UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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SUPERIOR ENERGY SERVICES, INC.

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SUPERIOR ENERGY SERVICES, INC.
601 Poydras Street, Suite 2400
New Orleans, LA 70130

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

To the Stockholders:

 

Superior’s annual stockholders’ meeting will be held at 9:00 a.m. on Friday, May 22, 2009, at the InterContinental New Orleans, Cabildo Room, 444 St. Charles Ave., New Orleans, LA 70130. At the meeting, stockholders will be asked to:

 

 

Only holders of record of our common stock as of the close of business on March 31, 2009 are entitled to receive notice of, attend and vote at the meeting.

 

Your vote is important. Whether or not you plan to attend the meeting, please complete, sign and date the enclosed proxy or voting instruction card and return it promptly in the enclosed envelope, or vote by one of the other methods specified in this proxy statement. If you attend the annual meeting, you may vote your shares in person, even if you have sent in your proxy.

 

By Order of the Board of Directors,

 

 

Greg Rosenstein

Secretary

 

New Orleans, Louisiana

April 15, 2009

 

 

 

SUPERIOR ENERGY SERVICES, INC.
601 Poydras Street, Suite 2400
New Orleans, LA 70130

 

PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS

 

This Proxy Statement is being mailed to our stockholders on or about April 15, 2009.

 

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

 

 

 

ELECTION OF DIRECTORS

 

The size of the Board is currently fixed at six directors. The Board nominated the following six persons for election as a director at the annual meeting. Proxies cannot be voted for a greater number of persons. Unless you specify otherwise in your proxy card, your shares will be voted by the proxy holder FOR the election of each of the six nominees named below to serve until the next annual meeting and until their successors are duly elected and qualified. If any nominee should decline or be unable to serve for any reason, votes will be cast for a substitute nominee designated by the Board. The nominees have advised us that they will serve on the Board if elected.

 

Information About Directors

 

The Nominating and Corporate Governance Committee recommends, and the Board nominates, the following six individuals for election as directors at the annual meeting:

 

Harold J. Bouillion, 65, has served as a Director since November 2006. Mr. Bouillion is currently the Managing Director of Bouillion & Associates, LLC, which provides tax and financial planning services, a position he has held since 2002. From 1966 until 2002, Mr. Bouillion was with KPMG LLP where he served as Managing Partner of the New Orleans office from 1991 through 2002.

 

Enoch L. Dawkins, 71, has served as a Director since August 2003. He has approximately 50 years of experience in the energy industry. From 1991 until his retirement in March 2003, Mr. Dawkins served as president of Murphy Exploration and Production Company, a subsidiary of Murphy Oil. His career included

numerous management positions domestically and internationally with Ocean Drilling and Exploration, a company he joined in 1964, including serving as President from 1989 until its acquisition by Murphy Oil Company in 1991.

 

James M. Funk, 59, has served as a director since May 2005. Mr. Funk is presently an independent consultant and producer with over 30 years of experience in the energy industry. Mr. Funk served as Senior Vice President of Equitable Resources (now EQT) and President of Equitable Production Co. from June 2000 until December of 2003. Previously, Mr. Funk worked for 23 years at Shell Oil Company in senior management and technical positions. Mr. Funk has previously served on the boards of Westport Resources (April 2000 to June 2004) and Matador Resources Company (January 2003 to December 2008). Mr. Funk currently serves as a Director of Range Resources Corporation. Mr. Funk holds a PhD in Geology and is a certified petroleum geologist.

 

Terence E. Hall, 63, has served as the Chairman of the Board, Chief Executive Officer and a Director since December 1995. From December 1995 until November 2004, he also served as our President. Since 1989, he has also served as President and Chief Executive Officer of our wholly-owned subsidiaries Superior Energy Services, L.L.C. and Connection Technology, L.L.C., and their predecessors. Mr. Hall also serves as a director of Whitney Holding Corp.

 

Ernest E. “Wyn” Howard, III, 66, has served as a Director since January 2005. Mr. Howard retired as a director of Stratus Properties, Inc. in 1996, where he previously served as President and Chief Executive Officer. He also previously served as Chief Financial Officer, Executive Vice President and a director of Freeport-McMoRan Copper & Gold Inc. In the 1970s and 1980s, Mr. Howard served in a variety of executive capacities with Freeport-McMoRan, Inc. and its predecessor company, McMoRan Oil & Gas Co.

 

Justin L. Sullivan, 69, has served as a Director since December 1995. Mr. Sullivan has been a private investor and has served as a business consultant since May 1993. Prior to May 1993, he held senior operating and financial management positions with various companies in the forest products industry. Mr. Sullivan also has been an accounting faculty member of the University of New Orleans and Tulane University. Mr. Sullivan holds an MBA (accounting option) from Tulane University and is a certified public accountant.

 

CORPORATE GOVERNANCE

 

The Board is responsible for our management and direction and for establishing broad corporate policies. The Board and various committees of the Board regularly meet to review and discuss operating, compensatory and financial reports presented by management, as well as reports by experts and other advisors. In recent years, the Board has actively focused on succession planning and management development activities, seeking input from members of the board and senior management to find candidates for potential successors to the CEO and other senior executives. The Board considers our Company’s organizational needs, competitive challenges, the potential of senior leadership, future development and possible emergency situations. With these considerations in mind, the Board routinely discusses the experience, skills, areas of expertise, accomplishments and goals of potential talent from which the Board would be able to select successors to the CEO and other senior executives. The full board has the primary responsibility to develop succession plans for the CEO position.

 

Meetings of the Board; Meeting Attendance

 

There were 13 Board meetings in 2008. Each director attended at least 75% of the meetings of the Board and the committees of which he was a member. The Board of Directors has determined that the following directors are “independent” within the meaning of the New York Stock Exchange (NYSE) listing standards currently in effect: Ernest E. Howard, III, Justin L. Sullivan, James M. Funk and Harold J. Bouillion. Under NYSE listing standards, the Board is not able to consider our fifth non-management director, Enoch L. Dawkins, “independent” because one of his sons-in-law is a consulting principal with KPMG LLP, our independent registered public accounting firm.

The Board has adopted a policy that recommends that all directors personally attend each stockholders meeting. At the last annual meeting of stockholders held on May 21, 2008, all of our directors were in attendance.

 

Board Committees

 

Our Board has, as standing committees, an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. The Board has affirmatively determined that each member of each of our standing committees has no material relationship with the Company and is also “independent” within the meaning of NYSE listing standards. Members of the individual committees are named below:

 

 

 

 

Each of the Board’s standing committees (Audit, Compensation and Nominating and Corporate Governance Committees) has adopted a written charter that has been approved by the Board. Copies of these charters, as well as copies of our Corporate Governance Principles and our Code of Business Ethics and Conduct, are available on the investor relations page of our website at www.superiorenergy.com and are available in print upon request to our Secretary, Superior Energy Services, Inc. 601 Poydras Street, Suite 2400, New Orleans, LA 70130.

 

Audit Committee

 

The Audit Committee is primarily responsible for assisting the Board in fulfilling its fiduciary duties to our stockholders with respect to financial matters. The Audit Committee is also primarily responsible for evaluating and selecting our independent auditors, approving the nature and scope of services performed by the independent auditors and reviewing the range of fees for such services, conferring with the independent auditors and reviewing the results of their audits, overseeing our annual evaluation of the effectiveness of internal control over financial reporting and our internal audit function. The Audit Committee met five times during 2008. The Board has determined that each of Justin L. Sullivan, Ernest E. Howard, III and Harold J. Bouillion qualify as an “audit committee financial expert,” as such term is defined by the rules of the Securities and Exchange Commission.

 

Compensation Committee

 

The Compensation Committee determines the nature and amount of compensation of all of our executive officers, including our chief executive officer, determines the amount of equity awards granted to employees, provides guidance and makes recommendations to management regarding employee benefit programs and administers our long-term incentive plans. The Compensation Committee met eight times during 2008.

 

Our chief executive officer makes recommendations to the Compensation Committee for salary, bonus, and long-term incentive awards for all executive officers except himself. He develops these recommendations based on competitive market information, the Company’s compensation strategy, his assessment of the individual’s performance and tenure of the executives. The Compensation Committee discusses the recommendations with the chief executive officer, then either approves or modifies the recommendations as it determines is appropriate. Regarding the chief executive officer’s compensation, the Compensation Committee reviews the competitive market information and determines changes to pay and incentive awards based on the compensation strategy and their assessment of his performance.

 

Since May 2007, the Compensation Committee has engaged Pearl Meyer & Partners (“PM&P”), an independent compensation consultant, to advise the committee on matters relating to executive compensation

and assist it in maintaining and administering our executive compensation programs. The Compensation Committee annually requests PM&P to conduct an executive compensation review to benchmark the Company’s senior executive compensation relative to an industry peer group selected by the Compensation Committee with input from the compensation consultant and management and published market survey data. The 2008 review and the related market information are discussed in more detail under “Executive Compensation — Compensation Discussion and Analysis — Role of Compensation Consultant and Use of Benchmarking Data.”

 

The terms of our stock incentive plans permit the Compensation Committee to delegate to appropriate personnel its authority to make awards to employees other than those subject to Section 16 of the Securities Exchange Act of 1934; however, the committee has not delegated this authority to any individual.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee assists the Board in identifying qualified individuals to become directors, determining the composition of the Board and Board committees, monitoring the process to assess Board effectiveness and developing and implementing our Corporate Governance Principles. The Nominating and Corporate Governance Committee also reviews the compensation of our non-management directors. The Nominating and Corporate Governance Committee met three times during 2008.

 

Nominee Qualifications

 

When seeking candidates for director, the Nominating and Corporate Governance Committee identifies potential nominees for director through business and other contacts, other than potential nominees who are current directors standing for re-election. The committee will also consider director nominees recommended by stockholders in accordance with the procedures described in our By-laws. We did not pay any fee to any third party to identify or evaluate or assist in identifying or evaluating potential nominees for director at the 2009 annual meeting of stockholders. However, the committee may in the future choose to retain a professional search firm to identify potential nominees for director.

 

Stockholders who would like to propose a director nominee may do so by sending written notice containing the information required by our By-laws by mail, c/o Secretary, Superior Energy Services, Inc., 601 Poydras Street, Suite 2400, New Orleans, LA 70130. For the 2009 annual meeting, we did not receive timely notice of director nominations from any stockholder. Stockholder recommendations for the 2010 annual meeting will be considered for inclusion in our proxy materials only if received no later than the 120th calendar day before the first anniversary of the date our proxy statement was released to stockholders in connection with this year’s annual meeting (no later than December 16, 2009) with respect to recommendations for nominees to be considered at the 2010 annual meeting of stockholders.

 

The Nominating and Corporate Governance Committee believes that nominees to our Board of Directors must meet the following minimum qualifications: the nominee must have achieved significant success in the energy industry or have extensive financial expertise, particularly in the energy industry; must be committed to representing the long-term interests of our stockholders; and must have high ethical and moral standards and integrity. The committee evaluates a potential nominee by considering whether the potential nominee meets the minimum qualifications described above, as well as by considering the following factors:

 

 

In addition, with respect to an incumbent director whom the Nominating and Corporate Governance Committee is considering as a potential nominee for re-election, the committee reviews and considers the incumbent director’s service to us during his or her term, including the number of meetings attended, level of participation, and overall contribution to the Board. Each of the nominees for director at the 2009 annual meeting of stockholders is a current director standing for re-election. There are no differences in the manner in which the Nominating and Corporate Governance Committee evaluates nominees for director suggested by stockholders using the process set forth in our By-laws.

 

Executive Sessions; Lead Director

 

The Board has adopted a policy providing that the non-management directors meet regularly in executive session. The policy also provides that the Board elect a lead director each year. The lead director’s responsibilities include presiding over the executive sessions of the non-management directors and at other meetings of the Board in the absence of the Chairman. He communicates any issues discussed by the non-management directors back to the Chairman, confers with the Chairman at intervals between Board meetings, and assists in planning for Board and committee meetings. In addition, he acts as a liaison between the Board and the Chairman to ensure close communication and coordination between them and to promote a harmonious and effective relationship. The Board elected Mr. Dawkins to serve as lead director of the Board until the 2009 annual meeting of stockholders.

 

Stock Ownership Guidelines

 

On March 2, 2007, the Board of Directors approved stock ownership guidelines applicable to our non-management directors. Under the guidelines, each non-management director is required to own shares of stock equal in value to five times the annual retainer paid to the non-management directors. The non-management directors will have five years to comply with the guidelines, and the restricted stock units held by these directors (which are described below) will be counted towards their ownership requirements. See “Stock Ownership of Management” for the number of shares of our common stock beneficially owned by our non-management directors as of March 31, 2009.

 

Communications with the Board

 

Stockholders and other interested parties may communicate directly with one or more members of our Board, or the non-management directors as a group, by sending a letter by mail addressed to Secretary, Superior Energy Services, Inc., 601 Poydras Street, Suite 2400, New Orleans, LA 70130. The secretary will forward the communication directly to the appropriate director or directors.

 

Compensation Committee Interlocks and Insider Participation

 

During 2008, the Compensation Committee was composed entirely of non-management directors and none of our executive officers served as a director or member of the compensation committee of another entity whose executive officers served on the Board.

 

DIRECTOR COMPENSATION

 

Our non-management directors receive an annual retainer of $40,000 a year. The chairman of the Audit Committee receives an additional retainer of $20,000 a year; the chairman of the Compensation Committee receives an additional retainer of $15,000 a year; the chairman of the Nominating and Corporate Governance Committee receives an additional retainer of $10,000 a year; and our lead director receives an additional retainer of $25,000 a year. These amounts are paid in equal monthly installments. Non-management directors also receive a $1,500 fee for each Board and committee meeting attended. In addition, at the Board’s request, each of Messrs. Funk and Dawkins is a member of the management committee of an equity method investment of the Company. In connection with their service on the management committee, each receives an additional $20,000 annual retainer and $1,500 for each management committee meeting attended.

In order to closely align the non-management directors’ compensation with the financial interests of our stockholders, a significant portion of their compensation is paid in equity in accordance with the terms of our Amended and Restated 2004 Directors Restricted Stock Units Plan (the “Directors Plan”). Under the terms of the Directors Plan, on the day following each annual meeting of stockholders, each non-management director is automatically granted a number of restricted stock units (“RSUs”) having an aggregate value equal to a specified dollar amount set by the Board of Directors (the “RSU Compensation Amount”), which was $140,000 for 2008. The exact number of units granted is determined by dividing the RSU Compensation Amount by the closing price of our common stock on the day of the annual meeting. An RSU represents the right to automatically receive from us, within 30 days of the date the participant ceases to serve on the Board, one share of our common stock. In addition, upon any person’s initial election or appointment as an eligible director, otherwise than at an annual meeting of stockholders, such person will receive a pro rata number of RSUs based on the number of full calendar months between the date of grant and the first anniversary of the previous annual meeting. The Board has set the RSU Compensation Amount for 2009 at $140,000.

 

The table below summarizes the compensation of our non-management directors for the fiscal year ended December 31, 2008. Mr. Hall does not receive any special compensation for his service as a director. His compensation as an executive is reflected in the “Summary Compensation Table” herein. All non-management directors are reimbursed for reasonable expenses incurred in attending Board and committee meetings.

 

2008 Director Compensation

 

 

 

 

 

 

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

The following table shows the number of shares of our common stock beneficially owned as of December 31, 2008 by persons known by us to beneficially own more than 5% of the outstanding shares of our common stock. The information in the table is based on our review of filings with the Securities and Exchange Commission. Each person listed below has sole voting and investment power with respect to the shares beneficially owned unless otherwise stated.

 

 

 

 

STOCK OWNERSHIP OF MANAGEMENT

 

The following table shows the number of shares of our common stock beneficially owned as of March 31, 2009 by (i) our directors, (ii) our chief executive officer, chief financial officer and three other most highly-compensated executive officers, and (iii) all of our directors and executive officers as a group. The information in the table is based on our review of filings with the Securities and Exchange Commission. Each person listed below has sole voting and investment power with respect to the shares beneficially owned unless otherwise stated.

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and 10% stockholders to file with the Securities and Exchange Commission reports of ownership and changes in ownership of our equity securities. Based solely upon our review of the Forms 3, 4 and 5 filed during 2008, and written representations from certain reporting persons that no Forms 5 were required, we reasonably believe, with the exception noted below, that all required reports were timely filed. A Form 4 for Charles M. Hardy to report his purchase of 1,800 shares of common stock on September 5, 2008 was inadvertently filed two days late on September 11, 2008.

 

EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Summary

 

This Compensation Discussion and Analysis is designed to provide stockholders with an understanding of our compensation philosophy and objectives as well as the analysis that we performed in setting executive compensation. It discusses the Compensation Committee’s determination of how and why, in addition to what, compensation actions were taken for the executive officers who are identified in the Summary Compensation Table below (the “named executive officers”).

 

The Compensation Committee is committed to and responsible for designing, implementing, and administering a compensation program for executive officers that ensures appropriate linkage among pay, Company performance, and results for stockholders. The committee seeks to increase stockholder value by rewarding performance with cost-effective compensation and ensuring that we can attract and retain executives with the skills, educational background, experience and personal qualities needed to successfully manage our business.

 

Our executive compensation program is intended to provide incentives for executives to:

 

 

To achieve these objectives, the Company uses several different compensation elements that are geared to both the short-and long-term performance of the Company. The following principles influence the design and administration of the Company’s executive compensation program:

 

 

We believe that executive compensation should be highly influenced by and correlated to the Company’s overall performance and stockholder return. In addition, the performance of the executive and the teamwork exhibited by the executive must be considered. We work to design plans that pay out based on the achievement of specific performance targets, realizing that the goal-setting process and the administration of incentive compensation plans in our industry are less than perfect primarily due to its historical volatility and cyclicality as a result of commodity pricing. We also believe that incentive compensation should make up the largest part of an executive’s compensation package, and the incentive portion should increase when performance warrants, and decrease when it does not. Our total compensation program for executives includes short- and long-term incentives, which are both directly linked to company performance through the performance criteria in the program.

 

 

We are committed to providing a competitive compensation program for our executives, as well as all of our employees. It is critical in the energy industry to provide competitive pay, without which it is very difficult to attract and retain the caliber of talent required to be successful in our industry. The Compensation Committee has approved, with input from management and the Committee’s compensation consultant, our pay strategy relative to the market. We have established a process for evaluating the competitiveness of all elements of direct compensation, including base pay, and short- and long-term incentives.

 

 

For the executive team, the majority of the compensation program is at risk through short-term and long-term incentives. We consider incentives to be at risk if the compensation opportunity at the start of the performance cycle can vary depending upon the Company’s performance. Our executives receive payments under our annual cash bonus program only when the Company meets or exceeds annual goals established and approved by the Committee. Our long-term awards, which are split between time- and performance-based incentives, are also at-risk compensation. The ultimate value of the performance-based, long-term incentives is based upon the extent to which the Company outperforms its industry peers over a three-year period, and the ultimate value of the time-vested awards is determined by the Company’s stock price at vesting. We believe that having a compensation program for executives that emphasizes pay at risk strengthens the alignment between pay and stockholder interests. See “Components of Executive Compensation — Long Term Incentives” herein for more information.

 

 

In designing our incentive compensation programs, we have attempted to strike a meaningful balance between short-term motivation and long-term value. For example, we utilize an annual incentive compensation program that rewards executives for the achievement of annual goals geared to the profitability and safety performance of the Company. However, so as not to overemphasize the short-term at the expense of the long-term, we provide long-term incentive opportunities which have significantly more potential reward value to the executive if goals are met and share price grows. As part of our annual evaluation of the compensation program, we consider whether the program is balanced in terms of base pay and incentives, both short- and long term.

 

 

A primary focus of our compensation program is to motivate executives to stay with the Company and create long-term stability for the Company. We believe one of the keys to retaining key employees is to

provide a competitive total compensation opportunity. To reinforce this objective, we have included design elements in the program that provide strong retention incentives. Executives forfeit their opportunity to earn a payout from the performance-based long-term incentives (PSUs) if they voluntarily leave the Company before the three-year performance cycle is complete, except in the case of retirement. Also, the use of time-vested restricted stock and stock options provide a strong incentive for employees to stay with the Company.

 

 

We have taken several steps to encourage our executives to be owners of Company stock and thereby have a strong alignment with stockholder interests. First, we grant shares of time-vested restricted stock as one of our long-term incentives. Second, if payout occurs with our performance-based long-term incentives (PSUs), the value of the payment to the executive can be made with up to 50% stock at the discretion of the Committee. Finally, our stock ownership guidelines require our executive officers to own shares of Company stock equivalent to a stated multiple of the executive’s base salary. The multiple varies depending on the executive’s job title. See “Executive Compensation Policies and Procedures — Stock Ownership Guidelines” herein for more information.

 

Role of Management in Setting Compensation

 

Our chief executive officer is involved in recommending the compensation of our executive officers, other than himself. Each year, the CEO makes recommendations to the Committee regarding salary adjustments, discretionary bonus awards under the annual incentive program and long-term incentive grants to our other executive officers. In formulating his recommendations, the CEO considers various factors, including his subjective analysis of the individual’s performance and contributions, the performance of his business unit (if applicable to the particular officer), experience level, tenure in position, the average base pay level for similar positions, and the Company’s performance. Although the Committee considers the CEO’s recommendations, the Committee makes all final determinations regarding executive compensation.

 

Role of Compensation Consultant

 

Since May 2007, the Committee has engaged Pearl Meyer & Partners (“PM&P”) as its independent executive compensation consultant to advise the Committee on matters relating to executive compensation and assist it in developing and implementing our executive compensation programs. The Committee also discussed this Compensation Discussion and Analysis with PM&P. During 2008, PM&P did not provide any non-executive consultation services to management, and will not provide such services going forward unless approved in advance by the Committee. During 2008, the Committee also engaged the services of Mercer, Inc. to provide specific information and advice in connection with the Board’s adoption of a supplemental executive retirement plan for our executive officers due to Mercer’s specialized expertise in the field of supplemental retirement benefits. Mercer provided information and advice on the prevalence of these programs among our peers and alternative methods of structuring the program. Further, the Committee had proposed an additional retirement benefit for Mr. Hall, and Mercer provided data to assist the Committee in evaluating the market with respect to this additional retirement benefit. The Board, at the Committee’s recommendation, adopted the supplemental executive retirement plan, including an additional retirement benefit for Mr. Hall, in December 2008, which is discussed in more detail herein under “Components of Executive Compensation — Post-Employment Compensation.”

 

Annual Benchmarking Process, Peer Groups and Survey Data

 

In 2005, the Committee established a peer group consisting of 12 oilfield services companies (the “Performance Peer Group”) against which it evaluates the Company’s financial performance. This group now consists of 11 oilfield services companies, which are listed below, as one of the original companies was acquired. The Committee uses the Performance Peer Group to measure our financial performance under our Long Term Incentive program, which is described further below.

During 2007, considering changes that have occurred in the industry since the Performance Peer Group was established and the increased size and scope of the Company’s operations, the Committee, with assistance from PM&P, established a new, expanded peer group to benchmark executive compensation (the “Compensation Peer Group”), which group is evaluated each year. The Compensation Peer Group is currently comprised of 16 companies in the oilfield services industry with comparable revenue ranges, and includes companies with whom we compete for executive talent as well as performance. The Committee used the Compensation Peer Group in its evaluation of executive compensation for 2008.

 

 

The Committee annually requests its consultant to conduct an executive compensation review to benchmark the Company’s senior executive compensation relative to the Compensation Peer Group with supplemental data from published market surveys. During 2008, at the Committee’s request, PM&P conducted this executive compensation review, reviewing all components of our compensation program. PM&P was also asked to examine long-term incentive trends and summarize market norms, including evaluation of share allocation and dilution levels. The Committee used this study to evaluate executive compensation levels, including base salary and actual incentive payouts relative to the market and the Company’s stated strategy.

 

PM&P supplements data from the Compensation Peer Group with broad-based compensation survey data to develop a comprehensive view of the competitive market data. The Committee believes that this use of survey data is an important element of our compensation evaluation. Compensation survey data includes companies from the broader energy industry that influence the competitive market for executive compensation levels. Further, survey data is drawn from the surveys representing companies that are comparable to the Company in terms of size and scale.

 

The Committee has reviewed and evaluated an executive tally sheet that contained a listing and quantification (as appropriate) of each component of our compensation program for all of our executive officers in 2008, including special executive benefits and perquisites, as well as accumulated values (e.g., stock option holdings) and other contingent compensation such as severance arrangements. The Committee believes that our balance of annual and long-term compensation elements, our mix of long-term incentive vehicles and our stock ownership guidelines that encourage executive ownership result in a compensation program that aligns our executives’ interests with those of our stockholders and does not encourage our management to take unreasonable risks relating to our business. The various components of our executive compensation program are described in detail in the sections to follow.

Components of Executive Compensation

 

The main components of our executive compensation program are base salary, annual bonus and long-term incentives. We also provide our executives with certain post-employment benefits, including a supplemental executive retirement plan that was adopted in December 2008, and which is described herein. Overall, the Company positions the majority of the executive compensation program to be at-risk based on measurable performance, with a specific emphasis on the long-term performance of the Company. As an executive’s level of responsibility increases, a greater portion of total compensation is at risk, creating the potential for greater variability in the individual’s compensation level from year to year. The following charts illustrate the mix of compensation elements for our named executive officers.

 

 

As reflected above, the CEO’s component mix is more heavily weighted towards long-term performance and reflects the Committee’s view that his role in setting the strategic direction of the Company gives him greater influence on the ultimate performance level achieved. The Committee believes that its current combination of programs provides an appropriate mix of fixed and variable pay, balancing short-term and long-term performance, and encouraging executive retention. A description of each element of the Company’s compensation program follows.

 

Base Salary

 

The primary role of the Company’s base salary element is to compensate executives for the experience, education, personal qualities and other qualifications that are key for their specific role within the Company. In establishing base cash compensation for our executives, we target the market median. Specifically, we strive for overall executive salaries to be close to the market median on a composite basis. We generally consider individual base salaries that are either +/- 10% of the market median to be within the competitive range of the median target.

 

Due to constant increases in the market levels, the Company’s growth and our practice of setting salary levels “close” to the market median, the base salaries of certain of our executives, including our CEO, have consistently fallen below the median in recent years. Considering the Company’s exceptional operating performance, the Committee believed this positioning did not adequately compensate our most senior executives for the value they bring to the Company. We believe that it is important that the Company provide our executive team with a competitive base salary, enabling us to attract and retain the executive talent necessary to carry out the Company’s business strategy.

 

In connection with PM&P’s 2008 review of our executive compensation program, base salaries of our executive officers were once again evaluated, and a majority were found to be positioned below the current market median. Considering the increased growth and profitability of the Company during 2008, the Committee raised executive base salaries effective January 1, 2009. The overall base salary increase was 6.7% for the named executive officers, with individual increases ranging from 4.3% to 9.6%. The CEO’s base salary increased by 8.6% to $825,000. In making the adjustment to Mr. Hall’s base salary, the Committee reviewed Mr. Hall’s exceptional performance during 2008, the Company’s sustained high performance under Mr. Hall’s

leadership, and noted the need to remain competitive with the market. Mr. Hall’s increase moved him to 8% above the market median.

 

In March 2009, the executive team voluntarily elected to reduce their salaries, with Mr. Hall’s base salary being reduced by 15%, Mr. Blanchard’s reduced by 12%, and all of our other executive officers’ base salaries being reduced by 10%. These voluntary salary reductions were implemented in recognition of the current economic climate and to demonstrate to the Company’s workforce the commitment of the executive team to cost control. These salary reductions will remain in place for an indefinite period of time.

 

Annual Incentive Bonus

 

The purpose of the Company’s annual incentive bonus program is to reward executives for achievement of annual operational, financial and safety goals. Although the Committee sets annual incentive target levels that result in median payouts when performance objectives are met, this program provides executives the opportunity to earn significantly higher payments depending on the extent to which these performance objectives are exceeded. Further, in line with our pay-for-performance philosophy, the Committee has also made additional discretionary cash awards to recognize exceptional Company performance, as was the case in 2008.

 

In administering the annual incentive bonus plan, our Compensation Committee annually approves the minimum, target and maximum award opportunities for all of the executives and the annual incentive plan goals at the beginning of the performance cycle. For the 2008 plan year, the Committee approved pre-tax income as the performance measure for the plan, and determined that pre-tax income of $491.7 million would be the target goal for 2008. This target represented a 31% increase from the pre-tax income target for the 2007 annual incentive bonus program. Following the end of the performance cycle, our actual operating results for the year could be adjusted for extraordinary events, including, among other things, gains and losses on the sale of businesses and hedging activities.

 

Under the plan, our named executive officers were eligible to receive an annual incentive bonus based on a target percentage of their base salary. They could earn more, or less, than the target amount based on the level of achievement as measured against the pre-tax income goals. The possible bonus payout levels for 2008 for each named executive officer, stated as a percentage of the officer’s base salary, are as follows:

 

 

The pre-tax income goal for the target payouts was equivalent to the Company’s budgeted pre-tax income goal approved by the Board for 2008, with the financial goal associated with minimum payout equivalent to 90% of the target goal and the goal for maximum payout equivalent to 110% of the target goal.

 

Assuming the particular executive officer qualified for an annual incentive bonus payout, the payout could either be reduced by a maximum of 25% if pre-determined “base” metrics were not met or increased by a maximum of 12.5% for achieving “stretch” targets. The metric applicable to the Company’s executive officers was safety performance. Total Recordable Incident Rate (TRIR) and Lost Time Incident Rate (LTIR) were used and weighted equivalently to measure safety performance for their area of responsibility. In 2008, the base and stretch TRIR and LTIR thresholds were set to .69/.62 and .07/.06, respectively. Thus, if the Company did not achieve at least the base threshold level for each metric (.69 for TRIR and .07 for LTIR), then each named executive officer’s annual incentive bonus would be proportionately reduced by up to 25%. If the levels achieved for each metric were between the base and stretch targets for both metrics, then there would be a proportionate adjustment to the officers’ annual incentive bonuses. Finally, if the Company reached

or exceeded the stretch targets for each measure (.62 for TRIR and .06 for LTIR), then each officer’s annual incentive bonus would be increased by 12.5%.

 

In February 2009, the Committee reviewed the results of the 2008 annual incentive bonus program and the bonus recommendations submitted by the CEO for each executive officer except himself. For the primary performance measures, the Company had an exceptional year, achieving 112% (as adjusted) of the maximum pretax income goal and excellent results in terms of the safety metrics (.61 for TRIR and .04 for LTIR), resulting in a 12.5% increase in the calculated bonus amount for achieving the “stretch targets.” The Committee recognized that although general economic conditions had begun to decline in the fall of 2008, the Company’s financial performance for the year ended 2008 was exceptional, with record results in total revenues ($1.9 billion), income from operations ($566 million) and earnings per share ($4.45). After considering the Company’s performance and the accomplishments of the executive team during 2008, the Committee approved the CEO’s recommendations for making additional discretionary award payments outside of the annual incentive program. These payments ranged from an additional 14% to 37% of base salary for our named executive officers other than the CEO, although the Committee did not base each officer’s award on a percentage of his base salary. Rather, the amount of each named executive officer’s award was determined by the Committee based on its subjective assessment of each officer’s impact on these achievements and after reviewing the recommendations of the CEO. The Committee also considered a discretionary bonus award for the CEO. After considering the same factors outlined above, and discussing Mr. Hall’s performance during 2008 and his impact on the growth, profitability and strategic direction of the Company, the Committee approved a discretionary award of $300,000, or 39%, of his 2008 base salary. Mr. Hall’s total bonus payment amounted to approximately 242% of his 2008 base salary.

 

In February 2009, the Committee also approved the parameters of the annual incentive program for 2009, providing for minimum, target and maximum annual incentive award levels, as a percentage of salary, based upon the achievement of 90%, 100% and 110% of pretax income goals established at the beginning of the year. As in 2008, the annual cash incentive award payout levels will vary depending on the executive’s position.

 

Long-Term Incentives

 

The purpose of our long-term incentive program is to focus executives on long-term Company goals, growth and creation of stockholder value. Under the long-term incentive (“LTI”) program, we grant a mix of long-term incentive awards, including stock options, restricted stock and performance share units (PSUs). Consistent with the Company’s compensation philosophy, the Committee believes stock-based incentive awards are one of the best ways to align the interests of our executives with those of our stockholders. In addition, the terms of the PSUs reflect the Committee’s belief that executive compensation should be tied to Company performance. The PSUs provide our executives the opportunity to earn at or above the 75th percentile of the market if the Company achieves the maximum level of performance relative to its peers as described below.

 

Description of Program

 

As mentioned above, the Company’s LTI program provides for annual grants of stock options, restricted stock and PSUs. These awards vest over a three-year period, with the stock options and restricted stock vesting in equal annual increments during the three-year period. The ultimate value of each of these awards depends upon Company performance. In addition, the stock options and restricted stock awards contain forfeiture provisions, requiring the executive to return the award or any gain thereon if he engages in certain competitive activity with the Company during his employment or within three years thereafter, and the PSUs restrict a participant’s ability to be afforded retiree treatment if he engages in certain competitive activity prior to the payout date of the PSUs. We believe these awards further our compensation philosophies for the following reasons:

 

 

 

Under both performance criteria, the maximum, target and minimum levels are met when our ROIC and stockholder return are in the 80th percentile, 60th percentile and 40th percentile, respectively, as compared to the ROIC and total stockholder return of the Performance Peer Group, as described in the table below:

 

						Percent of
						Date-of-Grant Value
		Percent of				of PSU Received for
		Date-of-Grant Value				Relative Total				Total Percent of
Performance Level		of PSU Received for				Shareholder Return				Date-of-Grant Value
Relative to Performance Peer Group		Relative ROIC Level				Level				of PSU Received
(Below 40th Percentile)			0	%			0	%			0	%
Minimum (40th Percentile)			25	%			25	%			50	%
Target (60th Percentile)			50	%			50	%			100	%
Maximum (80th Percentile or above)			100	%			100	%			200	%

 

Results that fall in-between the “maximum,” “target” and “minimum” levels of both performance criteria will be calculated based on a sliding scale.

 

Determination of 2008 Awards

 

In December 2007, the Committee established and made grants under the LTI program for 2008. Under the program, each of the executive officers has a target percentage established to determine the award values under the LTI program. After considering PM&P’s most recent market study and in order to remain competitive with the market median and the increasingly competitive market for executive talent in the Company’s business areas, the Committee set the target percentages of the executive officers for 2008 awards based on each officer’s position with the Company as follows (each representing a percentage of the officer’s base salary): CEO — 400%, COO — 275%, CFO — 250%, the Senior EVP — 225% and other EVPs — 175%. These percentages were consistent with the prior year’s target percentages, except that Mr. Hall’s

percentage was increased from 375%, and did not include any discretionary increase in the award levels as occurred in prior years. The 2008 award mix for executive officers was 25% in stock options, 25% in restricted shares and 50% in PSUs.

 

Determination of 2009 Awards

 

In December 2008, the Committee established and made grants under the LTI program for 2009, once again using a combination of PSU’s, restricted stock and stock options for the executive officers. The CEO made a recommendation to the Committee taking into consideration many of the same factors used for the 2008 awards, focusing on the Company’s overall financial and non-financial results, and the continuing need to remain competitive in a strong market. The Committee set the target percentages of the executive officers for 2009 awards at the same levels as the 2008 awards. The 2009 award mix for executive officers was 25% in stock options, 25% in restricted shares and 50% in PSUs.

 

Payout of 2006 PSUs

 

The PSUs granted for the performance period beginning in January 2006 vested at the end of 2008, and were paid out to the PSU recipients in early 2009. Based on the achievement of 94.6% of relative ROIC and 75.6% of relative total shareholder return, the named executive officers earned a total of $189.00 out of a maximum $200.00 per PSU granted to them for 2006. As permitted under the program, the Committee delivered a portion of the award value in shares of common stock, choosing to issue participants the same number of shares that were issued under the program in 2008. This resulted in a PSU award allocation that was approximately 17% common stock, and the remaining balance in cash. The total value of the payout received by each named executive officer is reflected in the “Summary Compensation Table” herein and is described below:

 

 

Perquisites

 

We seek to maintain a cost conscious culture in connection with the benefits provided to executives. Further, our modest approach to providing perquisites supports our philosophy of relating the vast majority of our executives’ compensation to performance. The Company does provide each of our executive officers an automobile (either through an allowance or use of a Company owned or leased car) and also reimburses them for all deductibles, co-pays and other out of pocket expenses associated with our health insurance programs through a program called Exec-U-Care. In addition, Mr. Hall is allowed to use a corporate airplane for personal travel. We believe that such an accommodation for our chief executive officer is warranted because it promotes access to our CEO and mitigates safety concerns associated with public travel. Mr. Hall, however, reimburses the Company for his personal travel on the corporate airplane in an amount equal to the cost of a first class, nonrefundable ticket to his destination. Mr. Hall also reimburses the Company for any incidental expenses incurred during his personal travel, such as baggage handling fees at the airport and meals for the pilots.

 

The attributed costs of the personal benefits described above for the named executive officers for the fiscal year ended December 31, 2008, are included in the “Summary Compensation Table” herein.

Post-Employment Compensation

 

In addition to the annual compensation received by the executive officers during 2008 and benefits under the company’s 401(k) plan, which we provide to all qualified employees, we also provide certain post-employment benefits to our executive officers, including a supplemental executive retirement plan, a non-qualified deferred compensation plan, and certain severance and change of control benefits pursuant to employment agreements that we have entered into with each of our executive officers.

 

Supplemental Executive Retirement Plan (the “SERP”).  Prior to December 2008, the Company’s retirement program for all employees, including its executives, consisted solely of a retirement plan qualified under and subject to the limits of Section 401(k) of the Internal Revenue Code. Over the last few years, the Committee has been considering implementing some form of supplemental retirement program for our executive officers and in 2008 engaged an independent consultant specializing in this field to provide information and advice on the prevalence of these programs and alternative methods of structuring the program. After evaluating the Company’s executive retirement program as compared to the Compensation Peer Group and finding that a majority of the Company’s peers sponsor a nonqualified employer-paid retirement plan, the Committee concluded that the Company’s lack of supplemental retirement benefits limited its ability to attract top executives and encourage long-term retention. The SERP provides retirement benefits to the Company’s executive officers and certain other designated key employees. The value of aggregate projected retirement benefits is targeted to be near the median for the Company’s peers that have a nonqualified employer-paid retirement plan. The SERP is an unfunded, non-qualified defined contribution retirement plan, and all contributions under the SERP will be in the form of credits to a notional account maintained for each participant.

 

Annual Contributions.  Under the SERP, the Company will generally make annual contributions to a retirement account based on the participant’s age and years of service. Several of the Company’s top executives have dedicated a substantial portion of their careers to the Company during periods in which supplemental retirement benefits were not provided by the Company or may have limited time to earn any meaningful supplemental retirement income due to their age. In an effort to address this deficiency in their retirement income as compared to newly hired and younger executives, the SERP provides that current executives who had combined age and years of service of at least 55 as of December 31, 2008, will receive higher annual contributions under the SERP. For 2008, the current participants in the plan received contributions ranging from 5% to 25% of salary and annual cash bonus. For a complete description of the 2008 contributions for each named executive officer, see the table entitled “Nonqualified Deferred Compensation for Fiscal Year 2008” herein.

 

Additional Retirement Benefit for Mr. Hall.  The Committee, in its sole discretion and if it deems appropriate for any reason, may also make discretionary contributions to a participant’s retirement account. For example, the Committee may elect to make such contributions in order to enhance the retirement benefits payable to executives who have provided long-term service to the Company but will not have an opportunity for long-term participation in the plan, or as an additional incentive to recruit new executives. While evaluating the need to provide supplemental retirement benefits to the Company’s executives, the Committee and the Board also reviewed the forms and amount of compensation provided to Mr. Hall during his career with the Company. Mr. Hall, the founder of the Company, has served as chief executive officer of the Company and its predecessors since 1980 and has led the Company through tremendous growth and strong financial performance through all industry cycles. During this time, Mr. Hall has successfully implemented a decentralized operating and growth strategy for the Company’s business that management believes is unique among the leading oilfield services companies. In evaluating the need to provide Mr. Hall with an additional retirement benefit, the Committee considered the following factors. The Company went public in December 1995 and during 1996 had approximately 165 employees and generated revenues of $23.6 million and diluted earnings per share of $0.22. By the end of 2007, the Company had grown to more than 4,800 employees in more than 120 locations in 13 countries, with revenues of approximately $1.6 billion and diluted earnings per share of $3.41. This performance reflects a compound annual growth rate of approximately 47% for revenue and 28% in diluted earnings per share from 1996 through 2007. Further, the Company’s growth continued through the first nine months of 2008, with revenues of approximately $1.4 billion and diluted earnings per

share of $3.36. The Committee also noted that the Company was one of just 24 companies named to the Wall Street Journal Honor Roll in 2007 for consistently ranking among the top 20 percent of the largest 1,000 publicly traded companies for compound annual total returns over the one, three, five and ten year periods ending December 31, 2006. In addition, the Company has been ranked number one in terms of Total Recordable Incident Rate (TRIR) in our safety peer group for the last three years.

 

After reviewing the above information, the Board determined that although the Company has prospered under Mr. Hall’s leadership, Mr. Hall has been under-compensated relative to other founders of strong performing companies in our industry, particularly during the time right after the Company went public. Moreover, the Company has not previously provided supplemental retirement benefits to its executives, including Mr. Hall, and has only contributed approximately $64,000 to its 401(k) plan on his behalf during his near 30 years with the Company. In an effort to address the inadequate retirement benefits available to Mr. Hall, on December 15, 2008, the Board approved an additional retirement benefit for Mr. Hall that will be provided through the SERP. Mr. Hall will receive an additional fully vested, credit to his retirement account in the amount of $10 million. This amount will be credited on the later of his separation from service from the Company or attainment of age 65; or, if earlier, in the event of Mr. Hall’s death, disability or in the event of a change of control. The aggregate value of Mr. Hall’s retirement account, including any additional contributions, will be paid in five annual installments commencing on the later of the date Mr. Hall separates from service or attains the age of 65, subject to any further delays required by Section 409A of the Internal Revenue Code. The aggregate value of Mr. Hall’s benefits under the SERP, together with the retirement benefits due Mr. Hall under the Company’s 401(k) plan, is projected to provide an income replacement of approximately 50% of his final five-year average base salary plus annual cash bonus. This is within the median range for income replacement from all retirement benefits provided to chief executive officers with comparable service of the Company’s peers that have nonqualified employer-paid retirement plans, inclusive of plans closed to new participants but that continue to accrue benefits. In addition, in December 2008, the term of Mr. Hall’s employment agreement was amended to provide for a three year term at all times, subject to notice by either party to fix the term at three years beginning in 2010.

 

Nonqualified Deferred Compensation Plan.  In 2004 the Committee approved a nonqualified deferred compensation program. The purpose of the program is to provide an income deferral opportunity for executive officers and certain senior managers of the Company in order to help attract and retain these key employees. Participants in the program may make an advance election each year to defer up to a maximum of 75% of base salary, 100% of their annual bonus and 100% of the cash payment received upon payout of the PSUs. Participants may choose from a variety of investment choices to invest their deferrals over the deferral period. The plan provides that, upon approval by the Board, the Company could match up to 100% of their deferrals; however, the Company has never elected to grant a match. For a complete description of each named executive officer’s contributions, earnings and aggregate account balance, see the table entitled “Nonqualified Deferred Compensation for Fiscal Year 2008” herein.

 

Severance and Change of Control Benefits.  We believe that severance protections, particularly in the context of a change of control transaction, can play a valuable role in attracting and retaining key executive officers by providing protections commonly provided in the market. In addition, we believe these benefits also serve the Company’s interest by promoting a continuity of management in the context of an actual or threatened change of control transaction. Although we consider these protections an important part of an executive’s compensation and consistent with competitive practices, the existence of these arrangements does not impact our decisions regarding other components of our executive compensation program.

 

As described in more detail under “Potential Payments Upon Termination or Change in Control” below, we have entered into employment agreements with each of our named executive officers, pursuant to which they are each entitled to severance benefits in the event of a termination of employment by the Company under certain conditions. As discussed above, in December 2008, the term of Mr. Hall’s employment agreement was amended to provide for a three year term at all times, subject to notice by either party to fix the term at three years beginning in 2010. The Company has determined that it is appropriate to provide these executives with severance benefits under these circumstances in light of their positions with the Company and as part of their overall compensation package. The severance benefits for these executives are generally

designed to approximate the benefits each would have received had he remained employed by the Company through the remainder of the term covered by his employment agreement.

 

The Company also believes that the occurrence, or potential occurrence, of a change of control transaction will create uncertainty regarding the continued employment of our executive officers. This uncertainty results from the fact that many change of control transactions result in significant organizational changes, particularly at the senior executive level. In order to encourage our executive officers to remain employed with the Company during an important time when their prospects for continued employment following the transaction are often uncertain, we provide our executive officers with enhanced severance benefits if their employment is terminated by the Company without cause or, in certain cases, by the executive in connection with a change of control. Because we believe that a termination by the executive for good reason may be conceptually the same as a termination by the Company without cause, and because we believe that in the context of a change of control, potential acquirors would otherwise have an incentive to constructively terminate the executive’s employment to avoid paying severance, we believe it is appropriate to provide severance benefits in these circumstances. The payment of cash severance benefits is only triggered by an actual or constructive termination of employment. Under the respective award agreements, the stock options, restricted stock and performance share units will automatically vest upon a change of control of the Company.

 

The terms of the employment agreements and the benefits provided thereby are discussed more fully in the section entitled “Potential Payments Upon Termination or Change in Control” herein.

 

Executive Compensation Policies and Processes

 

Timing of Long-Term Incentive Awards

 

Beginning in December 2006, the Committee determined that it would make all LTI awards at its meeting held in December of each year. This practice is reflected in the Committee’s annual calendar, which details the timing of compensation events and associated Committee actions.

 

Policy Regarding Section 162(m) of the Internal Revenue Code

 

Section 162(m) of the Internal Revenue Code generally limits our ability to take a federal income tax deduction for compensation paid to our chief executive officer and other named executive officers in excess of $1 million, except for qualified performance-based compensation. The stock options and PSUs we grant are designed to qualify as performance-based so they are not subject to this deduction limitation. While the Committee will seek to utilize deductible forms of compensation to the extent practicable, it believes it is important to preserve flexibility in administering compensation programs. Accordingly, the Company has not adopted a policy that all compensation must qualify as deductible under Section 162(m).

 

Stock Ownership Guidelines

 

With the creation of the current LTI program, the Company has encouraged stock ownership through equity awards to our executives. We believe it is important that the interests of our executives and directors be aligned with the long-term interests of our stockholders. Effective January 1, 2007, the Committee adopted stock ownership guidelines applicable to our executive officers. Under the guidelines, each executive officer is required to own shares of stock equal in value to a designated multiple of his or her base salary based on the executive’s position:

 

The required share amount is determined as of the date the officer becomes subject to the guidelines, and is calculated by dividing such officer’s applicable base salary multiple by the 365-day average closing price of our common stock as reported on the New York Stock Exchange, and then rounding to the nearest 100 shares. The target ownership level does not change with changes in base salary or common stock price, but will change in the event the officer’s position level changes. Our executive officers are required to achieve their required ownership levels within five years from the date they become subject to the guidelines. The Committee will administer the guidelines and will periodically review each participant’s compliance (or progress towards compliance) and may impose additional requirements the Committee determines are necessary or appropriate to achieve the purposes of this program. As of the date of this proxy statement, all of our named executive officers had reached or exceeded their required ownership levels. See “Stock Ownership of Management” for the number of shares of our common stock beneficially owned by our named executive officers as of March 31, 2009.

 

Policy Regarding Section 280G of the Internal Revenue Code

 

Pursuant to their employment agreements, we provide each of our executive officers with a gross-up payment to reimburse the executive for any excise tax imposed by Section 4999 of the Internal Revenue Code, as well as any additional income and excise taxes resulting from such reimbursement, in connection with a termination of employment following a change in control. Section 4999 imposes a 20% excise tax on the recipient of an “excess parachute payment” and Section 280G of the Internal Revenue Code disallows the tax deduction to the payor of any amount of an excess parachute payment that is contingent on a change of control. The intent of the tax gross-up is to provide a benefit without a tax penalty to those executives who are displaced in the event of a change in control. We believe the provision of tax protection for excess parachute payments for these executive officers is consistent with market practice, is a valuable executive retention tool, and is consistent with the objectives of our overall executive compensation program.

 

Compensation Committee Report On Executive Compensation

 

The Compensation Committee of our Board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management, and based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

 

Submitted by the Compensation Committee on
April 7, 2009:

 

Harold J. Bouillion
James M. Funk
Justin L. Sullivan

 

EXECUTIVE OFFICER COMPENSATION

 

The following table summarizes the compensation of our chief executive officer, chief financial officer, and our three other highest paid executive officers for the fiscal year ended December 31, 2008.

 

2008 Summary Compensation Table

 

 

 

 

 

 

 

 

 

The following table presents additional information regarding stock and option awards, as well as non-equity incentive plan awards granted to our named executive officers during the year ended December 31, 2008.

 

Grants of Plan-Based Awards
During Fiscal Year 2008

 

 

 

 

The following table sets forth the outstanding equity awards held by our named executive officers as of December 31, 2008.

 

Outstanding Equity Awards at 2008 Fiscal Year-End

 

 

 

 

 

 

The following table provides information regarding the value realized by our named executive officers upon the exercise of stock options and the vesting of restricted stock awards during the year ended December 31, 2008.

 

Option Exercises and Stock Vested in 2008

 

 

 

 

Retirement Benefit Programs

 

Supplemental Executive Retirement Plan

 

Over the last few years, the Compensation Committee has been considering implementing some form of supplemental retirement program for our executive officers. In December 2008, the Committee adopted the Supplemental Executive Retirement Plan (the “SERP”), which provides retirement benefits to the Company’s executive officers and certain other designated key employees. The SERP is an unfunded, non-qualified defined contribution retirement plan, and all contributions under the SERP will be in the form of credits to a notional account maintained for each participant. Under the SERP, the Company will generally make annual contributions ranging from 5% to 25% of salary and annual cash bonus to a retirement account based on the participant’s age and years of service. Current executives who have combined age and years of service of at least 55 as of December 31, 2008, receive higher annual contributions under the SERP, ranging from 10% to 35% of base salary and annual cash bonus. The highest 2008 annual contribution was 25%. The 2008 annual contributions are reflected in the “Non-Qualified Deferred Compensation for Fiscal Year 2008” table below. The Compensation Committee, in its sole discretion and if it deems appropriate for any reason, may also make discretionary contributions to a participant’s retirement account. As discussed further below, the Company made such a discretionary contribution to the SERP on Mr. Hall’s behalf in 2008, which amount is reflected in the “Pension Benefits for Fiscal 2008” table below.

 

A participant will vest in his SERP retirement account upon the earliest to occur of: (i) attaining six years of service (including service prior to the adoption of the SERP), upon which amounts in the SERP account will vest in 20% annual increments provided the participant remains employed; (ii) attaining age 65; (iii) a change of control; (iv) becoming disabled; or (v) termination of the participant’s employment without cause by the Company. Participants may also forfeit the vested amounts in their retirement accounts if they are terminated for cause or, if within 36 months of a termination without cause, engage in any activity in competition with any activity of the Company or inimical, contrary or harmful to the interests of the Company. Following the end of each plan year, retirement accounts will be adjusted to reflect earnings on the average daily balance of the accounts during the year. The accounts will be adjusted to reflect earnings at a rate of interest that will be determined annually and will be equal to the Company’s after-tax long-term borrowing rate. Upon a separation from service, participants will be paid the vested amount of their SERP retirement accounts in a lump sum or installments, commencing on the first business day of the seventh month following separation from service.

While evaluating the need to provide supplemental retirement benefits to the Company’s executives, the Compensation Committee and the Board also reviewed the forms and amount of compensation provided to Mr. Hall during his career with the Company. As discussed in detail in “Executive Compensation — Compensation Discussion and Analysis” herein, on December 15, 2008, the Board approved an additional retirement benefit for Mr. Hall that will be provided through the SERP in an effort to address the inadequate retirement benefits previously available to Mr. Hall. Mr. Hall will receive an additional fully vested, credit to his SERP account in the amount of $10 million, which amount is reflected in the “Pension Benefits for Fiscal 2008” table below. This amount will be credited on the later of his separation from service from the Company or attainment of age 65. The additional amount will also be credited to his retirement account in the event of Mr. Hall’s death, disability or in the event of a change of control. The aggregate value of Mr. Hall’s SERP retirement account, including any additional contributions, will be paid in five annual installments commencing on the later of the date Mr. Hall separates from service or attains the age of 65, subject to any further delays required by Section 409A of the Internal Revenue Code.

 

Pension Benefits for Fiscal 2008

 

 

 

 

Nonqualified Deferred Compensation Plan

 

The Nonqualified Deferred Compensation Plan (the “NQDC Plan”) provides an income deferral opportunity for executive officers and certain senior managers of the Company who qualify for participation. The plan is administered by the NQDC Administrative Committee, which is comprised of senior managers in the Company appointed under the direction of the Compensation Committee. Eligible participants are recommended by senior managers in the Company and approved by the NQDC Administrative Committee. Participants in the plan may make an advance election each year to defer up to a maximum of 75% of base salary, 100% of their annual bonus and 50% of the payout value of any performance share units. Participants are immediately 100% vested in their benefits under the plan, and may choose from a variety of notional investment vehicles to invest their deferrals over the deferral period. The plan provides that benefits are paid out in either a lump-sum payment or in equal annual payments over a 2 to 15 year period, as elected by the participant. In addition, regardless of a participant’s election as to payment, a lump-sum payment of benefits will be made following a participant’s termination of employment (unless the participant is at least age 55 with at least five years of service at termination, in which case the participant’s payments shall commence but installment elections will be honored) or following a participant’s death or disability. Although the plan provides that upon approval by the Board, the Company may provide a match of up to 100% of the deferrals, the Company has not elected to provide a match.

Non-Qualified Deferred Compensation for Fiscal Year 2008