholders of record or beneficial owners of the Company's Common Stock (as defined below) may attend the meeting in person. If you are a stockholder of record, you may be asked to present proof of identification, such as a driver's license. Beneficial owners must also present evidence of share ownership, such as a recent brokerage account or bank statement. All attendees must comply with our standing rules, which will be distributed upon entrance to the Annual Stockholder Meeting. Even if you plan to attend the Annual Stockholder Meeting, we recommend that you also vote by proxy as described in this Proxy Statement so that your vote will be counted if you later decide not to attend the Annual Stockholder Meeting.

Householding

We will only deliver one Proxy Statement to multiple stockholders sharing an address unless we have received contrary instructions from one or more of the stockholders. We will promptly deliver a separate copy of this Proxy Statement to a stockholder at a shared address to which a single copy of the document was delivered upon oral or written request to: Baker Hughes Incorporated, Attn: Corporate Secretary, 2929 Allen Parkway, Suite 2100, Houston, Texas 77019, +1 (713) 439-8600. Stockholders may also address future requests for separate delivery of the Proxy Statement, or for delivery of a single copy where they are currently receiving multiple copies, by contacting us at the address or phone number listed above.

Pending Merger with Halliburton Company

On November 16, 2014, Baker Hughes and Halliburton Company (“Halliburton”) entered into a definitive agreement and plan of merger (the "Merger Agreement") under which Halliburton will acquire all outstanding shares of Baker Hughes in a stock and cash transaction (the "Merger"). Under the terms of the Merger Agreement, each share of common stock of Baker Hughes will be converted into the right to receive 1.12 Halliburton shares plus $19.00 in cash. On March 27, 2015, Halliburton's stockholders approved the proposal to issue shares of Halliburton common stock as contemplated by the Merger Agreement. In addition, Baker Hughes' stockholders adopted the Merger Agreement and thereby approved the proposed combination of the two companies. The transaction is still subject to regulatory approvals and customary closing conditions. In December 2015, the timing agreement with the Department of Justice expired without reaching an agreement. Baker Hughes and Halliburton agreed to extend the period for the parties to obtain required competition approvals to April 30, 2016, as permitted under the Merger Agreement. After April 30, the parties may continue to seek relevant regulatory approvals or either of the parties may terminate the Merger Agreement. On April 6, 2016, the U.S. Department of Justice filed suit to attempt to block the Merger. Baker Hughes and Halliburton strongly disagree with the government’s lawsuit and we intend to vigorously contest the Department of Justice’s action. Baker Hughes cannot predict with certainty when, or if, the pending Merger will be completed because completion of the transaction is subject to conditions beyond the control of Baker Hughes. For a discussion of the pending Merger, see “Note 2-Halliburton Merger Agreement” of the Notes to Consolidated Financial Statements included in our Annual Report under Item 8 of the Form 10-K/A for the year ended December 31, 2015 and any additional filings with the SEC.


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Important Notice Regarding the Availability of Proxy Materials for the Annual Stockholder Meeting to be Held on May 24, 2016
This Proxy Statement and the Annual Report and the means to vote by Internet are available on the Internet at www.proxyvote.com.

Voting Securities

The securities of the Company entitled to vote at the Annual Meeting consist of shares of its Common Stock, par value $1.00 per share (“Common Stock”), of which 437,879,154 shares were issued and outstanding at the close of business on April 1, 2016. Only stockholders that hold shares at the close of business on the record date will be entitled to vote at the meeting. Each share of Common Stock entitles the holder thereof to one vote on each matter to be considered at the meeting.

The presence in person or by proxy of the holders of a majority of our Common Stock issued and outstanding and entitled to vote at the Annual Meeting will constitute a quorum to transact business at the Annual Meeting. Assuming a quorum is present at the Annual Meeting, the following voting standards apply:
Proposal
 
Vote Required
 
Broker Non-Votes
 
Abstentions
 
 
 
 
 
 
 
Election of Directors
 
The affirmative vote of the majority of votes cast with respect to the election of each director. There will be no cumulative voting in the election of directors.
 
No effect on the outcome of the vote
 
Abstentions have no effect on the outcome of the vote
The approval of the advisory vote related to the Company's executive compensation program
 
The affirmative vote of the majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter.
 
No effect on the outcome of the vote
 
Abstentions have the same effect as a vote against
The approval of the ratification of Deloitte & Touche LLP as the Company's independent registered public accounting firm for fiscal year 2016
 
The affirmative vote of the majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter.
 
Brokers may vote on uninstructed shares; however, broker non-votes will have no effect on the outcome of the vote
 
Abstentions have the same effect as a vote against
The approval of the stockholder proposal regarding a majority vote standard for all non-binding stockholder proposals
 
The affirmative vote of the majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter.
 
No effect on the outcome of the vote
 
Abstentions have the same effect as a vote against

Brokers, banks or other nominees that hold shares of Common Stock in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion if permitted by the stock exchange or other organization of which they are members. Brokers, banks and other nominees are permitted to vote the beneficial owner's proxy in their own discretion as to certain “routine” proposals under the rules of the New York Stock Exchange (the "NYSE Rules") when they have not received instructions from the beneficial owners, such as the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year 2016. If a broker, bank or other nominee votes such “uninstructed” shares for or against a “routine” proposal, those shares will be counted towards determining whether or not a quorum is present and are considered entitled to vote on the “routine” proposals. However, where a proposal is not “routine,” a broker, bank or other nominee is not permitted to exercise its voting discretion on that proposal without specific instructions from the beneficial owner. These non-voted shares are referred to as “broker non-votes” when the nominee has voted on other non-routine matters with authorization or voted on routine matters. These shares will be counted towards determining whether or not a quorum is present, but will not be considered entitled to vote on the “non-routine” proposals such as Proposal 1 (the election of directors), Proposal 2 (the advisory vote related to the Company's executive compensation program) and Proposal 4 (the stockholder proposal regarding a majority vote standard for all non-binding stockholder proposals).


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Proposal No. 1
Election of Directors

In analyzing director nominations, the Governance and Health, Safety & Environmental Committee ("Governance and HS&E Committee") strives to recommend candidates for director positions who will create a collective membership on the Board with varied experience and perspective and who maintain a Board that reflects diversity, including but not limited to gender, ethnicity, background, country of citizenship and experience. The Governance and HS&E Committee strives to recommend candidates who demonstrate leadership and significant experience in a specific area of endeavor, comprehend the role of a public company director, exemplify relevant expertise, experience and a substantive understanding of domestic and international considerations and geopolitics, especially those pertaining to the service sector of the oil and gas and energy-related industries.

When analyzing whether directors and nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of the Company's business and structure, the Governance and HS&E Committee and the Board of Directors focus on the information summarized in each of the Directors' individual biographies set forth in this proxy statement. In particular, the Board considered the following:

Mr. Craighead's 30 years of experience working for Baker Hughes in various officer and leadership positions;
Mr. Brady's experience and leadership of public companies in the energy services and manufacturing sectors together with his financial expertise;
Mr. Brenneman's leadership and financial experience in public companies including his service as a director of other public companies;
Mr. Cazalot's role as a former chairman of the board, chief executive officer and president of a publicly traded energy company as well as his many years of experience in the global energy business;
Mr. Easter's position as former chairman, president and chief executive officer of an energy company, his years of leadership experience at a global oil and gas company and his experience serving on other public company boards;
Ms. Elsenhans' positions as a former chairman and chief executive officer of a publicly traded energy company as well as her many years of leadership experience at a global oil and gas company;
Mr. Fernandes' leadership roles in several public companies in the energy and manufacturing sectors, including his service as a director of other public companies and his extensive financial expertise;
Ms. Gargalli's leadership and consulting experience, extensive public board service and her financial expertise;
Dr. Jungels' technical knowledge, executive roles, experience in the international energy industry and service as a member of public company boards;
Mr. Lash's engineering skills and knowledge of high technology, as well as his private equity leadership, manufacturing background, public service and financial expertise;
Mr. Nichols' position as the executive chairman of the board and former chief executive officer of a publicly-traded energy company, successful career building a major oil and gas company and his leadership in related trade associations;
Mr. Stewart's role as the former chairman of the board, president and chief executive officer of a formerly publicly traded energy company; and
Mr. Watson's executive leadership roles and active involvement in a number of energy-related companies and service as a director of other public companies.

All directors who are elected at the Annual Meeting will serve for a one-year term expiring at the Annual Meeting expected to be held in April 2017 or until his or her successor is elected and qualified or until his or her earlier death, retirement, resignation or removal. The proxy holders will vote FOR the thirteen persons listed below under “Company Nominees for Director,” unless contrary instructions are given.

If you sign your proxy card but do not give instructions with respect to the voting of directors, your shares will be voted FOR the thirteen persons recommended by the Board of Directors. If you wish to give specific instructions with respect to the voting of directors, you must do so with respect to the individual nominee.


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Board Nominees for Director

The following table sets forth each nominee director's name, all positions with the Company held by the nominee, the nominee's principal occupation, age and year in which the nominee first became a director of the Company. Each nominee director has agreed to serve if elected.
Nominees
Principal Occupation
Age
Director
Since
 
 
 
 
Larry D. Brady
Former Chairman of the Board and Chief Executive Officer of Intermec, Inc. (industrial technologies). Mr. Brady served as Chairman of Intermec from 2001 to 2007 and as Chief Executive Officer from 2000 to 2007. He served as President of Intermec from 1999 to 2001 and as Chief Operating Officer from 1999 to 2000. Mr. Brady served as President of FMC Corporation from 1993 to 1999. He served as a Vice President of FMC from 1984 to 1989, as Executive Vice President from 1989 to 1993 and was a director from 1989 to 1999. Mr. Brady is a life member of the Advisory Board of Northwestern University's Kellogg School of Management.
73
2004
 
 
 
 
Gregory D. Brenneman
Chairman, President and Chief Executive Officer of CCMP Capital Advisors, LLC (private equity firm) since 2008 and Chairman and Chief Executive Officer of TurnWorks, Inc. (private equity firm) since 1994. Mr. Brenneman is a successful business leader who has been involved in several well-known corporate spin-off and turnaround transformations. He brings an extensive background in general management of large organizations and expertise in accounting and corporate finance, supply chain, marketing and international matters. Mr. Brenneman served as Executive Chairman of Quizno’s Corporation from 2008 to 2010 and as its President and Chief Executive Officer from 2007 to 2008. Prior to joining Quiznos, Mr. Brenneman led restructuring and turnaround efforts at Burger King Corporation, PwC Consulting, a division of Pricewaterhouse Coopers, and Continental Airlines, Inc. Mr. Brenneman currently serves on the Board of Directors of The Home Depot, Inc. and Milacron Holdings Corp. Within the last five years, he served on the Board of Directors of Automatic Data Processing, Inc. and Francesca’s Collections.
54
2014
 
 
 
 
Clarence P. Cazalot, Jr.
Former Executive Chairman of the Board of Marathon Oil Corporation (formerly known as USX Corporation) (diversified petroleum) from August 2013 to December 2013. Chairman of the Board of Marathon Oil Corporation from 2011 to 2013, President, Chief Executive Officer and Director of Marathon Oil Corporation from 2002 to August 2013. He served as Vice Chairman of USX Corporation and President of Marathon Oil Company from 2000 to 2001. Mr. Cazalot served in various executive roles with Texaco Inc. from 1972 to 2000. He is a director of FMC Technologies and Spectra Energy. Additionally, he serves on the Memorial Hermann Health System Board, the Board of Advisors of the James A. Baker III Institute for Public Policy at Rice University, the Board of Visitors of the University of Texas M.D. Anderson Cancer Center and the Board of the LSU Foundation.
65
2002
 
 
 
 
Martin S. Craighead
Chairman of the Board of Directors of the Company since April 2013 and Director since 2011. Chief Executive Officer of the Company since January 2012 and President since 2010. Chief Operating Officer from 2009 to 2012 and Group President of Drilling and Evaluation from 2007 to 2009. President of INTEQ from 2005 to 2007 and President of Baker Atlas from February 2005 to August 2005. Mr. Craighead held previous roles within the Company since 1986.
56
2011
 
 
 
 

5



Nominees
Principal Occupation
Age
Director
Since
William H. Easter III
Former Chairman, President and Chief Executive Officer of DCP Midstream LLC (natural gas gatherers and processors and marketers of natural gas and natural gas liquids) from 2004 to 2008. Mr. Easter worked for ConocoPhillips for more than 30 years where he held senior leadership, operating and commercial roles in areas of natural gas and natural gas liquids, transportation, refining and marketing (domestically and internationally). Mr. Easter served as a director of Sunoco, Inc. from 2011 to 2012 and Sunoco Partners, LLC during 2012. He is a director of Concho Resources Inc., Delta Airlines, Inc. and Memorial Hermann Health Care System.
66
2014
 
 
 
 
Lynn L. Elsenhans
Former Executive Chairman of Sunoco, Inc. (transportation fuels and logistics) from January 2009 until May 2012, and Chief Executive Officer and President from August 2008 until March 2012. She also served as Chairman of Sunoco Logistics Partners L.P. from October 2008 until May 2012, and Chief Executive Officer from July 2010 until March 2012. She worked at Royal Dutch Shell for more than 28 years where she held a number of senior roles, including Executive Vice President, Global Manufacturing from 2005 to 2008. She is a member of the Board of Directors of GlaxoSmithKline, Flowserve Corporation, the Council of Overseers at the Jones School of Business at Rice University, the Board of the Texas Medical Center, the United Way of Greater Houston, and the First Tee of Greater Houston. Within the past five years, she was a member of the Board of Directors of International Paper Company.
59
2012
 
 
 
 
Anthony G. Fernandes
Former Chairman, President and Chief Executive Officer of Philip Services Corporation (diversified industrial services provider) from August 1999 to April 2002. He was Executive Vice President of ARCO (Atlantic Richfield Company) from 1994 to 1999, President of ARCO Coal, a subsidiary of ARCO, from 1990 to 1994 and Corporate Controller of ARCO from 1987 to 1990. Mr. Fernandes serves on the Board of Directors of Black & Veatch, ABM Industries, Inc. and Envirosystems Inc. Within the past five years, he served on the Board of Directors of Cytec Industries.
70
2001
 
 
 
 
Claire W. Gargalli
Former Vice Chairman, Diversified Search and Diversified Health Search Companies (executive search consultants) from 1990 to 1998. Ms. Gargalli served as President and Chief Operating Officer of Equimark from 1984 to 1990. During that period, she also served as Chairman and Chief Executive Officer of Equimark's two principal subsidiaries, Equibank and Liberty Bank. Ms. Gargalli is a director of BioMotion Analytics. She is also a trustee emeritus of Carnegie Mellon University and Middlebury College. Within the past five years, she was a director of Praxair, Inc.
73
1998
 
 
 
 
Pierre H. Jungels
President of the Institute of Petroleum from 2002 until June 2003. From 1997 through 2001, Dr. Jungels served as a Director and Chief Executive Officer of Enterprise Oil, plc. In 1996, Dr. Jungels served as the Managing Director of Exploration and Production at British Gas plc. He held various positions from 1974 to 1995 at PetroFina SA, including Executive Director from 1989 to 1995. Dr. Jungels is the Non-Executive Chairman of Rockhopper Exploration plc and the Chairman of Velocys plc. Within the past five years, Dr. Jungels served as a director of Imperial Tobacco Group plc. and a director of Woodside Petroleum Ltd.
72
2006
 
 
 
 

6



Nominees
Principal Occupation
Age
Director
Since
James A. Lash
Chairman of Manchester Principal LLC and its predecessor company (high technology venture capital firm) since 1976. Former First Selectman, Greenwich, Connecticut (city government) from 2003 to 2007. Mr. Lash also served as Chairman and Chief Executive Officer of Reading Tube Corporation from 1982 to 1996. Mr. Lash was a director of the East West Institute from 2002 to 2011 and was a trustee of the Massachusetts Institute of Technology from 2000 to 2011.
71
2002
 
 
 
 
J. Larry Nichols
Executive Chairman of Devon Energy Corporation (independent energy company) since 2010. Mr. Nichols served as Chairman of the Board of Devon from 2000 to 2010 and as Chief Executive Officer from 1980 to 2010. Mr. Nichols serves as a director of SONIC Corp., as well as several trade associations relevant to the oil and gas exploration and production business.
73
2001
 
 
 
 
James W. Stewart
Former Chairman of the Board of Directors, President and Chief Executive Officer of BJ Services Company (oilfield services) from 1990 until its acquisition by the Company in 2010. Prior to 1990, Mr. Stewart held various management and staff positions with BJ Services Company and its predecessor company. Mr. Stewart is a member of the Board of Directors of Delta SubSea LLC, The Alley Theatre of Houston, a Trustee of the Menil Collection and Chair of the Finance Committee of the Menil Collection.
72
2010
 
 
 
 
Charles L. Watson
Chairman of Twin Eagle Resource Management (energy marketing) since 2010, Chairman and CEO of Advanced Blast Protection Systems (impulse reducing blast mitigation) since 2015, Chairman of Wincrest Ventures, L.P. (private investments) since January 1994 and senior energy advisor to GSO/Blackstone since 2014. Mr. Watson was Chairman of Eagle Energy (wholesale energy) from 2003 to 2009 and Chairman of Sigma Chi Foundation from 2005 to 2012. He served as a Senior Energy Advisor to Carlyle Investment Management Fund from 2011 to 2014 and as a Senior Advisor to EDF Trading North America LLC and Electricite de France during 2008 and Managing Director of Lehman Brothers from 2007 to 2008. He was the Founder, Chairman and Chief Executive Officer of Dynegy Inc. and its predecessor companies from 1985 to 2002. Mr. Watson is a board member of Mainstream Renewable Power, Baylor College of Medicine, serves on the board of Advisors for Angeleno Investors, L.P., and serves on the Advisory Council for DocuSign.
66
1998

Election Policy

It is the policy of the Board of Directors that any nominee for director who fails to receive a majority of the votes cast for his or her election shall be required to submit a letter of resignation to the Board's Governance and HS&E Committee. The Governance and HS&E Committee will recommend to the Board of Directors whether or not the resignation should be accepted or whether such other action should be taken. The Board of Directors shall act on the resignation, taking into account the Governance and HS&E Committee's recommendation, and publicly disclose (by a press release and filing an appropriate disclosure with the SEC) its decision regarding the resignation and, if such resignation is rejected, the rationale behind the decision within ninety days following certification of the election results. The resignation, if accepted by the Board, will be effective at the time of the Board of Directors' determination to accept the resignation. If the Board of Directors determines to accept the resignation of an unsuccessful incumbent, then the Board of Directors may fill the resulting vacancy pursuant to the Company's Bylaws or may decrease the size of the Board of Directors pursuant to the provisions of the Restated Certificate of Incorporation, as amended on April 22, 2010.

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Director Compensation
Director Fees

During fiscal year 2015, each non-management director was paid an annual retainer fee of $100,000. The following additional fees were paid:
Lead Director - $15,000
Audit/Ethics Committee Chair - $20,000
Chair of the Compensation, Finance and Governance and HS&E Committees - $15,000
Members of the Audit/Ethics Committee, excluding the Chair - $10,000
Members of the Compensation, Finance and Governance and HS&E Committees, excluding the Chair - $5,000

Director Equity Awards

For fiscal year 2015, each non-management director received equity in a total amount of $175,000 in the form of restricted stock units. The restricted stock units vest 100% upon the earlier of: (i) one year from the date of grant, or (ii) upon the date of the annual meeting of stockholders next following the date of the director's 72nd birthday.

Director Compensation Deferral Plan

Each director may defer his or her retainer fees on an annual basis under the Baker Hughes Incorporated Director Compensation Deferral Plan (the "Deferral Plan"), a non-qualified defined contribution plan. The Deferral Plan provides for two deferral vehicles - the election of a stock option related deferral or a cash-based deferral. If the director elects stock options, the aggregate deferred compensation as of the last day of the calendar quarter which would have otherwise been paid shall be increased by a multiplier of 4.4 and then divided by the fair market value of the Company's Common Stock on the last day of such quarter to determine the number of options to be granted in exchange for the deferred compensation. For cash-based deferrals, the director's deferred compensation shall be credited to an account and the director may elect to receive interest based on the prime rate equivalent or the S&P 500 Index for the quarter. Distributions under the Deferral Plan are made to the director in a lump sum payment based on a date designated by the director.

None of the directors elected to have their compensation deferred for fiscal year 2015. Messrs. Brady, Fernandes and Watson accrue interest on a quarterly basis on previously deferred compensation.

Director Retirement Policy

The Company previously provided benefits under a Director Retirement Policy (the "Retirement Policy"), which remains in effect until all benefits accrued thereunder are paid in accordance with the current terms and conditions of the Retirement Policy. No additional benefits have been accrued under the Retirement Policy since December 31, 2001. Messrs. Fernandes, Nichols and Watson and Ms. Gargalli have accrued benefits under the Retirement Policy.

Director Stock Ownership Requirements

Each non-management director is expected to own at least five times his or her annual retainer in Company Common Stock. Such ownership level should be obtained within a reasonable period of time following the director's election to the Board. The Governance and HS&E Committee review director stock ownership on an annual basis. All non-management directors have met this ownership requirement, with the exception of Messrs. Brenneman and Easter who joined the Board in June 2014.


8



2015 Director Compensation

The following table discloses the cash, equity awards and other compensation earned, paid or awarded, as the case may be, to each of the Company's directors, with the exception of Mr. Craighead during the fiscal year ended 2015.
Name
Fees Earned or Paid in Cash
($)
 
Stock Awards (1)
($)
All Other Compensation (2)
($)
Total
 ($)
Larry D. Brady
110,000

 
174,990

510
285,500

Gregory D. Brenneman
115,000

 
174,990

2,525
292,515

Clarence P. Cazalot, Jr.
123,333

(3) 
174,990

2,040
300,363

William H. Easter III
110,000

 
174,990

2,525
287,515

Lynn L. Elsenhans
120,000

 
174,990

2,040
297,030

Anthony G. Fernandes
120,000

 
174,990

2,040
297,030

Claire W. Gargalli
105,000

 
174,990

510
280,500

Pierre H. Jungels
110,000

 
174,990

2,040
287,030

James A. Lash
125,000

 
174,990

2,040
302,030

J. Larry Nichols
140,000

 
174,990

510
315,500

James W. Stewart
105,000

 
174,990

2,040
282,030

Charles L. Watson
105,000

 
174,990

2,040
282,030

____________
(1)
On January 22, 2015, each director received a restricted stock unit award with a grant date value of $175,000. The amounts included in the Stock Awards column represent the aggregate grant date fair value of $58.33 per award computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 ("FASB ASC Topic 718"). The value ultimately realized by the director upon the actual vesting of the awards may or may not be equal to the FASB ASC Topic 718 determined value. For a discussion of valuation assumptions, see “Note 6 - Stock-Based Compensation” of the Notes to Consolidated Financial Statements included in our Annual Report under Item 8 of the Form 10-K/A for the year ended December 31, 2015.

(2)
The amount in "All Other Compensation" reflects the dividends paid or accrued during the year ended December 31, 2015 on unvested restricted stock unit awards.

(3)
Mr. Cazalot was issued a check in November 2014 for monthly retainer fees. That check was voided and re-issued in 2015 resulting in a higher fee paid in 2015.

The following table shows the aggregate number of stock awards and option awards outstanding for each director as of December 31, 2015.
Name
Aggregate Stock Awards Outstanding as of December 31
(#)
Aggregate Option Awards Outstanding as of December 31
(#)
Grant Date Fair Value of Stock and Option Awards made during 2015
($)
Larry D. Brady (1)

11,266

174,990

Gregory D. Brenneman
3,000


174,990

Clarence P. Cazalot, Jr.
3,000

11,266

174,990

William H. Easter III
3,000


174,990

Lynn L. Elsenhans
3,000

19,768

174,990

Anthony G. Fernandes
3,000

11,266

174,990

Claire W. Gargalli (1)

11,266

174,990

Pierre H. Jungels
3,000

10,933

174,990

James A. Lash
3,000

7,595

174,990

J. Larry Nichols (1)

11,266

174,990

James W. Stewart
3,000

7,856

174,990

Charles L. Watson
3,000

11,266

174,990


(1)
Per the terms and conditions of the director restricted stock unit awards granted on January 22, 2015, the forfeiture restrictions lapsed on May 14, 2015, which was the date of the annual meeting of stockholders after the director's 72nd birthday.     



9



Corporate Governance

The Company's Board of Directors believes the purpose of corporate governance is to maximize stockholder value in a manner consistent with legal requirements and the highest standards of integrity. The Board has adopted and adheres to corporate governance practices, which the Board and management believe promote this purpose, are sound and represent best practices. The Board periodically reviews these governance practices, Delaware law (the state in which the Company is incorporated), the rules and listing standards of the New York Stock Exchange ("NYSE") and SEC regulations, as well as best practices suggested by recognized governance authorities. The Board has established the Company's Corporate Governance Guidelines as the principles of conduct of the Company's business affairs to benefit its stockholders, which conform to the NYSE corporate governance listing standards and SEC rules. The Corporate Governance Guidelines are attached as Annex A to this Proxy Statement, posted under the “Corporate Governance” section of the Company's website at www.bakerhughes.com and are also available upon request to the Company's Corporate Secretary.

Director Independence

All members of the Board of Directors, other than Mr. Craighead, the Company's Chairman and Chief Executive Officer, satisfy the independence requirements of the NYSE. Mr. Stewart is the former chairman, president and chief executive officer of BJ Services Company, which was acquired by the Company on April 28, 2010. As of April 28, 2015, Mr. Stewart was no longer considered an affiliated outside director of the Company.

The Board has adopted a “Policy for Director Independence, Audit/Ethics Committee Members and Audit Committee Financial Expert” (“Policy for Director Independence”) included as Exhibit C to the Corporate Governance Guidelines. Such Policy supplements the NYSE independence requirements. Directors who meet these independence standards are considered to be “independent” as defined therein. The Board has determined that all the nominees for election at this Annual Meeting, other than Mr. Craighead, meet these standards.

Board Attendance

During the fiscal year ended December 31, 2015, the Board of Directors held nine meetings. Each director attended more than 86% of the total number of meetings of the Company's Board of Directors and of the respective Committees on which he or she served. It is the Company's policy to request and encourage all of the Company's directors and nominees for election as directors to attend the Annual Meeting in person. All of the Company's directors attended the Company's 2015 Annual Meeting.

Committees of the Board

The Board of Directors has an Audit/Ethics Committee, a Compensation Committee, a Governance and HS&E Committee, a Finance Committee and an Executive Committee.The charter for each Committee has been posted and is available for public viewing under the “Corporate Governance” section of the Company's website at www.bakerhughes.com and is also available upon request to the Company's Corporate Secretary.

Committee Memberships as of December 31, 2015
Audit/Ethics
Compensation
Executive
Finance
Governance & HS&E
James A. Lash (C)
Anthony G. Fernandes (C)
Martin S. Craighead (C)
Lynn L. Elsenhans (C)
J. Larry Nichols (C)
Larry D. Brady
Gregory D. Brenneman
Clarence P. Cazalot, Jr.
William H. Easter III
Lynn Elsenhans
Gregory D. Brenneman
Clarence P. Cazalot, Jr.
J. Larry Nichols
Pierre H. Jungels
Anthony G. Fernandes
Clarence P. Cazalot, Jr.
William H. Easter III
James W. Stewart
James W. Stewart
James A. Lash
J. Larry Nichols
Claire W. Gargalli
Charles L. Watson
Charles L. Watson
 
 
Pierre H. Jungels
 
 
 
____________
(C) Chair of the referenced Committee.


10



Audit/Ethics Committee

The Audit/Ethics Committee held eight meetings during fiscal year 2015. The Board of Directors has determined that each of the Audit/Ethics Committee members meet the NYSE standards for independence as well as those contained in the Company's “Policy for Director Independence” within the Corporate Governance Guidelines and that each member of the Audit/Ethics Committee meets the qualifications to be an “audit committee financial expert” under the SEC rules issued pursuant to the Sarbanes-Oxley Act of 2002 ("SOX"). The Board has designated James A. Lash as the member of the Audit/Ethics Committee who serves as the “audit committee financial expert.”

The Audit/Ethics Committee provides assistance to the Board of Directors in overseeing matters relating to the accounting and reporting practices of the Company, the adequacy of the Company's disclosure controls and internal controls, the quality and integrity of the quarterly and annual financial statements of the Company, the performance of the Company's internal audit function, and the review and pre-approval of the current year audit and non-audit services. In addition, the Audit/Ethics Committee oversees the Company's compliance programs relating to legal and regulatory requirements. The Audit/Ethics Committee has developed “Procedures for the Receipt, Retention and Treatment of Complaints” to address complaints received by the Company regarding accounting, internal controls or auditing matters. Such procedures are included as Exhibit F to the Corporate Governance Guidelines. The Audit/Ethics Committee also is responsible for the selection and hiring of the Company's independent registered public accounting firm. To promote independence of the audit, the Audit/Ethics Committee consults separately and jointly with the Company's independent registered public accounting firm, the internal auditors and management.

In accordance with the NYSE requirements, our Audit/Ethics Committee is responsible for overseeing risk analysis and risk management procedures. The Audit/Ethics Committee reviews guidelines and policies on enterprise risk management, including risk assessment and risk management related to the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures. At every regularly scheduled meeting of the Audit/Ethics Committee, the Company's Chief Compliance Officer provides a report to the Committee regarding the Code of Conduct, including updates pertaining to the status of the Company's compliance with its standards, policies, procedures and processes. The Company maintains an Enterprise Risk Management (“ERM”) process under which it reviews its business risk framework, including an assessment of external and internal risks and appropriate mitigation activities. The Company's annual ERM report is provided to the Audit/Ethics Committee and a comprehensive in-person presentation is made to the entire Board. In addition to the risk oversight exercised by the Audit/Ethics Committee of the Board of Directors, each of the Compensation Committee, the Finance Committee and the Governance and HS&E Committee regularly exercises oversight related to risks associated with responsibilities of the respective Committee. The Board of Directors believes that the risk management processes in place for the Company are appropriate.

Compensation Committee

The Compensation Committee held five meetings during fiscal year 2015. The Board of Directors has determined that the Compensation Committee members meet the NYSE standards for independence as well as those contained in the Company's “Policy for Director Independence.”

The Compensation Committee oversees our compensation programs and is charged with the review and approval of the Company's general compensation strategies and objectives and the annual compensation decisions relating to our executives and to the broad base of Company employees. Their responsibilities also include reviewing management succession plans; making recommendations to the Board regarding executive employment agreements, severance agreements, change in control agreements and any special supplemental benefits applicable to executives; assuring that the Company's incentive compensation program, including the annual and long-term incentive plans, is administered in a manner consistent with the Company's compensation strategy; approving and/or recommending to the Board new incentive compensation plans and equity-based compensation plans; reviewing the Company's employee benefit programs; recommending for approval all administrative changes to compensation plans that may be subject to the approval of the stockholders or the Board; reviewing and reporting to the Board of Directors the levels of stock ownership by the senior executives in accordance with the Stock Ownership Policy; and reviewing any potential conflicts of interest of the compensation consultant. The Compensation Committee is also responsible for reviewing the outcome of the stockholder advisory vote on senior executive compensation. The Compensation Committee may delegate its authority to subcommittees.


11



The Compensation Committee is responsible for determining if there are any inherent potential risks in the compensation programs. The Committee exercises risk oversight with respect to risks relating to the compensation of the senior executives as well as the employees of the Company generally. The Compensation Committee seeks to structure compensation packages and performance goals for compensation in a manner that does not incentivize employees to take risks that are reasonably likely to have a material adverse effect on the Company. The Compensation Committee designs long-term incentive compensation, including restricted stock, performance units and stock options in such a manner that employees will forfeit their awards if their employment is terminated for cause. The Committee also retains the discretionary authority to reduce bonuses to reflect factors regarding individual performance that are not otherwise taken into account. The Company's stock ownership guidelines established by the Board of Directors also serve to mitigate compensation-related risks. During fiscal year 2015, the Compensation Committee determined the Company's compensation policies and practices for employees were not reasonably likely to have a material adverse effect on the Company. For more information pertaining to the Company's compensation policies and practices, please read the “Compensation Discussion and Analysis” section of this Proxy Statement.
   
Governance and HS&E Committee

The Governance and HS&E Committee held four meetings during fiscal year 2015. The Board of Directors has determined that the Governance and HS&E Committee members meet the NYSE standards for independence as well as those contained in the Company's “Policy for Director Independence.”

The functions performed by the Governance and HS&E Committee include overseeing the Company's corporate governance affairs, health, safety and environmental compliance functions, government relations and monitoring compliance with the Corporate Governance Guidelines. In addition, the Governance and HS&E Committee proposes candidates for the Board of Directors, reviews the structure and composition of the Board, considers the qualifications required for continuing Board service and recommends directors' compensation. The Governance and HS&E Committee annually reviews the Company's Policy Statement on Shareholders' Rights Plans and reports any recommendations to the Board of Directors.

Business Code of Conduct

The Company has a Business Code of Conduct (the “Code of Conduct”) that applies to all officers, directors and employees, which includes the code of ethics for the Company's Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer and all other persons performing similar functions within the meaning of the securities laws and regulations. The Code of Conduct prohibits individuals from engaging in, or giving the appearance of engaging in any activity involving a conflict, or reasonably foreseeable conflict, between personal interests and those of the Company. Every year, each of these Company officers certifies compliance with the Company's Code of Conduct and the applicable NYSE and SOX provisions. The Audit/Ethics Committee oversees the administration of the Code of Conduct and responsibility for the corporate compliance effort with the Company. The Company's Code of Conduct and Code of Ethical Conduct Certification are posted under the “Corporate Governance” section of the Company's website at www.bakerhughes.com and are also available upon request to the Company's Corporate Secretary.

The Board's Leadership Structure

Our Corporate Governance Guidelines require the election, by the independent directors, of a Lead Director who (i) presides at all meetings of the Board of Directors at which the Chairman is not present, including executive sessions of non-management directors; (ii) serves as a liaison between the Chairman and the non-management directors; (iii) has the authority to call meetings of the non-management directors; (iv) works with the Chairman in developing Board meeting agendas, schedules, and information provided to the Board; and (v) communicates with significant stockholders when appropriate on matters involving broad corporate policies and practices. The Governance and HS&E reviews and recommends to the Board a director to serve as Lead Director. J. Larry Nichols is the current Lead Director. The independent directors hold executive sessions at every regularly scheduled Board and Committee meeting and at such other times as the Board deems appropriate. Our Board leadership structure is utilized by numerous public companies in the United States, and we believe that it provides the optimal balance and is an effective leadership structure for the Company.

The Board has determined that the current structure, with a combined CEO and Chairman of the Board and an independent Lead Director, is in the best interests of the Company and our stockholders. The combined role of CEO

12



and Chairman provides an effective balance between management of the Company and director participation in our board process and allows for management to focus on the execution of our strategic and business plans. As indicated above, our independent Lead Director was elected by the independent Board members and has a clear set of comprehensive duties that counterbalance the governance structure.

At a meeting of the Board of Directors on February 25, 2016, the Board of Directors increased the director retirement age from 72 to 74 under the Company's Corporate Governance Guidelines. The Board of Directors determined that it was in the best interests of the Company to maintain experienced and knowledgeable directors of the Company during the pending Merger with Halliburton.

Board Membership

The Governance and HS&E Committee has implemented policies regarding Board membership. The Governance and HS&E Committee will consider candidates based upon the size and existing composition of the Board, the number and qualifications of candidates, the benefit of continuity on the Board and the relevance of the candidate's background and experience with issues facing the Company. The Governance and HS&E Committee also strives to maintain a Board that reflects diversity, including but not limited to, gender, ethnicity, background, country of citizenship and experience. The criteria used for selecting directors are described in the Company's “Guidelines for Membership on the Board of Directors,” included as Exhibit A to the Corporate Governance Guidelines. In addition, the Company has established a formal process for the selection of candidates, as described in the Company's “Selection Process for New Board of Directors Candidates” included as Exhibit B to the Corporate Governance Guidelines, and candidates are evaluated based on their background, experience and other relevant factors as described in the "Guidelines for Membership on the Board of Directors." The Board and the Governance and HS&E Committee will evaluate candidates properly proposed by stockholders in the same manner as all other candidates.

Stockholder Nominations of Directors

The Governance and HS&E Committee has established, in accordance with the provisions of the Company's Bylaws regarding stockholder nominees, a policy that it will consider director candidates proposed by stockholders in the same manner as all other candidates. Recommendations that stockholders desire to make for the 2017 Annual Meeting of Stockholders should be submitted between November 15, 2016 and December 15, 2016 in accordance with the Company's Bylaws and “Policy and Submission Procedures for Stockholder Recommended Director Candidates” included as Exhibit D to the Corporate Governance Guidelines and are also available upon request to: Chair, Governance and HS&E Committee of the Board of Directors, P.O. Box 4740, Houston, Texas, 77210, or to the Corporate Secretary, c/o Baker Hughes Incorporated, 2929 Allen Parkway, Suite 2100, Houston, Texas, 77019. Such recommendations should be accompanied by the information required under the Company's Bylaws for stockholder nominees and in accordance with the Company's "Policy and Submission Procedures for Stockholder Recommended Director Candidates."

Stockholder Communications with the Board of Directors

To provide the Company's stockholders and other interested parties with a direct and open line of communication to the Company's Board of Directors, stockholders may communicate with any member of the Board, including the Company's Lead Director, the Chair of any committee or with the non-management directors of the Company as a group, by sending such written communication to the Company's Corporate Secretary, c/o Baker Hughes Incorporated, 2929 Allen Parkway, Suite 2100, Houston, Texas, 77019. The procedures for “Stockholder Communications with the Board of Directors” are also included as Exhibit E to the Corporate Governance Guidelines. In addition, pursuant to the Company's policy to request and encourage attendance at the Annual Meeting, such meeting provides an opportunity for stockholders to communicate with members of the Company's Board of Directors in attendance.


13



Stock Ownership Information

Stock Ownership of Certain Beneficial Owners

The following table sets forth information about the holders of the Common Stock known to the Company on April 1, 2016 to own beneficially 5% or more of the Common Stock, based on filings by the holders with the SEC. For purposes of this Proxy Statement, beneficial ownership of securities is defined in accordance with the rules of the SEC to mean generally the power to vote or dispose of securities regardless of any economic interest therein.
 
Name and Address
Shares
Percent of Class
1.
Dodge & Cox (1) 
555 California Street, 40th Floor
San Francisco, CA 94104
33,970,635
7.8%
2.
BlackRock Inc. (2)
55 East 52nd Street
New York, NY 10055
26,115,228
6.0%
3.
The Vanguard Group (3)
100 Vanguard Blvd.
Malvern, PA 19355
26,143,084
5.9%
4.
ValueAct Capital (4)                         
One Letterman Drive, Building D, Fourth Floor
San Francisco, CA 94129
23,246,700
5.3%
_________
(1)
Dodge & Cox has sole voting power over 32,125,919 shares and sole dispositive power over 33,970,635 shares.
(2)
BlackRock Inc. has sole voting power over 21,520,204 shares and sole dispositive power over 26,115,228 shares.
(3)
The Vanguard Group has sole voting power over 803,371 shares and sole dispositive power over 25,288,953 shares.
(4)
ValueAct Capital shares voting and dispositive power over 23,246,700 shares with other affiliated ValueAct entities.

Stock Ownership of Section16(a) Directors and Executive Officers

Set forth below is certain information with respect to beneficial ownership of the Common Stock as of April 1, 2016 by each director, the persons named in the Summary Compensation Table below and the Section 16(a) directors and executive officers as a group. The table includes transactions effected prior to the close of business on April 1, 2016.
Shares Beneficially Owned
Name
Shares Owned as of April 1, 2016
Shares Subject to Options and Restricted Stock Units Which Are or Will Become Exercisable or Vested Prior to May 31, 2016

Total Beneficial Ownership as of May 31, 2016
% of Class (1)
Larry D. Brady
34,240

10,933

45,173


Gregory D. Brenneman
4,425


4,425


Clarence P. Cazalot, Jr.
32,161

10,933

43,094


William H. Easter III
5,425


5,425


Lynn L. Elsenhans
10,952

19,768

30,720


Anthony G. Fernandes
44,903

10,933

55,836


Claire W. Gargalli
28,674

10,933

39,607


Pierre H. Jungels
19,793

15,219

35,012


James A. Lash
8,470

11,548

20,018


J. Larry Nichols
39,812

10,933

50,745


James W. Stewart (2)
257,149

12,142

269,291


Charles L. Watson
31,360

10,933

42,293


Martin S. Craighead
160,874

523,380

684,254



14



Shares Beneficially Owned
Name
Shares Owned as of April 1, 2016
Shares Subject to Options and Restricted Stock Units Which Are or Will Become Exercisable or Vested Prior to May 31, 2016

Total Beneficial Ownership as of May 31, 2016
% of Class (1)
Kimberly A. Ross
35,721


35,721


Alan R. Crain
78,254

248,791

327,045


Belgacem Chariag
77,503

145,605

223,108


Derek Mathieson
15,886

59,316

75,202


All directors and executive officers as a group (26 persons)
1,084,093

1,550,692

2,634,785


__________
(1)
No percent of class is shown for holdings of less than 1%.
(2)
Mr. Stewart holds 14,216 shares indirectly as the trustee of trusts established for the benefit of his children and 54,368 shares indirectly held by B&A Group, LP for the benefit of his children. Mr. Stewart disclaims his beneficial ownership of limited partnership interests in B&A Group, LP, except to the extent of his pecuniary interest therein.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), requires executive officers, directors and persons who beneficially own more than 10% of the Common Stock to file initial reports of ownership and reports of changes in ownership with the SEC and the NYSE. SEC regulations require executive officers, directors, and greater than 10% beneficial owners to furnish the Company with copies of all Section 16(a) forms they file.

Based solely on a review of the copies of those forms furnished to the Company and written representations from the executive officers and directors, the Company believes its executive officers and directors complied with all applicable Section 16(a) filing requirements during the fiscal year ended December 31, 2015.

Prohibition of Pledging and Hedging under the Securities Trading and Disclosure Policy

The Company's Securities Trading and Disclosure Policy prohibits pledging of the Company's securities as collateral for a loan, holding the Company's securities in a margin account in which any margin activity is undertaken, purchasing financial instruments (including prepaid variable forward contracts, equity swaps, collars, exchange funds or other instruments) that are designed to hedge or offset any decrease in the market value of equity securities of the Company or writing options on the Company's securities.

Charitable Contributions

During the fiscal year ended December 31, 2015, the Company did not make any contributions to any charitable organization in which any director served as an executive officer that exceeded the greater of $1 million or 2% of the charitable organization's consolidated gross revenues.

Certain Relationships and Related Transactions

The Company has, and strictly follows, formalized policies and procedures for identifying potential related party transactions and ensuring those policies are reviewed by the Board of Directors and the Audit/Ethics Committee. We subject the following related persons to these procedures: directors, director nominees, executive officers, individual 5% stockholders and any immediate family members of these persons.

As outlined in Exhibit C to our Corporate Governance Guidelines, 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.


15



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 Statement, 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. The Company utilizes standard accounting procedures and responses to the director and officer questionnaires to monitor its financial records and determine whether a related person is involved in a business relationship or transaction with the Company for which disclosure is required.

On March 1, 2014, the Company entered into a Transloading and Storage Services Agreement with Twin Eagle Sand Logistics (formerly, Frac Resources, LLC) which provides for the transloading and storing of proppant sands (the "Storage Agreement"). A member of the Company's Board of Directors, Mr. Watson, indirectly owns more than 10% of Twin Eagle Sand Logistics ("TESL") and is co-founder and chairman of the board of a parent entity of which TESL is a majority-owned indirect subsidiary. The Storage Agreement was for an initial two-year term, and had an estimated value of $2,520,000. The Company paid $916,093 to TESL during fiscal year 2014 and $2,386,018 during fiscal year 2015. In February 2016, the Company paid a final amount of $979,200 under the Storage Agreement in order to comply with the minimum annual throughput volume commitment. The Storage Agreement was terminated on March 31, 2016. The Company entered into a new Transloading and Storage Services Agreement with TESL effective March 16, 2016 (the "2016 Storage Agreement"). The 2016 Storage Agreement is a month-to-month agreement for the transloading and storage of proppant sands which has an indeterminable value. The policies and procedures described above were followed in connection with the transaction contemplated by the Storage Agreement. The Board of Directors has determined that all members of the Board of Directors are independent, with the exception of Mr. Craighead.



16



Compensation Discussion and Analysis

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 short-term incentives, long-term incentives, and employee benefits to deliver attractive and competitive compensation. We benchmark both compensation and Company performance in evaluating the appropriateness of pay. Our executive pay decisions are made by an independent Compensation Committee of our Board of Directors, with assistance from its independent consultant. We target the market median for base salary and short-term incentive compensation, while providing the opportunity for executives to earn upper quartile incentive pay based on Company performance.

2015 Business Context and Performance Overview

Our 2015 results are reflective of an extremely difficult and increasingly challenging period for the industry. There were steep declines in activity in the oilfield services industry in 2015, as evidenced by the 46% decline in the global rig count since the fourth quarter of 2014 as customers adjusted their spending to align with declining commodity prices. Additionally, global pricing pressures, share losses in onshore pressure pumping as well as unfavorable foreign exchange rates negatively impacted our results for the year. In addition, we dedicated significant efforts supporting the regulatory review process and developing plans for a successful integration for the pending Merger by Halliburton. A summary for 2015 is provided below.

Revenue for the year was $15.7 billion, down $8.8 billion compared to $24.6 billion for 2014
Even though revenue declined 36% for the year, decremental operating margins were contained to 34%, significantly better than those delivered in the 2009 industry downturn
We generated $1.2 billion of free cash flow during the year, after more than $446 million of restructuring payments, as a result of capital discipline and solid progress on initiatives to improve working capital
We achieved the best safety record in Company history in spite of extremely difficult business conditions

Compensation Program Decisions for 2015

Our people and their capabilities are critical to our success and maintaining a strong talent base in spite of significant uncertainty is essential. While it is not the Company’s intention to shift away from our long-standing pay for performance strategy, given the unique challenges faced by the Company during 2015, including the need to structure compensatory retention and reward incentives within the parameters of the Merger Agreement, the Compensation Committee made the following key compensation decisions for 2015.

Guaranteed at least a target level bonus for all bonus-eligible employees (including Senior Executives) who remained with the Company through the earlier of the close of the Merger or March 2016, as permitted under the Merger Agreement

Delivered 100% of long-term incentives in the form of Restricted Stock Units (settled in stock) for all employees who received equity awards

Suspended the annual merit cycle and limited promotions and off-cycle increases during the year, consistent with practices of other companies in the industry

While the Company experienced some regrettable key talent losses, we retained 91% of our critical talent during 2015, a majority of which participated in these programs.

17



Participants
Our compensation programs are designed specifically for (1) our most senior executive officers, including our principal executive officer (“PEO”), our principal financial officer (“PFO”) and our three other most highly compensated executive officers (collectively, either the “Senior Executives” or “NEOs”) and (2) employees who are designated as executives of the Company, including the Senior Executives (“Executives”), and (3) a broad base of Company employees.

The Senior Executives are:
 
Martin S. Craighead - Chairman & Chief Executive Officer (PEO)
 
 
 
 
 
Kimberly A. Ross - Senior Vice President and Chief Financial Officer (PFO)
 
 
 
 
Alan R. Crain - Senior Vice President, Chief Legal and Governance Officer
 
 
 
 
 
 
Belgacem Chariag - Chief Integration Officer
 
 
 
 
 
 
 
 
 
Derek Mathieson - Chief Technology and Marketing Officer
 
Pay for Performance
Our compensation programs are designed to deliver compensation that is aligned with Company performance and stockholder interests. As previously mentioned, while modifications were made for our 2015 compensation programs in light of challenges to retain a strong talent base in the current environment, the Company remains committed to our long-term pay for performance philosophy.

The charts below illustrate the Company's Total Shareholder Return ("TSR") versus the TSR for the Company's oilfield services peer group which includes Halliburton Company, National Oilwell Varco Inc., Schlumberger Ltd. and Weatherford International Ltd. (the "Peer Group") over the three-year period ending 2015, as well as both the Company's target and realized pay versus the median target and realized pay of the Company's four peers in the Peer Group over the same three-year period.
 
Target pay includes base salary, target bonus, the Black-Scholes grant date value of stock options and the grant date value of restricted stock, and the target value of performance units for the period. Realized pay includes base salary, bonus payout, a recalculated Black-Scholes value of stock options using updated inputs but holding the original exercise price the same, the December 31, 2015 value of restricted stock granted during the period, and the value of cash-based performance units paid out during the period.


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Over the past three years, our PEO's target compensation was slightly below the market median target compensation for total cash, long-term incentives (LTI) and total direct compensation (TDC). However, our PEO has realized less total cash and greater LTI and TDC than the realized median of the peer group, while the Company has outperformed the peer group for three-year total shareholder return. The market median is based on the proxy filings for 2012-2014 for the four peers and excludes our PEOs' data. Our December 31, 2015 stock price was likely positively impacted by the anticipated purchase price under the Merger. This potential premium on our stock price also likely resulted in a higher three-year total shareholder return, as well as higher realized long-term incentives and total direct compensation.

The chart below illustrates the Company's three-year realized pay percentile ranking and performance percentile ranking for our PEO and the Peer Group for the three-year period ending 2015. The chart reflects that for the three-year period ending in 2015, the Company’s pay was at the median while performance was in the upper quartile. For the one-year period ending 2015, the Company’s pay is aligned with its performance.



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Compensation Objectives

To reward both short and long-term performance and to further our compensation objectives, our executive compensation program is designed to:
Objectives
How We Meet Our Objectives
Attract and retain knowledgeable, experienced, and high performing Senior Executives
Provide a competitive total pay package, taking into account base salary, incentives and benefits.
Regularly benchmark our pay programs against the competitive market, comparing both fixed and variable, at-risk compensation that is tied to short and long-term performance. We use the results of this analysis as context in making pay adjustments.
Administer plans to include three-year performance cycles on long-term incentive plan awards, three-year vesting schedules on equity incentives, and competitive total benefit programs, including retirement benefits.
Reward the creation of long-term stockholder value
Historically, the long-term incentive plan has consisted of a combination of stock options, restricted stock awards, and cash-based and stock-based performance units. For 2015, the Compensation Committee did not grant new stock options or performance units.
The incentive programs include specific financial performance measures that are fundamental to long-term stockholder value creation:
Ÿ The Annual Incentive Compensation Plan for Employees the ("AICPE") uses earnings per share, inventory as a percentage of revenue, and days sales outstanding targets set by the Compensation Committee.
Ÿ The long-term incentive plan uses revenue growth and return on capital employed performance metrics as compared to our peers, as well as a relative TSR modifier compared to TSR's of the companies included in the OSX Index.
Address the complexities in managing a cyclical business that is subject to variable world supply and demand for oil and gas
The short-term incentive programs provide for formulaic and non- formulaic short-term performance goals and rewards managers for the achievement of those goals.
The long-term incentive plan utilizes a combination of share growth and full-value awards, balancing retention and appreciation through the business cycles. For 2015, full-value awards were utilized for the long-term incentive plan.
The performance unit component of the long-term incentive plan measures Company performance relative to industry peers, mitigating the difficulty in goal setting over long periods.
Drive and reward performance that supports the Company's core values of integrity, teamwork, performance, learning and courage
Success in the promotion of core values is considered in the base salary review process and when determining annual award values for long-term incentive compensation awards.

The short-term incentive programs allow for the reduction or elimination of bonus payouts if the Company's core values or compliance standards are not upheld.
Provide a significant percentage of total compensation that is variable and at risk
Annual and long-term incentive compensation comprises, on average, more than two-thirds of our Senior Executives' total direct compensation.
Reinforce adherence to high ethical, environmental, health and safety standards
The performance scorecard bonus component may include specific business goal targets related to health, safety and the environment ("HSE").
 
The short-term incentive programs allow for reduction or elimination of bonus payouts if the HSE standards are not upheld.

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Objectives
How We Meet Our Objectives
Motivate management to take prudent, but not excessive, risks
Pay programs emphasize long-term incentive compensation with overlapping year-over-year performance-based vesting schedules.

Our share ownership guidelines encourage Executives to focus on the long-term interests of our stockholders.
We utilize multiple performance measures for short-term and long-term incentives, as well as peer comparisons.
The Company's clawback policy allows for the potential recoupment of short-term and long-term incentive compensation in the event of a financial restatement resulting from gross negligence, intentional misconduct or fraud.
Align executive and stockholder interests
Our share ownership guidelines motivate alignment between long-term stockholder value creation and management decisions.
The ultimate value of our annual equity grants is driven by stock price performance.

Consideration of Advisory Say on Pay Voting Results

In compliance with Section 14A of the Exchange Act, we ask our stockholders to approve, on an advisory basis, the compensation of our NEOs as disclosed in this Proxy Statement (commonly known as a “Say on Pay” proposal). The Compensation Committee believes that the advisory Say on Pay votes of our stockholders are an important means by which stockholders may express their views regarding the Company's executive compensation. While the Say on Pay votes are advisory and not binding on the Company, the Compensation Committee strongly values the opinions of the stockholders as expressed in the Say on Pay votes. On an ongoing basis, the Compensation Committee monitors the performance of the Company and its Senior Executives, makes business determinations concerning performance goals the Compensation Committee believes are appropriate, determines appropriate financial incentives to motivate the achievement of these goals, and modifies the Company's executive compensation programs as it deems appropriate and consistent with these determinations. In making its determinations, the Compensation Committee is guided by its fiduciary duties to our stockholders and its business judgment concerning the best interests of our stockholders.

The Compensation Committee considered the 2015 Say on Pay voting results to ascertain whether there was a meaningful level of support. In 2015, our stockholders voted 94.35% in favor of the Company's executive compensation practices, which the Compensation Committee considers a significant level of support. Notwithstanding this high level of support for our existing executive compensation practices, the Compensation Committee continues to refine our programs to maintain alignment with the interests of our stockholders.

Compensation Consultant and Conflict of Interest Analysis
 
The Compensation Committee has continued to retain Frederic W. Cook & Co., Inc. ("Cook") as its independent compensation consultant. Cook advises the Compensation Committee on matters related to the Senior Executives' compensation and general compensation programs, including industry best practices. In accordance with the requirements of Item 407(e)(3)(iv) of Regulation S-K, in 2015 the Compensation Committee considered the relationships Cook has had with the Company, the members of the Compensation Committee and our executive officers, as well as the policies that Cook has in place to maintain its independence and objectivity, and determined that no conflicts of interest arose from the work performed by Cook. It is anticipated that this relationship will continue during the remainder of 2016.

Cook 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 practices 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.

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Cook periodically provides consulting services to the Governance and HS&E Committee, as follows:

advises on policy covering the payment of director fees; and
advises on equity and non-equity compensation awards to directors.

Benchmarking

The competition in the market for executive talent magnifies the need to ensure that our executive compensation programs are appropriately positioned against peer companies in order to strengthen our ability to attract, engage and retain key executives. In order to appropriately benchmark compensation and measure performance, the Company utilizes two primary benchmarking sources: (1) compensation “Reference Group” and (2) performance “Peer Group.”

The Reference Group is comprised of 21 companies including industry peers and companies in the broader energy and general industry sectors with similar business characteristics, size, margins, competition for talent, and other key compensable factors. In selecting the Reference Group, the Company narrows the broad universe of public companies down to a smaller group by considering companies within a size range against which the Company competes for talent as well as business characteristics such as asset intensity and cash flow margin. The list is narrowed further taking into account factors, including but not limited to, global scale, engineering, technology and industrial applications, multiple divisions, logistical complexity, business services, size (and other financial measures) and asset/people intensity.

The Peer Group is comprised of four oilfield service companies. Because of the technical nature of the industry, cyclical nature of the markets, high labor needs and capital requirements, oilfield service companies provide the best competitive comparison for benchmarking performance.
In 2015, the Compensation Committee conducted a review of the companies included in the Reference Group and made the decision to maintain the existing group of companies. The following chart reflects the Reference Group and Peer Group companies and illustrates how competitive information is used to compare compensation and performance.
 
 
Reference Group
 
 
21 companies - oilfield services, exploration & production, offshore drilling, oil and gas, and general industry:
 
 
Ÿ 3M Company
Ÿ Eaton Corp
Ÿ National Oilwell Varco
 
 
Ÿ Anadarko Petroleum Co
Ÿ Emerson Electric Co
Ÿ Raytheon Co
Compensation
ð
Ÿ Apache Corp
Ÿ Halliburton Co
Ÿ Schlumberger Ltd
 
 
Ÿ Cameron Intl Corp
Ÿ Hess Corp
Ÿ Textron Inc
 
 
Ÿ Danaher Corp
Ÿ Honeywell Intl Inc
Ÿ Transocean Ltd
 
 
Ÿ Deere & Co
Ÿ Illinois Tool Works
Ÿ Weatherford Intl Ltd
 
 
Ÿ Devon Energy Corp
Ÿ Johnson Controls Inc
Ÿ Williams Cos Inc
 
 
Used to identify and compare executive pay practices such as pay mix and magnitude, competitiveness, prevalence of long-term incentive vehicles, pay-for-performance plans, etc.
 
 
 
 
 
Peer Group
 
 
4 companies - oilfield services only
 
 
Ÿ Halliburton Co
Ÿ Schlumberger Ltd
 
Performance
ð
Ÿ National Oilwell Varco
Ÿ Weatherford Intl Ltd
 
 
 
Used to compare performance in order to determine long-term incentive plan results and for general performance assessment.
Using the Reference Group proxy data as well as published survey data in both the general industry and the energy industry (collectively, the “Survey Data”) addresses the need for both statistical validity and industry influence in the data. The Reference Group 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. Data concerning the Peer Group is used to conduct a general, high level review, compare Company performance in our industry, understand pay practices and trends, compare plan design specifics, evaluate the effects of the industry cycle on compensation and validate compensation targets.

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Pay Mix

The charts below show the fiscal year 2015 mix of compensation elements for our executive officers as compared to that of the Reference Group market median. This comparison demonstrates that the allocation of our compensation elements is similar to the compensation practices of our Reference Group, but with more weight to long-term incentives. This allocation is aligned with one of our compensation objectives to provide a significant percentage of total compensation that is variable and at risk.
¨ Base Salary
¨ Short-Term Incentives
¨ Long-Term Incentives

Components of the Executive Compensation Program

The Compensation Committee reviews, on an annual basis, each compensation element for the PEO and each of the Senior Executives. The Compensation Committee balances the executive's scope of responsibilities and experience against competitive compensation levels. The Compensation Committee is responsible for reviewing and approving the Company's goals and objectives relative to the PEO's compensation, evaluating the PEO's performance in light of such goals and objectives and determining the PEO's compensation level based on this evaluation and other relevant information.

In addition, each year the PEO presents to the Compensation Committee his evaluation of each of the other Senior Executives, which includes a review of each Senior Executive's contribution and performance over the past year, strengths, development needs and succession potential. The PEO makes no recommendations to the Compensation Committee regarding his own compensation. Following this presentation and a review of the Survey Data, the Compensation Committee makes its own assessments and approves compensation for each Senior Executive.

Base Salaries
 
The Compensation Committee targets the market median of the Reference Group for the base salaries of our Senior Executives. When considering an adjustment to a Senior Executive's base salary, the Compensation Committee reviews the Survey Data and evaluates the Senior Executive's position relative to the market, his/her level of responsibility and experience as well as overall Company performance. The Compensation Committee also considers the Senior Executive's success in achieving business objectives, promoting our core values and keys to success, improving health and safety, demonstrating leadership and achieving specific individual performance goals (as further described in the “Bonuses Based on Achievement Against Performance Scorecard” section).

In determining base salaries, the Compensation Committee also considers the Company's continuing achievement of its short and long-term goals including:

the financial performance of the Company;
the effective execution of the strategy approved by our Board of Directors; and
the development of human resource capability.

The Compensation Committee reviewed the compensation for Senior Executives and made the decision not to implement a base salary increase for any Senior Executive in 2015 based on market conditions.

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Short-Term Incentive Compensation

The short-term incentive compensation programs provide 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 short-term incentive programs are designed to provide incentives for Senior Executives to attain certain short-term performance goals. Presently, the short-term incentive compensation opportunity is delivered by way of two incentive programs: the Annual Incentive Compensation Plan for Employees ("AICPE") and the performance scorecard, with greater weight placed on the formula-based component of the short-term incentives and consistent with the Company's goal of providing a meaningful link between compensation and Company performance. The combined payouts for Senior Executives under the short-term incentive compensation programs are targeted to provide compensation at the market median of the Survey Data in years where we reach target performance levels under both programs. Similarly, the short-term incentive compensation programs are designed to pay above the market median in years where performance exceeds target performance levels, and below when performance falls short of expectations. Short-term incentive bonuses are generally paid in cash in March of each year for the prior fiscal year's performance.

The short-term incentive target for each Senior Executive is reviewed by the Compensation Committee each year and is set based on the market median of the Survey Data and the individual contribution level and potential of each individual executive. That incentive target is then split between the AICPE and the Performance Scorecard targets. For 2015, the Committee determined that individual incentive targets for the Senior Executives were appropriately aligned with the market.

Annual Incentive Compensation Plan for Employees

The following table shows the 2015 annual incentive target compensation for each of the Senior Executives under the AICPE.

2015 AICPE Targets for Senior Executives
Senior Executives
Target Incentive Compensation
% of Base Salary
Martin S. Craighead
72.0%
Kimberly A. Ross
60.0%
Alan R. Crain
48.0%
Belgacem Chariag
48.0%
Derek Mathieson
48.0%
 
In 2015, the financial metrics for the AICPE were earnings per share, inventory as a percentage of revenue, and days sales outstanding, equally weighted. In addition, a fourth metric based on the Company's rank in EBIT margin growth relative to three peers, Schlumberger, Halliburton, and Weatherford, was used as a positive or negative payout modifier. For purposes of the modifier, peers do not include companies primarily focused on manufacturing. The payout modifier was applied by multiplying each metric payout by 150% for a first place ranking; 125% for a second place ranking; 100% for a third place ranking; or 75% for a fourth place ranking. Each individual metric was capped at 200% after the application of the EBIT margin growth multiplier.



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Historically, there have been three performance levels with respect to the achievement of the established AICPE financial metrics: (1) entry level (EL) (2) expected value (EV) and (3) over achievement (OA). If our financial performance reached EL, the AICPE payout would equal 25% of target incentive compensation. If our financial performance reached EV, the AICPE payout would equal 100% of target incentive compensation and if our financial performance reached the over achievement level or higher, the AICPE payout would equal 200%. Achievement between any level results in a payout that is determined by interpolation between payout levels. Performance targets are established at levels that challenge the individual Senior Executive to perform at a high level. Performance goals are set such that only exceptional performance will result in payouts above the target incentive.

As noted above, as a retention and reward incentive permitted under the Merger Agreement, in February 2015, the Compensation Committee approved the guarantee of at least target level bonuses for 2015 under the AICPE for all eligible employees, including Senior Executives. The guarantee served to provide assurance of minimum payout, with the actual bonus payout based on the greater of target or actual performance. Since providing guarantees of payouts is not permitted under our Annual Incentive Compensation Plan (“AICP”), a short-term incentive vehicle typically used for the Senior Executives, for 2015 the AICPE vehicle covering our broader employee population was used for Senior Executives rather than the AICP. The Company amended the AICPE to include, for Senior Executives, the same maximum dollar limitation on individual payouts as applied under the AICP, $4 million.

Aligned with the bonus guarantee mentioned previously, for 2015, the Compensation Committee approved two, rather than three, performance levels with respect to the achievement of the three established AICPE financial metrics: (1) EV and (2) OA as detailed in the chart below. The Compensation Committee approved an overall cap on AICPE bonus payments for Senior Executives equal to 200% of each Senior Executive's target bonus, but in no event more than $4 million.
Performance Level
Definition

Payout Level
% of Target
2015
Earnings Per Share Target
2015 Inventory % of Revenue
2015 Days Sales Outstanding
Expected Value
Performance meets expected value
100% Payout
$1.54
18.2%
77.5 days
Over Achievement
Performance exceeds expected value
200% Payout
$1.69
17.3%
75.5 days

For the 2015 performance period, our earnings per share on an adjusted non-GAAP basis was $(0.48) which was below the Expected Value achievement target of $1.54. Our 2015 inventory as a percent of revenue was 18.8%, which did not meet the Expected Value level of 18.2%. Our 2015 Days Sales Outstanding metric result was 86.1 days which did not meet the Expected Value level of 77.5 days.

Additionally, the Company ranked 3rd in EBIT margin growth against the three peer companies. The modifier for a 3rd place rank relative to peers is 100%, and this modifier was applied to each individual metric.

Although each of our AICPE metrics did not exceed the EV targets, the Compensation Committee approved the minimum payout guaranteed for 2015 at EV, as stated previously for retention purposes and within the parameters of the Merger Agreement. The Compensation Committee awarded Mr. Craighead, Ms. Ross, and Messrs. Crain, Chariag, and Mathieson cash-based awards under the AICPE in the amounts of $900,000, $480,000, $360,000, $336,000, and $307,200, respectively.

Bonuses Based on Achievement Against Performance Scorecard

While the AICPE rewards Senior Executives for the achievement of specific formulaic financial measures, the Compensation Committee utilizes a performance scorecard to reward Senior Executives based upon the Compensation Committee's assessment of the achievement of specific performance goals that are critical to the execution of the Company's strategy, but may or may not be formulaic in nature. At the beginning of each year, the Compensation Committee establishes the portion of each Senior Executive's base salary that will be considered as the basis for a bonus related to the achievement of these specific performance goals.


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The following table shows the 2015 performance scorecard targets for each of the Senior Executives.
2015 Performance Scorecard Targets for Senior Executives
Senior Executives
Performance Scorecard Bonus Targets
% of Base Salary
Martin S. Craighead
48.0%
Kimberly A. Ross
40.0%
Alan R. Crain
32.0%
Belgacem Chariag
32.0%
Derek Mathieson
32.0%

The maximum funds available for the payment of bonuses related to the performance scorecard may not exceed 2.5 times the respective targets for all participants. In determining the bonus amounts, the achievement of (or failure to achieve) the performance goals under the AICPE is not a factor that is considered by the Compensation Committee.

For 2015, the performance scorecard goals for the Senior Executives were aligned with the annual business objectives of the PEO. At the beginning of 2015, the Compensation Committee established performance goals for the PEO and the Board of Directors set the goals for Mr. Craighead in his role as Chairman and CEO. While the measures for evaluating the Senior Executives' performance with respect to the performance goals are subject to the Compensation Committee's discretion, the Compensation Committee and the Company establish performance scorecard goals and specific expectations related to the achievement of these goals at the beginning of each year.

The 2015 performance scorecard goals related to the business objectives of the PEO and his direct reports included improving key health, safety and environment metrics, management through the Merger process, remaining best in class in operations and compliance, leading in technology and innovation, and continuing to strengthen leadership and organizational capabilities.

As stated previously, in February 2015, the Compensation Committee approved the guarantee of target bonuses for 2015, including the performance scorecard bonus for retention purposes and within the parameters of the Merger Agreement. The guarantee served as a minimum payout, with the actual bonus based on the greater of target or actual performance.

The Compensation Committee evaluated the results achieved for each of the goals established for the performance scorecard and determined whether each goal had been achieved. The Compensation Committee considered the achievement for the performance goals below for 2015:
Performance Component
Beginning of Year Performance Expectation
Assessment of Performance for 2015
Management through Merger process
Exit 2015 with BHI's relative position on revenue, margin and ROIC comparable to competition

Retention of key talent

Keep employee morale and motivation at forefront

Successfully manage integration activities

Safety of our employees
Fell short on financial goal achievement relative to peers, but remaining goals achieved, including best safety performance in Company history, retention of 91% of key talent and full support of Merger integration activities
Operations and Compliance
Maintain momentum on operating system adoption and build culture of flawless execution/operational excellence

Ensure successful migration of data center

Successful execution of employee training programs

Remain best in class in legal and financial compliance
Goals achieved

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Performance Component
Beginning of Year Performance Expectation
Assessment of Performance for 2015
Technology and Innovation
Commercial advancements related to technology developments
Fully achieved goals, including introduction of more than 200 new products this year with revenue generation not far behind 2014’s record-setting results for new products
Leadership
Continue to strengthen leadership and organizational capabilities

Effectively communicate business and integration updates to extended teams
Goals achieved
 
The Compensation Committee assesses the PEO's performance relative to the established performance goals for the year and determines whether or not a payout will be made to the PEO. The same process is conducted for the other Senior Executives taking into account the recommendations from the PEO. As part of the process for assessing Company and individual performance under the scorecard, the Committee is given status updates throughout the year. At the Committee’s February meeting, the PEO discusses the final performance results for the year with the Committee. The Committee carefully considers all of the factors influencing the results and the Senior Executive's performance impacting those results.

As previously stated, for retention purposes and within the parameters of the Merger Agreement, the Compensation Committee approved for 2015 a minimum target payout for most Senior Executives. Mr. Craighead requested the Compensation Committee decrease his own award in order to provide higher awards to certain Executives to recognize their individual outstanding achievements, while keeping the collective payout for all Senior Executives near target. The Committee approved payments for Mr. Craighead, Ms. Ross, and Messrs. Crain, Chariag, and Mathieson cash-based awards in the amounts of $510,000, $352,000, $264,000, $246,400 and $204,800, respectively.

Long-Term Incentive Compensation

The long-term incentive program allows Senior Executives to earn compensation over a number of years as a result of stock price performance and/or sustained financial performance over multiple years. Consistent with our at-risk pay philosophy, long-term incentives comprise the largest portion of a Senior Executive's compensation package.

A primary objective of the long-term incentive plan is to align the interests of Senior Executives with those of our stockholders. Historically, the long-term incentive compensation has been composed of stock options, restricted stock and cash-based and, beginning in 2014, stock-based performance units. The Compensation Committee determines the total grant date values of long-term incentives to be granted to the Senior Executives as well as the form of long-term incentive compensation vehicles to be utilized. The awards granted to Senior Executives by the Compensation Committee vary each year and are based on factors such as competitive compensation information including the Survey Data, the demand for talent, cost considerations, the performance of the Company, the Senior Executive's performance and total compensation package as well as other factors the Compensation Committee deems critical to achieving the Company’s business objectives.

As noted above, while the Company does not intend to shift away from its pay for performance strategy, in order to support the Company’s goal of retaining critical talent in the face of the pending Merger, the long-term incentive awards granted to Senior Executives by the Compensation Committee in 2015 were exclusively in the form of restricted stock awards to be settled in shares of our Common Stock (or, in shares of Halliburton’s Common Stock if the Merger is consummated).

The chart below illustrates the grant date target values of the long-term incentive awards granted to Senior Executives in 2015.
Senior Executives

Grant Target Value of 2015
Long-Term Incentive Award
Martin S. Craighead
$9,570,000
Kimberly A. Ross
$3,579,400
Alan R. Crain
$3,000,000
Belgacem Chariag
$2,978,800
Derek Mathieson
$2,240,000

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Restricted Stock Unit Awards
 
Restricted stock unit awards provide Senior Executives the opportunity for capital accumulation and a more predictable long-term incentive value than stock options or performance-based awards. Additionally, restricted stock unit awards are intended to aid in the retention of Senior Executives through the use of a vesting schedule (generally one-third increments annually after the grant date). Restricted stock unit awards are historically awarded to Senior Executives once a year in January, at the same time as awards are made to the general eligible employee population.
 
Performance Unit Awards

Performance unit awards are designed to motivate the Senior Executives to achieve certain specific Company long-term performance goals during specific performance periods (three-year period). Performance Units (settled in cash) are awards of a fixed number of units with a set target value (e.g., $100). Performance Units (settled in stock) are awards of a conditional number of shares with a set target value (e.g., 100 shares).

The actual value our Senior Executives may realize under the program depends on how well we perform against the specified peer group with respect to specified performance goals which are established by the Compensation Committee with assistance from the Compensation Committee's independent compensation consultant.

Although no new performance unit awards were granted in 2015, two performance periods for performance unit awards granted to Senior Executives in 2013 and 2014 remained open as described below.

Performance Periods and Metrics

The chart below outlines the framework for performance awards for the two performance periods for 2013-2015 and 2014-2016.
Performance Period
Metrics
Peer Group
Payout Type
Determining Unit Value
 
 
 
 
 
2013-2015
Ÿ Revenue Growth
Ÿ Absolute ROCE
Ÿ Change in ROCE

Ÿ Halliburton
Ÿ NOV
Ÿ Schlumberger
Ÿ Weatherford
Settled in cash at the end of the Performance Period
The value of each Performance Unit is determined by the Company's rank for each metric for each one-year period and over the three-year Performance Period compared to the peer group.
 
 
 
 
 
2014-2016
Ÿ Revenue Growth
Ÿ Absolute ROCE
Ÿ Change in ROCE
Ÿ Total Shareholder
     Return (TSR)
     Modifier

Ÿ Halliburton
Ÿ NOV
Ÿ Schlumberger
Ÿ Weatherford
Ÿ    OSX *
Settled in stock at the end of the Performance Period
The number of Performance Units to vest is determined by the Company's rank for each metric for each one-year period and over the three-year Performance Period compared to the peer group.

The final number of units vesting is modified upward or downward based on the Company's TSR at the end of the three-year Performance Period relative to the companies in the Philadelphia Stock Exchange Oil Service Sector Index (or OSX).
* Philadelphia Stock Exchange Oil Service Sector Index (OSX) - Baker Hughes Incorporated, Cameron International Corporation, Diamond Offshore Drilling, Halliburton Company, Helmerich & Payne, Inc., Nabors Industries Ltd., Noble Corp., National Oilwell Varco, Inc., Oceaneering International, Inc., Oil States International Inc., Rowan Companies, plc, Transocean Ltd, Schlumberger Limited, Tidewater Inc., Weatherford International Ltd.


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Determination of Unit Award Value

The amounts payable under the terms of the performance award program are based upon our performance during four performance measurement periods: one three-year performance measurement interval and three one-year performance measurement periods within that three-year period. As of the end of each measurement period, our performance is measured against the performance of our peer group members and 25% of the performance unit award value is determined.
These four unique measures of performance (three individual years and one three-year period) will be combined to determine the final payout at the end of the three-year performance period, the Total Unit Value. The actual payout for the 2013-2015 performance period was made in March 2016. The actual payouts for the 2014-2016 performance period will be made after the close of the three-year performance period by March 2017.
The initial unit value of the performance unit awards for the 2013-2015 performance period is determined as follows:
Fixed Number of Cash-Based Units Granted at Beginning of Term
End of Year 1
• 25% of Unit Value
  Determined
• BHI Compared to
  peer group
 
End of Year 2
• 25% of Unit Value
  Determined
• BHI Compared to
  peer group
 
End of Year 3
• 25% of Unit Value
  Determined
• BHI Compared to
  peer group
Total Unit Value Calculated and Paid at End of Term

End of Year 3
• 25% of Unit Value Determined
   • BHI Compared to peer group
The initial unit modifier of the performance unit awards for the 2014-2016 performance period is then modified at the end of the three-year performance period based on our relative TSR performance:
Contingent Number of Share-Based Units Granted at Beginning of Term
End of Year 1
• 25% of Total
  Unit Modifier
  Determined
• BHI Compared
  to peer group
 
End of Year 2
• 25% of Total
  Unit Modifier
  Determined
• BHI Compared
  to peer group
 
End of Year 3
• 25% of Total
  Unit Modifier
  Determined
• BHI Compared
  to peer group
Total Unit Modifier Calculated at End of Term

End of Year 3
                  • 25% of Total Unit Modifier Determined
    • BHI Compared to peer group
2013-2015 Performance Unit Awards (Settled in Cash)

The metrics for the performance unit awards for the 2013-2015 performance period are revenue growth and ROCE measured both in absolute and relative growth terms. The Revenue Growth matrix below is used to determine the payout value for revenue growth. The Goal Payout Matrix below is used to determine the payout value for ROCE overall. Performance was measured over three one-year periods and one three-year period.
Revenue Growth (50% of Unit Value)
Peer Group Rank
5th
4th
3rd
2nd
1st
Unit Value
$0
$45
$90
$135
$200
 
ROCE (50% of Unit Value)
R
O
C
E
Goal Payout Matrix $100 times:
1st
130%
150%
165%
180%
200%
2nd
100%
115%
125%
135%
165%
%
3rd
65%
80%
90%
115%
135%
C
H
A
N
G
E
4th
30%
45%
50%
80%
90%
5th
—%
20%
35%
50%
70%
 
5th
4th
3rd
2nd
1st
ROCE

29



The table below illustrates the manner in which the amounts payable under the performance unit awards were calculated during the 2013-2015 performance period. For each period, the ranking and associated value is determined for each metric with an average value calculated for the respective period. For example, in 2013, the Company ranked 3rd compared to the peer group for revenue growth so the value for that period was $90.00 X 25% = $22.50.

At the end of the performance period, the average unit value for each period was tabulated and served as the value for each unit. In March 2016, each participant received a lump sum in cash in an amount equal to the number of units granted at the beginning of the performance period times the per-unit value indicated below.
Period
Revenue Growth Rank
ROCE Rank
ROCE Change Rank
Revenue Growth Payout
ROCE Payout
Average
2013 - Actual
3rd
4th
2nd
$
22.50

$
28.75

$
25.63

2014 - Actual
2nd
4th
2nd
$
33.75

$
28.75

$
31.25

2015 - Actual
3rd
4th
4th
$
22.50

$
11.25

$
16.88

3 Year - Actual
3rd
4th
4th
$
22.50

$
11.25

$
16.88

 
 
 
 
Value Per Unit:
 
$
90.63


2014-2016 Performance Unit Awards (Settled in Stock)

Performance unit awards granted to the Senior Executives for the 2014-2016 performance period will be settled in shares of our Common Stock rather than in cash. The financial metrics for these awards continues to be revenue growth, absolute ROCE and change in ROCE compared to the peer group and the performance continues to be measured over three one-year periods and one three-year period. The calculations are determined in the same manner as described above for the 2013-2015 performance period, although the Revenue Growth Matrix applies percentages by Peer Group Rank (rather than dollar values) at 0%, 45%, 90%, 135% and 200%.

The 2014 performance unit awards introduced relative total shareholder return (TSR) as a performance modifier. As set forth in the chart below, the TSR modifier adjusts the final award value upwards or downwards based on the Company’s relative TSR at the end of the three-year performance period against the companies in the OSX Index. Although the maximum number of shares an executive may receive is capped at 2X target, the value of the awards will track our Common Stock price which may provide additional compensatory leverage under the awards.
TSR Modifier
(Performance Measured over Three Years)
TSR Percentile Rank
Payout Multiple
Less than 25th Percentile
(30
)%
25th Percentile
(15
)%
50th Percentile
 %
75th Percentile or Greater
30
 %

Example payout for illustrative purposes of the 2014-2016 Performance Unit Awards

Assume a Senior Executive received 7,200 performance units (settled in stock) and the Company had the performance indicated in the table below. (Please note that the rankings and unit values for 2014 and 2015 are based on actual results, whereas the rankings and unit values for 2016 and the three-year period are examples only). Now, assume the Company’s relative TSR performance position is at the 75th percentile compared to the companies in the OSX Index, resulting in a +30% TSR modifier. Based on the share and TSR modifiers, the final shares awarded to the Senior Executive at the end of the Performance Period would be 10,296 shares.
 
Relative Performance Rank
 
Preliminary Unit Values
Period
Rev. Growth Rank
ROCE Rank (Absolute)
ROCE Rank (Improvement)
 
Rev. Growth Payout %
ROCE Payout %
Period Payout %
2014 (Actual)
2nd
4th
2nd
 
135.0
%
115.0
%
125.0
%
2015 (Actual)
3rd
4th
4th
 
90.0
%
45.0
%
67.5
%
2016 (Example)
1st
4th
3rd
 
200.0
%
80.0
%
140.0
%
3-Year (Example)
3rd
3rd
2nd
 
90.0
%
125.0
%
107.5
%
 
 
 
(4-period avg.)
 
110.0
%
Based on the attained results and TSR Modifier the final number of shares to be granted would be calculated as follows: 7,200 shares X 110% X 130% = 10,296 shares

30



Certain Tax Implications of Short-Term Incentives and Long-Term Incentives

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) generally 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 PEO and the other NEOs other than the PFO unless the compensation is performance-based compensation as described in Section 162(m) of the Code and the related regulations. We generally intend that certain compensation paid to Senior Executives should qualify for deductibility as performance-based compensation under Section 162(m), including (i) certain amounts paid under our AICP and (ii) certain options and certain other long-term performance-based stock or cash awards granted pursuant to the Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan (the "2002 D&O Plan"). We may pay compensation to our Senior Executives that may not be deductible, including discretionary bonuses, bonuses under the AICPE or other types of compensation.

There are circumstances where the Company's interests are best served by maintaining flexibility in the manner in which compensation is provided, even if it might result in the non-deductibility of certain compensation under the Code. As the short-term incentive payouts were guaranteed at target level for 2015, these short-term incentive payouts for the PEO and NEO's are not deductible as performance-based compensation under Section 162(m) of the Code.

Although equity awards may be deductible for tax purposes by the Company, the accounting rules pursuant to FASB ASC Topic 718 require that the portion of the tax benefit in excess of the financial compensation cost be recorded to additional paid-in capital.

Employee Benefits
 
We offer a variety of health and welfare and retirement programs to all eligible employees. The Senior Executives generally are eligible for the same broad-based benefit programs on the same basis as the rest of the employees who work in the United States. Programs that provide a different level of benefits for Senior Executives are noted in the descriptions below, including long-term disability, life insurance, the Executive Severance Plan, the Supplemental Retirement Plan (the "SRP") and Financial Counseling. We routinely benchmark our benefits programs against the competitive market and make modifications as appropriate.

The following is a description of these programs and benefits for 2015.

Health Care

The health care program provides medical, prescription drug, dental and vision coverage for employee and eligible covered dependents as well as flexible spending accounts which allow employees to save pre-tax dollars for eligible health care and/or dependent day care expenses. A health savings account is offered to employees participating in the high deductible health plan. Preventive services, including physical exams, are covered at 100% for all employees. Employees have access to continued medical coverage in retirement (pre-65) if they meet the retirement criteria of age 55 with 10 years of service. The retiree pays the full cost of pre-65 coverage. Eligible employees with a Retiree Medical Account balance may use the funds toward the cost of pre-65 or post-65 retiree coverage. Employees who meet defined criteria may be eligible to participate in the Retiree Health Reimbursement Arrangement (the “Retiree HRA”) following age 65. The Retiree HRA is a defined contribution type of retiree medical program under which the Company credits a notional account of an eligible retiree and eligible spouse with an amount determined by the Company each year (generally $1,600 for each eligible retiree and each eligible spouse for 2015 or the amount of a retiree’s accrued retiree medical account, if applicable).

Disability

The short-term disability program provides continuation of 100% of an employee's base pay for weeks 1-6 and 75% for weeks 7-26 if the employee is out due to injury, illness, or pregnancy and unable to work.

The long-term disability program provides continuation of a percentage of the employee’s base pay up to age 65 if the employee has a disability lasting longer than 26 weeks. Disability coverage options include company paid core coverage equal to 50% income replacement or optional buy-up coverage equal to 60% income replacement. Executives, including Senior Executives, receive the buy-up option at no cost.


31



Life Insurance and Accidental Death and Dismemberment

The life insurance and accidental death and dismemberment programs provide financial protection for employees or beneficiaries in the event of death. The Company provides life insurance and accidental death & dismemberment coverage at one times pay (two times pay for Executives). Executives, including Senior Executives, may purchase additional life insurance and accidental death & dismemberment coverage from 1-6 times pay. All employees have the option of purchasing supplemental life insurance, spouse and child life insurance as well as voluntary accidental death & dismemberment insurance. Various limits apply to each program.
    
Business Travel Accident Insurance

The business travel accident insurance program provides financial protection to employees or beneficiaries in the event of accidental death, dismemberment, or paralysis while traveling on Company business in the amount of five times pay up to $3,000,000.

Retirement Plans

The Pension Plan is a hybrid defined benefit retirement plan intended to comply with Section 401(a) of the Code that provides for annual pay credits of 2-4% of the first $265,000 of eligible compensation and interest credits based on the 30-year Treasury rate (with a floor interest rate of 2.4% per annum).

The Thrift Plan is a defined contribution retirement plan intended to comply with Section 401(a) of the Code that provides for an employer match and an age-based contribution of 5% and 2-5%, respectively, of the first $265,000 of eligible compensation.
 
The SRP is a nonqualified defined contribution retirement intended to supplement the retirement benefits of a select group of management and provides for a basic contribution of 5% of the participant’s elective deferral under the SRP and 5% of the sum of the participant’s base compensation, AICP and performance scorecard bonus for the calendar year (whether or not deferred) that exceeds the dollar limit under Section 401(A)(17) of the Code ($265,000 in 2015); the applicable age-based contribution that would have been made under the Thrift Plan but for the participant’s elective deferral under the SRP or the dollar limit under Section 401(A)(17) of the Code; and the applicable age-based contribution that would have been made under the Pension Plan but for the participant’s elective deferral under the SRP or the dollar limit under Section 401(A)(17) of the Code; plus deemed interest credits based upon the rate of earnings on selected notional investment funds.

The amounts of the Thrift Plan and SRP contributions and accruals for 2015 for our NEOs are included in the Summary Compensation Table (under the All Other Compensation column). The changes in values of the Pension Plan actuarial present values of the accumulated benefits of our NEOs are set forth in the Summary Compensation Table (under the Change in Pension Value column).

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (the "ESPP") encourages and enables eligible employees to voluntarily acquire proprietary interests in the Company through the ownership of our Common Stock at a favorable price, thereby aligning their interests with the interests of our stockholders. Employees may contribute 1-10% of base salary after tax up to a maximum contribution of $10,000 per year. The ESPP generally provides for six month offering periods. Employees may purchase our Common Stock at a price of 85% of Fair Market Value of the stock at the beginning or the end of the offering period, whichever is lower.

Executive Severance Plan

The Executive Severance Plan provides assistance to Executives, including Senior Executives, while they seek other employment following involuntary separations from service. Executives are eligible for 6-18 months of base salary based on their positions in the Company; and outplacement services are provided for 12 months (up to a maximum of $10,000 outplacement services in the aggregate).


32



Financial Counseling

In addition to company-wide benefits, our Senior Executives may elect company-paid professional financial planning and tax preparation services through a third party. We believe this service improves their understanding of the compensation and benefits programs offered by the Company and serves to maximize the retention and engagement value of our programs. It also allows them to more fully concentrate on our business success and comply with plan requirements. We do not reimburse executives for taxes paid on income attributable to this benefit.

Change in Control Agreements

We have entered into change in control agreements (“Change in Control Agreements”) with the Senior Executives, as well as certain other Executives. The Change in Control Agreements are described in the Payments Upon a Change in Control section. In 2012, the Compensation Committee adopted a new form of Change in Control Agreement that eliminated excise tax gross-up provisions for new hires.

Indemnification Agreements
 
We entered into an indemnification agreement with each of our directors and Senior Executives. These agreements provide that we indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers, to advance their expenses incurred as a result of a proceeding as to which they may be indemnified and to cover such persons under any directors' and officers' liability insurance policy we choose, in our discretion, to maintain. These indemnification agreements are intended to provide indemnification rights to the fullest extent permitted in the State of Delaware and shall be in addition to any other rights the indemnitee may have under the Company's Restated Certificate of Incorporation, Bylaws and applicable law. We believe these indemnification agreements enhance our ability to attract and retain knowledgeable and experienced Senior Executives and directors.
 
Stock Ownership Policy
 
The Board of Directors, upon the Compensation Committee's recommendation, adopted a Stock Ownership Policy for our Senior Executives to ensure that they have a meaningful economic stake in the Company. The policy is designed to satisfy an individual Senior Executive's need for portfolio diversification, while maintaining management stock ownership at levels intended to be high enough to assure our stockholders of management's commitment to value creation. Senior Executives are required to hold the number of shares valued at a multiple of their base salary, in the amounts listed below:
Chairman/President and Chief Executive Officer
5X Base Salary
Senior Vice Presidents
3X Base Salary
Corporate Vice Presidents reporting to Chief Executive Officer
2X Base Salary
Region Presidents
2X Base Salary
   
A Senior Executive has five years to comply with the ownership requirement starting from the date of appointment to a position noted above. If a Senior Executive is promoted to a position with a higher ownership salary multiple, the Senior Executive will have five years from the date of the change in position to reach the higher expected stock ownership level but he or she still must meet the prior expected stock ownership level within the original five years of the date first appointed to such prior position. For those Senior Executives with the ownership requirements reflected in hiring letters, the date of hire marks the start of the five-year period. Senior Executives who have not met the applicable stock ownership level within the time required are required to hold 75% of the net profit shares acquired through restricted stock vestings or stock option exercises until the ownership levels are met. Deviations from the Stock Ownership Policy may be approved only by the Compensation Committee or the PEO, and then only because of a personal hardship.

The Compensation Committee annually reviews each Senior Executive's compensation and stock ownership levels to determine whether they are appropriate. In 2015, all of the NEOs were in compliance with the Stock Ownership Policy.

33



SUMMARY COMPENSATION TABLE

The following table sets forth the compensation earned by the PEO and other NEOs for services rendered to the Company for the fiscal years ended December 31, 2015, 2014, and 2013.
Name and
Principal Position
Year
Salary
($)
Bonus (1)
($)
Stock
Awards (2)
($)
Option
Awards (3)
($)
Non-Equity
Incentive Plan Compensation (4)
 ($)
Change in Pension Value and Nonqualified Deferred Compensation Earnings (5)
($)
All Other Compensation
($)
 
Total
($)
Martin S. Craighead - Principal Executive Officer
2015
1,250,000

9,569,978

2,144,063

15,279
552,415

(6) 
13,531,734

2014
1,236,538

6,673,788
2,658,109

3,932,503

33,345
447,422

 
14,981,705

2013
1,146,154

2,174,963
2,524,382

3,079,914

12,636
283,673

 
9,221,722

 
 
 
 
 
 
 
 
 
 
 
Kimberly A. Ross - Principal Financial Officer
2015
800,000

3,579,380

832,000

8,439
150,856

(7) 
5,370,674

2014
132,308
600,000

3,567,720

281,357

3,992
13,925

 
4,599,302

 
 
 
 
 
 
 
 
 
 
 
Alan R. Crain - SVP, Chief Legal and Governance Officer
2015
750,000

3,000,023

907,500

17,289
257,305

(8) 
4,932,117

2014
742,192

2,212,321
881,134

1,437,163

53,230
232,906

 
5,558,946

2013
715,346

839,957
974,933

1,284,609

143,956
157,281

 
4,116,082

 
 
 
 
 
 
 
 
 
 
 
Belgacem Chariag - Chief Integration Officer
2015
700,000

2,978,780

784,394

10,083
266,524

(9) 
4,739,781

2014
691,923

2,162,267
716,457

1,381,956

12,100
219,235

 
5,183,938

2013
643,077

1,169,990
694,629

1,069,899

99,101
342,219

 
4,018,915

 
 
 
 
 
 
 
 
 
 
 
Derek Mathieson - Chief Technology and Marketing Officer
2015
640,000

2,240,011

699,819

8,443
184,277

(10) 
3,772,550

2014
634,615

1,664,528
662,989

1,199,488

8,266
166,661

 
4,336,547

2013
595,769

556,490
645,879

1,011,919

8,382
115,179

 
2,933,618


____________
(1)
The annual cash incentive paid to our NEOs is included in the column “Non-Equity Incentive Plan Compensation.” The amount under the Bonus column for Ms. Ross for 2014 includes a sign-on bonus of $60,000 and a bonus of $540,000 relating to the forfeiture of a bonus upon termination from her prior employer.

(2)
The amounts reported for 2015 reflect that the long-term incentive awards granted in 2015 were structured exclusively in the form of restricted stock unit awards. No stock options or performance unit awards were granted in 2015. This change in our traditional long-term incentive compensation design was based on a balance of goals of retaining our talent during the pendency of the Merger and aligning the interests of our NEOs with the interests of our stockholders by utilizing stock-based award incentives. The amount reflected in the "Stock Awards" column is the aggregate grant date fair value of $57.26 for the restricted stock unit awards granted to the NEOs on January 21, 2015, computed in accordance with ASC Topic 718. For a discussion of valuation assumptions, see “Note 6 - Stock-Based Compensation” of the Notes to Consolidated Financial Statements included in our Annual Report under Item 8 of the Form 10-K/A for the year ended December 31, 2015.

(3)
The amount reflected in the "Option Awards" column is the aggregate grant date fair value of the awards made to NEOs, computed in accordance with ASC Topic 718. The fair value of each grant is established on the date of grant using the Black-Scholes option-pricing model. The value ultimately realized by the executive upon the actual vesting of the exercise of the stock option(s) may or may not be equal to the FASB ASC Topic 718 determined value. For a discussion of valuation assumptions, see “Note 6 - Stock-Based Compensation” of the Notes to Consolidated Financial Statements included in our Annual Report under Item 8 of the Form 10-K/A for the year ended December 31, 2015.

(4)
As previously stated, for retention purposes and within the parameters of the Merger Agreement, the Compensation Committee guaranteed at least a target level bonus for all bonus-eligible employees (including Senior Executives) who remained with the Company through the earlier of the close of the Merger or March 2016. The amounts for the 2015 fiscal year include: (i) annual incentive plan bonuses earned under the AICPE and paid at target for Mr. Craighead, Ms. Ross, and Messrs. Crain, Chariag, Mathieson in the amounts of $900,000, $480,000, $360,000, $336,000 and $307,200, respectively, (ii) cash-based awards based on performance scorecard goals for Mr. Craighead, Ms. Ross and Messrs. Crain, Chariag, Mathieson in the amounts of $510,000, $352,000, $264,000, $246,400 and $204,800, respectively, and (iii) payouts earned under the performance units settled in cash which were granted in 2013 to Messrs. Craighead, Crain, Chariag, and Mathieson in the amounts of $734,063, $283,500, $201,994 and $187,819, respectively.


34



The amounts listed in 2014 and 2013 for non-equity incentive plan compensation have been updated to reflect the correct amounts earned under the performance units granted in 2013, which were incorrectly listed in the Company's 2014 and 2015 proxy statements due to an administrative error. The payouts earned under the performance units granted in 2013 for Messrs. Craighead, Crain, Chariag and Mathieson were $557,453, $215,292, $153,396 and $142,631, respectively, for 2013 and $679,688, $262,500, $187,031, and $173,906, respectively for 2014.

(5)
This amount reflects the change in the present values of the NEOs’ accumulated benefits under the Baker Hughes Incorporated Pension Plan as well as above-market earnings on SRP or International Retirement Plan ("IRP") accounts. Certain NEOs had above-market earnings on their SRP or IRP accounts. The above-market earnings were the actual earnings deemed credited to the SRP or IRP accounts minus 120% of the long-term AFR, compounded monthly (3.16%, 4.11%, and 2.74% for 2015, 2014 and 2013, respectively). Mr. Craighead’s above-market earnings on his SRP accounts were $0, $17,652, and $0 for 2015, 2014, and 2013, respectively. Ms. Ross’ above-market earnings on her SRP accounts were $0 for 2015. Mr. Crain’s above-market earnings on his SRP accounts were $0, $35,209, and $130,976 for 2015, 2014, and 2013, respectively. Mr. Chariag's above-market earnings on his IRP and SRP accounts were $0, $2,862 and $99,101 for 2015, 2014, and 2013, respectively. Mr. Mathieson’s above-market earnings on his SRP accounts were $0 for 2015, 2014, and 2013, respectively.

(6)
Amount for 2015 includes (i) $483,246 that the Company contributed to Mr. Craighead's SRP account, (ii) $22,355 in dividends earned on unvested restricted stock, (iii) $6,867 in life and disability insurance premiums paid by the Company on behalf of Mr. Craighead, (iv) $24,947 in employer matching and employer base contributions that the Company contributed to the Thrift Plan on behalf of Mr. Craighead; and (v) $15,000 for financial counseling.

(7)
Amount for 2015 includes (i) $103,194 that the Company contributed to Ms. Ross’ SRP account, (ii) $14,960 in dividends earned on unvested restricted stock, (iii) $5,245 in life and disability insurance premiums paid by the Company on behalf of Ms. Ross; (iv) $22,525 in employer matching and employer base contributions that the Company contributed to the Thrift Plan on behalf of Ms. Ross; and (v) $4,932 for financial counseling.

(8)
Amount for 2015 includes (i) $202,756 that the Company contributed to Mr. Crain's SRP account; (ii) $8,007 in dividends earned on unvested restricted stock; (iii) $5,042 in life and disability insurance premiums paid by the Company on behalf of Mr. Crain; (iv) $26,500 in employer matching and employer base contributions that the Company contributed to the Thrift Plan on behalf of Mr. Crain; and (v) $15,000 for financial counseling.

(9)
Amount for 2015 includes (i) $185,632 that the Company contributed to Mr. Chariag's SRP account; (ii) $37,203 in dividends earned on unvested restricted stock; (iii) $4,839 in life and disability insurance premiums paid by the Company on behalf of Mr. Chariag; (iv) $23,850 in employer matching and employer base contributions that the Company contributed to the Thrift Plan on behalf of Mr. Chariag; and (v) $15,000 for financial counseling.

(10)
Amount for 2015 includes (i) $137,835 that the Company contributed to Mr. Mathieson's SRP account; (ii) $5,646 in dividends earned on unvested restricted stock; (iii) $4,596 in life and disability insurance premiums paid by the Company on behalf of Mr. Mathieson; (iv) $21,200 in employer matching and employer base contributions that the Company contributed to the Thrift Plan on behalf of Mr. Mathieson; and (v) $15,000 for financial counseling.



35



GRANTS OF PLAN-BASED AWARDS

This table discloses the number of restricted stock unit awards granted during 2015 and the grant date fair value of these awards. It also captures potential future payouts under the Company's non-equity incentive plan.
 
 
Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)
All Other Stock Awards: Number of Shares of Stock or Units (2)
(#)
Closing Market Price on Date of Grant
($/Sh)
Grant Date Fair Value of Stock and Option Awards
($)
Name
Grant Date
Target
($)
Maximum
($)
Martin S. Craighead
1/21/15
 
 
167,132
57.26
9,569,978
N/A
1,500,000
3,300,000
 
 
 
Kimberly A. Ross
1/21/15
 
 
62,511
57.26
3,579,380
N/A
800,000
1,760,000
 
 
 
Alan R. Crain
1/21/15
 
 
52,393
57.26
3,000,023
N/A
600,000
1,320,000
 
 
 
Belgacem Chariag
1/21/15
 
 
52,022
57.26
2,978,780
N/A
560,000
1,232,000
 
 
 
Derek Mathieson
1/21/15
 
 
39,120
57.26
2,240,011
N/A
512,000
1,126,400
 
 
 
________
(1)
Amounts represent potential payouts for the fiscal year 2015 performance year under the AICPE, as well as potential payouts for bonuses based on the Performance Scorecard. In February 2015, the Compensation Committee approved payouts at the target level as the minimum payout for the short-term incentive bonuses for fiscal year 2015.

(2)
Amounts shown represent the number of restricted stock units granted under the 2002 D&O Plan in 2015. Awards vest pro-rata over a three-year period beginning on the first anniversary of the grant date. Dividends are accrued throughout the year on restricted stock units and paid out once the unit vests. The dividend rate is determined by the Board of Directors on a quarterly basis.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table shows outstanding stock option awards classified as exercisable and unexercisable as of December 31, 2015 for the PEO and each NEO. The table also shows unvested and unearned stock awards assuming a market value of $46.15 per share (the closing market price of the Company's stock on December 31, 2015).
 
Option Awards
 
Stock Awards
Name
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
Option
Exercise
Price (1)
($)
Option
Expiration
Date (2)
 
Number of Shares or Units of Stock that have Not Vested (3)
(#)
Market Value of Shares of Units of Stock that Have Not Vested
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (4)
(#)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
Martin S. Craighead
23,089

46,178

72.70

7/14/2024
 
 
218,952

10,104,635

46,007

2,123,223

29,574

59,149

56.73

1/22/2024
 
 
 
 
 
 
59,377

29,689

47.75

7/24/2023
 
 
 
 
 
 
62,688

31,345

45.21

1/24/2023
 
 
 
 
 
 
88,980


39.30

7/16/2022
 
 
 
 
 
 
73,696


47.44

1/25/2022
 
 
 
 
 
 
22,300


77.00

7/19/2021
 
 
 
 
 
 
27,600


62.32

1/26/2021
 
 
 
 
 
 
27,500


49.17

7/21/2020
 
 
 
 
 
 
2,115


47.28

1/19/2020
 
 
 
 
 
 
3,427


29.18

1/21/2019
 
 
 
 
 

36



 
9,716


77.20

8/11/2018
 
 
 
 
 
 
10,674


69.92

1/23/2018
 
 
 
 
 
 
9,801


82.28

7/25/2017
 
 
 
 
 
 
3,400


67.16

3/30/2017
 
 
 
 
 
 
4,391


68.54

1/24/2017
 
 
 
 
 
 
4,133


80.73

7/27/2016
 
 
 
 
 
 
3,543


75.06

1/25/2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kimberly A. Ross




 
 
78,511

3,623,283

36,000

1,661,400

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alan R. Crain
7,653

15,308

72.70

7/14/2024
 
70,448

3,251,175

15,251

703,834

 
9,803

19,608

56.73

1/22/2024
 
 
 
 
 
 
22,932

11,466

47.75

7/24/2023
 
 
 
 
 
 
24,210

12,106

45.21

1/24/2023
 
 
 
 
 
 
28,583


39.30

7/16/2022
 
 
 
 
 
 
23,673


47.44

1/25/2022
 
 
 
 
 
 
12,500


77.00

7/19/2021
 
 
 
 
 
 
1,604


62.32

1/26/2021
 
 
 
 
 
 
14,600


49.17

7/21/2020
 
 
 
 
 
 
10,134


47.28

1/19/2020
 
 
 
 
 
 
7,982


39.52

7/22/2019
 
 
 
 
 
 
8,158


29.18

1/21/2019
 
 
 
 
 
 
9,824


77.20

8/11/2018
 
 
 
 
 
 
10,793


69.92

1/23/2018
 
 
 
 
 
 
11,471


82.28

7/25/2017
 
 
 
 
 
 
9,461


68.54

1/24/2017
 
 
 
 
 
 
13,500


80.73

7/27/2016
 
 
 
 
 
 
10,500


75.06

1/25/2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Belgacem Chariag
6,223

12,447

72.70

7/14/2024
 
74,414

3,434,206

12,400

572,260

7,971

15,943

56.73

1/22/2024
 
 
 
 
 
 
16,338

8,170

47.75

7/24/2023
 
 
 
 
 
 
17,250

8,625

45.21

1/24/2023
 
 
 
 
 
 
18,208


39.30

7/16/2022
 
 
 
 
 
 
22,619


47.44

1/25/2022
 
 
 
 
 
 
7,500


77.00

7/19/2021
 
 
 
 
 
 
9,300


62.32

1/26/2021
 
 
 
 
 
 
11,600


49.17

7/21/2020
 
 
 
 
 
 
12,000


47.28

1/19/2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derek Mathieson
5,759

11,518

72.70

7/14/2024
 
52,148

2,406,630

11,475

529,571


14,753

56.73

1/22/2024
 
 
 
 
 
 
7,596

7,596

47.75

7/24/2023
 
 
 
 
 
 

8,020

45.21

1/24/2023
 
 
 
 
 
 
8,465


39.30

7/16/2022
 
 
 
 
 
 
9,900


77.00

7/19/2021
 
 
 
 
 
 
12,200


62.32

1/26/2021
 
 
 
 
 
_________
(1)
The exercise price is equal to the closing market price of a share of our Common Stock on the last trading day prior to the grant date.    

(2)
Each option grant has a ten-year term. Each option generally vests pro rata as to one-third of the option grant beginning on the first anniversary of grant date.

(3)
Each restricted stock award generally vests either pro rata as to one-third of the grant beginning on the first anniversary of grant date or cliff vests on the third anniversary of the grant date.

(4)
The amount payable under each performance unit award settled in stock is delivered in shares of our Common Stock at the end of a three-year period beginning with the fiscal year of the grant.

37



OPTION EXERCISES AND STOCK VESTED

The following table sets forth certain information regarding options and stock awards exercised and vested during 2015 for the NEOs.
Name
Option Awards
Stock Awards
Number of Shares Acquired on Exercise
(#)
Value Realized on Exercise (1) 
($)
Number of Shares Acquired on Vesting
(#)
Value Realized on Vesting (2)
($)
Martin S. Craighead


47,629

2,780,281

Kimberly A. Ross


8,000

435,280

Alan R. Crain
2,347

29,971

16,526

964,703

Belgacem Chariag


22,774

1,320,298

Derek Mathieson
81,886

1,777,291

27,476

1,604,286

____________

(1)
The value realized upon the exercise of the option award is determined by multiplying the number of shares acquired on exercise by the difference between the market price of the stock at exercise and the exercise price of the option.

(2)
The value realized upon the vesting of the stock awards is determined by multiplying the number of shares of stock by the closing price of the stock on the last trading date prior to the vesting date.


PENSION BENEFITS

The following table discloses the years of credited service of, present single-sum value of the accrued benefits for, and payments during the last fiscal year to each of the PEO and other NEOs under the Pension Plan. See “Compensation Discussion & Analysis, Employee Benefits, Retirement Plans” for a detailed description of the benefits provided under the Pension Plan.
Name
Plan Name
Number of Years Credited Service (1)
  (#)
Present Value of Accumulated Benefit (2)
($)
Payments During Last Fiscal Year
($)
Martin S. Craighead
Pension Plan
14

141,350

Kimberly A. Ross
Pension Plan
1

12,431

Alan R. Crain
Pension Plan
14

171,622

Belgacem Chariag
Pension Plan
6

19,322

Derek Mathieson
Pension Plan
7

48,011

____________

(1)
The number of years of credited service is less than the actual years of service for Messrs. Craighead and Crain because the Pension Plan was not adopted until 2002. Messrs. Craighead and Crain are eligible for early retirement (as that term is defined under the Pension Plan) which allows them to receive their plan benefits on their early retirement dates rather than waiting until the normal retirement age of 65.

(2)
For a discussion of valuation assumptions, see “Note 13 - Employee Benefit Plans” of the Notes to Consolidated Financial Statements included in our Annual Report under Item 8 of the Form 10-K/A for the year ended December 31, 2015.






38



NONQUALIFIED DEFERRED COMPENSATION

The following table discloses contributions, earnings and balances to each of the PEO and other NEOs under the SRP that provides for compensation deferral on a non-tax-qualified basis. See “Compensation Discussion & Analysis, Employee Benefits, Retirement Plans” for a detailed description of the deferred compensation benefits.

Name
Executive Contributions in Last FY (1)
($)
Registrant Contributions in Last FY (2)
($)
Aggregate Earnings in Last FY
($)
Aggregate Withdrawals/Distributions
 ($)
Aggregate Balance at Last FYE
($)
Martin S. Craighead
451,704

483,246
(30,495
)

4,204,394
Kimberly A. Ross

103,194
(35
)

103,159
Alan R. Crain
45,000

202,756
(28,062
)

2,905,609
Belgacem Chariag
35,000

185,632
(5,815
)

1,040,548
Derek Mathieson
122,176

137,835
(400
)
(127,532
)
617,018
____________

(1)
Amounts shown in the “Executive Contributions in Last FY” column are also included in the “Salary” and “Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table.

(2)
Amounts shown in the “Registrant Contributions in Last FY” column are also included in the “All Other Compensation” column of the Summary Compensation Table.




39




POTENTIAL PAYMENTS UPON CHANGE IN CONTROL OR TERMINATION

We have entered into Change in Control Agreements with each of the Senior Executives. The agreements are intended to provide for continuity of management in the event of a change of control. The term of each agreement is for a three-year period and automatically extends for an additional two years from the effective date of the agreement unless we have given eighteen months prior notice that the agreement will not be extended.

If the pending Merger with Halliburton is completed, it will constitute a Change in Control of the Company under the Change in Control Agreements. However, for purposes of any long-term incentive awards granted after the date of the Merger Agreement, the term “Change in Control of the Company” does not include the consummation of any of the transactions contemplated by the Merger Agreement except in the event of a termination of employment by the Senior Executive for good reason or by the Company or its successor without cause following the closing of the Merger. At that point, all remaining forfeiture restrictions applicable to then outstanding long-term incentive awards granted after the date of the Merger Agreement would immediately lapse.

Payments in the Event of a Change in Control

If a Change in Control were to have occurred on December 31, 2015, whether or not the Senior Executive incurred a termination of employment in connection with the Change in Control, the Senior Executive would have become entitled to receive the following under the terms of the Change in Control Agreements, the SRP, the AICPE and awards under the 2002 D&O Plan:

all outstanding options to acquire our stock, granted prior to November 16, 2014, would have become fully vested and immediately exercisable;

all outstanding restricted stock awards and restricted stock units granted prior to November 16, 2014 would have become fully vested and non-forfeitable;

a lump-sum cash payment in an amount equal to $100 multiplied by the number of performance units (settled in cash and granted prior to November 16, 2014) specified in the Senior Executive's performance unit award agreement, multiplied by the number of days during the performance period through December 31, 2015, divided by the number of days during the performance period;

shares equal to the number of performance units (settled in shares and granted prior to November 16, 2014) specified in the Senior Executive's performance unit award agreement, multiplied by the number of days during the performance period through December 31, 2015, divided by the number of days during the performance period;

for grandfathered Senior Executives, a lump-sum cash payment (a “gross-up” payment) in an amount equal to the excise taxes that may be imposed under the “golden parachute” rules on payments and benefits received in connection with the Change in Control. The gross-up payment would make the Senior Executive whole for the excise taxes (and for all taxes on the gross-up payment) in respect of payments and benefits received pursuant to all the Company's plans, agreements and arrangements (including for example, acceleration of vesting of equity awards);

accelerated vesting of all the Senior Executive's accounts under the SRP, to the extent not already vested;

reimbursement for any legal fees and expenses incurred by the Senior Executive in seeking in good faith to enforce the Change in Control Agreement or in connection with any tax audit or proceeding relating to the application of parachute payment excise taxes to any payment or benefit under the Change in Control Agreement; and

an amount equal to his/her annual incentive bonus computed as if the target level of performance had been achieved, multiplied by a fraction, the numerator of which is the number of the Senior Executive's months of participation during the calendar year through the date of Change in Control, and the denominator of which is 12.

40




In general, “Change in Control” means

the individuals who are incumbent directors cease for any reason to constitute a majority of the members of our Board of Directors;

the consummation of a merger of us or our affiliate with another entity, such as the pending Merger with Halliburton, unless the individuals and entities who were the beneficial owners of our voting securities outstanding immediately prior to such merger own, directly or indirectly, at least 50% of the combined voting power of our voting securities, the surviving entity or the parent of the surviving entity outstanding immediately after such merger;

any person, other than us, our affiliate or another specified owner (as defined in the Change in Control Agreements), becomes a beneficial owner, directly or indirectly, of our securities representing 30% or more of the combined voting power of our then outstanding voting securities;

a sale, transfer, lease or other disposition of all or substantially all of our assets (as defined in the Change in Control Agreements) is consummated (an “asset sale”), unless (i) the individuals and entities who were the beneficial owners of our voting securities immediately prior to such asset sale own, directly or indirectly, 50% or more of the combined voting power of the voting securities of the entity that acquires such assets in such asset sale or its parent immediately after such asset sale in substantially the same proportions as their ownership of our voting securities immediately prior to such asset sale or (ii) the individuals who comprise our Board of Directors immediately prior to such asset sale constitute a majority of the board of directors or other governing body of either the entity that acquired such assets in such asset sale or its parent (or a majority plus one member where such board or other governing body is comprised of an odd number of directors); or

our stockholders approve a plan of complete liquidation or dissolution of us.                

Payments in the Event of a Change in Control and Termination of Employment by the Senior Executive for Good Reason or by the Company or its Successor Without Cause

Pursuant to the Change in Control Agreements, the Company (or its successor) will pay severance benefits to a Senior Executive if the Senior Executive's employment is terminated following, or in connection with, a Change in Control, unless: (i) the Senior Executive resigns without good reason; (ii) the Company terminated the employment of the Senior Executive for cause; or (iii) the employment of the Senior Executive is terminated by reason of death or disability.

If a Senior Executive had met the criteria for payment of severance benefits due to the occurrence of an involuntary termination of employment and a Change of Control on December 31, 2015, the Senior Executive would have become entitled to receive the following benefits in addition to the benefits described above under “Payments in the Event of a Change in Control":

a lump-sum payment equal to three times the Senior Executive's highest base salary (as defined in the Change of Control Agreement);

a lump-sum payment equal to the Senior Executive's highest bonus amount (as defined in the Change of Control Agreement), prorated based upon the number of days of his/her service during the performance period (reduced by any payments received by the Senior Executive under the Company's annual incentive bonus, in connection with the Change in Control if the Senior Executive's termination of employment occurs during the same calendar year in which the Change in Control occurs);

a lump-sum payment equal to three times the greater of (i) the Senior Executive's earned highest bonus amount or (ii) the Senior Executive's highest base salary multiplied by the Senior Executive's applicable multiple, which, as of December 31, 2015, was 1.2 for Messrs. Craighead, Crain and Mathieson, 1.0 for Ms. Ross and .80 for Mr. Chariag;


41



all outstanding restricted stock awards and restricted stock units granted on or after November 16, 2014 would have become fully vested and non-forfeitable;

continuation of accident and health insurance benefits for an additional three years;

a lump-sum payment equal to the sum of (i) the cost of the Senior Executive's perquisites in effect prior to his/her termination of employment for the remainder of the calendar year and (ii) the cost of the Senior Executive's perquisites in effect prior to his/her termination of employment for an additional three years;

a lump-sum payment equal to the undiscounted value of the benefits the Senior Executive would have received had the Senior Executive continued to participate in the Thrift Plan, the Pension Plan and the SRP for an additional three years, assuming for this purpose that:

(1)
the Senior Executive's compensation during that three-year period were his/her highest base salary and highest bonus amount; and
(2)
the Senior Executive's contributions to and accruals under those plans remained at the levels in effect as of the date of the Change in Control or the date of termination, whichever is greater;
eligibility for our retiree medical program if the Senior Executive would have become entitled to participate in that program had he/she remained employed for an additional three years. The value of this benefit is the aggregate value of the medical coverage utilizing the assumptions applied under FASB ASC Topic 715, Compensation-Retirement Benefits;

a lump-sum payment equivalent to 36 multiplied by the monthly basic life insurance premium applicable to the Senior Executive's basic life insurance coverage on the date of termination;

a lump-sum payment of $30,000 for outplacement services; and

a lump-sum payment equal to the amount of interest that would be earned on any of the foregoing payments subject to a six-month payment delay under Section 409A using the six-month London Interbank Offered Rate plus two percentage points, excluding Mr. Chariag.
 
Payments Upon Death or Disability

If the Senior Executive had terminated employment with us on December 31, 2015 due to death or disability, the Senior Executive would have received the following:

all outstanding restricted stock awards granted by us would have become fully vested and non-forfeitable;

all outstanding stock options granted by us would have become fully vested and exercisable;

a lump-sum cash payment in an amount equal to $100 multiplied by the number of performance units (settled in cash) specified in the Senior Executive's performance unit award agreement, multiplied by the number of days during the performance period through December 31, 2015, divided by the number of days during the performance period;

shares equal to the number of performance units (settled in shares) specified in the Senior Executive's performance unit award agreement, multiplied by the number of days during the performance period through December 31, 2015, divided by the number of days during the performance period;

accelerated vesting of all the Senior Executive's accounts under the SRP, to the extent not already vested; and

an amount equal to the Senior Executive's earned annual incentive bonus, prorated based upon the number of months of the Senior Executive's participation in the annual incentive bonus during the calendar year.

42




Payments Upon Retirement

If the Senior Executive had terminated employment on December 31, 2015 and met the eligibility requirements for retirement under the 2002 D&O Plan and the annual incentive bonus, the Senior Executive would have received the following benefits:

all outstanding stock options granted by us would have become fully vested and exercisable;

a lump-sum cash payment in an amount equal to the applicable performance unit value multiplied by the number of performance units specified in the Senior Executive's performance unit award agreement, multiplied by the number of days during the performance period through December 31, 2015, divided by the number of days during the performance period;

shares equal to the number of performance units (settled in shares) specified in the Senior Executive's performance unit award agreement, multiplied by the number of days during the performance period through December 31, 2015, divided by the number of days during the performance period;

accelerated vesting of all the Senior Executive's accounts under the SRP, to the extent not already vested; and

an amount equal to the Senior Executive's earned annual incentive bonus bonus, prorated based upon the number of months of the Senior Executive's participation in the annual incentive bonus during the calendar year.

Payments Upon Involuntary Termination of Employment Not In Connection With a Change in Control

The Baker Hughes Executive Severance Plan provides for payment of certain benefits to the Senior Executives as a result of an involuntary termination of employment provided that (i) the executive signs a release agreement substantially similar to the form of release agreement set forth in the Executive Severance Plan, (ii) during the two-year period commencing on the date of termination of employment, the Senior Executive complies with the non-competition and non-solicitation agreements contained in the Executive Severance Plan and (iii) the executive does not disclose our confidential information. Any amounts payable under the Executive Severance Plan are reduced by the amount of any severance payments payable to the Senior Executive by us under any other plan, program or individual contractual arrangement.

If the Senior Executive meets the criteria for payment of severance benefits due to an involuntary termination, we will pay the Senior Executive the following benefits:

a lump-sum cash payment equal to one and one-half times the Senior Executive's annual base salary in effect immediately prior to his/her termination of employment;

outplacement services for a period of 12 months, but not in excess of $10,000; and

if the Senior Executive's termination of employment results from a reduction of employment or the elimination of the Senior Executive's job, an amount equal to the Senior Executive's earned annual incentive bonus, prorated based upon the number of months of the Senior Executive's participation in the annual incentive bonus during the calendar year.

Termination of Employment for Any Reason

If the Senior Executive had terminated employment with us on December 31, 2015 for any reason, including resignation or involuntary termination of employment for cause, the Senior Executive would have been entitled to receive those vested benefits to which the Senior Executive is entitled under the terms of the employee benefit plans in which the Senior Executive is a participant as of the Senior Executive's date of termination of employment. Unless the Senior Executive incurred a termination of employment by us for cause, the Senior Executive would also have been entitled to any vested outstanding stock options.

43




Potential Payments Upon Termination or a Change in Control

The table below assumes a termination date or change in control date of December 31, 2015, the last business day of the fiscal year. The value of equity compensation awards (accelerated vesting of stock options and restricted stock awards/units) is based on the closing price of our common stock of $46.15 on the New York Stock Exchange on December 31, 2015, the last trading date of 2015.
 
Martin S. Craighead
($)
Kimberly A. Ross (1)
($)
Alan R. Crain
($)
Belgacem Chariag
($)
Derek Mathieson
($)
Payments Upon a Change in Control Without Termination of Employment
 
 
 
 
 
Accelerated Vesting of Option Awards (2)
29,464


11,380

8,108

7,539

Accelerated Vesting of Restricted Stock Awards (3)
2,438,728

738,400

848,896

1,059,496

613,023

Payment in Settlement of Performance Unit Awards Settled in Cash
2,175,000


840,000

598,500

556,500

Payment in Settlement of Performance Unit Awards Settled in Shares
1,414,191

1,106,589

468,794

381,159

352,725

SRP Vesting

62,355




Excise Tax Gross-Up





Annual Incentive Bonus
900,000

480,000

360,000

336,000

307,200

TOTAL
6,957,383

2,387,344

2,529,070

2,383,263

1,836,987

Payments in the Event of a Change in Control and Termination of Employment With Good Reason or by the Company Without Cause
 
 
 
 
 
Accelerated Vesting of Option Awards (2)
29,464


11,380

8,108

7,539

Accelerated Vesting of Restricted Stock Awards
10,265,519

3,665,790

3,302,460

3,495,686

2,445,013

Payment in Settlement of Performance Unit Awards Settled in Cash
2,175,000


840,000

598,500

556,500

Payment in Settlement of Performance Unit Awards Settled in Shares
1,414,191

1,106,589

468,794

381,159

352,725

Excise Tax Gross-Up
7,123,391


3,215,076

2,591,827

2,765,135

Severance Payment
9,188,665

4,800,000

4,950,000

3,780,000

4,224,000

Highest Bonus Amount Prorated
1,812,888

821,356

776,454

560,000

626,116

Continuation of Accident and Health Insurance Benefits
69,366

53,753

68,498

63,282

62,551

Perquisite Payment
68,414


61,659

50,400

50,400

Payment for Loss of Thrift Plan, SRP and Pension Plan Accruals
1,251,259

632,378

654,699

499,393

460,054

Life Insurance Premium Payment
13,046

8,698

8,154

7,610

6,958

SRP Vesting

62,355




Outplacement Services
30,000

30,000

30,000

30,000

30,000

Retiree Medical





Interest Paid for Section 409A Six-Month Delay
161,902


86,442


71,887

TOTAL
33,603,105

11,180,919

14,473,616

12,065,965

11,658,878

Payments upon Death or Disability
 
 
 
 
 
Accelerated Vesting of Option Awards (2)
29,464


11,380

8,108

7,539

Accelerated Vesting of Restricted Stock Awards
10,265,519

3,665,790

3,302,460

3,495,686

2,445,013

Payment in Settlement of Performance Unit Awards Settled in Cash
2,175,000


840,000

598,500

556,500

Payment in Settlement of Performance Unit Awards Settled in Shares
1,414,191

1,106,589

468,794

381,159

352,725

Annual Incentive Bonus (4)
900,000

480,000

360,000

336,000

307,200

TOTAL
14,784,174

5,252,379

4,982,634

4,819,453

3,668,977


44



 
Martin S. Craighead
($)
Kimberly A. Ross
($)
Alan R. Crain
($)
Belgacem Chariag
($)
Derek Mathieson
($)
Payments upon Retirement (2)
 
 
 
 
 
Accelerated Vesting of Option Awards
29,464


11,380



Payment in Settlement of Performance Unit Awards Settled in Cash
2,175,000


840,000



Payment in Settlement of Performance Unit Awards Settled in Shares
1,414,191


468,794



Annual Incentive Bonus
900,000


360,000



TOTAL
4,518,655


1,680,174



Payments Upon Involuntary Termination of Employment Not in Connection with a Change of Control