DEF 14A 1 a2017proxystatement.htm DEF 14A PROXY STATEMENT Document


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.    )

Filed by the Registrant  x               

Filed by a Party other than the Registrant  ¨

Check the appropriate box
¨
 
Preliminary Proxy Statement
 
 
¨
 
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
 
 
x
 
Definitive Proxy Statement
 
 
¨
 
Definitive Additional Materials
 
 
¨
 
Soliciting Material Pursuant to §240.14a-12
 
BAKER HUGHES INCORPORATED
(Name of registrant as specified in its charter)
 
(Name of person(s) filing proxy statement, if other than the registrant)
 
Payment of Filing Fee (Check the appropriate box):
 
 
x
 
No fee required.
 
 
¨
 
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
 
 
 
 
 
(1
)
 
Title of each class of securities to which transaction applies:
 
 
 
 
 
 
 
 
 
(2
)
 
Aggregate number of securities to which transaction applies:
 
 
 
 
 
 
 
 
 
(3
)
 
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
 
 
 
 
 
 
(4
)
 
Proposed maximum aggregate value of transaction:
 
 
 
 
 
 
 
 
 
(5
)
 
Total fee paid:
 
 
 
¨
 
Fee paid previously with preliminary materials.
 
 
¨
 
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
 
 
 
(1)
 
Amount Previously Paid:
 
 
 
 
 
 
 
 
 
(2)
 
Form, Schedule or Registration Statement No.:
 
 
 
 
 
 
 
 
 
(3)
 
Filing Party:
 
 
 
 
 
 
 
 
 
(4)
 
Date Filed:
 
 






BAKER HUGHES INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 27, 2017
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 Auditorium at 2001 Rankin Road, Houston, Texas on Thursday, April 27, 2017, at 9:00 a.m., CDT, 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.
An advisory vote on the frequency of the holding of an advisory vote on executive compensation;

4.
The ratification of Deloitte & Touche LLP as the Company's independent registered public accounting firm for fiscal year 2017;

5.
A stockholder proposal regarding a majority vote standard for all non-binding stockholder proposals; and

6.
Such other business as may properly come before the meeting and any reconvened meeting after an adjournment thereof.

The Board of Directors has fixed March 3, 2017 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,

corpsecretarysignature2017.jpg
M. Lee Whitley
Vice President and Corporate Secretary

Houston, Texas
March 17, 2017

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
Proposal No. 3 Advisory Vote on the Frequency of the Holding of an Advisory Vote on Executive Compensation
Audit/Ethics Committee Report
Fees Paid to Deloitte & Touche LLP
Proposal No. 4 Ratification of the Company's Independent Registered Public Accounting Firm
Proposal No. 5 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
Reconciliation of GAAP Measures to Non-GAAP Measures





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 Thursday, April 27, 2017 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 2016 Annual Report on Form 10-K of the Company (the “Annual Report”) to Stockholders, on the Internet. On or about March 17, 2017, 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 March 17, 2017, 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 March 3, 2017 (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 April 26, 2017. 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 March 3, 2017, 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 April 26, 2017. 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 frequency of ONE YEAR of the holding of an advisory vote on executive compensation, FOR the ratification of Deloitte & Touche LLP as the Company's independent registered public accounting firm for fiscal year 2017 and AGAINST the stockholder proposal regarding a majority vote standard for all non-binding stockholder proposals. If any additional matter should

1



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 17021 Aldine Westfield Road, Houston, Texas 77073. 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, 17021 Aldine Westfield Road, Houston, Texas 77073, +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.

Terminated Merger Agreement with Halliburton
On November 16, 2014, Baker Hughes, Halliburton Company ("Halliburton") and a wholly owned subsidiary of Halliburton, entered into an Agreement and Plan of Merger (the "Halliburton Merger Agreement"), under which Halliburton would acquire all of the outstanding shares of Baker Hughes through a merger of Baker Hughes with and into a wholly owned subsidiary of Halliburton (the "Halliburton Merger"). In accordance with the provisions of Section 9.1 of the Halliburton Merger Agreement, Baker Hughes and Halliburton agreed to terminate the Halliburton Merger Agreement on April 30, 2016, as a result of the failure of the Halliburton Merger to occur on or before April 30, 2016 due to the inability to obtain certain specified antitrust related approvals. Halliburton paid $3.5 billion to Baker Hughes on May 4, 2016, representing the termination fee required to be paid pursuant to the Halliburton Merger Agreement.

General Electric Transaction Agreement and Plan of Merger
On October 30, 2016, Baker Hughes, General Electric Company ("GE"), Bear Newco, Inc. ("Newco"), a Delaware corporation and a direct wholly owned subsidiary of Baker Hughes, and Bear MergerSub, Inc. ("Merger Sub"), a Delaware corporation and a direct wholly owned subsidiary of Newco, entered into a Transaction Agreement and Plan of Merger (the "Transaction Agreement"), pursuant to which, among other things, (i) Merger Sub will merge with and into Baker Hughes, with Baker Hughes as the surviving corporation (the "Surviving Entity") and a direct wholly owned subsidiary of Newco, (ii) each outstanding share of the Baker Hughes' common stock will be converted into the right to receive 1 share of Class A common stock, par value $0.0001 per share, of Newco ("Newco Class A Common Stock'),

2



(iii) Newco will cause the Surviving Entity to be converted into a Delaware limited liability company ("Newco LLC") and Newco will become the sole managing member of Newco LLC, (iv) GE will (A) receive an approximately 62.5% membership interest in Newco LLC in exchange for contributing $7,400,000,000 (less the Class B Purchase Price, as defined below) in cash and GE's oil and gas business ("GE O&G") to Newco LLC, and (B) receive Class B common stock, par value $0.0001 per share, of Newco (the "Newco Class B Common Stock"), representing approximately 62.5% of the voting power of the outstanding shares of common stock of Newco, in exchange for contributing the par value thereof (the "Class B Purchase Price") to Newco and (v) Newco will distribute as a special dividend an amount equal to $17.50 per share to the holders of record of the Newco Class A Common Stock (the "Transactions").
Immediately following the closing of the Transactions (the "Closing"), (i) (A) GE will hold 100% of the Newco Class B Common Stock, which will represent approximately 62.5% of the voting power of the outstanding shares of common stock of Newco, and (B) Baker Hughes' stockholders immediately prior to the Closing will hold 100% of the Newco Class A Common Stock, which will represent approximately 37.5% of the voting power of the outstanding shares of common stock of Newco, (ii) (A) GE will hold an approximately 62.5% membership interest in Newco LLC and (B) Newco will hold an approximately 37.5% membership interest in Newco LLC and (iii) the membership interests in Newco LLC, together with the Newco Class B Common Stock, will be exchangeable on a 1:1 basis for Newco Class A Common Stock, subject to certain adjustments. The rights (including voting rights) of Newco Class A Common Stock and Newco Class B Common Stock are identical; provided that Newco Class B Common Stock has no economic rights. Effective from and following the Closing, Newco and its subsidiaries will operate under the name "Baker Hughes, a GE Company." The Transactions will be voted on at a special separate stockholder meeting to be held at a future date which has not been determined at this time.

Important Notice Regarding the Availability of Proxy Materials for the Annual Stockholder Meeting to be Held on April 27, 2017
This Proxy Statement and the Annual Report and the means to vote by Internet are available on the Internet at www.proxyvote.com.


3


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 425,349,196 shares were issued and outstanding at the close of business on March 3, 2017. 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 advisory vote on the frequency of the holding of an advisory vote on executive compensation
 
The option of one year, two years or three years that receives the most votes will be deemed to have received the advisory approval of our stockholders.
 
No effect on the outcome of the vote
 
Abstentions have no effect on the outcome of the vote

The approval of the ratification of Deloitte & Touche LLP as the Company's independent registered public accounting firm for fiscal year 2017
 
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
 
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 2017. 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), Proposal 3 (the advisory vote on the frequency of the holding of any advisory vote on executive compensation) and Proposal 5 (the stockholder proposal regarding a majority vote standard for all non-binding stockholder proposals).


4



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. 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 former chairman and chief executive officer of a publicly-traded energy company, a 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 2018 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 twelve 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 twelve 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.


5



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.

On January 15, 2017, Mr. Larry D. Brady, whose service was greatly appreciated, passed away after serving for thirteen years on the Board. On January 26, 2017, the Board amended the Company's bylaws to reduce the size of the Board from thirteen members to twelve members.
Nominees
Principal Occupation
Age
Director
Since
 
 
 
 
Gregory D. Brenneman
Executive Chairman 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 PricewaterhouseCoopers, 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.
55
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 Enbridge, Inc. 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. Within the last five years, Mr. Cazalot served on the Board of FMC Technologies.
66
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.
57
2011
 
 
 
 
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 System.





67
2014

6



Nominees
Principal Occupation
Age
Director
Since
 
 
 
 
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 and Flowserve Corporation. She also serves on the Board of the Texas Medical Center, the United Way of Greater Houston, and the First Tee of Greater Houston.
60
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 ABM Industries, Inc., Envirosystems Inc. and Snack it Forward LLC. Within the past five years, he served on the Board of Directors of Cytec Industries and Black & Veatch.
71
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.
74
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 Chairman of Velocys plc. Within the past five years, Dr. Jungels served as a director of Imperial Tobacco Group plc., Woodside Petroleum Ltd. and Rockhopper Exploration plc.
73
2006
 
 
 
 
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.
72
2002
 
 
 
 
J. Larry Nichols
Chairman Emeritus of Devon Energy Corp. (independent energy company) since June 2016. Mr. Nichols served as Executive Chairman of Devon Energy Corp. from June 2010 to 2016, Chairman 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.
74
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 BJ Services Company (venture between Baker Hughes Oilfield Operations, Inc. and Allied Completions Holdings, LLC), Delta SubSea LLC, The Alley Theatre of Houston, a Trustee of the Menil Collection and Chair of the Finance Committee of the Menil Collection.
73
2010

7



Nominees
Principal Occupation
Age
Director
Since
 
 
 
 
Charles L. Watson
Chairman of Twin Eagle Resource Management (energy marketing) since 2010, Chairman and CEO of Advanced Blast Protection Systems 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 (investment) from 2011 to 2014 and as a Senior Advisor to EDF Trading North America LLC (wholesale energy) and Electricite de France (electric utility) during 2008 and Managing Director of Lehman Brothers (financial services) from 2007 to 2008. He was the Founder, Chairman and Chief Executive Officer of Dynegy Inc. (diversified energy) 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.
67
1998

Election and Resignation 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.

DIRECTOR COMPENSATION
Director Fees

During fiscal year 2016, 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 2016, each non-management director received equity in a grant date value 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) the date of the annual meeting of stockholders next following the date of the director's 72nd birthday. In January 2017, the Compensation Committee of the Board of Directors approved a new form of director restricted stock unit award agreement for future grants that amended the vesting date to the earlier of (i) one year from the date of grant, or (ii) the date of the annual meeting of stockholders next following the date of the director's 75th 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

8



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 2016. Messrs. Fernandes and Watson accrue interest on a quarterly basis on previously deferred compensation. In February 2017, Mr. Brady's beneficiary received a lump sum payment of $550,395 for previously accrued 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 five years from the date elected or appointed to the Board. The Governance and HS&E Committee reviews director stock ownership on an annual basis. All non-management directors have met this ownership requirement.

2016 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 2016.
Name
Fees Earned or Paid in Cash
($)
 
Stock Awards (1)
($)
All Other Compensation (2)
($)
Total
 ($)
Larry D. Brady
110,000

 
174,997


284,997

Gregory D. Brenneman
113,750

 
174,997

2,914

291,661

Clarence P. Cazalot, Jr.
112,500

 
174,997

2,914

290,411

William H. Easter III
110,000

 
174,997

2,914

287,911

Lynn L. Elsenhans
120,000

 
174,997

2,914

297,911

Anthony G. Fernandes
120,000

 
174,997

2,914

297,911

Claire W. Gargalli
105,000

 
174,997


279,997

Pierre H. Jungels
110,000

 
174,997

729

285,726

James A. Lash
125,000

 
174,997

729

300,726

J. Larry Nichols
140,000

 
174,997


314,997

James W. Stewart
105,000

 
174,997

729

280,726

Charles L. Watson
105,000

 
174,997

2,914

282,911

____________
(1)
On January 28, 2016, each director received a restricted stock unit award with a grant date value of $175,000, rounded down to the nearest share. The amounts included in the Stock Awards column represent the aggregate grant date fair value of $40.83 per restricted stock unit 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 7 - Stock-Based Compensation” of the Notes to Consolidated Financial Statements included in our Annual Report under Item 8 of the Form 10-K for the year ended December 31, 2016.

(2)
The amount in "All Other Compensation" reflects the dividend equivalents paid or accrued during the year ended December 31, 2016 on unvested restricted stock unit awards.


9



The following table shows the aggregate number of stock awards and option awards outstanding for each director as of December 31, 2016.
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 2016
($)
Larry D. Brady (1)

10,624

174,997

Gregory D. Brenneman
4,286


174,997

Clarence P. Cazalot, Jr.
4,286

10,624

174,997

William H. Easter III
4,286


174,997

Lynn L. Elsenhans
4,286

19,768

174,997

Anthony G. Fernandes
4,286

10,624

174,997

Claire W. Gargalli (1)

10,624

174,997

Pierre H. Jungels (1)

10,624

174,997

James A. Lash (1)

6,953

174,997

J. Larry Nichols (1)

10,624

174,997

James W. Stewart (1)

7,856

174,997

Charles L. Watson
4,286

10,624

174,997


(1)
Per the terms and conditions of the director restricted stock unit awards granted on January 28, 2016, the forfeiture restrictions lapsed on May 24, 2016, which was the date of the annual meeting of stockholders after the 72nd birthday of each of Messrs. Jungels, Lash and Stewart. Messrs. Brady and Nichols and Ms. Gargalli were 73 at the time of grant and their forfeiture restrictions lapsed immediately.

    

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.

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, 2016, the Board of Directors held seventeen meetings. Each director attended more than 75% 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 2016 Annual Meeting.

10




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, 2016
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 (1)
Clarence P. Cazalot, Jr.
Clarence P. Cazalot, Jr.
William H. Easter III
Lynn Elsenhans
Gregory D. Brenneman
William H. Easter III
J. Larry Nichols
Pierre H. Jungels
Anthony G. Fernandes
J. Larry Nichols
Claire W. Gargalli
James W. Stewart
James W. Stewart
James A. Lash
 
Pierre H. Jungels
Charles L. Watson
Charles L. Watson
 
(C) Chair of the referenced Committee.
(1)
On January 15, 2017, Mr. Larry D. Brady passed away after serving for thirteen years on the Board. At this time, we do not anticipate filling Mr. Brady's vacancy on the Audit/Ethics Committee.

Audit/Ethics Committee

The Audit/Ethics Committee held eight meetings during fiscal year 2016. 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.


11



Compensation Committee

The Compensation Committee held eight meetings during fiscal year 2016. The Board of Directors has determined that each of the Compensation Committee members meets 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.

The Compensation Committee is responsible for determining if there are any inherent potential risks in the compensation programs. The Committee exercises 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 2016, 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 three meetings during fiscal year 2016. 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

12



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; (v) communicates with significant stockholders when appropriate on matters involving broad corporate policies and practices; and (vi) ensures effective functioning of Board committees. 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 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 October 26, 2016, the Board of Directors increased the director retirement age from 72 to 75. 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 Transaction with General Electric.

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 2018 Annual Meeting of Stockholders should be submitted between October 10, 2017 and November 9, 2017 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, 17021 Aldine Westfield Road, Houston, Texas, 77073. 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."

13




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, 17021 Aldine Westfield Road, Houston, Texas, 77073. 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.

STOCK OWNERSHIP

Stock Ownership of Certain Beneficial Owners

The following table sets forth information about the holders of the Common Stock known to the Company on March 3, 2017 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
FMR LLC (1) 
245 Summer Street
Boston, MA 02210
34,344,008
8.1%
BlackRock Inc. (2)
55 East 52nd Street
New York, NY 10055
32,746,185
7.7%
ValueAct Capital (3)                         
One Letterman Drive, Building D, Fourth Floor
San Francisco, CA 94129
29,886,200
7.0%
The Vanguard Group (4)
100 Vanguard Blvd.
Malvern, PA 19355
28,084,478
6.6%
Dodge & Cox (5) 
555 California Street, 40th Floor
San Francisco, CA 94104
25,677,863
6.1%
State Street Corporation (6)
One Lincoln Street
Boston, MA 02111
22,332,987
5.3%
Capital World Investors (7)
333 South Hope Street
Los Angeles, CA 90071
21,251,155
5.0%
_________
(1)
FMR LLC has sole voting power over 1,973,265 shares and sole dispositive power over 34,344,008 shares.
(2)
BlackRock Inc. has sole voting power over 27,816,941 shares and sole dispositive power over 32,746,182 shares.
(3)
ValueAct Capital shares voting and dispositive power over 29,886,200 shares with other affiliated ValueAct entities.
(4)
The Vanguard Group has sole voting power over 667,314 shares and sole dispositive power over 27,337,089 shares.
(5)
Dodge & Cox has sole voting power over 24,153,247 shares and sole dispositive power over 25,677,863 shares.
(6)
State Street Corporation has sole voting power over 0 shares and sole dispositive power over 0 shares.
(7)
Capital World Investors has sole voting power over 21,251,155 shares and sole dispositive power over 21,251,155 shares.







14



Stock Ownership of Section 16(a) Directors and Executive Officers

Set forth below is certain information with respect to beneficial ownership of the Common Stock as of March 3, 2017 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 March 3, 2017.
Shares Beneficially Owned
Name
Shares Owned as of
March 3, 2017
Shares Subject to Options and Restricted Stock Units Which Are or Will Become Exercisable or Vested Prior to May 2, 2017

Total Beneficial Ownership as of March 3, 2017
% of Class (1)
Gregory D. Brenneman
93,711


93,711


Clarence P. Cazalot, Jr.
36,447

10,260

46,707


William H. Easter III
9,711


9,711


Lynn L. Elsenhans
15,238

19,768

35,006


Anthony G. Fernandes
49,190

10,260

59,450


Claire W. Gargalli
29,016

10,260

39,276


Pierre H. Jungels
24,080

10,260

34,340


James A. Lash
12,757

6,589

19,346


J. Larry Nichols
39,813

10,260

50,073


James W. Stewart (2)
259,235

7,856

267,091


Charles L. Watson
35,647

10,260

45,907


Martin S. Craighead
279,860

597,209

877,069


Kimberly A. Ross
83,917


83,917


Belgacem Chariag
101,653

167,970

269,623


Arthur L. Soucy
43,680

145,707

189,387


Derek Mathieson
47,015

80,048

127,063


Alan R. Crain
101,586

254,754

356,340


All directors and executive officers as a group (23 persons)
1,345,717

1,493,887

2,839,604


__________
(1)
No percent of class is shown for holdings of less than 1%.
(2)
Mr. Stewart holds 16,416 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, 2016.

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.

15




CHARITABLE CONTRIBUTIONS

During the fiscal year ended December 31, 2016, 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 PARTY 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.

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 provided 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 was a month-to-month agreement for the transloading and storage of proppant sands and had an indeterminable value. The Company did not make any payments to TESL in 2016 under the 2016 Storage Agreement and sent notice to terminate the 2016 Storage Agreement to TESL on February 13, 2017. The policies and procedures described above were followed in connection with the transactions contemplated by the Storage Agreement and the 2016 Storage Agreement.

On December 30, 2016, we announced the closing of the transactions contemplated by the Contribution Agreement among Baker Hughes Oilfield Operations, Inc. (“BHOO”), a wholly owned subsidiary of the Company; Allied Completions Holdings, LLC (“Partner”), a portfolio company of CSL Capital Management, LLC; BJ Services, LLC (“BJ Services”), a wholly owned subsidiary of the Company; and, for the purposes of certain provisions of the Contribution Agreement (as defined below), Allied Energy JV Contribution, LLC (“Investor JV”), an affiliate of CSL Capital Management, LLC and West Street Energy Partners (a fund managed by the Merchant Banking Division of Goldman, Sachs & Co.) (the “Contribution Agreement”). Pursuant to the Contribution Agreement, (i) BHOO contributed its onshore pressure pumping business in the United States and Canada, including cementing, stimulation, hydraulic fracturing and acidizing

16



services and coiled tubing assets, to BJ Services, (ii) Partner contributed cash and Partner’s pressure pumping services (cementing, fracturing and acidizing) business (which is located in the United States) to BJ Services, (iii) BJ Services received a cash contribution from Investor JV (of which it retained $175 million), and (iv) BHOO and its affiliates received $150 million in cash. Immediately following the closing, BHOO and a BHOO affiliate held, in the aggregate, 46.69% of the outstanding membership interests of BJ Services and Investor JV held 53.31% of the outstanding membership interests of BJ Services.

Mr. Stewart and his son operate a partnership, the Longfellow Group, which has passive investments in CSL Energy Opportunities Fund II and CSL Completions Co-Invest Fund. Both investments are less than 1% of the investment commitments to the funds. During the Company's negotiations with Partner, Mr. Stewart recused himself from all Board discussions on the divestiture of the North America land pressure pumping business and did not vote on the approval of the Contribution Agreement with Partner. On January 19, 2017, Mr. Stewart was appointed to the board of directors of BJ Services Company as an appointee of Partner. Prior to Mr. Stewart's appointment, our Board reviewed any potential conflicts of interest and related party transactions with outside counsel and determined that Mr Stewart's appointment to the board of BJ Services Company, as well as the Longfellow Group's investment in certain CSL funds, did not create any related party transactions or conflicts of interest.




17



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 independently 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.

2016 Business Context and Performance Overview

2016 was a transformative year for Baker Hughes. The Halliburton Merger Agreement that was entered into in November 2014 was terminated on April 30, 2016. With the uncertainty of those 18 months behind us, and no longer being restricted by certain operating covenants in the Halliburton Merger Agreement, in May 2016 we announced plans to enhance our core strength as a product innovator, reduce costs by simplifying our business, and optimize our capital structure to deliver more value to our stockholders. Baker Hughes was focused on turning the page and moving forward with speed to chart a course for a successful future.

During 2016, against the back-drop of what is arguably the worst downturn in our industry’s history, we achieved significant progress on our commitments. In the second half of 2016, we rapidly and successfully reorganized our Company, reduced annualized costs by nearly $700 million, refined our go-to-market strategy with plans to build new sales channels for our products and technology, bolstered our investment in our sales organization, and launched 50% more new products. In addition, we optimized our capital structure by reducing debt and buying back shares with proceeds from the $3.5 billion merger breakup fee. As we executed on an asset-light strategy to strengthen profitability and return on invested capital, we rationalized under-performing product lines in select markets and contributed our North America land pressure pumping business into a new venture that is exceptionally well positioned to participate efficiently and cost-effectively in the growth of this market segment.

In spite of ongoing market and industry challenges, we accomplished these results without losing our focus on safety, compliance, or operational performance. In the midst of this important work, on October 30, 2016, Baker Hughes and GE entered into an agreement to combine Baker Hughes with GE Oil & Gas and create Baker Hughes, a GE Company, which we anticipate will become a productivity leader in the industry by delivering substantial value to shareholders through greater productivity and more efficient operating economics.

Summarizing our financial results, full-year revenue was $9.8 billion, down $5.9 billion compared to $15.7 billion for 2015, reflecting challenging industry conditions that resulted in global rig counts declining another 32% from 2015 levels. On a GAAP basis, net loss attributable to Baker Hughes was $2.7 billion ($6.31 per diluted share) for 2016. Cash flows from operating activities were $4.2 billion for the year, an increase of $2.4 billion, compared to 2015, primarily due to the receipt of the $3.5 billion Halliburton Merger termination fee.

In the second half of 2016, we achieved significant progress on virtually all facets of our business as we implemented our new strategy. Our stronger performance in the second half of 2016 demonstrates that we not only executed on our new strategic financial and operational objectives we set following the termination of the Halliburton Merger Agreement, we exceeded them. The highlights are as follows:

Simplified our organizational structure and operational footprint and reduced our annualized costs by nearly $700 million, exceeding our initial goal by almost 40%;
Accelerated innovation with nearly 70 new product innovations;
Paid down $1 billion of debt and repurchased more than $750 million in shares of our Common Stock;
Built new sales channels and rationalized under-performing product lines in select markets;
On a GAAP basis, net loss attributable to the Company was $1,892 million for the first half of 2016 compared to a loss of $846 million in the second half of 2016;
Adjusted operating profit (a non-GAAP measure) for the second half of 2016 was $28 million compared to an adjusted operating loss of nearly $700 million for the first half of 2016; and

18



Achieved 208 Perfect Health Safety and Environment ("HSE") days (no recordable injuries, no vehicle accidents, and no harm to the environment) for all of 2016 in spite of extremely difficult business conditions.

Compensation Decisions Made in the Context of Transactions

Our people and their capabilities are critical to our success, and maintaining a strong talent base in spite of significant uncertainty is essential. The significant downturn in our industry led to the reduction of our headcount from approximately 60,000 employees at the end of 2014 to approximately 33,000 employees today as well as reductions in various elements of compensation for employees. Additionally, the uncertainty for employees during the eighteen-month pendency of the Halliburton Merger threatened our ability to retain key employees. With this backdrop, the Compensation Committee made the following key compensation decisions for the first half of 2016 (January through June 30):
Due to constraints on implementing significant changes to the business pending completion of the Halliburton Merger, we structured the Annual Incentive Compensation Plan for Employees (AICPE) to reward performance in excess of financial targets, with a guarantee of a target level bonus for all bonus-eligible employees for the first six months of 2016 (approximately 20,000 employees, including Senior Executives) who remained with the Company through the payment date of March 2017. Had the Halliburton Merger been consummated during 2016, a pro-rated target level bonus would have been paid to all participants under our annual bonus plans;
Delivered all long-term incentives in the form of restricted stock units for all employees who received annual equity awards in January 2016 (approximately 2,000 employees, including Senior Executives); and
Suspended the annual salary merit increase cycle globally (including Senior Executives) and limited promotions and off-cycle salary increases for the second consecutive year, consistent with practices of other companies in our industry.

Following the termination of the Halliburton Merger Agreement, the Company outlined steps to strengthen our competitive position and financial performance. With respect to compensation, this included reinforcing the pay for performance philosophy that has long been a key part of our compensation program. The following highlights some of the compensation decisions made for the second half of 2016 (July - December 31) with a focus on strengthening our competitive position and financial performance:
Reinstated a 100% performance-based bonus structure based upon key financial metrics and strategic performance metrics that reinforce a return to profitability for the second half of 2016;
Approved 2017 long-term incentive program design returning to performance-based awards; and
Initiated a temporary salary reduction for many US employees, including most Senior Executives.

2017 Compensation Program
In January 2017, after announcing the Transaction Agreement with GE on October 30, 2016, the Company continued to reinforce the pay for performance elements of its compensation programs by:
Continuing a 100% performance-based short-term incentive bonus structure for 2017 based on key financial and strategic performance metrics; and
Increasing performance-based awards for Senior Executives to 50% of the total long-term incentives granted during the annual January 2017 grant cycle in the form of restricted stock units. The payout is based upon relative growth and return metrics versus the Company's peer group during performance periods within 2017 - 2019. Any actual payout would be delivered at the end of the performance period ending in 2019. The remaining 50% of the January 2017 grant was delivered in the form of service based restricted stock units that will vest one-third each year.

19



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. Mr. Alan R. Crain, Senior Vice President, Chief Legal and Governance Officer retired on December 29, 2016. See "Letter Agreement with Alan R. Crain" for a description of the terms of his retirement.

For 2016, our NEOs were:
 
Martin S. Craighead - Chairman & Chief Executive Officer (PEO)
 
 
Kimberly A. Ross - Senior Vice President and Chief Financial Officer (PFO)
 
 
Belgacem Chariag - President, Global Operations
 
 
 
Arthur L. Soucy - President, Products and Technology
 
 
 
Derek Mathieson - Chief Commercial Officer
 
 
 
Alan R. Crain - Senior Vice President, Chief Legal and Governance Officer (retired on December 29, 2016)

Pay for Performance
Our compensation programs are designed to deliver compensation that is aligned with Company performance and stockholder interests. As noted above, while modifications were made for the first half of 2016 in order to retain a strong talent base, the Company resumed our commitment to our long-standing pay for performance philosophy in the second half of 2016 as well as 2017.

The chart below illustrates the Company's three-year realized pay percentile ranking and three-year performance percentile ranking for our PEO and the Company's oilfield services peer group which includes Halliburton Company (HAL), National Oilwell Varco Inc. (NOV), Schlumberger Ltd. (SLB) and Weatherford International Ltd. (WFT) (the "Peer Group"). The chart reflects that for the three-year period, the Company’s Total Shareholder Return ("TSR") performance was highest among its Peer Group and realized pay was aligned with performance.


payperf20163y2a01.jpg









20



The charts below further illustrate how the Company's three-year annualized TSR outperformed the TSR of all of the Peer Group over the three-year period ending 2016. Additionally, the second chart illustrates that on a three-year basis, while our PEO's total cash compensation is below the median of our Peer Group, our stock price has outperformed peers, resulting in realized pay outcomes that are commensurate with our performance. The market median pay is based on the proxy filings for 2013 - 2015 for the four peers and excludes our PEO's data.
a2017proxyst_chart-22593.jpg peocompensationchart2017.jpg
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.
 
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 2016, the Compensation Committee did not grant new stock options or performance units. For 2017, equity awards included performance-based restricted stock units as well as service-based restricted stock units.
Reward the creation of long-term stockholder value
The incentive programs include specific financial performance measures that are fundamental to long-term stockholder value creation:
The AICPE uses earnings per share, inventory as a percentage of revenue, and days sales outstanding, and adjusted operating profit targets set by the Compensation Committee.
The long-term incentive plan performance-based restricted stock units use revenue growth and return on capital employed performance metrics as compared to our peer group, as well as for certain grants prior to 2017, a relative TSR modifier compared to TSR's of the companies included in the OSX Index.


21



Objectives
How We Meet Our Objectives
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 2016, full-value awards were utilized for the long-term incentive plan. For 2017, performance based and service based restricted stock units were utilized for the long-term incentive plan.
The performance-based restricted stock 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 HSE.
The short-term incentive programs allow for reduction or elimination of bonus payouts if the HSE standards are not upheld.
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 typically 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 Shareholder Feedback and 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. 

In 2016, our compensation program received the support of 80.6% of the total votes cast at our annual meeting compared to 94% in 2015. While the 2016 Say on Pay result was disappointing and a clear departure from the results received for the past several years, we acknowledge it is likely related to the specific compensation decisions made to retain our key

22



employees during this significant industry downturn and the uncertainty of the eighteen-month pendency of the Halliburton Merger.

To address the lower Say on Pay support, following the termination of the Halliburton Merger Agreement in April 2016, the Chair of the Compensation Committee, as well as members of the executive management team, conducted meetings with stockholders holding over 32% of our outstanding Common Stock to discuss the Say on Pay voting results as well as the rationale for our executive pay program in 2015 and the first half of 2016. The meetings included discussions on the need to provide compensatory retention and reward incentives given the unique challenges faced by the Company while the Halliburton Merger was pending. During those meetings, we reiterated the Company's intention to return to a pay for performance model in the second half of 2016 as well as 2017.

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 2016 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 2017.

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
Reviewing compensation trends and regulatory matters affecting compensation
Designing and determining individual grant levels for Senior Executive long-term incentive awards

Cook also periodically provides consulting services to the Governance and HS&E Committee on director compensation.

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 20 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.




23



In 2016, the Compensation Committee conducted a review of the companies included in the Reference Group, considered the impact of the industry downturn particularly with respect to market capitalization and made the decision to maintain the existing group of companies at the current time but to continue monitoring the appropriateness of the Reference Group. 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
 
 
20 companies - oilfield services, exploration & production, offshore drilling, oil and gas, and general industry:
 
 
Ÿ 3M Company
Ÿ Emerson Electric Co
Ÿ Raytheon Co
 
 
Ÿ Anadarko Petroleum Co
Ÿ Halliburton Co
Ÿ Schlumberger Ltd
Compensation
ð
Ÿ Apache 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
 
 
Ÿ Eaton Corp
Ÿ National Oilwell Varco
 
 
 
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, assess 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.

Pay Mix

The charts below show the fiscal year 2016 target 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.
peopiechart2017.jpgpeomarketmedianpiechart2017.jpgneopiechart2017.jpgneomarketmedianpiechart2017.jpg
¨ Base Salary
¨ Short-Term Incentives
¨ Long-Term Incentives

24




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

Generally, the Compensation Committee targets the market median of the Reference Group for the base salaries of our Senior Executives. Typically, 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.

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

Financial performance of the Company
Effective execution of the strategy approved by our Board of Directors
Development of human resource capability

The Compensation Committee reviewed the compensation for Senior Executives, and given the market conditions at that time, made the decision not to implement salary increases for Senior Executives in 2016.

The PEO and most Senior Executives have not received salary increases since April 2014. The Company has not conducted a merit cycle since 2014 for employees and has had limited promotions and one-off salary increases. Further, in an effort to manage costs and achieve financial targets in the second half of 2016, employees in the United States, including most Senior Executives, took a temporary 5% salary reduction in the final quarter of 2016.

In conjunction with the implementation of our new organizational structure in May 2016, Messrs. Chariag and Soucy were promoted to roles with significantly expanded scopes as business operations were consolidated under one global operations organization and global product lines were consolidated under one products and technology organization. The Compensation Committee reviewed the compensation packages for both Messrs. Chariag and Soucy and, due to their expanded roles, approved base salary increases as detailed in the chart below.

Senior Executives
2015
Salary
% Increase Awarded in 2016
2016
    Salary (1)
New Salary Effective Date
Martin S. Craighead
$1,250,000
-

$1,250,000
-
Kimberly A. Ross
$800,000
-

$800,000
-
Belgacem Chariag
$700,000
7.1
%
$750,000
May 22, 2016
Arthur L. Soucy
$605,000
7.4
%
$650,000
May 22, 2016
Derek Mathieson
$640,000
-

$640,000
-
Alan R. Crain
$750,000
-

$750,000
-
(1) The 2016 salary value reflected above does not reflect the temporary reductions taken in the fourth quarter of 2016.



25



Short-Term Incentive Compensation

The short-term incentive compensation programs are designed to 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 compensation opportunity is delivered by way of two incentive programs: the AICPE and the performance scorecard, with greater weight placed on the formula-based component of the short-term incentives consistent with the Company's goal of providing a meaningful link between compensation and Company performance as detailed in the chart below. 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.

2016 Short-Term Incentive Targets for Senior Executives

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. For 2016, the only modifications to incentive target percentages were for Messrs. Chariag and Soucy due to their promotions.
Senior Executives
AICPE
+
Performance Scorecard
=
STI Target % of Base Salary
2016 Modifications
Martin S. Craighead
72
%
 
48
%
 
120
%
-
Kimberly A. Ross
60
%
 
40
%
 
100
%
-
Belgacem Chariag
60
%
 
40
%
 
100
%
Increased from 80% effective July 1, 2016
Arthur L. Soucy
45
%
 
30
%
 
75
%
Increased from 60% effective July 1, 2016
Derek Mathieson
48
%
 
32
%
 
80
%
-
Alan R. Crain
48
%
 
32
%
 
80
%
-

2016 Summary

As the pendency of the then Halliburton Merger continued into the first half of 2016, the performance period for the AICPE was divided into two performance periods rather than the normal annual performance period. The first performance period was January 1 - June 30 (H1) and the second performance period was July 1 - December 31 (H2). Due to the nature of the performance goals under the Performance Scorecard, the bonus was based on the achievement of those goals for the full annual period. Below is a summary of the AICPE and the Performance Scorecard for 2016 with details provided in subsequent pages:
 
AICPE
H1 2016
H2 2016
 
Metrics
- Adjusted earnings per share
- Adjusted operating profit
 
- Inventory as % of revenue
- Relative adjusted operating profit margin improvement v. peers
 
- Days sales outstanding
 
Actual Achievement
Did not achieve target level goals (which would have resulted in a payout of 52.5% of target but for the guarantee of a minimum of target level payout for H1 2016)
Exceeded performance goals, resulting in a payout of 105.8% of target
 
 
 
Payout
Due to the guarantee to pay a minimum target level bonus, all participants, including Senior Executives, will receive a target level payout (100% of target) for H1
Payout based on performance (no guarantee to pay minimum target level bonus). Senior Executives will receive a payout of 105.8% of target and all other plan participants will receive a payout of 130.2% of target. (Senior Executives were held to higher level of achievement than other plan participants in order to receive a target level payout)
 
 
 
Total AICPE Payout
102.9%

26



Performance Scorecard
2016 Annual Period
Metrics
Safety
Halliburton Merger Integration (H1 Only)
Operations and Compliance
Technology and Innovation
Leadership
Cost Reduction (H2 Only)
Maintain focus on retention and engagement of BHI employees worldwide
Total Performance Scorecard Payout
The Compensation Committee approved the funding of a bonus pool at 215% of target

Overall 2016 Short-Term Incentive (STI) Payout
AICPE at 102.9% (60% of STI) and Performance Scorecard at 215% (40% of STI) = 147.7%


Annual Incentive Compensation Plan for Employees

H1 2016

As detailed in the chart below, for H1 2016, 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 adjusted operating profit 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.

aicpechart2017.jpg

Challenging performance goals are set such that only exceptional performance will result in payouts above the target incentive. As previously noted, the Compensation Committee approved the guarantee of a minimum target level bonus for H1 2016 under the AICPE for all participants (approximately 20,000 employees, including Senior Executives). The guarantee served to provide assurance of a minimum level of payout with the actual bonus payout based upon the greater of target or actual performance. Had the Halliburton Merger closed during 2016 all participants would have received a prorated target level payout based upon change in control provisions contained in the AICPE. Performance above targets could produce a payment above the minimum bonus and was intended to ensure that employees remained driven to outperform targets.

For H1 2016, the Compensation Committee approved two performance levels with respect to the achievement of the three established AICPE financial metrics: (1) Expected Value and (2) Over Achievement 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.

27



Performance Level
Definition

Payout Level
% of Target
2016
Earnings Per Share Target
2016 Inventory % of Revenue
2016 Days Sales Outstanding
Expected Value
Performance meets expected value
100% Payout
$(0.24)
21.0%
85.2 days
Over Achievement
Performance exceeds expected value
200% Payout
$(0.07)
19.0%
81.0 days

For H1 2016 performance period, earnings per share on an adjusted non-GAAP basis was $(2.48), which was below the Expected Value achievement target of $(0.24), while earnings per share on a GAAP basis was $(4.30). Non-GAAP earnings per share includes the following adjustments: impairment and restructuring charges, goodwill impairment, merger and related costs, the Halliburton Merger termination fee, inventory adjustments, and loss on early extinguishment of debt. The Company believes that adjusted earnings per share is useful to investors because it is a consistent measure of the underlying results of the Company's business. Please see the reconciliation of GAAP measures to non-GAAP measures on Annex C.

Our inventory as a percent of revenue was 20.7%, which was slightly less than the Expected Value level of 21.0%. Our 2016 Days Sales Outstanding metric result was 85.5 days which did not meet the Expected Value level of 85.2 days. Additionally, the Company ranked 4th in adjusted operating profit margin growth against the three peer companies. The modifier for a 4th place rank relative to peers is 75%, and this modifier was applied to each individual metric. Based on the above H1 2016 financial results, the overall payout would have been 52.5% of target for H1 2016, but due to the target level bonus guarantee, the Compensation Committee approved the payout at 100% of target for H1 2016.

H2 2016

For H2 2016, the bonus goals were designed to incentivize a return of profitability and margin improvement as shown in the table below. The financial metrics for the AICPE were adjusted operating profit (a non-GAAP measure) and adjusted operating profit margin improvement relative to three peers, Schlumberger, Halliburton, and Weatherford. For Senior Executives to achieve a target payout, adjusted operating profit had to be positive, which was a higher hurdle than expectations set forth in the internal H2 financial plan and the corresponding target set for all plan participants. Further, adjusted operating profit margins had to improve relative to the first half of 2016 more than the corresponding improvements of any of the peers. Payouts are interpolated between adjusted operating profit levels.
Targets and payouts based on performance were as follows:
 
H2 2016 Adjusted Operating Profit Margin Improvement Rank
H2 Operating Profit (Loss)
1st
2nd
3rd
4th
$200 million
200
%
150
%
100
%
50
%
$ - (Breakeven)
100
%
50
%
25
%
-

$(70 million)
50
%
25
%
-

-

Below $(70 million)
-

-

-

-


Adjusted operating profit for H2 2016 was $28 million, while GAAP net loss attributable to the Company was $(846) million. Adjusted operating profit includes the following adjustments: impairment and restructuring charges, goodwill impairment, merger and related costs, inventory adjustments, loss on sale of business interest and litigation settlements. In addition to the above adjustments, management also recommended two downward adjustments to the operating profit for the purpose of determining achievement of second half objectives. These adjustments included credits and a reversal of accruals that were not in the H2 2016 financial plan which totaled approximately $17 million. After these adjustments, the final adjusted operating profit result for incentive purposes was $11.6 million. The Company believes that adjusted operating profit is a widely accepted financial indicator used by investors to compare companies on the basis of operating performance. Please see the reconciliation of GAAP measures to non-GAAP measures on Annex C.

Adjusted operating profit margin improved 1,440 basis points with margins increasing from (13.8)% for H1 2016 to 0.6% for H2 2016 and ranked first among our peers. The resulting payout percentage for H2 2016 for Senior Executives was 105.8% and 130.2% for all other plan participants.

28



Final 2016 AICPE Payout

The Compensation Committee awarded Mr. Craighead, Ms. Ross, and Messrs. Chariag, Soucy, Mathieson and Crain cash-based awards under the AICPE in the amounts of $913,282, $493,920, $401,487, $260,713, $314,234, and $180,000, respectively, based upon the established performance metrics for the first and second half of 2016 described above. Mr. Crain was not eligible for the AICPE for the second half of the year per his Letter Agreement.

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. While the measures for evaluating the Senior Executives' performance with respect to the performance scorecard 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. At the beginning of 2016, the Compensation Committee, with approval from the full Board, established performance scorecard goals for the PEO and then such goals are used to align the annual business objectives for the remaining Senior Executives.

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.

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 January 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.

The 2016 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 Halliburton Merger process (H1 only), remaining best in class in operations and compliance, leading in technology and innovation and continuing to strengthen leadership and organizational capabilities. Following the termination of the Halliburton Merger Agreement, the Compensation Committee approved two additional goals for the performance scorecard: reducing $500 million of annualized costs by the end of 2016 and implementing organizational changes required by the new strategy.

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 2016:
Performance Component
Beginning of Year Performance Expectation
Assessment of Performance for 2016
HSE Enterprise goals
Improve HSE Metrics--Preventable Vehicle Accident Rate, Total Recordable Incident Rate and Days Away From Work Case Rate--by 10% from 2015 Actuals
Achieved best record in Company history for second consecutive year in spite of extremely difficult business conditions. However, an employee fatality occurred, overshadowing an otherwise successful record.
Cost (added for H2 2016)
Reduce $500M of annualized costs by end of 2016
Exceeded the cost reduction goal by reducing annualized costs over $700M
Continue Full Support of Halliburton Acquisition (H1 2016 only)
Effective integration and divestiture planning for Halliburton Merger

Provided full support to the Halliburton Merger until the termination of the Halliburton Merger Agreement on April 30, 2016. Received the $3.5 billion merger termination fee within 3 business days of termination.

29



Performance Component
Beginning of Year Performance Expectation
Assessment of Performance for 2016
Operations and Compliance
Continue building a culture of flawless execution and operational excellence

Maintain legal and financial compliance
Fully achieved
Technology and Innovation
Targeted development, deployment and commercialization of strategic products
Achieved goals, including the introduction of nearly 70 new products and services in the second half of 2016
Leadership
Continue to strengthen leadership and organizational capabilities
- Sales effectiveness
- ELT effectiveness

Effectively communicate business and integration updates to extended teams

Maintain focus on retention and engagement of BHI employees worldwide

Implement organizational changes required by new strategy (added for H2 2016)
Fully achieved goals including establishing a new executive leadership team within two days of the termination of the Halliburton Merger Agreement. The remaining organizational changes were implemented within 30 days of the termination of the Halliburton Merger Agreement.

 
Final Performance Scorecard 2016 Payout

When determining the funding pool for the performance scorecard bonus, the Compensation Committee considered not only the achievement of the performance goals above but they also considered additional accomplishments of the Senior Executives. Despite the continued downturn in the market and the distractions related to the Merger Agreement with Halliburton and the subsequent termination of the Merger Agreement, Senior Executives reorganized the Company following the termination of the Merger Agreement, effectively used the $3.5 billion breakup fee to optimize the Company’s capital structure, focused on the Company’s core strength as a product innovator and building a stronger sales organization and maximized shareholder value for the North American Land Pressure Pumping business while continuing to participate in this important market.

Based on these considerations, the Compensation Committee determined that Senior Executives significantly exceeded the 2016 strategic performance goals and approved a funding pool of 215% of target for the Performance Scorecard. The Committee approved a bonus under the program for Mr. Craighead at 215% of target or $1,272,635. Mr. Craighead then determined the bonus amounts for the other plan participants based on his assessment of their contribution towards the achievement of the performance goals. Bonus payouts were approved under the program for Ms. Ross, and Messrs. Chariag, Soucy, Mathieson and Crain in the amounts of $688,000, $557,263, $361,857, $437,780, and $120,000, respectively. Per his Letter Agreement, Mr. Crain was not eligible for a bonus under the Performance Scorecard for H2 2016.

Long-Term Incentive Compensation

The long-term incentive program allows Senior Executives to earn compensation over a number of years as a result of sustained financial performance over multiple years and/or of stock price performance. 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 value 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.


30



As noted previously, while pay for performance remains a key component in our compensation strategy, for 2016, retaining critical talent in light of the pendency of the Halliburton Merger was an overriding concern. Due to this talent retention concern, the long-term incentive awards granted to Senior Executives and all other employees receiving equity grants during the January 2016 award cycle were delivered in the form of service-based restricted stock units to be settled in shares of our Common Stock. 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 for service-based awards).

For the 2017 award cycle, long-term incentive awards granted to Senior Executives were comprised of 50% performance-based restricted stock units and 50% service-based restricted stock units. The performance criteria is based on the Company’s ranking on revenue growth and return on capital versus peers.

The chart below illustrates the grant date target values of the long-term incentive awards granted to Senior Executives in 2016. Additionally, in connection with the promotions for Messrs. Chariag and Soucy, the Compensation Committee approved special long-term incentive awards for both as detailed in the chart below.

Senior Executives
Target Grant Value of 2016 Long-Term Incentive Annual Award
Target Grant Value of Special
Long-Term Incentive Award
Martin S. Craighead
$9,570,000
-
Kimberly A. Ross
$3,579,400
-
Belgacem Chariag
$2,978,800
$2,000,000
Arthur L. Soucy
$2,234,100
$2,000,000
Derek Mathieson
$2,387,000
-
Alan R. Crain
    $3,172,400 (1)
-
(1)
Pursuant to Mr. Crain's Letter Agreement, the restricted stock unit award granted on January 27, 2016 valued at $3,172,400 vested in full upon his retirement date.


Performance Unit Awards

Performance unit awards are designed to motivate the Senior Executives to achieve certain specific Company long-term performance goals during a three-year period. Performance units (settled in stock) are awards of a conditional number of shares with a set target value (e.g., 100 shares). The final number of shares our Senior Executives may receive under the program depends on how well we perform against the specified peer group with respect to specified performance goals established by the Compensation Committee with assistance from the Compensation Committee's independent compensation consultant.

Performance Periods and Metrics

The performance period for the only remaining open performance unit cycle closed on December 31, 2016. The chart below outlines the framework for 2014 - 2016 performance units.
Performance Period
Metrics
Peer Group
Determination of Unit Award Value
Payout Type
2014-2016
Ÿ Revenue Growth
Ÿ Absolute ROCE
Ÿ Change in ROCE






Ÿ Halliburton
Ÿ NOV
Ÿ Schlumberger
Ÿ Weatherford



The number of performance units to vest is preliminarily 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.


Settled in stock at the end of the performance period
Ÿ   Total Shareholder
     Return (TSR)
     Modifier
Ÿ    OSX
The final number of vested units 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).

31




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. The final award is then modified based on our relative TSR performance the end of the three-year performance period.
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
Preliminary unit modifier calculated at end of term

End of Year 3
                  • 25% of total unit modifier determined
    • BHI compared to peer group
The two charts below determine the value for each ranking. The Revenue Growth matrix is used to determine the payout value for revenue growth and the Goal Payout Matrix is used to determine the payout value for ROCE overall.
Revenue Growth (50% of Unit Value)
Peer Group Rank
5th
4th
3rd
2nd
1st
Unit Value
—%
45%
90%
135%
200%
 
ROCE
 
(50% of Unit Value)
 
Goal Payout Matrix:
R
O
C
E

%

C
h
g
1st
130%
150%
165%
180%
200%
2nd
100%
115%
125%
135%
165%
3rd
65%
80%
90%
115%
135%
4th
30%
45%
50%
80%
90%
5th
—%
20%
35%
50%
70%
 
 
5th
4th
3rd
2nd
1st
 
ROCE

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
 %

32



Final Award Value

The tables below outline how the unit value was determined for the 2014 - 2016 performance period. First, the preliminary unit value for the Company’s performance relative to the peer group for the Revenue Growth and ROCE metrics is calculated at 78.75%.
 
Relative Performance Rank
 
Preliminary Unit Values
Period
Rev. Growth Rank
ROCE Rank (Absolute)
ROCE Rank (Improvement)
 
Rev. Growth Payout %
ROCE Payout %
Average
2014
2nd
4th
2nd
 
135.0
%
115.0
%
125.0
%
2015
3rd
4th
4th
 
90.0
%
45.0
%
67.5
%
2016
3rd
4th
5th
 
90.0
%
20.0
%
55.0
%
3-Year (2014 - 2016)
3rd
4th
4th
 
90.0
%
45.0
%
67.5
%
 
 
 
Preliminary Unit Modifier (4-period avg. )
 
78.75
%

Next, the Company’s TSR is calculated using the average share price during the 20-trading day period ending on the first and last business day of the performance period, assuming that any dividends paid are reinvested. The Company's TSR for the period from January 1, 2014 through December 31, 2016 was 25.88%, ranking first versus the OSX index resulting in a TSR multiplier of +30%.

Company
TSR
 
Company
TSR
Baker Hughes Incorporated
25.88
 %
 
National Oilwell Varco, Inc
(40.87
)%
Halliburton Company
12.64
 %
 
Rowan Companies plc
(41.12
)%
Helmerich & Payne, Inc.
9.63
 %
 
Oceaneering International, Inc.
(59.88
)%
Nabors Industries Ltd.
6.87
 %
 
Diamond Offshore Drilling, Inc.
(63.16
)%
Schlumberger Limited
3.15
 %
 
Transocean Ltd.
(65.18
)%
Golar LNG Limited
(25.46
)%
 
Weatherford International plc
(65.38
)%
Oil States International, Inc.
(33.49
)%
 
Bristow Group Inc.
(72.01
)%
Core Laboratories N.V.
(33.95
)%
 
Tidewater Inc.
(93.04
)%

Finally, as a result of the preliminary unit value (78.75%) and the TSR multiplier (+30%) the final payout is 102.375% representing a payout in shares slightly above target for the performance period. The final payout is reflected below and will be made in March 2017.

Senior Executives
Target number of 2014 - 2016 Performance Units
Performance Payout
Final Shares Vested
Martin S. Craighead
46,007

102.375
%
47,099

Kimberly A. Ross
36,000

102.375
%
36,855

Belgacem Chariag
12,400

102.375
%
12,694

Arthur L. Soucy
9,201

102.375
%
9,419

Derek Mathieson
11,475

102.375
%
11,747

Alan R. Crain
15,251

102.375
%
15,613


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 certain options and certain

33



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, service-based restricted stock unit awards and certain other types of compensation.

We believe 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.

Although equity awards may be deductible for tax purposes by the Company, the accounting rules pursuant to FASB ASC Topic 718 for fiscal year-end 2016 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 different levels 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 we deem appropriate.

The following is a description of these programs and benefits for 2016:

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. Generally, preventive services, including physical exams, are covered at 100% for all employees. Employees have access to certain continued medical coverage during 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 (currently, approximately $1,600 for each eligible retiree and each eligible spouse for 2016 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 qualifying 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.

Life Insurance and Accidental Death and Dismemberment

The life insurance and accidental death and dismemberment programs provide financial protection for employees or their beneficiaries in the event of death. The Company provides life insurance and accidental death and 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 and dismemberment insurance. Various limits apply to each program.
    

34



Business Travel Accident Insurance

The business travel accident insurance program provides financial protection to employees or their beneficiaries in the event of accidental death, dismemberment, or paralysis while traveling on Company business in the amount of five times eligible 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. For the period March 27, 2016 through December 31, 2016, the Company suspended employer match and age-based contributions.
 
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, AICPE 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 2016); 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 2016 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. Generally, 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).

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.

35




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 will 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 are 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. In 2016, the stock ownership level for the Chairman, President and Chief Executive Officer was increased from 5x base salary to 6x base salary. 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
6X Base Salary
Senior Vice President reporting to Chief Executive Officer
3X Base Salary
Corporate Vice Presidents reporting to Chief Executive Officer
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 has 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. Senior Executives who have not met the applicable stock ownership level within the time required are required to hold 75% of the net shares acquired from future exercises or vestings through the Company's equity compensation programs until the ownership levels are met. Net shares are the shares remaining after shares are sold or withheld, as the case may be, to pay any applicable option exercise price and/or satisfy any tax obligations.

The Compensation Committee annually reviews each Senior Executive's compensation and stock ownership levels to determine whether they are appropriate. In 2016, all of the NEOs were in compliance with the Stock Ownership Policy.

36



SUMMARY COMPENSATION TABLE

The following table sets forth the compensation earned by the PEO and other NEOs for services r endered to the Company for the fiscal years ended December 31, 2016, 2015, and 2014.
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
2016
1,233,173


9,569,977


2,185,916

42,293

429,923

(6) 
13,461,282

2015
1,250,000


9,569,978


2,144,063

15,279

552,415

 
13,531,734

2014
1,236,538


6,673,788

2,658,109

3,932,503

33,345

447,422

 
14,981,705

 
 
 
 
 
 
 
 
 
 
 
Kimberly A. Ross - Principal Financial Officer
2016
800,000


3,579,393


1,181,920

9,997

235,535

(7) 
5,806,845

2015
800,000


3,579,380


832,000

8,439

150,856

 
5,370,674

2014
132,308

600,000

3,567,720


281,357

3,992

13,925

 
4,599,302

 
 
 
 
 
 
 
 
 
 
 
Belgacem Chariag - President, Global Operations
2016
718,750


4,978,724


958,751

24,302

215,347

(8) 
6,895,874

2015
700,000


2,978,780


784,394

10,083

266,524

 
4,739,781

2014
691,923


2,162,267

716,457

1,381,956

12,100

219,235

 
5,183,938

 
 
 
 
 
 
 
 
 
 
 
Arthur L. Soucy - President, Products and Technology
2016
622,211


4,234,043


622,570

56,698

295,816

(9) 
5,831,338

2015
605,000


2,234,113


809,689

11,932

475,730

 
4,136,464

2014
598,269


1,625,532

531,605

934,377

11,531

221,294

 
3,922,608

 
 
 
 
 
 
 
 
 
 
 
Derek Mathieson - Chief Commercial Officer
2016
636,308


2,386,968


752,013

9,785

156,275

(10) 
3,941,349

2015
640,000


2,240,011


699,819

8,443

184,277

 
3,772,550

2014
634,615


1,664,528

662,989

1,199,488

8,266

166,661

 
4,336,547

 
 
 
 
 
 
 
 
 
 
 
Alan R. Crain - SVP, Chief Legal and Governance Officer
2016
750,000

2,675,000

3,172,379


300,000

112,642

437,488

(11) 
7,447,509

2015
750,000


3,000,023


907,500

17,289

257,305

 
4,932,117

2014
742,192


2,212,321

881,134

1,437,163

53,230

232,906

 
5,558,946

____________
(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. The amount under the Bonus column for Mr. Crain for 2016 includes a lump sum payment of $2,000,000 in recognition of Mr. Crain's substantial contribution throughout the Halliburton Merger process, $300,000 in lieu of payments under AICPE and the performance scorecard bonus program for the second half of 2016, and $375,000 in consideration of a two-year non-compete agreement.

(2)
The amounts reported for 2016 reflect that the long-term incentive awards granted in 2016 were structured exclusively in the form of restricted stock unit awards. No stock options or performance unit awards were granted in 2016. The amount reflected in the "Stock Awards" column is the aggregate grant date fair value of $39.97 for the restricted stock unit awards granted to the NEOs on January 27, 2016, and $45.33 for the restricted stock unit awards granted to Messrs. Chariag and Soucy on May 23, 2016, and computed in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions, see “Note 7 - Stock-Based Compensation” of the Notes to Consolidated Financial Statements included in our Annual Report under Item 8 of the Form 10-K for the year ended December 31, 2016.

(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 FASB 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 7 - Stock-Based Compensation” of the Notes to Consolidated Financial Statements included in our Annual Report under Item 8 of the Form 10-K for the year ended December 31, 2016.

(4)
The amounts for the 2016 fiscal year include: (i) annual incentive plan bonuses earned under the AICPE for Mr. Craighead, Ms. Ross, and Messrs. Chariag, Soucy, Mathieson and Crain in the amounts of $913,282, $493,920, $401,487, $260,713, $314,234, and $180,000, respectively, (ii) cash-based awards based on performance scorecard goals for Mr. Craighead, Ms. Ross, and Messrs. Chariag, Soucy, Mathieson, and Crain in the amounts of $1,272,635, $688,000, $557,263, $361,857, $437,780, and $120,000, respectively.

37




(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 (3.14%, 3.16%, and 4.11% for 2016, 2015, and 2014, respectively). Mr. Craighead’s above-market earnings on his SRP accounts were $26,819, $0, and $17,652 for 2016, 2015, and 2014, respectively. Ms. Ross’ above-market earnings on her SRP accounts were $0 and $0 for 2016 and 2015, respectively. Mr. Chariag's above-market earnings on his IRP and SRP accounts were $13,796, $0, and $2,862 for 2016, 2015, and 2014, respectively. Mr. Soucy's above-market earnings on his SRP accounts were $44,441, $0 and $132 for 2016, 2015, and 2014, respectively. Mr. Mathieson’s above-market earnings on his SRP accounts were $0 for 2016, 2015, and 2014, respectively. Mr. Crain’s above-market earnings on his SRP accounts were $95,117, $0, and $35,209 for 2016, 2015, and 2014, respectively.

(6)
Amount for 2016 includes (i) $321,053 that the Company contributed to Mr. Craighead's SRP account, (ii) $61,500 in dividends earned on unvested restricted stock, (iii) $6,870 in life and disability insurance premiums paid by the Company on behalf of Mr. Craighead, (iv) $25,175 in employer matching and employer base contributions that the Company contributed to the Thrift Plan on behalf of Mr. Craighead; and (v) $15,325 for financial counseling.

(7)
Amount for 2016 includes (i) $177,710 that the Company contributed to Ms. Ross’ SRP account, (ii) $23,689 in dividends earned on unvested restricted stock, (iii) $5,248 in life and disability insurance premiums paid by the Company on behalf of Ms. Ross; (iv) $23,850 in employer matching and employer base contributions that the Company contributed to the Thrift Plan on behalf of Ms. Ross; and (v) $5,038 for financial counseling.

(8)
Amount for 2016 includes (i) $134,699 that the Company contributed to Mr. Chariag's SRP account; (ii) $36,631 in dividends earned on unvested restricted stock; (iii) $4,842 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) $15,325 for financial counseling.

(9)
Amount for 2016 includes (i) $92,953 that the Company contributed to Mr. Soucy's SRP account; (ii) $13,566 in dividends earned on unvested restricted stock; (iii) $4,457 in life and disability insurance premiums paid by the Company on behalf of Mr. Soucy; (iv) $23,850 in employer matching and employer base contributions that the Company contributed to the Thrift Plan on behalf of Mr. Soucy; (v) $15,325 for financial counseling; and, for the period Mr. Soucy worked on expatriate assignment, (vi) $141,969 for tax equalization payments related to taxable assignee benefits, $2,500 for relocation allowance, and $1,196 for personal expense reimbursements.

(10)
Amount for 2016 includes (i) $105,997 that the Company contributed to Mr. Mathieson's SRP account; (ii) $14,757 in dividends earned on unvested restricted stock; (iii) $4,599 in life and disability insurance premiums paid by the Company on behalf of Mr. Mathieson; (iv) $22,525 in employer matching and employer base contributions that the Company contributed to the Thrift Plan on behalf of Mr. Mathieson; and (v) $8,397 for financial counseling.

(11)
Amount for 2016 includes (i) $362,260 that the Company contributed to Mr. Crain's SRP account; (ii) $19,704 in dividends earned on unvested restricted stock; (iii) $5,045 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; (v) $15,325 for financial counseling; and (vi) $8,654 for accrued but unused vacation as of Mr. Crain's retirement date.



38



GRANTS OF PLAN-BASED AWARDS

This table discloses the number of restricted stock unit awards granted during 2016 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
1/27/2016
 
 
239,429

39.97

9,569,977

N/A
1,479,808

3,255,577

 
 
 
Kimberly A. Ross
1/27/2016
 
 
89,552

39.97

3,579,393

N/A
800,000

1,760,000

 
 
 
Belgacem Chariag
1/27/2016
 
 
74,525

39.97

2,978,764

5/23/2016
 
 
44,120

45.33

1,999,960

N/A
647,981

1,425,558

 
 
 
Arthur L. Soucy
1/27/2016
 
 
55,894

39.97

2,234,083

5/23/2016
 
 
44,120

45.33

1,999,960

N/A
420,764

925,682

 
 
 
Derek Mathieson
1/27/2016
 
 
59,719

39.97

2,386,968

N/A
509,046

1,119,901

 
 
 
Alan R. Crain
1/27/2016
 
 
79,369

39.97

3,172,379

N/A
300,000

660,000

 
 
 
________
(1)
Amounts represent potential payouts for the fiscal year 2016 performance year under the AICPE, as well as potential payouts for bonuses based on the performance scorecard. In February 2016, the Compensation Committee approved payouts at the target level as the minimum payout for the short-term incentive bonuses for fiscal year 2016.

(2)
Amounts shown represent the number of restricted stock units granted under the 2002 D&O Plan in 2016. Awards generally 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. Restricted stock unit awards granted to Messrs. Chariag and Soucy on May 23, 2016 vest in full on the second anniversary of the grant date.

39




OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table shows outstanding stock option awards classified as exercisable and unexercisable as of December 31, 2016 for the PEO and each NEO. The table also shows unvested and unearned stock awards assuming a market value of $64.97 per share (the closing market price of the Company's stock on December 30, 2016, the last trading day of 2016).
 
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
46,178

23,089

72.70

7/14/2024

 
368,743

23,957,233

46,007

2,989,075

59,148

29,575

56.73

1/22/2024

 
 
 
 
 
 
89,066


47.75

7/24/2023

 
 
 
 
 
 
94,033


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

 
 
 
 
 
 
9,716


77.2

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kimberly A. Ross




 
88,539

5,752,379

36,000

2,338,920

 
 
 
 
 
 
 
 
 
 
Belgacem Chariag
12,446

6,224

72.70

7/14/2024

 
163,150

10,599,856

12,400

805,628

15,942

7,972

56.73

1/22/2024

 
 
 
 
 
 
24,508


47.75

7/24/2023

 
 
 
 
 
 
25,875


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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Arthur S. Soucy
9,235

4,618

72.70

7/14/2024

 
133,605

8,680,316

9,201

597,789

11,829

5,915

56.73

1/22/2024

 
 
 
 
 
 
19,656


47.75

7/24/2023

 
 
 
 
 
 
20,752


45.21

1/24/2023

 
 
 
 
 
 
18,480


39.30

7/16/2022

 
 
 
 
 
 
15,306


47.44

1/25/2022

 
 
 
 
 
 
8,200


77.00

7/19/2021

 
 
 
 
 
 
10,100


62.32

1/26/2021

 
 
 
 
 
 
6,100


49.17

7/21/2020

 
 
 
 
 
 
7,200


47.28

1/19/2020

 
 
 
 
 

40



 
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
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (4)
(#)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
 
12,934


28.55

4/1/2019

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derek Mathieson
11,518

5,759

72.70

7/14/2024

 
90,262

5,864,322

11,475

745,531

7,376

7,377

56.73

1/22/2024

 
 
 
 
 
 
15,192


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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alan R. Crain (5) 
15,307

7,654

72.70

12/29/2021

 
5,931

385,337

15,251

990,857

 
19,607

9,804

56.73

12/29/2021

 
 
 
 
 
 
34,398


47.75

12/29/2021

 
 
 
 
 
 
36,316


45.21

12/29/2021

 
 
 
 
 
 
28,583


39.30

12/29/2021

 
 
 
 
 
 
23,673


47.44

12/29/2021

 
 
 
 
 
 
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

 
 
 
 
 
_________
(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.

(5)
Under the terms and conditions of option awards granted under the 2002 Director & Officer Plan, options expire at the earlier of the option expiration date or five years from the date of retirement. Pursuant to Mr. Crain's Letter Agreement, all of his unvested restricted stock unit awards vested as of December 29, 2016, with the exception of one unvested restricted stock unit award granted on January 22, 2014, which vested on January 22, 2017.

41



OPTION EXERCISES AND STOCK VESTED

The following table sets forth certain information regarding options and stock awards exercised and vested during 2016 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


89,638

3,568,899

Kimberly A. Ross


79,524

4,509,405

Belgacem Chariag


29,909

1,230,637

Arthur L. Soucy


20,122

800,146

Derek Mathieson


21,605

861,223

Alan R. Crain


143,886

8,577,147

____________

(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
15

156,824

Kimberly A. Ross
Pension Plan
2

22,428

Belgacem Chariag
Pension Plan
7

29,828

Arthur L. Soucy
Pension Plan
8

77,514

Derek Mathieson
Pension Plan
8

57,796

Alan R. Crain
Pension Plan
15

189,148

____________