| • | promotes retention of well-qualified executives, while aligning the interests of our executives with those of our stockholders. Reflecting these compensation objectives, compensation arrangements in 2011 for our Continuing Named Executives resulted in: target total direct compensation within approximately 15% of the median compensation for officers in comparable positions | | in our market, with the exception of Mr. Johnson, whose target total direct compensation was set slightly above market due to his demonstrated leadership following the Spin-off; |
performance-based compensation accounting for over 60% of target total direct compensation, on average, as compared to 46% in 2010; and performance-based compensation accounting for 75% of target long-term incentive compensation, as compared to 50% in 2010. As in prior years, our Compensation Committee continued to believe that a significant portion of a Named Executive’s compensation should be performance-based, designed to promote and reward the achievement of short- and longer-term objectives that are expected to drive stockholder value. Performance-based compensation for 2011 reflected a balance among the goals of driving operational performance and pursuing long-term stock appreciation. With these goals in mind, we continued to utilize our established approaches of tying annual incentives to operating income and granting stock options as a component of long-term incentives, while implementing some adjustments. Among the adjustments was the inclusion of return on invested capital as a financial performance component of annual incentives. We also resumed granting performance shares, which may vest based upon McDermott’s total shareholder return relative to its peers. The Compensation Committee had decided not to utilize performance shares as an element of long-term incentive compensation in 2010, in anticipation of the spin-off of The Babcock & Wilcox Company to our stockholders ( the “Spin-off”), which was completed on July 30, 2010. In using the performance metrics described above and emphasizing longer-term performance incentives for the 2011 compensation program, the Compensation Committee believes that our compensation practices help to create stockholder value without encouraging executives to take unnecessary and excessive risks to earn incentive compensation. The significant 2011 adjustments to the performance-based elements of total direct compensation are reflected below: Annual Incentive: The 70% financial performance component of the annual | | incentive for 2011 was 70% based on operating income and 30% based on return on invested capital (“ROIC”). The Compensation Committee believes that ROIC is an appropriate financial measure to use for compensation purposes in addition to operating income because it is an indicator of McDermott’s capital efficiency and productivity. ROIC incentivizes the efficient management of assets and aligns management’s interests with those of our stockholders.stockholders by measuring stockholder value creation and/or erosion when compared to the cost of capital. |
For 2010, we structuredLong-Term Incentives: In 2011, our Compensation Committee increased the percentage of performance-based compensation in anticipationour long-term incentive awards for Continuing Named Executives by 50% over 2010. Specifically, performance-based compensation was increased by our Compensation Committee from 50% of long-term incentive compensation for Continuing Named Executives in 2010 to 75% of long-term incentive compensation for Continuing Named Executives in 2011. Additionally, in 2011 our Compensation Committee resumed the use of performance shares, in addition to awards of restricted stock units and stock options. Long-term incentives for Continuing Named Executives in 2011 were comprised 50% of performance shares, 25% of restricted stock units and 25% of stock options, resulting in 75% of long-term incentives being performance-based. The 2011 performance shares may be paid out based upon McDermott’s relative total shareholder return in comparison to its peers over three-, four- and five-year periods. The Compensation Committee believes the performance shares are an appropriate element of incentive compensation in that they align management’s interests with those of our stockholders by focusing on long-term stockholder return. McDermott’s financial performance in 2011 included: Consolidated revenue of $3.4 billion, as compared to $2.4 billion for 2010; Consolidated operating income of $250.7 million, as compared to $314.9 million for 2010; and Operationally, in 2011 McDermott: Achieved backlog of $3.88 billion as of December 31, 2011; Achieved substantial growth in the Asia Pacific segment, as reflected by increases of over 115% in both revenue and operating income in the segment as compared to 2010; Amended/refinanced its credit facility to extend the scheduled maturity date, provide additional liquidity, obtain additional flexibility under covenants and reduce fees; and Established a joint venture entity which we co-own with two Brazilian companies, which joint venture plans to bid to provide engineering, procurement and construction services to the oil and gas industry offshore Brazil. Under McDermott’s 2011 compensation program, None of the Spin-off. As a result,Continuing Named Executives were awarded bonuses under the 2011 EICP. Based on McDermott’s 2011 financial results, the Continuing Named Executives were eligible to earn approximately 18% of their respective 2011 target EICP compensation, arrangementssubject to the assessment of their respective individual goals. Upon the recommendation of Mr. Johnson based on the 2011 financial results, the Compensation Committee, in 2010 soughtthe exercise of its discretion, determined that, although the Continuing Named Executives and other participants in the EICP were eligible to balance operational performance, long-term stock appreciationearn approximately 18% of their target EICP compensation, 0% would be awarded in light of the financial results. Instead, as recommended by Mr. Johnson, the Compensation Committee determined that the bonus amounts that otherwise would have been payable should effectively be returned to the shareholders in the form of additional operating income. In making this recommendation and decision, respectively, Mr. Johnson and the completionCompensation Committee considered the increase in 2011 | | revenues of approximately 43%, together with the decrease in 2011 operating income by approximately 20%, from 2010 levels, the continued performance issues in the Atlantic segment and issues relating to several projects in other segments. |
In making its decision not to award bonuses for 2011 under the EICP, the Compensation Committee noted that Mr. Johnson had achieved the individual performance component, based on the Governance Committee’s assessment of Mr. Johnson’s individual performance against stated goals, and each of Messrs. Elders, Carlson and McCormack and Ms. Hinrichs had achieved their respective individual performance components based on Mr. Johnson’s assessment of their respective individual performance achievements against stated goals, with the exception of the Spin-off.financial performance goal and safety goal for Mr. McCormack. As of December 31, 2011, (1) the estimated payout as a percent of target for the performance shares granted in 2011 was 0%, and (2) the share price of our common stock had not exceeded the strike price of the stock options granted in 2011, although as noted below, the estimated payout and share price may change during the term of the performance shares and stock options. The following table summarizes the 2011 performance-based compensation opportunities for each of our Continuing Named Executives as compared to the realizable value of such opportunities as of December 31, 2011: 2011 Performance-Based Compensation Opportunity vs. Realizable Value as of December 31, 2011 | | | | | | | | | | | | | | | | | | | EICP(1) | | | Performance Shares(2)(3) | | | Stock Options(2)(3) | | | Total | | S. M. Johnson | | | | | | | | | | | | | | | | | 2011 Opportunity | | $ | 942,603 | | | $ | 2,382,132 | | | $ | 944,089 | | | $ | 4,268,824 | | 2011 Realizable Value | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | P. L. Elders | | | | | | | | | | | | | | | | | 2011 Opportunity | | $ | 336,911 | | | $ | 595,438 | | | $ | 236,000 | | | $ | 1,168,349 | | 2011 Realizable Value | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | G. L. Carlson | | | | | | | | | | | | | | | | | 2011 Opportunity | | $ | 199,233 | | | $ | 238,175 | | | $ | 94,406 | | | $ | 531,814 | | 2011 Realizable Value | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | L. K. Hinrichs | | | | | | | | | | | | | | | | | 2011 Opportunity | | $ | 261,381 | | | $ | 535,894 | | | $ | 212,421 | | | $ | 1,009,696 | | 2011 Realizable Value | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | J. T. McCormack | | | | | | | | | | | | | | | | | 2011 Opportunity | | $ | 274,549 | | | $ | 634,020 | | | $ | 253,847 | | | $ | 1,162,416 | | 2011 Realizable Value | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
(1) | 2011 Opportunity Values for EICP are disclosed at the Continuing Named Executives’ target EICP award. The 2011 Opportunity Value provided for Mr. McCormack reflects his target EICP award following his promotion to Executive Vice President, Chief Operating Officer. |
(2) | 2011 Opportunity Values for performance shares and stock options are disclosed at the grant date fair value of the respective awards. |
(3) | The 2011 Realizable Values shown above are measured as of December 31, 2011. However, the amount of the performance shares granted in 2011 that ultimately vest, if any, will be determined by reference to our total shareholder return over three-, four- and five-year periods. See “Long-Term Incentive Compensation — Analysis of 2011 Equity Grants.” The vesting of any of these performance shares would impact the future Realizable Value of these performance share awards. In addition, an increase in our stock price compared to our stock price at December 31, 2011 may impact the future Realizable Value of the stock option awards granted in 2011. |
Over the past two years, McDermott has also adopted certain compensation and governance policies and practices, as summarized below: Change in control agreements that: (1) contain what is commonly referred to as a “double trigger,” that is, they provide benefits only upon an involuntary termination or constructive termination of the executive officer within one year following a change in control; (2) do not provide for excise tax gross-ups, thereby eliminating the gross-up provisions in prior agreements; and (3) require the applicable officer’s execution of a release prior to payment of certain benefits. Revised stock ownership guidelines that require our officers at the level of vice president or above and nonemployee directors to retain a dollar value of McDermott stock based on a multiple of their respective base salaries or annual retainers. A clawback policy under which McDermott would seek to recover any incentive-based award granted to any executive officer as required by the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act or any other “clawback” provision required by law or the listing standards of the New York Stock Exchange; and prohibition of directors, officers and employees from engaging in “short sales” or trading in puts, calls or other options on McDermott’s common stock, and prohibition from engaging in hedging transactions and from holding McDermott shares in a margin account or pledging McDermott shares as collateral for a loan. Impact of 2011 Say on Pay Vote on Executive Compensation In approving the 2012 compensation of the Continuing Named Executives, the Compensation Committee reviewed the vote on the say-on-pay proposal at the 2011 annual general meeting of stockholders. Approximately 99% of the votes cast on the say-on-pay proposal at that meeting were voted in favor of the proposal. The Compensation Committee believes this affirms stockholders’ support of the Company’s approach to executive compensation. Accordingly, the Compensation Committee did not adopt any specific changes based on the vote. The Compensation Committee will continue to consider the outcome of the Company’s say-on-pay votes when making future compensation decisions for the named executive officers. The Compensation Committee expects to continue to hold the advisory vote to approve named executive officer compensation every year. Role of Compensation Committee, Compensation Consultant and Management Compensation Committee. The Compensation Committee has primary responsibility for determining and approving, on an annual basis, the compensation of our CEO and other executive officers. The Compensation Committee receives information and advice from its compensation consultant as well as from our human resources department and management to assist in compensation determinations. Compensation Consultant.Our Compensation Committee determined it appropriate to engage a new compensation consultant following the completion of the Spin-off. After a selection process involving six compensation consulting firms,selected and engaged Pay Governance LLC, or “Pay Governance,” was selected, and has servedto serve as the consultant to the Compensation Committee on executive and director compensation matters in November 2010, and Pay Governance has been serving in that capacity since November 2010.that time. Pay Governance provides advice and analysis to the Compensation Committee on the design, structure and level of executive and director compensation, and, when requested by the Compensation Committee, attends meetings of the Compensation Committee and participates in executive sessions without members of management present. Prior to November 2010, Meridian Compensation Partners LLC or “Meridian,” (which was spun-off from Hewitt Associates LLC, or “Hewitt,” in February 2010), served as the consultantPay Governance reports directly to the Compensation Committee, and the Committee reviews, on executivean annual basis, Pay Governance’s performance and provides Pay Governance with direct feedback on its performance. Pay Governance also attends meetings of the Governance Committee with respect to nonemployee director compensation. Prior to its spin-off of Meridian, Hewitt served as the consultant to the Compensation Committee since October 2007. In connection with their services to the Compensation Committee, both2011, Pay Governance and Meridian sought and received input from our executive management on various matters and worked with our executive management to formalize proposals for the Compensation Committee. In 2010, neither Pay Governance nor Meridian performeddid not perform any services for McDermott other than as described above. Hewitt assistedRole of CEO and Management. While the Compensation Committee has the responsibility to approve and monitor all compensation for our executive officers, management plays an important role in preparingdetermining executive compensation. Management, at the request of the Compensation Committee, recommends financial goals and works with Pay Governance to analyze competitive market data and to recommend compensation levels for our executive officers. Our Chief Executive Officer, Mr. Johnson, likewise assists the Compensation Committee by providing his evaluation of the performance graph included inof our other executive officers and recommending compensation for those officers. Overview of Compensation Elements The following table summarizes the principal elements of our compensation program for our Named Executives, which we collectively refer to as “total direct compensation.” | | | | | Compensation Element | | Objective | | Key Features | Annual Base Salary | | To provide a fixed level of compensation that helps attract and retain executives | | • Salary level recognizes an executive officer’s experience, skill and performance, with the goal of being market competitive based on the officer’s role and responsibilities within the organization. • Adjustments may be made based on individual performance, inflation, pay relative to market and internal equity considerations. • This element is paid in cash. | Annual Incentive | | To motivate and reward the achievement of short-term company performance | | • The Compensation Committee establishes an annual incentive bonus opportunity for each Named Executive at the beginning of the year. • The annual incentive aligns the Named Executives’ interests with McDermott’s short-term corporate strategies, and correlates pay with the achievement of short-term company goals. • To qualify for a payout, McDermott must achieve a predetermined performance threshold. Actual payouts to Named Executives are based on a combination of financial and individual performance factors, as well as other individual contributions throughout the year. • This element is paid in cash. | | | | Long-Term Incentives | | To motivate and reward the achievement of long-term company performance (typically three or more years), align executives’ interests with those of our stockholders and retain executives | | • Long-term awards for our Named Executives in 2011 consisted of 50% performance shares, 25% stock options and 25% restricted stock units. Performance Shares • Structured to be paid out in shares of McDermott common stock at the end of three-, four- and five-year performance periods to the extent applicable performance goals are met. • Performance goals are based on total stockholder return over the applicable performance period relative to McDermott’s peer group. Performance shares pay out at target if these goals are met, below target or not at all if the goals are not met, and above target if the goals are exceeded, up to 200% of the target award. • Intended to align the Named Executives’ interests with those of our stockholders with a focus on long-term results. Stock Options • Structured to vest in one-third increments on the first, second and third anniversaries of the grant date. • Intended to strengthen the relationship between the long-term value of our stock price and the potential financial gain for our Named Executives, as the value of each stock option is realized on exercise only if our stock price increases from the date of grant. Restricted Stock Units • Structured to be paid out in shares of McDermott common stock in one-third increments on the first, second and third anniversaries of the grant date. • Intended to encourage retention of the Named Executives as the restricted stock units vest based on continued employment with McDermott. |
Defining Market Range Compensation — Benchmarking To identify median compensation for each element of total direct compensation, the Compensation Committee relies on “benchmarking.” This involves reviewing the compensation of our Named Executives relative to the compensation paid to similarly situated executives at companies we consider our peers. As a result, the annual report onForm 10-Kbase salary, target annual incentive compensation and target long-term incentive compensation as a whole for each of the Named Executives is benchmarked. However, the specific performance metrics and performance levels used within elements of annual and long-term compensation are designed for the year ended December 31, 2010. Hewitt had been providing that service to management for several years prior to servingprincipal purpose of supporting our strategic and financial goals and/or driving the creation of stockholder value, and, as a result, are not generally benchmarked. Following the engagement of Pay Governance as the Compensation Committee’s consultant andin November 2010, Pay Governance reviewed the fees for that service amounted to less than $2,000 in 2010. Elements. With the objectives outlined above in mind,peer group the Compensation Committee has approved annual compensationuses for Named Executives, principally consistingbenchmarking at the Compensation Committee’s request and recommended revisions to the component companies. These suggested revisions were discussed and adopted by the Compensation Committee with some further revisions. At the direction of the following three elements:
| | | | • | annual base salary; | | | • | annual incentives; and | | | • | long-term incentives. |
Collectively, we referCompensation Committee, Pay Governance compiled market data from two groups, the Proxy Peer Group and the Survey Group, as discussed below.Proxy Peer Group. Pay Governance utilized market data based on a set of 18 comparator companies (the “Proxy Peer Group”), identified through a screen of companies with business and financial parity to these elementsMcDermott. The component companies of the Proxy Peer Group are included on page 42 of this CD&A. The Proxy Peer Group was used as the “total direct compensation” of a Named Executive. Annual base salary provides a fixed level of compensation that helps attract and retain highly qualified executives. Annual incentive and long-term incentive compensation areprimary reference point for the principal performance-based components of a Named Executive’s compensation. The annual incentive element is cash-based compensation generally designed to incentivize a Named Executive to achieve performance goals relative to the then-current fiscal year. Long-term incentives are generally equity-based and are designed to retain and closely align the interests of Named Executives, with our stockholders. Performance-based long-term incentive compensation is designedthe exception of Mr. Carlson, due to promote the achievementlack of performance
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goals, only over a longer period — typicallyproxy information on his position. With the exception of three years. Additionally, in 2010, retention grants were made to certain of our Named Executivesmarket data provided in connection with Mr. McCormack’s promotion to Executive Vice President, Chief Operating Officer (“EVP, COO”), market data from the Proxy Peer Group represented 2009 compensation, as reported in 2010 proxy statements for the fiscal year ended 2009, and is not size-adjusted. The market data provided from the Proxy Peer Group in connection with Mr. McCormack’s promotion to EVP, COO represented 2010 compensation, as reported in 2011 proxy statements for the fiscal year ended 2010.
Survey Peer Group. Pay Governance also utilized market data based on a set of 99 companies in similar industries which participate in Towers Watson surveys (the “Survey Peer Group”). The Survey Peer Group is intended to provide a reference point for pay levels within similar industries. Aside from screening companies on the basis of their continued employment throughindustry classifications, no further refinements or judgments were applied in the Spin-off.identification of companies within the sample. The retention grants were made pursuantcomponent companies of the Survey Peer Group are included on page 42 of this CD&A. The Survey Peer Group was used as a secondary reference for the Named Executives, with the exception of Mr. Carlson, for whom it was used as a primary reference. Market data from the Survey Peer Group represents 2010 compensation as reported to the termssurvey and, when possible, size adjusted. Corporate positions, including that of Mr. Carlson, were evaluated based on both expected 2011 revenues of $3.4 billion and a longer-term objective of $5 billion in annual revenues, and business unit positions were evaluated based on their respective profit and loss levels. In this CD&A references to “market” or “our market” are references to the retention agreements entered intocompensation of executives at companies within the Proxy Peer Group for each Named Executive with those Named Executives in December 2009. For more information on these retention grants, see “Long-Term Incentive Compensation” below. As we discuss in more detail below, the Compensation Committee also administers several plans as partexception of our post-employment compensation arrangements designed to reward long-term serviceMr. Carlson, and performance.
the Survey Peer Group for Mr. Carlson.Target Total Direct Compensation.Compensation The Compensation Committee seeks to provide reasonable and competitive compensation. As a result, it targets the elements of total direct compensation for our Named Executives generally within approximately 15% of the median compensation of our market for comparable positions. Throughout this CD&A, we refer to compensation that is within approximately 15% of market median as “market range” compensation. The Compensation Committee may set elements of total direct compensation above or below the market range to account for a Named Executive’s performance and experience, internal equity and other factors or situations that are not typically captured by looking at standard market data and practices and that the Compensation Committee deems relevant to the appropriatenessand/or competitiveness of a Named Executive’s compensation. When making decisions regarding individual compensation elements, the Compensation CommitteeCommit- tee also consideredconsiders the effect on the Named Executive’s target total direct compensation and target total cash-based compensation (annual base salary and annual incentives), as applicable. Our Compensation Committee’s goal is to establish target compensation for each element it considers appropriate to support the compensation objectives that, when combined, create a target total direct compensation award for each Named Executive that is reasonable and competitive. competitive and supports the Company’s compensation philosophy and objectives.Defining Market Range Compensation — Benchmarking.2011 Overview To identify median compensation for each element of total direct compensation, the Compensation Committee relies on “benchmarking” — reviewing the compensation of our Named Executives relative to the compensation paid to similarly situated executives at companies we consider our
peers. As a result, the annual base salary, target annual incentive compensation and target long-term incentive compensation as a whole for each of the Named Executives is benchmarked. However, the specific performance metrics and performance levels used within elements of annual and long-term compensation are designed for the principal purpose of supporting our strategic and financial goalsand/or driving the creation of stockholder value, and, as a result, are not generally benchmarked.
At the request of the Compensation Committee, Meridian conducted a market compensation analysis and provided advice regarding the median compensation of the three elements of total direct compensation for our officers, including the Named Executives. Using survey data from its proprietary compensation database (adjusted upwards by Meridian for the purpose of bringing the market data current), Meridian collected information from companies generally reflecting the size, scope and complexity of the business and executive talent at McDermott. To account for the size of our operations relative to peer companies, Meridian used regression analysis to adjust the market information on peer companies based on revenue. Prior to the Spin-off, Meridian analyzed information from two principal peer groups, the JRM/Corporate Group and the Babcock & Wilcox Group, to account for the diversity of geography and industry among our operations at that time. In anticipation of the Spin-off, Meridian also conducted a review of possible peer companies for McDermott and B&W post Spin-off. Through this review, the “Post-Spin Group” for McDermott was selected and approved by the Compensation Committee. In 2010, no Named Executives’ compensation was benchmarked against the Babcock & Wilcox Group other than Mr. Bethards. The component companies of each group are included on page 46 of this Compensation Discussion and Analysis.
JRM/Corporate Group. With the exception noted below, the JRM/Corporate Group was the primary compensation benchmark prior to the Spin-off for our executives at the segments previously referred to as our corporate and Offshore Oil and Gas Construction segments, both of which are based in Houston, Texas. This group was compiled by Meridian with assistance from our management. The JRM/Corporate Group consisted of 43 companies with operations in engineering, construction, government operationsand/or energy, and was generally utilized in determining market range compensation for Messrs. Johnson, Fees, Taff, Carlson and Nesser and Ms. Hinrichs. For
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Mr. Johnson, the JRM/Corporate Group was adjusted by Meridian in consideration of the lower revenues of JRM as a standalone company as compared to McDermott. The Post-Spin Group was used as the benchmark for Mr. Johnson’s compensation adjustments in connection with his promotion to President and Chief Executive Officer of McDermott following the completion of the Spin-off.
Babcock & Wilcox Group. The Babcock & Wilcox Group was the primary compensation benchmark for executives of our former Power Generation Systems and Government Operations segments, including Mr. Bethards. This group consisted of 27 engineering, constructionand/or governments operations companies that were more specifically representative of our former Power Generation Systems and Government Operations segments.
Post-Spin Group. The Post-Spin Group was utilized as the primary compensation benchmark for McDermott’s officers following the Spin-off, including for Mr. Johnson’s promotion to President and Chief Executive Officer of McDermott on July 30, 2010. Because of the proximity of the Spin-off to Mr. Elders’ date of hire, the Post-Spin Group was also utilized in determining the market range compensation for Mr. Elders when he was hired in April 2010. Meridian compiled this group with assistance from our management. The group consisted of 14 energy equipment and services and construction and engineering companies.
Custom Peer Group. The Custom Peer Group was used by Meridian on a limited basis as a comparator to the JRM/Corporate Group and the Babcock & Wilcox Group. This group was identified by Hewitt in October 2007 with the assistance of management. The Custom Peer Group consisted of nine engineering and construction companies and is the same group we used
in the performance graph included in our annual report onForm 10-K for the years ended December 31, 2007 and 2008. Compensation information for Custom Peer Group companies was based on information reported by those companies in publicly available Securities and Exchange Commission filings.
In this CD&A references to “market” or “our market” are references to the compensation of executives at companies within the JRM/Corporate Group, Babcock & Wilcox Group or Post-Spin Group, as applicable.
Total Direct Compensation
2010 Overview. Excluding the retention awards and the sign-on grant made to Mr. Carlson, the 20102011 target total direct compensation for each of our Named Executives was within the market range of target total direct compensation, except for Messrs. EldersMr. Johnson and Mr. Nesser. The target total direct compensation for
Mr. EldersJohnson was set slightly above market range due to Mr. Johnson’s demonstrated leadership as Chief Executive Officer following the level of compensation that was considered appropriate to induce Mr. Elders to accept the Chief Financial Officer position and the value of long-term incentives granted to him in connection with his hiring.Spin-off. The target total direct compensation for Mr. Nesser was set abovebelow market range based ondue to no long-term incentives being provided to him in advance of his lengthy experience with and his depth of knowledge of McDermott. anticipated retirement.The chart below shows the 20102011 target total direct compensation by element for each Named Executive. Because the amount of compensation actually paid through the compensation elements that are performance-based is not fixed at the outset, Named Executives may earn compensation above or below the market range for similarly situated executives in our market.
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20102011 Target Total Direct Compensation Summary(1)
| | | | | | | | | | | | | | | | | Annual
| | | | | | | Incentive(2)
| | Long-Term
| Named Executive | | Annual Base Salary | | (% of Salary) | | Incentive | S. M. Johnson(3) Pres. & CEO, JRM | | $ | 768,750 | | | | 85 | % | | $ | 2,500,000 | | Pres. & CEO, MII | | $ | 920,000 | | | | 100 | % | | | — | | J. A. Fees | | $ | 922,500 | | | | 100 | % | | | — | | P. L. Elders | | $ | 470,000 | | | | 70 | % | | $ | 1,034,000 | | M. S. Taff | | $ | 520,150 | | | | 70 | % | | $ | 1,212,000 | | B. C. Bethards | | $ | 539,360 | | | | 70 | % | | $ | 2,500,000 | | G. L. Carlson(4) | | $ | 320,000 | | | | 55 | % | | $ | 432,000 | | L. K. Hinrichs | | $ | 422,300 | | | | 55 | % | | $ | 800,000 | | J. T. Nesser | | $ | 512,500 | | | | 70 | % | | $ | 650,000 | |
| | | | | | | | | | | | | | | Named Executive | | Annual Base Salary | | | Annual Incentive(1) (% of Salary) | | Long-Term Incentive(2) | | | Target Total Direct Compensation as Percent of Market(3) | | Percent Performance- Based(4) | S. M. Johnson | | $ | 950,000 | | | 100% | | $ | 4,000,000 | | | 117% | | 67% | P. L. Elders | | $ | 485,000 | | | 70% | | $ | 1,000,000 | | | 86% | | 60% | G. L. Carlson | | $ | 336,000 | | | 60% | | $ | 416,720 | | | 112% | | 54% | L. K. Hinrichs | | $ | 440,000 | | | 60% | | $ | 931,767 | | | 103% | | 59% | J. T. McCormack(5) | | | | | | | | | | | | | | | EVP, COO | | $ | 500,000 | | | 70% | | $ | 1,125,000 | | | 73% | | 59% | SVP, Operations | | $ | 400,000 | | | 50% | | $ | 465,000 | | | 106% | | 51% | J. T. Nesser | | $ | 512,508 | | | 70% | | | — | | | 83% | | 41% | Average Mix of Compensation Elements(6) | | | 22% | | | 17% | | | 61% | | | N/A | | 60% |
| | | (1) | | When we refer to Total Direct Compensation in this “Compensation Discussion and Analysis,” we exclude the retention payments made in connection with the Spin-off. See “Compensation Discussion and Analysis — Employment and Severance Agreements — Retention Agreements” for a discussion of those payments. | | (2) | | When making decisions as to the elements of a Named Executive’s total direct compensation, the Compensation Committee considers the dollar value of annual incentive compensation but typically awards this element as percentages of annual base salary. This is primarily because our market generally targets annual incentive on apercentage-of-salary basis. |
(2) | The values provided in this column are the target values of long-term incentives approved by the Compensation Committee. For more information on the grant date fair values of long-term incentives, see the “Grants of Plan-Based Awards” table under “Compensation of Executive Officers” below. |
(3) | Market = Median annual base salary, based on the benchmark applicable to the executive. 100% represents median compensation. |
(4) | With the exception of Mr. Nesser, performance-based compensation consists of a Named Executive’s annual incentive and 75% of the target value of long-term incentives, representing that portion of long-term incentive compensation attributable to performance shares and stock options. For Mr. Nesser, performance-based compensation consists only of Mr. Nesser’s annual incentive, as he was not granted long-term incentive compensation in 2011 in anticipation of his retirement by year-end 2011. |
(5) | In connection with Mr. Johnson’sMcCormack’s promotion to President and Chief Executive Officer of McDermottEVP, COO on JulyJune 30, 2010, his2011, Mr. McCormack’s annual base salary and annual incentive compensation target were increased. No additionalAdditionally, Mr. McCormack received a supplemental long-term incentive award with a target value of $660,000, which, when combined with the long-term incentive award of $465,000 granted to him in March 2011, resulted in total long-term incentives were awarded to Mr. Johnson in connection with his promotion.of $1,125,000. |
| (4)(6) | | Mr. Carlson’s target long-term incentiveThe values provided for the average mix of compensation reflected on this chart doeselements do not include a sign-on equity grant of restricted stock units that was madeMr. McCormack’s target compensation pertaining to offset compensation and benefits he forfeited when he left his previous employer to join McDermott.former position or Mr. Nesser’s target compensation. |
While the Compensation Committee does not set a specific target allocation among the elements of total direct compensation, it believes that a significant portion of a Named Executive’s total direct compensation should be performance-based. Excluding the retention grantsAs shown above, excluding Mr. McCormack’s target compensation from his former position and Mr. Carlson’s sign-on grant,Nesser’s target compensation, on average, performance-based compensation accounted for approximately 46.5%60% of a Named Executive’s 20102011 target total direct compensation and 50%75% of his or her long-term incentive compensation. The average 2010 mixcompensation, representing that portion of target total directlong-term incentive compensation elements for our Named Executives was as follows: (1) Excluding retention grantsattributable to performance shares and Mr. Carlson’s sign-on equity grant.
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stock options.
Annual Base Salary 2010 Base Salaries. In considering the April 1, 2010 salary adjustments, the Compensation Committee was provided with and took into account (1) the recommendation of our then current Chief Executive Officer, Mr. Fees, as to 2010 base salaries for Messrs. Johnson, Taff, Bethards, Carlson and Nesser and Ms. Hinrichs, (2) Meridian’s analysis of market compensation for those individuals and for Mr. Fees (as adjusted by Meridian to bring the data forward to April 1, 2010) and (3) tally sheets showing the 2009 compensation and benefits of Messrs. Johnson, Fees, Taff and Bethards, who were each Named Executives in 2009, and annual and long-term incentives and
retention amounts previously awarded. Additionally, in May 2010, the Compensation Committee was provided with (1) the recommendation of our then current Chief Executive Officer, Mr. Fees, as to the 2010 base salary of Mr. Elders, and (2) Meridian’s analysis of market compensation for Mr. Elders.
In each instance, Meridian’s market analysis compared the recommended base salary and the target total direct compensation of each officer (assuming 2010 salary recommendations were approved and disregarding the retention payments and sign-on awards) to the median compensation of the applicable market.
The 20102011 base salaries for our Named Executives, which reflect increases that became effective as of April 1, 2011, were as follows: | | | | | | | | | | | | | | | 2010 Annual
| | Percent
| | Percent of
| Named Executive | | Base Salary(1) | | Increase | | Market(2) | S. M. Johnson | | | | | | | | | | | | | Pres. & CEO, JRM | | $ | 768,750 | | | | 2.50 | % | | | 83 | % | Pres. & CEO, MII | | $ | 920,000 | | | | N/A | | | | 114 | % | J. A. Fees | | $ | 922,500 | | | | 2.50 | % | | | 86 | % | P. L. Elders | | $ | 470,000 | | | | N/A | | | | 117 | % | M. S. Taff | | $ | 520,150 | | | | 3.00 | % | | | 98 | % | B. C. Bethards | | $ | 539,360 | | | | 2.50 | % | | | 51 | % | G. L. Carlson | | $ | 320,000 | | | | N/A | | | | 107 | % | L. K. Hinrichs | | $ | 422,300 | | | | 3.00 | % | | | 98 | % | J. T. Nesser | | $ | 512,500 | | | | 2.50 | % | | | 163 | % |
| | | | | | | | | Named Executive | | 2011 Annual Base Salary | | | Percent Increase | | Percent of Market(1) | S. M. Johnson | | $ | 950,000 | | | 3.26% | | 106% | P.L. Elders | | $ | 485,000 | | | 3.19% | | 105% | G. L. Carlson | | $ | 336,000 | | | 5.00% | | 105% | L. K. Hinrichs | | $ | 440,000 | | | 4.19% | | 114% | J. T. McCormack | | | | | | | | | EVP, COO | | $ | 500,000 | | | N/A | | 81% | SVP, Operations | | $ | 400,000 | | | 3.09% | | 110% | J. T. Nesser | | $ | 512,508 | | | 0.00% | | 100% |
| | | (1) | | Base salary adjustments were effective April 1, 2010. | | (2) | | Market = Median annual base salary, based on the benchmark applicable to the executive. 100% represents median compensation. |
When considering base salaries effective April 1, 2010,2011, the Compensation Committee sought to set salaries within the market range, with increases in line with expected adjustments of 2-3% in our market as reported by Meridian.range. Accordingly, Messrs. Johnson, Fees, Taff, Bethards and Nesser and Ms. Hinrichs each received a salary increase within this range. Following such salary increases and the establishment of salary for Messrs. Elders and Carlson, our Named Executives’Compensation Committee set annual base salaries were generally within market range for each Named Executive, with the exception of Mr. Nesser. Although Mr. Nesser’s base salary was above market range, the Compensation Committee considered this to be appropriate, based upon his experience and depth of knowledge of our operations and in anticipation of his promotion to Chief Operating Officer of McDermott following the Spin-off. year-over-year increases ranging from 0-5%.In August 2010,May 2011, in consideration of the market compensation analysis and recommendation provided by MeridianPay Governance in connection with Mr. Johnson’s JulyMcCormack’s June 30, 20102011 promotion to President and Chief Executive Officer of McDermott,EVP, COO, the Compensation Committee increased Mr. Johnson’sMcCormack’s base salary to $920,000, which was within$500,000 effective June 30, 2011. The Compensation Committee approved this slightly below market range.salary based on Mr. McCormack’s relative experience with his new position and in light of internal pay equity considerations. Annual Incentive Compensation 20102011 Overview and Target Compensation.Compensation. The Compensation Committee administers our annual incentive compensation program under our Executive Incentive Compensation Plan which we refer to as the EICP.
(the “EICP”).The EICP is a cash incentive plan designed to motivate and reward our Named Executives and other key employees for their contributions to business goals and other factors that we believe drive our earningsand/or create and promote creation of stockholder value.
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The target 20102011 EICP compensation for our Named Executives was as follows: | | | | | | | | | | | Target EICP
| | | | | (% of annual
| | Percent of
| Named Executive | | base salary) | | Market(1) | | | S. M. Johnson(2) | | | | | | | | | Pres. & CEO, JRM | | | 85 | % | | | 85 | % | Pres. & CEO, MII | | | 100 | % | | | 87 | % | J. A. Fees | | | 100 | % | | | 88 | % | P. L. Elders | | | 70 | % | | | 86 | % | M. S. Taff (3) | | | 70 | % | | | 96 | % | B. C. Bethards(3) | | | 70 | % | | | 88 | % | G. L. Carlson | | | 55 | % | | | 104 | % | L. K. Hinrichs | | | 55 | % | | | 89 | % | J. T. Nesser | | | 70 | % | | | 135 | % |
| | | | | Named Executive | | Target EICP (% of annual base salary) | | Percent of Market(1) | S. M. Johnson | | 100% | | 102% | P. L. Elders | | 70% | | 87% | G. L. Carlson | | 60% | | 121% | L. K. Hinrichs | | 60% | | 85% | J. T. McCormack(2) | | | | | EVP, COO | | 70% | | 71% | SVP, Operations | | 50% | | 113% | J. T. Nesser | | 70% | | 67% |
| | | (1) | | Market = Median target annual incentive compensation, based on the benchmark applicable to the executive. 100% represents median compensation. | |
(2) | | Mr. Johnson’sMcCormack’s target EICP was prorated based on his length of service at his current and former positions. | | (3) | | Information provided for Messrs. Taff and Bethards is through the effective date of the Spin-off. |
No changes were made to 2010The 2011 target EICP for Messrs. Johnson, Elders and Nesser remained unchanged from the 2009their respective 2010 targets. Mr. Carlson’s and Ms. Hinrichs’ respective targets exceptwere each increased to 60% of annual base salary earned for 2011. This resulted in an above-market target for Mr. Johnson, whose 2010Carlson; however, the Compensation Committee deemed this target appropriate based on internal pay equity considerations. Mr. McCormack’s 2011 target EICP was increased effective and forto 50% of annual base salary earned when the period beginning August 1, 2010targets were set by the Compensation Committee in February 2011 based on internal pay equity considerations. The target was then increased to 70% in connection with his promotion to President and Chief Executive Officer of McDermott. In connection with their hiringEVP, COO in 2010, the Compensation Committee set Messrs. Elders’ and Carlson’s 2010June 2011 to bring his target EICP at 70% and 55%, respectively, which was within theaward closer to market range for their positions. Mr. Elders’ 2010 target EICP was prorated to take into account his April 30, 2010 hire date. Notwithstanding Mr. Carlson’s March 29, 2010 hire date, his 2010 target EICP was not prorated, in order to partially offset Mr. Carlson’s forfeiture of compensationnew position and benefits at his previous employer. The Compensation Committee set 2010 target EICP for Messrs. Taff, Nesser and Bethards at the same level forbased on internal pay equity reasons.considerations. 20102011 EICP Performance Goals.Goals. Traditionally, EICP compensation has consisted of a financial performance component and an individual performance component. To continue to drive performance of McDermott’s operations, the 20102011 EICP target compensation for business unit officers, including Messrs. Johnson and Bethards,the Named Executives, was also set utilizing the traditional financial and individual performance components. However, to driveGenerally, the timely and successful completion of the Spin-off, 2010 EICP target compensation for our Corporate officers, including Messrs. Fees and Taff and
Ms. Hinrichs, was set based on the completion of the Spin-off. Generally, for non-Corporate executives the 20102011 target EICP was split between financial and individual components as follows: 70% of target EICP was attributable to financial performance, of which 70% was attributable to operating income and 30% was attributable to return on invested capital; and 30% of target EICP was attributable to individual performance. | | | | • | 70% of target EICP was attributable to financial performance; and | | | • | 30% of target EICP was attributable to individual performance. |
Financial performance is the largest factor in determining EICP compensation, because the Compensation Committee generally considers it to be more objective and to more directly influence the creation of stockholder value, as compared to individual performance. Individual performance, however, serves as an important metric to help promote the achievement of strategic non-financial goals.goals that may not be measured in an annual financial metric. To reward significant individual contributions, the Compensation Committee maintained the individual component for 20102011 at 30% of target EICP for 2010.2011. However, to maintain the emphasis on financial performance, payment of EICP compensation (including for individual performance) required the attainment of athe threshold level of operating income financial performance. The maximum EICP compensation a Named Executive could earn in 20102011 was 200%a multiple of 2x target EICP. For all Named Executives, the Compensation Committee had the discretion to decrease an EICP payment. As a result, for Messrs. Johnson, Elders, Carlson and Nesser,each Named Executive the EICP payment amount was principally determined based on: (1) the attainment of annual financial goals (which represented up to 140% of EICP compensation);goals; and (2) the attainment of annual individual goals, (which represented up to 60% of EICP compensation).as displayed below: In connection with2011 Financial Performance Goals. Historically, the Spin-off, however, the Compensation Committee determined that for our Corporate executive officers, including Messrs. Fees and Taff and Ms. Hinrichs, the primary component of 2010 EICP compensation was completing the Spin-off. These Corporate Named Executives were eligible to receive target EICP compensation, prorated through the effective date of the Spin-off. For the Corporate executive officers who continued employment with McDermott following the Spin-off, EICP compensation for the balance of 2010 was set based on the traditional financial and individual components applicable to their post-spin employment, prorated for the balance of 2010.
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As a result, the EICP payment amount for Ms. Hinrichs was principally determined based on: (1) the completion of the Spin-off (which represented 100%, prorated for the period through the completion of the Spin-off); (2) the attainment of financial goals for the remainder of 2010 (which represented up to 140%, prorated for the balance of 2010); and (3) the attainment of individual goals for the remainder of 2010 (which represented up to 60%, prorated for the balance of 2010).
Mr. Fees’ EICP payment amount was determined based on the completion of the Spin-off, which represented 100% of target EICP, prorated for his period of service as a Corporate executive officer. Because of Mr. Taff’s departure to join B&W and Mr. Bethards’ continued employment with B&W following the Spin-off, and in accordance with the Employee Matters Agreement dated July 2, 2010 to which McDermott and B&W became parties in connection with the Spin-off (the “Employee Matters Agreement”), their EICP payment amounts were determined and paid by B&W in 2011.
The components of EICP compensation for each of the Continuing Named Executives are illustrated in the charts below.
2010 Financial Goals. Historically, the Financial Goals for the EICP consisted of operating income levels
related to McDermottand/or business unit operating income relevant to each Named Executive. Those Named Executives who were considered Corporate executive officers had Financial Goals generally based on consolidated McDermott operating income, whereas those Named Executives who were the chief executive officers of the business units had Financial Goals generally based on both consolidated McDermott operating income and business unit operating income. As discussed above, however, in connection with the Spin-off the Compensation Committee determined that the 2010 target award opportunity would be attributable to completing the Spin-off for Corporate executive officers. Additionally, the Compensation Committee determined that the chief executive officers of the business units (Messrs. Johnson and Bethards) should have Financial Goals entirely attributable to the operating income results of their respective business units. Accordingly, the respective business unit’s operating income was used for establishing each such Named Executive’s Financial Goals. The Compensation Committee considers operating income an appropriate financial measure to use for compensation purposes because it is the primary driver of net income, which the Compensation Committee expects to drive our stock price. In comparison to net income, however, operating income is more directly influenced by the revenues generated and costs incurred as a result of management actionaction. In 2011, operating income comprised 70% of the financial performance component of a Named Executive’s target EICP award.In 2011, the Compensation Committee added return on invested capital, or ROIC, as an additional financial performance metric under the EICP. The Compensation Committee considers ROIC an appropriate financial measure to use for compensation purposes because it is an indicator of McDermott’s capital efficiency and is more readily allocableproductivity. ROIC also incentivizes the management of assets, and aligns management’s interest with those of our stockholders by measuring stockholder value creation and/or erosion when compared to our operating segments.the cost of capital. ROIC comprised 30% of the financial performance component of a Named Executive’s target EICP award for 2011. Historically, theThe Compensation Committee established three primary levels of operating income goals. These levelsand ROIC goals, which together would determine the threshold, target and maximum amounts that would be paid under the financial performance component of the EICP, withEICP. In establishing the target level, being based onthe Compensation Committee considered management’s internal estimates of operating income and ROIC, discussed those estimates with Mr. Johnson, and then set the target level and threshold and maximum levels set as a percentage of the target level. The Compensation Committee designs incentive compensation to drive target level performance and does not believe that compensation should be earned for performance substantially below that level. As a result, no EICP compensation would be earned (including for individual performance) unless athe threshold level of operating income financial performance was attained, irrespective of the level of ROIC attained. The Compensation Committee believes that Named Executives should be rewarded for superior financial performance. It therefore establishes a maximum level performance goal to incentivize higher performance, but caps the payout to maximize returns to stockholders for performance above the maximum payout level, thereby reducing risk related to incentive compensation.
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level.
The performance range between the threshold levelFor other levels of operating income and the maximum level was relatively narrow prior to 2009. In 2009, however, the Compensation Committee sought to increase the performance rangeROIC between threshold and maximum, level goals, making the maximum payment more difficult relative to target and reducing the minimum performance required to be attained before any EICP compensationpercentage paid would be earned. In addition,determined by linear interpolation using the Compensation Committee establishedtwo neighboring pre-established performance levels and payout as a rangemultiple of target award. No payment would have been earned under the EICP for target comprised of three separate2011 if operating income goals. The intended effect of these changes was to reduceresults had been below the significance of the impact of minor variations in financial results. The Compensation Committee maintained this approach in 2010, considering a number of performance goals recommended by management, including threshold level, goals as low as 50% of target operating income and maximum level goals as high as 120% of target operating income. Similar to 2009, and in consultation with Meridian,notwithstanding the Compensation Committee set the 2010 threshold level operating income goal at 70% of target and the maximum level operating income goal at 120% of target. The operating income goals at the
ROIC performance level.target level ranged from 95% of the target goal to 105% of the target goal.
A Named Executive would have been eligible to earn the following amounts under the 20102011 EICP based on attaining the following levels of operating income:income and ROIC: | | | | | | | Payout (as % of
| Operating Income Performance Level | | target EICP award) | | | Threshold (70% of Target) | | | 25 | % | Target (Min) (95% of Target) | | | 98 | % | Target (100%) | | | 100 | % | Target (Max) (105% of Target) | | | 102 | % | Maximum (120% of Target) | | | 200 | % |
For other levels of operating income between threshold and maximum, the percentage paid would have been determined by linear interpolation using the two neighboring pre-established performance levels and percentage payout of target award. No payment would have been earned under the2011 EICP for 2010 if operating income results had been below the threshold level. The operating income goals for 2010 EICP compensation were as follows: Payout Matrix | | | | | | | | | | | | | | | | | Performance Goal | | Consolidated Operating Income (in millions) | | Payout(1) (as a multiple of target EICP award) | | | | Performance Goal | | Consolidated ROIC | | Payout(2) (as a multiple of target EICP award) | | | >120% | | >$420 | | 2.00 | | | | >120% | | >16.7% | | 2.00 | Maximum | | 120% | | $420 | | 2.00 | | | | 120% | | 16.7% | | 2.00 | | | 110% | | $385 | | 1.50 | | | | 110% | | 15.3% | | 1.50 | Target | | 100% | | $350 | | 1.00 | | | | 100% | | 13.9% | | 1.00 | | | 90% | | $315 | | 0.75 | | | | 97% | | 13.4% | | 0.75 | | | 80% | | $280 | | 0.50 | | | | 93% | | 12.9% | | 0.50 | Threshold | | 70% | | $256 | | 0.25 | | | | 90% | | 12.4% | | 0.25 | | | < 70% | | <$245 | | 0.00 | | | | <90% | | <12.4% | | 0.00 |
| | | | | | | | | | | | | Threshold
| | Target (Min)
| | Target
| | Target (Max)
| | Maximum
| | | (70% of Target) | | (95% of Target) | | (100%) | | (105% of Target) | | (120% of Target) | | | JRM
• Offshore Oil & Gas Construction
| | $222 million | | $301 million | | $317 million | | $333 million | | $380 million | B&W(1)
| | $210 million | | $285 million | | $300 million | | $315 million | | $360 million |
| | | (1) | The Payout for consolidated operating income is a multiple of target EICP award with respect to the 70% portion of financial performance goals attributable to operating income. |
(2) | The Compensation Committee set B&W performancePayout for consolidated ROIC is a multiple of target EICP award with respect to the 30% portion of financial goals based on internal budgets, excluding $33 million of mPower expenses expectedattributable to be incurred in 2010, to avoid the adverse impact of strategic investments on a long-term initiative on a Named Executive’s EICP compensation.ROIC. |
20102011 Individual Performance Goals.Individual goals established for each Named Executive were tailored to the individual’s position and focused on supporting strategic initiatives and achieving common goals. Mr. Fees established theJohnson’s individual goals forwere established by the Compensation Committee. Each Named Executive, with the exception of Messrs. Johnson and Bethards. Messrs. Elders, Carlson and
Nesser, each proposed their respective individual goals, which were approved by Mr. Johnson. No pre Spin-off individual goals were established for Messrs. Fees and Taff and Ms. Hinrichs because their pre Spin-off EICP award was entirely attributable to completing the Spin-off. At the time the target EICP awards were determined, individual goals relating to post Spin-off employment with either McDermott or B&W were deferred to be addressedMr. Nesser in light of his anticipated retirement by the respective company, as applicable. Ms. Hinrichs proposed her post Spin-off individual goals, which were approved by Mr. Johnson.year-end 2011. The individual goals and their respective weightings for our Continuing Named Executives’ 20102011 EICP compensation are set forth in the table below.on the following page.
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| | | Stephen M. Johnson: | | | Stephen M. Johnson: | | • Lead the Company and set a philosophy that is well understood, widely supported, consistently applied and effectively implemented; • Establish new executive leadership team to assist McDermott with post Spin-off transitional activitiesa clearly-articulated and guide McDermottexecutable strategy for the Company which conserves cash and leverages capital expenditures in the future (0-15%); | | | a conservative manner; • Establish clearly articulated strategy for cashappropriate annual and long-term financial objectives; ensure that appropriate systems are maintained to protect assets and maintain effective control of operations; • Develop, attract, retain, motivate and supervise an effective top management and capital expenditures (0-15%); | | | • Establish succession planteam capable of achieving objectives; provide for executive officersmanagement succession planning;• Serve as the chief spokesperson for the Company, communicating effectively with shareholders and one management layer beneath executives (0-15%); and | | | stakeholders; • Enhance working relationshipWork closely with McDermottthe Board of Directors (0-15%).to keep them fully informed on all important aspects of the Company; make timely recommendations for Board action and respond to suggestions and directives from the Board and its committees; • Achieve specific safety goals and objectives and promote safe work practices as the highest operational priority; and • Assure that all operations and business dealings are conducted with the utmost compliance with applicable laws and regulations and the highest level of ethical behavior is exhibited by the Company. | | | | Perry L. Elders: | | • ReviewConvert the capital allocation, management reporting, revenue pipeline and assess post Spin-offestimating methodology from project initiatives into recurring processes; • Build a high performing finance team, including succession and development planning as well as implement development plans including changing duties of certain individuals; • Form a capital structure, including liquidityteam to oversee and leverage (0-12%);manage the capital allocation and authorization process as well as identify and evaluate sources of capital; • Assess and optimize cash investments; • Establish balance sheet forecasts, improve annual budget process, establish operating unit level invested capital calculations to drive ROIC reporting; and • Assist the CEO and executive management with developing a new culture within the Company. | | | • Develop capital expenditure process, including authorization and monitoring (0-12%); | Gary L. Carlson: | | • Enhance financial departmentDesign and implement a global employee classification scheme; • Deploy talent development and succession planning (0-12%); | | | program to the project organization including discrete, measurable, and time sensitive candidate development plans; • Develop rolesDesign and processes throughout McDermott finance organization (0-12%);implement a global career development and | | | performance management program; • Enhance working relationship throughout McDermott (0-12%). | Gary L. Carlson: | | Close the Third Country National pension plan to new participants and freeze benefit accruals thereunder, and establish a new defined contribution plan for non-U.S. expatriates; • Design a comprehensive mobilization program revision road map; and • Establish a globally integrated talent development program (0-12%);comprehensive information technology plan and governance model, and complete the 2011 information technology initiatives on time and within budget. | | | • Develop and implement a succession planning program(0-12%);
| Liane K. Hinrichs: | | • Establish working relationshipLead the legal group through post Spin-off reorganization; • Work with Compensation Committee (0-12%);the Board of Directors and management to continue enhancements to the ERM program; and • Lead the review, analysis and response to any significant changes in compliance requirements. | | | • Assess and recommend go-forward plan for enterprise information technology (0-12%); and | John T. McCormack: | | • Build cohesive global human resources organization to meet needs of McDermott post-spin (0-12%). | Liane K. Hinrichs: | | • Complete Spin-off related activities (0-60%). | John T. Nesser: | | • Oversee operational transition following the Spin-off to stand alone marine construction company (0-12%); | | | • Achieve establishedspecific safety goals and objectives; • Achieve specific levels of financial performance with respect to operating income, goals (0-12%); | | | return on invested capital and new bookings; • Increase backlog, in quantityProvide for executive management succession planning; and quality, from level at December 31, 2009 (0-12%); | | | • EnhanceImprove communications among the Chief Executive Officer, Chief Operating Officer, McDermott operations developmentpersonnel and succession planning(0-12%); and | | | • Maintain high ethical standards through oversight and training and meet or exceed established safety goals (0-12%). | customers. |
20102011 Annual Incentive Compensation Payments.The 20102011 target and final EICP compensation amounts for each Named Executive are shown in the table below. No information is provided for Messrs. Taff or Bethards. Pursuant to the Employee Matters Agreement, B&W assumed responsibility for
the grant and payment of 2010 annual incentive compensation for certain employees, including Messrs. Taff and Bethards, which compensation was earned in connection with their employment with B&W following the Spin-off and paid by B&W in 2011.
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20102011 EICP Payment Summary
| | | | | | | | | | | 2010 EICP
| | | Named
| | Target
| | Total 2010
| Executive | | % of Salary | | Annual Incentive | S. M. Johnson(1) | | | | | | $ | 1,218,863 | | Pres. & CEO, JRM | | | 85 | % | | | | | Pres. & CEO, MII | | | 100 | % | | | | | J. A. Fees | | | 100 | % | | $ | 535,808 | | P. L. Elders | | | 70 | % | | $ | 398,147 | | G. L. Carlson | | | 55 | % | | $ | 334,400 | | L. K. Hinrichs | | | 55 | % | | $ | 317,673 | | J. T. Nesser | | | 70 | % | | $ | 609,729 | |
| | | | | | | Named Executive | | 2011 EICP Target % of Salary | | Final 2011 Annual Incentive | | S. M. Johnson | | 100% | | $ | 0 | | P. L. Elders | | 70% | | $ | 0 | | G. L. Carlson | | 60% | | $ | 0 | | L. K. Hinrichs | | 60% | | $ | 0 | | J. T. McCormack(1) | | | | | | | EVP, COO | | 70% | | | | | SVP, Operations | | 50% | | $ | 0 | | J. T. Nesser | | 70% | | $ | 206,408 | |
| | | (1) | | Mr. Johnson’sMcCormack’s target EICP was prorated based on his length of service at his current and former positions. |
Analysis of 20102011 EICP Payments.Payments. In February 2011,2012, the Compensation Committee considered (1) McDermott’s 20102011 consolidated operating income as adjusted to compare to the established JRM operating income performance goals;and ROIC; (2) the non-management directors’ assessment of the individual performance of Mr. Johnson; (3) Mr. Johnson’s self-assessment of his individual performance relative to his individual goals; (3) the nonemployee directors’ assessment of the individual performance of Mr. Johnson; and (4) Mr. Johnson’s recommendation of each other Continuing Named Executive’s 20102011 EICP compensation based on his assessment of the financial and individual performance applicable to each of those Continuing Named Executives. In February 2010, the financial performance goals for 2010 EICP compensation were established based on the operating income of JRM, which was comprised of the reporting segment we previously referred to as the Offshore Oil & Gas Construction segment. As a result of the Spin-off, however, the Offshore Oil & Gas Construction segment no longer exists as a segment for financial reporting purposes. Therefore, in order to determine whether the financial goals were attained, the Compensation Committee utilized McDermott’s consolidated operating income, which was slightly above the threshold level of $314.9$245.0 million, taking into account legacy corporate general and administrative expenses to establishconsolidated ROIC of 8%, which was below the operatingthreshold level of 12.4%. The consolidated ROIC percentage was derived by dividing (1) the sum of income from continuing operations before noncontrolling interest less net income attributable to JRM hadnoncontrolling interest by (2) the Spin-off not occurred.average net assets during 2011, which was calculated by subtracting current liabilities from total assets. The Compensation Committee also specifically considered certain impairments and charges totalingconsolidated operating income of $250.7 million resulted in a notional payout level of approximately $73.1 million, including costs incurred in connection26% with respect to the discontinuance of our fabrication yard in Kazakhstan, impairment charges on two70% portion of the four vessels we are retaining from the Secunda acquisition, which charges diminishedfinancial performance goals attributable to operating income, and also the asset impairment costsconsolidated ROIC of our charter fleet business, as discussed8% resulted in our Annual Report onForm 10-K fora notional payout of 0.00% with respect to the year ended December 31, 2010.30% portion of
Mr. Johnson. Mr. Johnson earned approximately 160.3%financial performance goals attributable to consolidated ROIC. The combined operating income and ROIC performance resulted in eligibility of his 2010 targetthe participants in the EICP or $1,218,863. Based on McDermott’s 2010 financial results, Mr. Johnson was eligible to earn 190%approximately 18% of his 2010their target EICP compensation, subject to the assessment of histheir individual goals. Mr. Johnson’s 160.3% was comprised 132% The Continuing Named Executives. None of the Continuing Named Executives were awarded bonuses under the 2011 EICP. Based on McDermott’s 2011 financial performance componentresults, the Continuing Named Executives were eligible to earn approximately 18% of their respective 2011 target EICP compensation, subject to the assessment of their respective individual goals. Upon the recommendation of Mr. Johnson based on McDermott’sthe 2011 financial results, the Compensation Committee, in the exercise of its discretion, determined that, although the Continuing Named Executives and other participants in the EICP were eligible to earn approximately 18% of their target EICP compensation, 0% would be awarded in light of the financial results. Instead, as recommended by Mr. Johnson, the Compensation Committee determined that the bonus amounts that otherwise would have been payable should effectively be returned to the shareholders in the form of additional operating income, resulting in the reported consolidated operating income of $250.7 million. In making this recommendation and 28.3%decision, respectively, Mr. Johnson and the Compensation Committee considered the increase in 2011 revenues of approximately 43%, together with the decrease in 2011 operating income by approximately 20%, from 2010 levels, the continued performance issues in the Atlantic region and issues relating to several projects in other regions. In making its decision not to award bonuses for 2011 under the EICP, the Compensation Committee noted that Mr. Johnson had achieved the individual performance component, based on the Governance Committee’s assessment of Mr. Johnson’s individual performance against stated goals.goals, and each of Messrs. Elders, Carlson and McCormack and Ms. Hinrichs had achieved their respective individual performance components based on Mr. Johnson’s assessment of their respective individual performance achievements against stated goals, with the exception of the financial performance goal and a safety goal for Mr. McCormack. Mr. Nesser. Pursuant to the terms of Mr. Nesser’s separation agreement entered into in connection with his retirement, Mr. Nesser was paid Mr. Fees. In connection with the Spin-off and Mr. Fees’ termination of employment for “good reason” as defined in his retention agreement, Mr. Fees was paid his prorated 20102011 EICP compensation in August 2010.2011. Per the terms of his retentionseparation agreement, Mr. FeesNesser was to be paid a cash payment equal to his target bonus under the EICP times a fraction, the numerator of which was the number of days elapsed in the year in which the terminationretirement took place and the denominator of which was 365. Based on his July 30, 2010 termination date, Mr. Fees’Nesser received a prorated target bonus of $922,500 was prorated such that he received an EICP payment of $535,808. Mr. Elders. Mr. Elders earned approximately 181.5% of his 2010 target EICP (which was prorated$206,408, based on his length of service with McDermott during 2010), or $398,147. Based on McDermott’s 2010 financial results, Mr. Elders was eligible to earn 190% of his 2010 target EICP compensation. Mr. Elders’ 181.5% was comprised 133.7% under the financial performance component based on McDermott’s operating income and 47.8% under the individual component based on Mr. Johnson’s assessment of Mr. Elders’ individual performance against stated goals.
Mr. Carlson. Mr. Carlson earned 190% of his 2010 target EICP, or $334,400. Based on McDermott’s 2010 financial results, Mr. Carlson was eligible to earn 190% of his 2010 target EICP compensation. Mr. Carlson’s 190% was comprised 133% under the financial performance component based on McDermott’s operating income and 57% under the individual component based on Mr. Johnson’s assessment that Mr. Carlson met or exceeded his individual goals.
Ms. Hinrichs. As a Corporate employee, Ms. Hinrichs had 2 EICP periods during 2010.partial year service. For
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the period prior to the Spin-off, and because of the completion of the Spin-off, Ms. Hinrichs earned 100% of her target EICP compensation, prorated for her length of service as a Corporate employee, or 7/12 of the year. For the period following the Spin-off, Ms. Hinrichs was eligible to earn 190% of her 2010 target EICP compensation, prorated for the balance of 2010, or 5/12 of the year. Following the Spin-off, Ms. Hinrichs earned 190% of her 2010 target EICP compensation, which was comprised 133% under the financial performance component based on McDermott’s operating income and 57% under the individual component based on Mr. Johnson’s assessment that Ms. Hinrichs met or exceeded her individual goals. As a result, Ms. Hinrichs earned 190% of her 2010 target EICP for 5/12 of the year, which combined with the pre Spin-off period, totaled $317,673.
Mr. Nesser. Mr. Nesser earned approximately 171% of his 2010 target EICP, or $609,729. Based on McDermott’s 2010 financial results, Mr. Nesser was eligible to earn 190% of his 2010 target EICP compensation. more information regarding Mr. Nesser’s 171% was comprised 133% under the financial performance component based on McDermott’s operating incomeseparation agreement, see “Employment and 38% under the individual component based on Mr. Johnson’s assessment of Mr. Nesser’s individual performance against stated goals.
Severance Arrangements — Employment and Separation Agreements” below.Long-Term Incentive Compensation The Compensation Committee believes that the interests of our stockholders are best served when a significant percentage of executive compensation is comprised of equity and other long-term incentives that appreciate in value contingent upon increases in the value of our common stock and other performance measures that reflect improvements in McDermott’s business fundamentals. Therefore, long-term incentive compensation represents the single largest element of our Named Executives’ total direct compensation. Analysis of 20102011 Equity Grants. Mix of 2010 Equity.2011 Equity. In 2010, the type and mix of equity the Compensation Committee granted was principally a function of two factors: (1) the Compensation Committee’s desire to maintain a strong correlation between pay and performance in long-term incentives and (2) the anticipated Spin-off. As a result,2011, the Compensation Committee allocated long-term incentive compensation to officers, including certainthe Continuing Named Executives, as follows (excluding retention follows:payments made in connection with the Spin-off and the sign-on grant made to Mr. Carlson):50% performance shares; | | | | • | 50% restricted stock units; and | | | • | 50% non-qualified stock options. |
25% non-qualified stock options; and To promote the retention of employees,25% restricted stock units represented a larger percentage of a Named Executive’s long-term incentive compensation than in the recent past. At the time of grant, the Compensation Committee anticipated that the restricted stock units would be converted at the Spin-off into restricted stock units of either McDermott or B&W, depending primarily on which company the recipient’s employment continued with post-spin. As a result, restricted stock units were intended to provide an immediate long-term retention for continuing employees. The restricted stock units generally vest one-third on the first, second and third anniversaries of the grant date.units. To maintainstrengthen its commitment to performance-based compensation, the Compensation Committee utilizedresumed using performance shares in 2011. The Compensation Committee believes the granting of total shareholder return (“TSR”) performance shares is an appropriate element of incentive compensation, in that TSR performance shares align the Continuing Named Executives’ interests with those of our stockholders, with a focus on long-term results. The amount of performance shares that vest, if any, is scheduled to initially be determined at the end of three calendar years (including 2011) based on McDermott’s TSR relative to the Proxy Peer Group during the same period, with subsequent measurements of TSR relative to the Proxy Peer Group at the end of four and five calendar years (including 2011). The total percentage of performance shares which will vest, if any, may range in amount between 0% and 200% of the number of shares granted, depending on McDermott’s TSR relative to the Proxy Peer Group over the applicable measurement periods. As of December 31, 2011, the estimated payout as a percentage of target for the performance shares granted in 2011 was 0% due to the Company’s share price performance versus the Proxy Peer Group. As in 2009 and 2010, in 2011 the Compensation Committee continued to use stock options, which reward and drive performance based on absolute stock price improvement. The stock options also generally vest in one-third increments on the first, second and third anniversaries of the grant date and have an option term of 7seven years. Consistent As of December 31, 2011, the price of the Company’s shares had not exceeded the strike price of the stock options granted in 2011.Similarly, as in 2008, 2009 and 2010, the Compensation Committee awarded restricted stock units to the Continuing Named Executives, although such restricted stock units represented a smaller percentage of the Continuing Named Executive’s long-term incentive compensation than in the recent past. Restricted stock units are intended to promote the retention of employees, including the Continuing Named Executives, and generally vest in one-third increments on the first, second and third anniversaries of the grant date. In 2011 our Compensation Committee adopted a clawback policy under which McDermott would seek to recover any incentive-based award granted to any executive officer as required by the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act or any other “clawback” provision required by law or the listing standards of the New York Stock Exchange. Each grant made to the Continuing Named Executives in 2011 was subject to this clawback policy. Additionally, and consistent with our recent past practice, our grant agreements for awards made in 20102011 contained a forfeiture provision. In 2010,2011, this provision provided that in the event that, while the grantee is employed by McDermott or performing services on behalf of McDermott under any consulting agreement, the grantee is convicted of a felony or misdemeanor involving fraud, dishonesty or moral turpitude or a felony, or the grantee engages in conduct that adversely affects or, in the sole judgment of the Compensation Committee, may reasonably be expected to adversely affect, the business reputation or economic interests of the Company, then all rights and benefits awarded under the respective agreements are immediately forfeited, terminated and withdrawn. The Compensation Committee also considered using performance shares in 2010, as it had each year since 2006. However, the Compensation Committee elected not to utilize performance shares as a component of long-term compensation during 2010, because it determined it was more appropriate for the post-spin board of directors at each post Spin-off company to establish performance targets and metrics tailored to the strategies of the post-spin company. The decision not to award performance shares was influenced by observed complexities in establishing goals for McDermott in the midst of significant change during the measurement period.
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We anticipate that future long-term incentive compensation will continue to emphasize performance-based equity awards, including the use of performance shares. In March 2011, the Compensation Committee’s long-term compensation allocation for officers, excluding Mr. Nesser, who informed McDermott that he intends to retire by year-end 2011, was as follows:
| | | | • | 50% performance shares; | | • | 25% restricted stock units; and | | • | 25% non-qualified stock options. |
For more information regarding the 20102011 performance shares, stock options and restricted stock units, and stock options, see the Grants“Grants of Plan-Based AwardsAwards” table under “Compensation of Executive Officers” below and disclosures under “Compensation of Executive Officers — Estimated Future Payouts Under Equity Incentive Plan Awards.” below.Value of 20102011 Long-Term Incentive Compensation.Compensation. The 20102011 target long-term incentive compensation for our Named Executives was as follows: | | | | | | | | | | | Target LTI
| | Percent of
| Named Executive(1) | | Value | | Market(2) | S. M. Johnson | | $ | 2,500,000 | | | | 84 | % | P. L. Elders | | $ | 1,034,000 | | | | 130 | % | M. S. Taff | | $ | 1,212,000 | | | | 102 | % | B. C. Bethards | | $ | 2,500,000 | | | | 79 | % | G. L. Carlson(3) | | $ | 432,000 | | | | 120 | % | L. K. Hinrichs | | $ | 800,000 | | | | 101 | % | J. T. Nesser | | $ | 650,000 | | | | 102 | % |
| | | | | | | Named Executive(1) | | Target LTI Value | | | Percent of Market(2) | S. M. Johnson | | $ | 4,000,000 | | | 125% | P. L. Elders | | $ | 1,000,000 | | | 79% | G. L. Carlson | | $ | 416,720 | | | 114% | L. K. Hinrichs | | $ | 931,767 | | | 105% | J. T. McCormack(3) EVP, COO SVP, Operations | | $
$ | 1,125,000
465,000 |
| | 81%
100% |
| | | (1) | | No long-term incentive award was granted to Mr. FeesNesser in 20102011 in anticipationlight of his termination of employment from McDermott in connection with the Spin-off.anticipated retirement by year-end 2011. | |
(2) | | Market = Median target long-term incentives based on the benchmark applicable to the executive. 100% represents median compensation. | |
(3) | | The target LTI value shown in connection with Mr. Carlson’sMcCormack’s promotion to EVP, COO reflects his March 2011 LTI award in addition to a supplemental award in the amount of $660,000 in connection with his promotion. Percent of market reflected for Mr. McCormack’s current position is the percent of market based upon a combination of Mr. McCormack’s target long-term incentive compensation does not include a sign-on equity grant of restricted stock units that was made to offset compensationLTI award values from his former and benefits he forfeited when he left his previous employer to join McDermott.current positions. |
Meridian advisedWhen considering the target values of long-term incentive to be provided to the Continuing Named Executives, the Compensation Committee that duesought to economic and stockset target values within the market conditions in 2010, the long-term incentive compensation of companies in our market decreased 10%-20% as compared to 2009. As a result of these market decreases, most of our executive officers, including Messrs. Johnson, Taff and Nesser and Ms. Hinrichs, received a lesser value ofrange. Accordingly, each Continuing Named Executive’s target long-term incentive compensation as compared tovalue was within market range, with the 2009exception of Messrs. Johnson and Elders and Mr. McCormack’s target value awards (exclusive of the retention grants discussed below) in order for the Compensation Committee to maintain their long-term incentive compensation within market range. Thevalue associated with his promotion to EVP, COO in June 2011. When granted, the value of Messrs. Elders’ and Carlson’sMr. Johnson’s long-term incentive compensation was above market range in order to induce Messrs. Elders and Carlson to accept positions at JRM with the expectation that they would become executive officers of McDermott upon completion of the Spin-off. As a result of internal equity considerations, the Compensation Committee set the same target long-term incentive value forfurther compensate Mr. Johnson andfor his performance following the Spin-off, while continuing to incentivize him based on the long-term performance of McDermott. The value of Mr. Bethards, although market data indicated that Mr. Bethards’ targetElders’ long-term incentive compensation was approximately 21% below market —
range; however, combined with the difference attributable to the useother components of different benchmarkscompensation for these positions. As previously mentioned, Mr. Carlson2011, his target total direct compensation was also granted additional long-term incentives in 2010 in the form of a sign-on grant of restricted stock units made to offset compensation and benefits he forfeited when he left his previous employer to join McDermott.within market range. The value of this sign-on grant was not included in setting Mr. Carlson’s targetMcCormack’s long-term incentive compensation.
Additionally,compensation following his promotion to EVP, COO was also set below market range in connection withlight of the Spin-off and pursuantCompensation Committee’s view that a newly promoted Chief Operating Officer should receive competitive compensation, although not necessarily equal to the retention agreements entered into by McDermott with certain key memberscompensation of managementa more experienced officer in a similar position.As of December 2009,31, 2011, (1) the estimated payout as discusseda percent of target for the performance shares granted in further detail below, Messrs. Johnson2011 was 0%, and Nesser and Ms. Hinrichs each received an additional award based on their continued employment with McDermott on(2) the effective dateshare price of our common stock had not exceeded the strike price of the Spin-off. Eachstock options granted in 2011. However, the amount of performance shares granted in 2011 that ultimately vest, if any, will be determined by reference to our total shareholder return over three-, four- and five-year periods. The vesting of these Named Executives receivedperformance shares would impact the future realizable value of these performance shares. In addition, an award of restrictedincrease in our stock equal inprice compared to our stock price at December 31, 2011 may impact the future realizable value to the sum of the Named Executive’s annual base salary and target bonus under the EICPstock options granted in effect immediately prior to the effective date of the Spin-off. The restricted stock awards vest 100% on July 30, 2011, which is the first anniversary of the effective date of the Spin-off, provided the Named Executive remains employed with McDermott through that date. The Compensation Committee did not consider the retention agreement restricted stock awards when determining the value of long-term incentive to be awarded in 2010 because the restricted stock awards were an incentive to retain key members of management through the completion of and for one year following the Spin-off rather than to incentivize long-term performance. Additionally, pursuant to the retention agreements entered into in December 2009, at the time the 2010 target long-term incentive value was determined in early 2010, the restricted stock awards remained contingent and were not awarded until the completion of the Spin-off. The value of
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2011.
the retention agreement restricted stock award grants to Messrs. Johnson and Nesser and Ms. Hinrichs were as follows:
| | | | | | | | | | | Grant Date Fair
| | | Named Executive | | Value of Award | | Shares Granted | S. M. Johnson | | $ | 1,422,186 | | | | 113,412 | | L. K. Hinrichs | | $ | 654,563 | | | | 52,198 | | J. T. Nesser | | $ | 871,254 | | | | 69,478 | |
Messrs. Bethards and Taff each received similar retention payments in the form of restricted stock award grants made by B&W equal in value to the sum of their respective annual base salary and target bonus in effect immediately prior to the effective date of the Spin-off, except that one-third of the value of Mr. Taff’s retention award was made in cash.
Sizing Long-Term Incentive Compensation.Compensation. The Compensation Committee generally determines the size of equity-based grants as a dollar value, rather than granting a targeted number of shares. The number of restricted stock units, performance shares and stock options granted can be expressed through the following formula: target value of target long-termincentive($)/FMV($). The fair market value of one restricted stock unit or share of restricted stock was computed based on the full fair market value of McDermott’s common stock based on the closing price of our common stock on the New York Stock Exchange on the date of grant. The fair market value of one stock optionperformance share was determined by MeridianPay Governance using a Monte Carlo valuation model and the fair market value of an option to acquire one share of our common stock was determined by Pay Governance using a Black-Scholes formula based also onmodel. Both of these valuation models consider the full fair market value of our common stock on the date of grant. grant in conjunction with other valuation inputs. Full fair market value may differ from grant date fair value dependent on the analysis performed under Accounting Standards Codification Topic 718. For example, for the long-term incentive compensation granted to all of the Continuing Named Executives (except Messrs. Elders and Carlson) in February 2010,March 2011, the fair market value of our common stock as of the date the grants were calculateddetermined (based on the closing price of our common stock on the New York Stock Exchange) was $25.37,$25.64, compared to the discounted value of $17.11$35.38 for each performance share and the value of $10.19 for an option to acquire one share of our common stock. Because the long-term incentive compensation grants vest over three years, the number of shares calculated werewas rounded to the nearest multiple of three. In prior years, fair market value of the stock was determined using a discounted share price to reflect the vesting conditions and transfer restrictions characterizing the equity awards. The valuation methodology was changed with respect to awards made in 2010, which had the intended effect of lowering the number of shares and units that otherwise would have been granted.
All outstanding long-term incentive awards prior to the Spin-off, including those granted in 2010, were converted or adjusted in connection with the Spin-off. For more information, see “Treatment of Equity-Based Compensation in Connection with the Spin-off” below.
Timing of Equity Grants.Grants. To avoid timing equity grants ahead of the release of material non-public information, the Compensation Committee generally grants stock option and other equity awards effective as of the first day of the next open trading window following the meeting at which the grants are approved, which is generally the third NYSE trading day following the filing of our annual report onForm 10-K or quarterly report onForm 10-Q with the Securities and Exchange Commission.SEC. This practice was followed for all long-term incentive compensation grants to Continuing Named Executives in 2010, with the exception of the restricted stock award retention grants made to Messrs. Johnson and Nesser and Ms. Hinrichs pursuant to their retention agreements. The retention grants of restricted stock were earned on the effective date of the Spin-off and, therefore, were made on the first business day following that date. Treatment of Equity-Based Compensation in Connection with the Spin-off. In connection with the Spin-off, McDermott sought to preserve the intrinsic value of outstanding equity awards as of the date of the Spin-off. As2011.Perquisites We provide a result, McDermott’s outstanding equity-based compensation awards were generally treated as follows: | | | | • | Each outstanding option to purchase shares of McDermott common stock held by a director, officer or employee of McDermott who remained a director, officer or employee of McDermott and did not become a director, officer or employee of B&W immediately after the Spin-off was replaced with an adjusted option to purchase McDermott common stock. Each of those adjusted options reflected adjustments generally intended to preserve the intrinsic value of the original option and the ratio of the exercise price to the fair market value of the stock subject to the option, each as of the date of the Spin-off. The replacement options were generally made subject to the same terms and conditions as the options that were replaced. To the extent the options that were replaced had already vested, the replacement options were also vested. |
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| | | | • | Each outstanding option to purchase shares of McDermott common stock held by a person who was or became a director of B&W (but not of McDermott) or by a person who was or became an officer or employee of B&W immediately after the Spin-off was replaced with a substitute option to purchase shares of B&W common stock. Each of those substitute options have terms generally intended to preserve the intrinsic value of the original option and the ratio of the exercise price to the fair market value of the stock subject to the option, each as of the date of the Spin-off. The substitute options were generally made subject to the same terms and conditions as the options that were replaced. To the extent the options that were replaced had already vested, the substitute options were also vested. | | | • | Each outstanding option to purchase shares of McDermott common stock that was held by (1) a person who was a director of McDermott and who remained on the board of directors of McDermott and was also on the board of directors of B&W immediately after the Spin-off or (2) a person who was one of a small number of officers of B&W who would not serve as officers of B&W after the Spin-off (the “Former B&W Officers”) were replaced with both an adjusted McDermott stock option and a substitute B&W stock option. Both options, when combined, have terms that were generally intended to preserve the intrinsic value of the original option and the ratio of the exercise price to the fair market value of the stock subject to the option, each as of the date of the Spin-off. Both the replacement and the substitute options were generally made subject to the same terms and conditions as the original options. All McDermott stock options held by directors of McDermott as of the date of the Spin-off were previously vested pursuant to their original terms. Accordingly, all adjusted or substitute options issued to McDermott directors were also vested. | | | • | The McDermott restricted stock awards, restricted stock unit awards and deferred stock unit awards of officers or employees of McDermott who remained officers or employees of McDermott and did not |
| | | | | become officers or employees of B&W immediately after the Spin-off were replaced with adjusted McDermott awards, each of which generally preserved the value of the original award as of the date of the Spin-off. The adjusted awards were generally made subject to the same terms and conditions as the awards that were replaced. As of the distribution date, none of McDermott’s directors held any restricted stock awards, restricted stock unit awards, deferred stock unit awards or performance share awards. | | | • | The McDermott restricted stock awards, restricted stock unit awards and deferred stock unit awards of persons who were or became officers or employees of B&W immediately after the Spin-off were converted into substitute B&W awards, each of which generally preserved the value of the original award as of the date of the Spin-off. The adjusted awards were generally made subject to the same terms and conditions as the awards being replaced. | | | • | The McDermott restricted stock unit awards and deferred stock unit awards of the Former B&W Officers were converted into rights to receive (1) an equivalent number of unrestricted shares of McDermott common stock and (2) one share of B&W common stock for every two shares of McDermott common stock, in accordance with the Spin-off. In the Spin-off, Former B&W Officers maintained their shares of McDermott restricted stock, which were already issued and outstanding on the record date of the Spin-off. As a result, Former B&W Officers received the distribution of B&W common stock payable with respect to these restricted shares in the Spin-off. | | | • | The McDermott performance share awards of officers or employees of McDermott who remained officers or employees of McDermott and did not become officers or employees of B&W immediately after the spin-off were converted into unvested rights to receive the value of deemed target performance in restricted stock units of McDermott common stock, with the same vesting terms as the original awards. |
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| | | | • | The McDermott performance share awards of persons who were or would be officers or employees of B&W immediately after the Spin-off were converted into unvested rights to receive the value of deemed target performance in restricted stock units of B&W common stock, with the same vesting terms as the original awards. | | | • | The McDermott performance share awards of the Former B&W Officers were converted into rights to receive the value of deemed target performance in restricted stock units of McDermott common stock and B&W common stock, in accordance with theone-for-two ratio used in the Spin-off. | | | • | One-half of Mr. Taff’s McDermott stock options, restricted stock, restricted stock units and performance shares were converted as if he were an officer of McDermott following the Spin-off, and the other half of such awards was converted as if he were an officer of B&W following the Spin-off. |
In the case of adjusting McDermott options or granting substitute B&W options, the conversion formula resulted in fractional shares or fractional cents in some cases. Any fractional shares that were subject to adjusted McDermott options and substitute B&W options were disregarded, and thelimited number of shares subject to such options was rounded down to the next lower whole number of shares. The exercise price for such options was rounded up to the next higher whole cent. There were no stock appreciation rights outstanding under the McDermott incentive plans at the time of the Spin-off.
Perquisites
Perquisites are not factored into the determination of the total direct compensation of our Named Executives, because they are typically provided to Named Executives on an exception basis.
We own a fractional interest in one aircraft through an aircraft management company, which we use for business purposesperquisites and make availableother personal benefits to our Named ExecutivesExecutives. In 2011 our Compensation Committee adopted a perquisite allowance for limited personal use. When we permit the personal use of aircraft by a Named Executive, we have a choice regarding the amount of income imputed to the executive officer for that use. Under current Internal Revenue Service rules, we may impute to the executive officer the actual cost incurred by us for the flight or an amount based on Standard
Industry Fare Level (“SIFL”) rates set by the U.S. Department of Transportation. Imputing income based on SIFL rates usually results in less income tax liability to the executive officer but higher income taxes to us due to limitations on deducting aircraft expenses that exceed the income imputed to employees. To minimize our cost of permitting the personal use of the aircraft, we impute income for personal use of aircraft tocertain officers, including our Named Executives, in an amount that results in the least amount of tax burden for McDermott.
As required by applicable Securities and Exchange Commission rules, for purposes of our compensation related disclosures in this proxy statement, we calculate compensation in respect of personal use of corporate aircraft based on our “incremental cost.” We compute incremental cost for personal use of aircraft based on the actual cost incurred by us for the flight, including:
| | | | • | the cost of fuel; | | | • | a usage charge equal to the hourly rate charged by our flight operator multiplied by the flight time; | | | • | “dead head” costs, if applicable, of flying aircraft without passengers to and from locations; and | | | • | the dollar amount of increased income taxes we incur as a result of disallowed deductions under IRS rules. |
Since the aircraft is used primarily for business travel, incremental costs generally exclude fixed costs such as the purchase price of our interest in the aircraft, aircraft management fees, depreciation, maintenance and insurance. Our cost for flights, whether business or personal, is not affected by the number of passengers. As a result, we do not assign any amount, other than the amount of any disallowed deduction, when computing incremental costs for the presence of guests accompanying a$20,000. The perquisite allowance was provided in order to cover company-required physicals, financial planning and non-company-required spousal travel.Additionally, and consistent with our past practice, we may reimburse Named Executive on such flights. While we do not generally incur any additional cost, this travel may result in imputed income to the Named Executive and disallowed deductions on our income taxes. We will reimburse the Named ExecutiveExecutives for the travel expenses of a guest accompanying a Named Executive, including the provision of agross-up for any imputed income, but only when the presence of that guest is related to the underlying business purpose of the trip. We also provide our Named Executives with a taxgross-up for income incurred in connection with a relocation with McDermott or one of our
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on any relocation-related expense reimbursements that may be subject to tax.
affiliated companies. During 2010, in connection with the Spin-off and the realignment of the management teams for McDermott and B&W, relocation benefits, including taxgross-ups, were provided to certain executives under our relocation program.
On February 28, 2011 the Compensation Committee adopted a perquisite allowance for certain officers, including our Named Executives.
Retirement Plans Overview.Thrift Plan. We have providedprovide retirement benefits for most of our U.S. employees, including our Named Executives, through sponsorship of a combination of qualified defined benefit pension plans, which we refer to as our “Retirement Plans,” andthe McDermott Thrift Plan, a qualified defined contribution 401(k) plan, which we refer to as our “Thrift Plan.” Prior
Retirement and Excess Plans. Some of our longer-term U.S. employees, including Mr. Nesser and Ms. Hinrichs, are entitled to retirement benefits under the Spin-Off, we sponsored the following Retirement Plans under which the eligible Named Executives were covered: | | | | • | “Retirement Plan for Employees of McDermott Incorporated and Participating Subsidiary and Affiliated Companies” (the “MI Retirement Plan”McDermott (U.S.); | | | • | “Retirement Plan for Employees of J. Ray McDermott Holdings, LLC and Participating Subsidiary and Affiliated Companies” (the “JRM Retirement Plan”); | | | • | “Retirement Plan for Employees of Babcock & Wilcox Governmental Operations” (the “B&W Governmental Operations Retirement Plan”); and | | | • | “Retirement Plan for Employees of Babcock & Wilcox Commercial Operations” (the “B&W Commercial Operations Retirement Plan”). |
As a result of the Spin-off, we are no longer a sponsor of the B&W Government Operations Retirement Plan, or the B&W Commercial Operations Retirement Plan.
In addition to the broad-based qualified plans described above,defined benefit pension plan we sponsor, unfunded, nonqualified excess retirement plans, which we refer to as our “Retirement Plan.” The Retirement Plan has been closed to new participants since 2006, and benefit accruals under the Retirement Plan were frozen altogether in 2010.We also sponsor an unfunded, nonqualified excess retirement plan, which we refer to as our “Excess Plans.Plan.” The Excess Plans coverPlan covers a small group of highly compensated employees, including Messrs. Fees, Bethards andMr. Nesser and Ms. Hinrichs, whose ultimate benefits under the Retirement PlansPlan are reduced by Internal Revenue Code limits on the amount of benefits which may be provided under qualified plans and the amount of compensation which may be taken into account in computing benefits under qualified plans. Benefits under the Excess PlansPlan are paid from our general assets. In 2003, we closed As is the JRMcase with the Retirement Plan, to new participants and froze benefit accruals for existing participants. In lieu of future defined benefit plan accrualsbenefits under the JRM RetirementExcess Plan we amended our Thrift Planhave been frozen since 2010, and no further benefits are accruing to provide affected employees with an automatic cash contribution to their Thrift Plan account equal to 3% ofMs. Hinrichs or Mr. Nesser under the employee’s base pay, plus overtime pay, expatriate payExcess Plan.Messrs. Johnson, Elders, and commissions, which we refer to collectively as “thriftable earnings.” In 2006, we closed the MI Retirement Plan, B&W Governmental Operations Retirement Plan and B&W Commercial Operations Retirement Plan to new salaried participants and froze benefit accruals for existing salaried participants with less than five years of credited service as of March 31, 2006, subject to specific annualcost-of-living increases. In lieu of future defined benefit plan accruals under those Plans, we further amended our Thrift Plan to provide an automatic cash contribution to the Thrift Plan accounts of affected employees and new hires in an amount between 3% and 8% of the employee’s thriftable earnings, based on their length of service. Mr. Taff didCarlson do not participate in athe Retirement Plan or anthe Excess Plan because their employment with McDermott commenced after new participation in the Retirement Plan was closed. Mr. McCormack does not participate in the Retirement Plan or the Excess Plan because he had not met the MI Retirement Planapplicable eligibility requirements at the time thatthe Retirement Plan was closed to new participants.
In 2007, we offered salaried participants in the MI Retirement Plan, B&W Governmental Operations Retirement Plan, and B&W Commercial Operations Retirement Plan with between five and 10 years of credited service as of January 1, 2007 the one-time irrevocable choice between (i) continuing to accrue future benefits under the Retirement Plan or (ii) freezing their Retirement Plan accrued benefit as of March 31, 2007, subject to annualcost-of-living increases, and receiving an automatic service-based cash contribution to their Thrift Plan account instead. Mr. Nesser and Ms. Hinrichs met this credited service criteria under the MI Retirement Plan and thus were affected by this action. Mr. Nesser and Ms. Hinrichs elected to continue accruing benefits under the Retirement Plan. As discussed below, as of June 30, 2010, all benefit accruals under the Retirement Plan were frozen, including Mr. Nesser’s and Ms. Hinrichs’ benefits under the Retirement Plan.
Messrs. Johnson, Elders, Taff and Carlson do not participate in a Retirement Plan or an Excess Plan, because their employment with McDermott
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commenced after new participation in the applicable Retirement Plan was closed, as discussed above.
During 2010, and in connection with the Spin-off, the Retirement Plans were realigned, such that assets and liabilities under these Plans which were attributable to B&W employees and certain former employees were transferred to the B&W Government Operations Retirement Plan and the B&W Commercial Operations Retirement Plan, as applicable, and the MI Retirement Plan was merged into the JRM Retirement Plan. These changes are described further below, under “Recent Changes to Retirement Plans.” Since the Spin-off, the only Retirement Plan we sponsor is the consolidated JRM Retirement Plan, which has been renamed the “McDermott (U.S.) Retirement Plan”.
See the Pension Benefit“Pension Benefits” table under “Compensation of Executive Officers” below for more information regarding our Retirement Plans and our Excess Plans. Recent Changes to Retirement Plans Covering Named Executives. As of April 30, 2010, and in anticipation of the Spin-off, the assets and liabilities attributable to participants in the MI Retirement Plan who were either (1) active employees of B&W or one of its subsidiaries on July 1, 2010 (“B&W Employees”), or (2) terminated employees of McDermott, B&W or a subsidiary on July 1, 2010, but originally hired by B&W or one of its subsidiaries (“Former B&W Employees”), were transferred to the B&W Governmental Operations Retirement Plan, and, effective May 1, 2010, a subsidiary of B&W assumed sponsorship of the B&W Governmental Operations Retirement Plan from McDermott. The participants affected by this transfer became covered under the B&W Governmental Operations Retirement Plan, and are entitled to benefits under that Plan identical to those which they had accrued under the MI Retirement Plan as of the date of the transfer. For purposes of eligibility and vesting under the B&W Governmental Operations Retirement Plan, the affected participants were credited with service for any period of employment with McDermott or a subsidiary to the same extent that such service would be credited if it had been performed for B&W or one of its subsidiaries. For purposes of benefit levels, accruals and benefit commencement entitlements under the B&W Governmental Operations Retirement Plan, the affected participants were credited with service for any period of employment with McDermott or a subsidiary to the same extent that such service would have been taken into account pursuant to the terms of the MI
Retirement Plan. Mr. Fees was affected by this change, based on his status as a Former B&W Employee on the relevant date, and therefore his coverage was transferred from the MI Retirement Plan to the B&W Governmental Operations Retirement Plan.
All remaining assets and liabilities of the MI Retirement Plan were then transferred as of May 31, 2010 to the JRM Retirement Plan and the MI Retirement Plan was merged into the JRM Retirement Plan and thereafter renamed “McDermott (U.S.) Retirement Plan” (referred to herein as the “McDermott Retirement Plan”). As of June 30, 2010, all benefit accruals under the McDermott Retirement Plan were frozen and any furthercost-of-living increases on accrued benefits ceased. As active employees of McDermott on the relevant date participating in the MI Retirement Plan, Ms. Hinrichs and Mr. Nesser were affected by the merger of the two Plans. Moreover, based on Mr. Nesser’s and Ms. Hinrichs’ 2007 elections to continue accruing benefits under the retirement plan in lieu of receiving the service-based cash contribution under the Thrift Plan, their benefit accruals under the McDermott Retirement Plan were frozen.
Also in connection with the Spin-off, the B&W Commercial Operations Retirement Plan and other qualified pension plans and Excess Plans sponsored by B&W or a subsidiary prior to the Spin-off were transferred to B&W.
Plan.Deferred Compensation Plan.Plan In 2005, as part of our determination to move away from defined benefit plans, our management recommended that the Board of Directors and the. The Deferred Compensation Committee terminate our then-existing non-qualified defined benefit supplemental executive retirement plan. In its place, our Board of Directors and Compensation Committee establishedPlan is a new defined contribution supplemental executive retirement plan which we referred to asestablished by our Board and the “SERP,”Compensation Committee to help maintain the competitiveness of our post-employment compensation as compared to our market. In November 2010, our Board of Directors and Compensation Committee approved amendments to the SERP which (1) changed the name of the SERP to the McDermott International, Inc. Director and Executive Deferred Compensation Plan, which we refer to as our Deferred Compensation Plan, (2) provided for the participation of members of our Board in the Deferred Compensation Plan, and (3) provided for other updates to the Deferred Compensation Plan.
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The Deferred Compensation Plan is an unfunded, nonqualified plan that provides participants with benefits based on the participant’s notional account balance at the time of retirement or termination. Under the Deferred Compensation Plan, on an annual basis the Compensation Committee has the discretion to credit a specified participant’s notional account with an amount equal to a percentage of the participant’s prior-year base salary and annual bonus paid in the prior year. We refer to such credit as a “Company Contribution.” In 2010,2011, Messrs. Fees, Taff, BethardsJohnson, McCormack and Nesser and Ms. Hinrichs each were participants in the Deferred Compensation Plan and received a Company Contribution in an amount equal to 5% of their respective prior-year base salaries and annual bonuses paid in the prior year. Mr. Johnson wasMessrs. Elders and Carlson were also a participantparticipants and received (1) a Company Contribution in an amount equal to 5% of histheir respective prior-year base salary paid. In addition, Mr. Johnson receivedpaid, and (2) a discretionary contribution equal in value to 5% of histheir respective target bonusbonuses for 2010 and the value of thetheir respective prior-year target base salary hesalaries they would have earned for the period January 1, 20092010 through his April 1, 2009their respective hire date. No Company Contribution was made for Messrs. Elders or Carlson, because they were not participants in the Deferred Compensation Plan at the time such contributions were made. Additionally, under the amendments to the Deferred Compensation Plan adopted in November 2010, beginning in 2011 any eligible employee, including our Continuing Named Executives, may defer up to 50% of his or her annual salaryand/or up to 100% of any bonus earned in any plan year, and any director may elect to defer up to 100% of his or her annual retainer and fees earned in any plan year.
dates.The Compensation Committee has designated deemed mutual fund investments to serve as indices for the purpose of determining notional investment gains and losses to each participant’s account for any Company Contribution or participant elected deferrals. Each participant allocates any Company Contributions and deferrals among the various deemed investments. Deferred Compensation Plan benefits are based on the participant’s vested notional account balance at the time of retirement or termination. Please see the Nonqualified“Nonqualified Deferred CompensationCompensation” table and accompanying narrative below for more information about the Deferred Compensation Plan and Company Contributions to our Named Executives’ Deferred Compensation Plan accounts. Employment and Severance Arrangements Employment and Separation Agreements.Agreements. Except forchange-in-control agreements and retention agreements,described below, we do not currently have any employment or severance agreements with any of our Continuing Named Executives. In connection with Mr. Nesser’s retirement, a subsidiary of McDermott entered into a Separation Agreement with Mr. Nesser. Under the terms of the Separation Agreement, Mr. Nesser was entitled to receive various payments and benefits under a Restructuring Transaction Retention Agreement entered into between Mr. Nesser and a subsidiary of McDermott in connection with the Spin-off. These payments and benefits included: (1) a cash payment of two times the sum of Mr. Nesser’s annual base salary and target EICP award; (2) a prorated target EICP award; (3) a cash payment equal to two years of medical benefits; (4) earned but unused vacation; and (5) full vesting of Mr. Nesser’s outstanding equity awards granted in 2008 and 2009. In addition to those benefits, under the Separation Agreement, Mr. Nesser is treated as if he had continued to be an employee of McDermott for purposes of the vesting of an award of restricted stock units and stock options, which were granted to Mr. Nesser in 2010 and remained unvested as of the date of his Separation Agreement, in accordance with the vesting schedule of those awards. Additionally, under the Separation Agreement, Mr. Nesser provided general consulting and advisory services to McDermott for a period of six months following his retirement. In consideration of those services, Mr. Nesser received $25,000 per month, as well as reimbursement of reasonable expenses incurred by Mr. Nesser in rendering those services. See “Potential Payments Upon Termination or Change in Control” below for more information on the payments made to and benefits received by Mr. Nesser under his Separation Agreement. Change-in-Control Agreements. Agreements. In our experience,change-in-control agreements for certain executive officers are common within our industry, and our Board and Compensation Committee believe that providing these agreements to our Named Executives protects stockholders’ interests by helping to assure management continuity and focus through and beyond a change in control. Accordingly, the Compensation Committee has offeredchange-in-control agreements to key senior executives since 2005. Following the Spin-off, on August 6, 2010, our Board of Directors approved a new form ofOur change-in-control agreement for Messrs. Johnson and Nesser and Ms. Hinrichs, and providedchange-in-control agreements to Messrs. Elders, and Carlson. Ourchange-in-control agreements generally provide a cash severance payment of two (2.99 for Mr. Johnson) times the sum of the Named Executive’s annual base salary and target EICP and a pro-rated bonus payment under the EICP. In addition, each such officer would become fully vested in any outstanding and unvested equity-based awards and his or her respective account balance in our Deferred Compensation Plan. Ourchange-in-control agreements contain what is commonly referred to as a “double trigger,” that is, they provide benefits only upon an involuntary termination or constructive termination of the executive officer within one year following a change in control. In addition, the newchange-in-control agreements: (1) do not provide for excise taxgross-ups; (2) require the applicable officer’s execution of a release prior to payment of certain benefits; and (3) provide for the potential reduction in payments to an applicable officer in order to avoid excise taxes. Because they arehe is no longer employed by McDermott, Messrs. Fees, Taff and BethardsMr. Nesser no longer havehas a change-in-control agreements agreement with McDermott. See the Potential“Potential Payments Upon Termination or Change in ControlControl” table under “Compensation of Executive Officers” below and the accompanying disclosures for more information regarding thechange-in-control agreements with our Continuing Named Executives, as well as other plans and arrangements that have different trigger mechanisms that relate to a change in control.
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Retention Agreements. In connection with the December 2009 announcement of our plans to complete the Spin-off, and to ensure retention of key employees and executives through the completion of the separation of B&W from McDermott and for one year thereafter, on December 10, 2009, we entered into retention agreements with 17 key members of management, including Messrs. Johnson, Fees, Taff, Nesser and Bethards and Ms. Hinrichs.
Generally, the retention agreements provided either a retention or severance payment to the Named Executives in connection with the Spin-off. The retention agreements generally provided a retention payment in the form of a restricted stock grant made near the time of the Spin-off that vests one year following the effective date of the Spin-off, equal to 100% (149.5% in the case of Mr. Fees) of the sum of the Named Executive’s annual base salary plus target annual incentive. That amount represented one-half of the severance payment that otherwise would have been provided under each Named Executive’s retention agreement in the event of a qualifying termination on a change in control, and discussed below. Accordingly, on the first NYSE trading day following the effective date of the Spin-off, McDermott made grants of restricted stock to Messrs. Johnson and Nesser and Ms. Hinrichs in connection with their continued employment with McDermott. The grants of restricted stock made to Messrs. Taff and Bethards were made by B&W pursuant to the terms of their respective retention agreements, which were assumed by B&W on completion of the Spin-off pursuant to the Employee Matters Agreement. With respect to Mr. Taff, one-third of his retention payment was payable in cash on the effective date of the Spin-off, in recognition of his agreement to serve as the Chief Financial Officer of B&W following the Spin-off, and that payment was made by B&W.
Although the Spin-off did not constitute a change in control for purposes of thechange-in-control agreements or other McDermott compensation plans, the Compensation Committee determined that the need to maintain continuity of management and personnel that exists under a change in control scenario equally existed in connection with the Spin-off. As a result, the retention agreements provide for severance payments that would generally be the same as the severance payments that would be made in connection with a qualifying termination on or following a change in control. Accordingly, the retention agreements provide for a cash severance payment of two (2.99 for Mr. Fees) times the sum of the Named Executive’s annual base
salary and target EICP, prorated target annual incentive compensation and a cash payment equal to two years of medical benefits as well as the full vesting of outstanding long-term incentive grants and Deferred Compensation Plan balance. The only payments provided for under the retention agreement not otherwise payable in a change in control were (1) a cash payment equal to two years of medical benefits and (2) the potential early vesting of the Named Executive’s Thrift Plan account. Under the terms of the Thrift Plan, unvested balances would become vested in the event a participant is involuntarily terminated in connection with a reduction in force. Because involuntary terminations for reasons other than cause in connection with the Spin-off generally would have been considered to be associated with a reduction in force, the Compensation Committee determined to add the vesting of Thrift Plan accounts to the severance benefits to avoid any ambiguity on that point. The Thrift Plan normally vests after three years of service. As a result of his commencement of employment in 2009, Mr. Johnson is the only Named Executive with a retention agreement to which this benefit may be applicable.
Mr. Fees’ retention agreement also contained restrictions on his ability to compete with McDermott (including both B&W and JRM), or solicit our employees, for two years following the termination of his employment.
See the Potential Payments Upon Termination or Change in Control table under “Compensation of Executive Officers — Retention Agreements” below and the accompanying disclosures for more information regarding the retention agreements with certain of our Named Executives.
Other Compensation Policies Stock Ownership Guidelines.To assist with the alignment of the interests of directors, executive officers and stockholders, we believe our directors and officers should have a significant financial stake in McDermott. To further that goal, we have adopted stock ownership guidelines in 2005, as amended effective August 9, 2010 and November 9, 2011, requiring generally that our non-managementnonemployee directors and our officers at the level of vice president or above maintain a minimum ownership interest in McDermott. The stock ownership requirements are as follows: | | | | • | Chief Executive Officer — five times annual base salary; |
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Executive Officers directly reporting to the Chief Executive Officer — three times annual base salary; Other Elected Vice Presidents — two times annual base salary; and Nonemployee Directors — five times annual Board member retainer. | | | | • | Executive Officers directly reporting to the Chief Executive Officer — three times annual base salary; | | | • | Other Elected Vice Presidents — two times annual base salary; and | | | • | Non-management Directors — five times annual retainer. |
Directors and officers have five years from the effective date of the amended stock ownership guidelines, or their initial election as a director/officer, or a change in position which increases the expected ownership level, whichever is later, to comply with the guidelines. The Governance Committee reviews each director’s and officer’s progress towards the requirements of the stock ownership guidelines annually, and may waive or modify the stock ownership guidelines for directors and officers in the Governance Committee’s sole discretion. Derivatives Trading and Hedging. McDermott’s Insider Trading Policy prohibits all directors, officers and employees, including our Continuing Named Executives, from engaging in “short sales” or trading in puts, calls or other options on McDermott’s common stock. Additionally, directors, officers and employees are prohibited from engaging in hedging transactions, and from holding McDermott shares in a margin account or pledging McDermott shares as collateral for a loan. Clawback Policy. Our Compensation Committee has adopted a clawback policy under which McDermott shallwould seek to recover any incentive-based award granted to any executive officer as required by the provisions of the Dodd-Frank Wall-StreetWall Street Reform and Consumer Protection Act or any other “clawback” provision required by law or the listing standards of the New York Stock Exchange. Additionally, consistent with our recent past,practice, our grant agreements for awards made in 20102011 contain a forfeiture provision. In 2010,2011, this provision provided that in the event that, while the grantee is employed by McDermott or performing services on behalf of McDermott under any consulting agreement, the grantee is convicted of a felony or misdemeanor involving fraud, dishonesty or moral turpitude or a felony, or the grantee engages in conduct that adversely affects or, in the sole judgment of the Compensation Committee, may reasonably be expected to adversely affect, the business reputation or economic interests of the Company, then all rights and benefits awarded under the respective agreements are immediately forfeited, terminated and withdrawn.
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2011 PEER GROUPS | | | | | Proxy Peer Group: | | | | | | | | Baker Hughes Incorporated | | FMC Technologies, Inc. | | National Oilwell Varco, Inc. | Cal Dive International, Inc. | | Global Industries Ltd. 1 | | Noble Corporation | Cameron International Corporation | | Halliburton Company | | Oceaneering International, Inc. | Chicago Bridge & Iron Company | | Helix Energy Solutions Group, Inc. | | Oil States International, Inc. | Dresser-Rand Group, Inc. | | Jacobs Engineering Group, Inc. | | Shaw Group, Inc. | Foster Wheeler AG | | KBR, Inc. | | Tidewater Inc. | | | | Survey Peer Group: | | | | | Ameron International Corporation | | Fluor Corporation | | Owens Corning | Anadarko Petroleum Corporation | | The Goodyear Tire & Rubber Company | | Owens-Illinois, Inc. | A.O. Smith Corporation | | Graco Inc. | | Parker Hannifin Corporation | Ball Corporation | | Greif, Inc. | | Parsons Corporation | Barnes Group, Inc. | | HD Supply, Inc. | | Pittsburgh Corning Corporation | Beam, Inc. | | Herman Miller, Inc. | | Polymer Group, Inc. | Bemis Company, Inc. | | Hess Corporation | | PolyOne Corporation | BG US Services | | HNTB Corporation | | PulteGroup, Inc. | Bovis Lend Lease International Ltd. | | Holcim Ltd. | | Saudi Arabian Oil Co. | BP p.l.c. | | Hunt Consolidated, Inc. | | SCA Americas, Inc. | Brady Corporation | | Husky Injection Molding Systems Ltd. | | Schlumberger Limited | Building Materials Corporation of America | | Illinois Tool Works Inc. | | Sealed Air Corp. | Calgon Carbon Corporation | | Ingersoll Rand plc | | Shell Oil Company | Cameron International Corporation | | ION Geophysical Corporation | | Simpson Manufacturing Company, Inc. | Caterpillar Inc. | | Irving Oil Commercial G.P. | | Sonoco Products Co. | Cemex Internacional S.A de C.V. | | ITT Corporation | | Spectra Energy Corp | Chevron Corporation | | Jacobs Engineering Group, Inc. | | SPX Corporation | CH2M Hill Companies, Ltd. | | KBR, Inc. | | Stantec Inc. | Cimarex Energy Co. | | Key Energy Services, Inc. | | Sunoco, Inc. | Connell Limited Partnership | | Koch Industries, Inc. | | Swagelok Company | ConocoPhillips | | Lafarge North America Inc. | | Terex Corporation | Cooper Industries plc | | L.B. Foster Company | | Tesoro Corporation | Corning Incorporated | | Magellan Midstream Partners, L.P. | | Textron Inc. | DCP Midstream LLC | | MAG Industrial Automation Systems LLC | | Thermadyne Industries, Inc. | Deere & Company | | The Manitowoc Company, Inc. | | Thomas & Betts Corporation | Devon Energy Corporation | | Marathon Oil Corporation | | 3M Company | Donaldson Company, Inc. | | Matthews International Corporation | | The Timken Company | Eaton Corporation | | MeadWestvaco Corporation | | The Toro Company | EMCOR Group, Inc. | | Milacron LLC | | Trinity Industries, Inc. | Exterran Holdings, Inc. | | Mine Safety Appliances Company | | Unifi, Inc. | Exxon Mobil Corporation | | Murphy Oil Corporation | | USG Corporation | Ferrovial, S.A. | | MWH Global, Inc. | | Valero Energy Corporation | Flowserve Corporation | | Occidental Petroleum Corporation | | Watts Water Technologies, Inc. |
2010 Peer Groups
JRM/Corporate Group:
Alliant Techsystems Inc.
Ameron International Corp.
Anadarko Petroleum Corp.
Baker Hughes, Inc.
BJ Services Company
Cameron International, Inc.
Chicago Bridge & Iron Company N.V.
Cooper Industries Plc
Curtiss-Wright Corporation
Devon Energy Corporation
Dover Corporation
Eaton Corporation
El Paso Corporation
ESCO Technologies Inc.
Flowserve Corporation
FMC Technologies, Inc.
Foster Wheeler AG
General Dynamics Corporation
Granite Construction Incorporated
Halliburton Company
Honeywell International, Inc.
Hubbell Incorporated
Illinois Tool Works Inc.
Ingersoll-Rand plc
ITT Corp.
Joy Global Inc.
KBR, Inc.
Lockheed Martin Corporation
Martin Marietta Materials, Inc.
Noble Corporation
Northrop Grumman Corporation
Pioneer Natural Resources Company
Raytheon Company
Rockwell Collins, Inc.
The Shaw Group Inc.
The Williams Companies, Inc.
Terex Corporation
Textron Inc.
Thomas & Betts Corporation
USG Corporation
Valmont Industries, Inc.
Vulcan Materials Company
Walter Industries, Inc.
Babcock & Wilcox Group:
Ameron International Corp.
Chicago Bridge & Iron Company N.V.
Cooper Industries Plc
Curtiss-Wright Corporation
Dover Corporation
Eaton Corporation
ESCO Technologies Inc.
Flowserve Corporation
General Dynamics Corporation
Honeywell International, Inc.
Hubbell Inc.
Illinois Tool Works Inc.
Ingersoll-Rand plc
ITT Corporation
Joy Global Inc.
Lockheed Martin Corporation
Martin Marietta Materials, Inc.
Northrop Grumman Corporation
Raytheon Company
Rockwell Collins, Inc.
The Shaw Group Inc.
Terex Corporation
Textron, Inc.
Thomas & Betts Corporation
USG Corporation
Valmont Industries, Inc.
Vulcan Materials Company
Post-Spin Group:
Cal Dive International, Inc.
Cameron International, Inc.
Chicago Bridge & Iron Company N.V.
Dresser Rand Group, Inc.
Foster Wheeler AG
Fluor Corporation
1Global Industries Inc. Helix Energy Solutions Group, Inc.
KBR, Inc.
Oceaneering International, Inc.
Ltd. was acquired by Technip S.A. in December 2011. Oil States International, Inc.
The Shaw Group, Inc.
Tetra Technologies, Inc.
URS Corporation
Custom Peer Group:
Cal Dive International, Inc.
Chicago Bridge & Iron Company N.V.
Fluor Corporation
Foster Wheeler AG
Jacobs Engineering Group, Inc.
KBR, Inc.
Oceaneering International, Inc.
The Shaw Group Inc.
URS Corporation.
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COMPENSATION COMMITTEE REPORT Compensation Committee Report
We have reviewed and discussed the Compensation Discussion and Analysis with McDermott’s management and, based on our review and discussions, we recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. THE COMPENSATION COMMITTEE Thomas C. Schievelbein, Chairman
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COMPENSATIONOF EXECUTIVE OFFICERS Compensation of Executive Officers
The following table summarizes the prior three years’ compensation of our current and former Chief Executive Officers,Officer, our current and former Chief Financial Officers,Officer, our three highest paid executive officers who did not serve as our CEO and CFO during 20102011 and were employed by McDermott as of December 31, 2010,2011, and Mr. Bethards,Nesser, who would have been one of our three highest paid executive officers but for the fact that he was not employed by McDermott as of December 31, 2010.2011. We refer to these persons as our Named Executives. No compensation information is provided for Mr. Johnson for 2008 because he joined our company in 2009, no information is provided for Mr. Elders for 2008 or 2009 because he joined our company in 2010, and no information is provided for Mr. Carlson or Ms. Hinrichs for 2008 or 2009 because they did not become Named Executives until 2010. 2010 or for Mr. McCormack for 2009 or 2010 because he did not become a Named Executive until 2011.Summary Compensation TableSUMMARY COMPENSATION TABLE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in
| | | | | | | | | | | | | | | | | | | Pension
| | | | | | | | | | | | | | | | | | | Value and
| | | | | | | | | | | | | | | | | | | Nonqualified
| | | | | | | | | | | | | | | | | Non-Equity
| | Deferred
| | | | | | | | | | | | | Stock
| | Option
| | Incentive Plan
| | Compensation
| | All Other
| | | Name and Principal Position | | Year | | Salary(1) | | Bonus(2) | | Awards(3) | | Awards(4) | | Compensation(5) | | Earnings(6) | | Compensation(7) | | Total | S.M. Johnson | | | 2010 | | | $ | 827,083 | | | $ | 0 | | | $ | 2,672,142 | | | $ | 865,313 | | | $ | 1,218,863 | | | | N/A | | | $ | 163,683 | | | $ | 5,747,084 | | President and Chief | | | 2009 | | | $ | 562,500 | | | $ | 0 | | | $ | 2,664,402 | | | $ | 1,435,394 | | | $ | 1,131,563 | | | | N/A | | | $ | 83,929 | | | $ | 5,877,788 | | Executive Officer | | | 2008 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | J.A. Fees | | | 2010 | | | $ | 455,625 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 535,808 | | | $ | 374,757 | | | $ | 5,820,921 | | | $ | 7,187,111 | | Former Chief Executive | | | 2009 | | | $ | 900,000 | | | $ | 0 | | | $ | 3,543,276 | | | $ | 1,995,846 | | | $ | 1,665,000 | | | $ | 399,782 | | | $ | 111,407 | | | $ | 8,615,311 | | Officer | | | 2008 | | | $ | 592,500 | | | $ | 270,223 | | | $ | 6,835,450 | | | $ | 0 | | | $ | 570,803 | | | $ | 143,028 | | | $ | 148,310 | | | $ | 8,560,314 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | P.L. Elders | | | 2010 | | | $ | 315,114 | | | $ | 0 | | | $ | 517,021 | | | $ | 396,788 | | | $ | 398,146 | | | | N/A | | | $ | 14,059 | | | $ | 1,641,128 | | Senior Vice President and | | | 2009 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | Chief Financial Officer | | | 2008 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | M.S. Taff | | | 2010 | | | $ | 256,288 | | | $ | 0 | | | $ | 302,996 | | | $ | 209,757 | | | $ | 0 | | | | N/A | | | $ | 74,609 | | | $ | 843,650 | | Former Senior Vice | | | 2009 | | | $ | 505,000 | | | $ | 0 | | | $ | 980,544 | | | $ | 552,314 | | | $ | 707,000 | | | | N/A | | | $ | 59,315 | | | $ | 2,804,173 | | President and Chief | | | 2008 | | | $ | 440,000 | | | $ | 110,000 | | | $ | 1,671,638 | | | $ | 0 | | | $ | 141,207 | | | | N/A | | | $ | 45,757 | | | $ | 2,408,602 | | Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | B.C. Bethards | | | 2010 | | | $ | 311,337 | | | $ | 0 | | | $ | 1,249,955 | | | $ | 865,319 | | | $ | 0 | | | $ | 509,958 | | | $ | 87,074 | | | $ | 3,023,643 | | President and Chief | | | 2009 | | | $ | 526,200 | | | $ | 0 | | | $ | 840,544 | | | $ | 473,450 | | | $ | 663,012 | | | $ | 305,160 | | | $ | 65,693 | | | $ | 2,874,059 | | Executive Officer, Former | | | 2008 | | | $ | 438,675 | | | $ | 10,000 | | | $ | 1,207,512 | | | $ | 0 | | | $ | 509,298 | | | $ | 158,014 | | | $ | 54,831 | | | $ | 2,378,330 | | Subsidiary B&W | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | G.L. Carlson | | | 2010 | | | $ | 243,333 | | | $ | 0 | | | $ | 527,051 | | | $ | 165,771 | | | $ | 334,400 | | | | N/A | | | $ | 106,850 | | | $ | 1,377,405 | | Senior Vice President, | | | 2009 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | Human Resources | | | 2008 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | L.K. Hinrichs | | | 2010 | | | $ | 419,225 | | | $ | 0 | | | $ | 1,054,526 | | | $ | 276,912 | | | $ | 317,673 | | | $ | 121,620 | | | $ | 37,286 | | | $ | 2,227,242 | | Senior Vice President, | | | 2009 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | General Counsel and | | | 2008 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | Corporate Secretary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | J.T. Nesser | | | 2010 | | | $ | 509,381 | | | $ | 0 | | | $ | 1,196,240 | | | $ | 224,998 | | | $ | 609,729 | | | $ | 160,951 | | | $ | 43,383 | | | $ | 2,744,682 | | Executive Vice President, | | | 2009 | | | $ | 500,000 | | | $ | 0 | | | $ | 418,899 | | | $ | 235,945 | | | $ | 595,000 | | | $ | 155,330 | | | $ | 93,156 | | | $ | 1,998,330 | | Chief Operating Officer | | | 2008 | | | $ | 500,000 | | | $ | 100,000 | | | $ | 2,697,009 | | | $ | 0 | | | $ | 136,122 | | | $ | 104,864 | | | $ | 74,933 | | | $ | 3,612,928 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | | Year | | | Salary | | | Bonus | | | Stock Awards(1) | | | Option Awards(1) | | | Non-Equity Incentive Plan Compensation(2) | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings(3) | | | All Other Compensation(4) | | | Total | | | | | | | | | | | | S.M. Johnson President and Chief Executive Officer | | | 2011 | | | $ | 942,500 | | | $ | 0 | | | $ | 3,382,092 | | | $ | 944,089 | | | $ | 0 | | | | N/A | | | $ | 132,099 | | | $ | 5,400,780 | | | | 2010 | | | $ | 827,083 | | | $ | 0 | | | $ | 2,672,142 | | | $ | 865,313 | | | $ | 1,218,863 | | | | N/A | | | $ | 163,683 | | | $ | 5,747,084 | | | | 2009 | | | $ | 562,500 | | | $ | 0 | | | $ | 2,664,402 | | | $ | 1,435,394 | | | $ | 1,131,563 | | | | N/A | | | $ | 83,929 | | | $ | 5,877,788 | | | | | | | | | | | | P.L. Elders | | | 2011 | | | $ | 481,250 | | | $ | 0 | | | $ | 845,428 | | | $ | 236,000 | | | $ | 0 | | | | N/A | | | $ | 76,763 | | | $ | 1,639,441 | | Senior Vice President and Chief Financial Officer | | | 2010 | | | $ | 315,114 | | | $ | 0 | | | $ | 517,021 | | | $ | 396,788 | | | $ | 398,146 | | | | N/A | | | $ | 14,059 | | | $ | 1,641,128 | | | | 2009 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | | | | | | | | | G.L. Carlson Senior Vice President and Chief Administration Officer | | | 2011 | | | $ | 332,000 | | | $ | 0 | | | $ | 354,863 | | | $ | 94,406 | | | $ | 0 | | | | N/A | | | $ | 120,619 | | | $ | 901,888 | | | | 2010 | | | $ | 243,333 | | | $ | 0 | | | $ | 527,051 | | | $ | 165,771 | | | $ | 334,400 | | | | N/A | | | $ | 106,850 | | | $ | 1,377,405 | | | | 2009 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | | | | | | | | | L.K. Hinrichs Senior Vice President, General Counsel and Corporate Secretary | | | 2011 | | | $ | 435,575 | | | $ | 0 | | | $ | 792,653 | | | $ | 212,421 | | | $ | 0 | | | $ | 76,760 | | | $ | 77,550 | | | $ | 1,594,959 | | | | 2010 | | | $ | 419,225 | | | $ | 0 | | | $ | 1,054,526 | | | $ | 276,912 | | | $ | 317,673 | | | $ | 121,620 | | | $ | 37,286 | | | $ | 2,227,242 | | | | 2009 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | | | | | | | | | J.T. McCormack Executive Vice President, Chief Operating Officer | | | 2011 | | | $ | 447,381 | | | $ | 0 | | | $ | 915,194 | | | $ | 253,847 | | | $ | 0 | | | | N/A | | | $ | 70,870 | | | $ | 1,687,292 | | | | 2010 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | 2009 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | | | | | | | | | | J.T. Nesser Former Executive Vice President, Chief Operating Officer | | | 2011 | | | $ | 296,828 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 206,408 | | | $ | 163,357 | | | $ | 2,034,893 | | | $ | 2,701,486 | | | | 2010 | | | $ | 509,381 | | | $ | 0 | | | $ | 1,196,240 | | | $ | 224,998 | | | $ | 609,729 | | | $ | 160,951 | | | $ | 43,383 | | | $ | 2,744,682 | | | | 2009 | | | $ | 500,000 | | | $ | 0 | | | $ | 418,899 | | | $ | 235,945 | | | $ | 595,000 | | | $ | 155,330 | | | $ | 93,156 | | | $ | 1,998,330 | |
| | (1) | The amounts reported in this column represent the aggregate grant date fair value of stock awards or option awards, as applicable, granted to each Named Executive and computed in accordance with FASB ASC Topic 718. See the “Grants of Plan-Based Awards” table for 2010 for Messrs. Fees, Taffmore information regarding the stock awards and Bethards represent their base salary earned through the effective date of the Spin-off. option awards we granted in 2011. |
(2) | The amounts reported in this column are attributable to the annual incentive awards earned in fiscal years 2009, 2010 and 2011, but paid in 2010, 2011 and 2012, respectively. The amount reported for Messrs. Elders and CarlsonMr. Nesser is his 2011 target EICP award, prorated to take into account his length of service in 2011. See the “Grants of Plan-Based Awards” table for more information regarding the annual incentive awards earned in 2011. |
(3) | The amounts reported in this column represent their base salary earned from their respective hire dates. | (2) | See “Bonus” below for a discussionthe changes in actuarial present values of the accumulated benefits under defined benefit plans, determined by comparing the prior completed fiscal year end amount to the covered fiscal year end amount. |
(4) | The amounts includedreported in this column. | (3) | See “Stock Awards” belowcolumn for a discussion of2011 are attributable to the amounts included in this column. | (4) | See “Option Awards” below for a discussion of the amounts included in this column. | (5) | See “Non-Equity Incentive Plan Compensation” below for a discussion of the amounts included in this column. | (6) | See “Change in Pension Value and Nonqualified Deferred Compensation Earnings” below for a discussion of the amounts included in this column. | (7) | See “All Other Compensation” below for a discussion of the amounts included in this column.following: |
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Bonus. The amounts reported in the “Bonus” column are attributable to discretionary bonus awards made in 2008 due to circumstances in that year. No discretionary bonuses were made to any of the Named Executives during 2009 or 2010.
Stock Awards. The amounts reported in the “Stock Awards” column represent the aggregate grant date fair value of stock awards granted in 2010 and computed in accordance with FASB ASC Topic 718. The grant date fair values shown for Messrs. Johnson, Elders, Carlson and Taff and Ms. Hinrichs are based on (1) the number of shares or units as converted in connection with the Spin-off, and (2) the closing price of our common stock on the date of grant as adjusted to reflect the Spin-off; provided, that the grant date fair value shown for Mr. Taff is attributable to the one-half of his pre Spin-off McDermott awards that were converted to post Spin-off McDermott awards. The grant date fair value shown for Mr. Bethards represents the pre Spin-off grant date fair value of his award. The aggregate grant date fair values shown for Messrs. Johnson and Nesser and Ms. Hinrichs include the grant of restricted stock awards made pursuant to their respective retention agreements in connection with the completion of the Spin-off.
See the “Grants of Plan-Based Awards” table for more information regarding the stock awards we granted in 2010.
Option Awards. The amounts reported in the “Option Awards” column represent the aggregate grant date fair value of all option awards granted in 2010 and computed in accordance with FASB ASC Topic 718. The grant date fair values shown for Messrs. Johnson, Elders, Carlson and Taff and Ms. Hinrichs are based on (1) the number of options as converted in connection with the Spin-off, and (2) the closing price of our common stock on the date of grant as adjusted to reflect the Spin-off; provided,
that the grant date fair value shown for Mr. Taff is attributable to the one-half of his pre Spin-off McDermott awards that were converted to post Spin-off McDermott awards. The grant date fair value shown for Mr. Bethards represents the pre Spin-off grant date fair value of his award. We use a Black-Scholes option-pricing model for measuring the fair value of stock options. The determination of the fair value of an award on the date of grant using an option-pricing model requires various assumptions, such as the expected life of the award and stock price volatility. For a discussion of the valuation assumptions, see Note 9 to our consolidated financial statements included in our annual report onForm 10-K for the year ended December 31, 2010.
See the “Grants of Plan-Based Awards” table for more information regarding the option awards we granted in 2010.
Non-Equity Incentive Plan Compensation. The amounts reported in the “Non-Equity Incentive Plan Compensation” column are attributable to the annual incentive awards earned in fiscal years 2008, 2009 and 2010, but paid in 2009, 2010 and 2011, respectively. See the “Grants of Plan-Based Awards” table for more information regarding the annual incentive awards earned in 2010.
Change in Pension Value and Nonqualified Deferred Compensation Earnings. The amounts reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column represent the changes in actuarial present values of the accumulated benefits under defined benefit plans, determined by comparing the prior completed fiscal year end amount to the covered fiscal year end amount.
All Other Compensation. The amounts reported for 2010 in the “All Other Compensation” column are attributable to the following:
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All Other Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred
| | | | Service-Based
| | | | | | | | | Compensation Plan
| | | | Thrift
| | | | | | | | | Contribution | | Thrift Match | | Contribution | | Tax Gross-Ups | | Perquisites | | Other | S. M. Johnson | | $ | 69,375 | | | $ | 7,095 | | | $ | 7,350 | | | $ | 21,025 | | | $ | 58,838 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | J. A. Fees | | $ | 87,051 | | | $ | 7,150 | | | | — | | | $ | 32,763 | | | $ | 76,188 | | | $ | 5,617,769 | | | | | | | | | | | | | | | | | | | | | | | | | | | P. L. Elders | | | — | | | $ | 6,709 | | | $ | 7,350 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | M. S. Taff | | $ | 37,810 | | | $ | 7,350 | | | $ | 7,671 | | | $ | 646 | | | $ | 21,132 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | B. C. Bethards | | $ | 52,275 | | | $ | 4,900 | | | | — | | | | — | | | $ | 29,899 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | G. L. Carlson | | | — | | | $ | 6,583 | | | $ | 7,300 | | | $ | 24,600 | | | $ | 68,367 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | L. K. Hinrichs | | $ | 29,549 | | | $ | 6,629 | | | $ | 1,108 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | J. T. Nesser | | $ | 36,806 | | | $ | 6,577 | | | | — | | | | — | | | | — | | | | — | |
Deferred Compensation Plan Contribution. See the “Nonqualified Deferred Compensation” table for more information regarding the Deferred Compensation Plan contributions made in 2010.
Thrift Match and Service-Based Thrift Contribution. We refer to our defined contribution plan as our Thrift Plan. For information regarding our Thrift Plan matching contributions and service-based Thrift Plan contributions, see “Compensation Discussion and Analysis — Post-employment Compensation — Retirement Plans” above.
TaxGross-Ups. The taxgross-ups reported for 2010 under “All Other Compensation” are attributable to the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred Compensation Plan Contribution(A) | | | Thrift Match(B) | | | Service-Based Thrift Contribution(B) | | | Perquisites(C) | | | Tax Gross-Ups(D) | | | Other(E) | | S. M. Johnson | | $ | 97,932 | | | $ | 6,817 | | | $ | 7,350 | | | $ | 20,000 | | | | — | | | | — | | P. L. Elders | | $ | 39,950 | | | $ | 7,350 | | | $ | 7,350 | | | $ | 20,000 | | | | — | | | $ | 2,113 | | G. L. Carlson | | $ | 24,800 | | | $ | 6,030 | | | $ | 7,350 | | | $ | 68,606 | | | $ | 11,720 | | | $ | 2,113 | | L. K. Hinrichs | | $ | 43,511 | | | $ | 6,689 | | | $ | 7,350 | | | $ | 20,000 | | | | — | | | | — | | J. T. McCormack | | $ | 36,170 | | | $ | 7,350 | | | $ | 7,350 | | | $ | 20,000 | | | | — | | | | — | | J. T. Nesser | | $ | 55,219 | | | $ | 6,608 | | | $ | 7,350 | | | $ | 21,525 | | | | — | | | $ | 1,944,191 | |
| (A) | The amounts reported in this column are attributable to contributions made by McDermott under the Deferred Compensation Plan. |
• | Mr. Johnson(B) | The amounts reported in these columns are attributable to contributions made under our defined contribution plan, which we refer to as our Thrift Plan. |
| (C) | The amounts reported in this column are attributable to a lump-sum perquisite allowance in the amount of $20,000 received taxgross-ups associated with income imputed to him as a result of amounts we paid him by reason of expenses he incurred in connection with his relocation from Idaho to Texas, following his appointment as Chief Operating Officercertain officers of McDermott in 2009. | | • | Mr. Fees received taxgross-ups associated with income imputed to him as a result of amounts we paid him by reason of expenses he incurred in connection with his relocation from Texas to Virginia following his retirement as Chief Executive Officer of McDermott and appointment as Chairman2011, including each of the Board of Directors of B&W and as a result of his spouse accompanying him on business travel duringNamed Executives. With the period he was Chief Executive Officer of McDermott. | | • | Mr. Taff received taxgross-ups associated with income imputed to him as a result of his spouse accompanying him on business travel. | | • | Mr. Carlson received taxgross-ups associated with income imputed to him as a result of amounts |
| | | we paid him by reason of expenses he incurred in connection with his relocation from Colorado to Texas, following his appointment as Senior Vice President, Human Resources and Organizational Development of JRM in 2010. |
Perquisites. Perquisites and other personal benefits received by a Named Executive are not included if their aggregate value does not exceed $10,000. During 2010, in connection with the Spin-off and the realignment of the management teams for McDermott and B&W, relocation benefits were provided to certain executives under our relocation program. For Messrs. Johnson, Fees, Taff, Carlson and Bethards the values of the perquisites and other personal benefits reported for 2010 are as follows:
| | • | Mr. Johnson: $42,198 is attributable to the costs of providing him relocation assistance in connection with his move from Idaho to Texas, and $16,640 is attributable to tax preparation and financial planning fees. | | • | Mr. Fees: $58,382 is attributable to the costs of providing him relocation assistance in connection with his move from Texas to Virginia, and $12,544 is attributable to a retirement gift provided to Mr. Fees by McDermott. The remainder is attributable to the cost of club dues, the costs resulting from his spouse accompanying him on business travel, the cost of promotional merchandise in connection with a board of directors meeting and the cost of a physical examination. | | • | Mr. Taff: $14,852 is attributable to the costs of financial advisory fees. The remainder is attributable to the costexception of an executive physical the costs resulting from his spouse accompanying him on business travel, the cost of a gift provided |
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| | | to Mr. Taffrequired by McDermott, in connection with the Spin-off andperquisite allowance was permitted to be used for any purpose determined by the cost of tax preparation fees. |
| | • | recipient. Additionally, the amount reported for Mr. Carlson: $66,717 isCarlson includes $48,606 attributable to the costs of providing him relocation assistance in connection with his move from Colorado to Texas,Texas. The amount reported for Mr. Nesser includes a gift in connection with his retirement from McDermott. |
| (D) | The amount reported in this column for Mr. Carlson is attributable to tax gross-ups associated with income imputed to him as a result of amounts we paid to Mr. Carlson by reason of expenses he incurred in connection with his relocation. |
| (E) | The amounts reported in this column for Messrs. Elders and the remainder isCarlson are attributable to the cost to McDermott for the Named Executive’s spouse to accompany the Named Executive, at McDermott’s request, to attend the 2011 Annual Meeting of a physical examination. | | • | Stockholders in Panama City, Panama. The amount reported in this column for Mr. Bethards: $20,978Nesser is attributable to: (1) payments made pursuant to Mr. Nesser’s Separation Agreement consisting of (a) a cash severance payment in the costsamount of providing him relocation assistance$1,742,527, (b) two times the full annual cost of coverage for medical, dental and vision benefits in connection with his move from Virginia to North Carolina following his appointment as Chief Executive Officerthe amount of B&W, $7,500 is attributable to financial planning$35,127, (c) unused vacation for 2011 in the amount of $39,424 and (d) consulting fees in the amount of $125,000; and the remainder is attributable to(2) the cost to McDermott for Mr. Nesser’s spouse to accompany him, at McDermott’s request, to attend the 2011 Annual Meeting of club dues.Stockholders in Panama City, Panama in the amount of $2,113. For more information regarding Mr. Nesser’s Separation Agreement, see “Compensation Discussion and Analysis — Employment and Severance Arrangements — Employment and Separation Agreements” above. |
Other. In connection with Mr. Fees’ termination of employment for “good reason” as defined under his retention agreement, Mr. Fees received (1) a cash severance payment in the amount of $5,516,550, (2) payment of his 2010 target EICP award, prorated to take into account his length of service in 2010, in the amount of $535,808, (3) two times the full annual cost of coverage for medical, dental and vision benefits in the amount of $30,257, and (4) unused vacation for 2010 in the amount of $70,962. See “Compensation Discussion and Analysis — Employment and Severance Arrangements — Retention Agreements” above for more information regarding Mr. Fees’ retention agreement.
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GRANTSOF PLAN-BASED AWARDS Grants of Plan-Based Awards
The following Grants of Plan-Based Awards table provides additional information about stock awards and equity and non-equity incentive plan awards we granted to our Named Executives during the year ended December 31, 2010. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | All Other
| | All Other
| | | | | | | | | | | | | | | | | | | | | | | Stock
| | Option
| | | | | | | | | | | | | | | | | | | | | | | Awards:
| | Awards:
| | Exercise
| | Grant Date
| | | | | | | Estimated Possible Payouts Under
| | | | | | | | Number of
| | Number of
| | or Base
| | Fair Value
| | | | | Committee
| | Non-Equity Incentive Plan Awards(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards | | Shares of
| | Securities
| | Price of
| | of Stock and
| | | | | Action
| | | | | | | | Threshold
| | Target
| | Maximum
| | Stock
| | Underlying
| | Option
| | Option
| Name | | Grant Date | | Date | | Threshold | | Target | | Maximum | | (#) | | (#) | | (#) | | or Units(2) | | Options(3) | | Awards | | Awards(4) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | S. M. Johnson | | | 02/25/10 | | | | 02/25/10 | | | $ | 133,091 | | | $ | 760,521 | | | $ | 1,521,042 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 03/04/10 | | | | 02/25/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 95,493 | | | | — | | | | — | | | $ | 1,249,956 | | | | | 03/04/10 | | | | 02/25/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 141,597 | | | $ | 13.09 | | | $ | 865,313 | | | | | 08/02/10 | | | | 08/02/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 113,412 | | | | — | | | | — | | | $ | 1,422,186 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | J. A. Fees | | | 02/25/10 | | | | 02/25/10 | | | $ | 601,699 | | | $ | 916,875 | | | $ | 1,298,906 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | P. L. Elders | | | 05/06/10 | | | | 05/06/10 | | | $ | 38,383 | | | $ | 219,333 | | | $ | 438,667 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 05/13/10 | | | | 05/06/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 38,661 | | | | — | | | | — | | | $ | 517,021 | | | | | 05/13/10 | | | | 05/06/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 60,292 | | | $ | 13.37 | | | $ | 396,788 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | M. S. Taff | | | 02/25/10 | | | | 02/25/10 | | | $ | 237,204 | | | $ | 361,454 | | | $ | 512,059 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 03/04/10 | | | | 02/25/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 23,148 | | | | — | | | | — | | | $ | 302,996 | | | | | 03/04/10 | | | | 02/25/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 34,324 | | | $ | 13.09 | | | $ | 209,757 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | B. C. Bethards(5) | | | 02/25/10 | | | | 02/25/10 | | | $ | 65,669 | | | $ | 375,249 | | | $ | 750,498 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 03/04/10 | | | | 02/25/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 49,269 | | | | — | | | | — | | | $ | 1,249,955 | | | | | 03/04/10 | | | | 02/25/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 73,056 | | | $ | 25.37 | | | $ | 865,319 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | G.L. Carlson | | | 02/25/10 | | | | 02/25/10 | | | $ | 30,800 | | | $ | 176,000 | | | $ | 352,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 05/13/10 | | | | 05/06/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 39,411 | | | | — | | | | — | | | $ | 527,051 | | | | | 05/13/10 | | | | 05/06/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 25,189 | | | $ | 13.37 | | | $ | 165,771 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | L. K. Hinrichs | | | 02/25/10 | | | | 02/25/10 | | | $ | 151,314 | | | $ | 230,574 | | | $ | 326,646 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 03/04/10 | | | | 02/25/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 30,556 | | | | — | | | | — | | | $ | 399,963 | | | | | 03/04/10 | | | | 02/25/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 45,313 | | | $ | 13.09 | | | $ | 276,912 | | | | | 08/02/10 | | | | 08/02/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 52,198 | | | | — | | | | — | | | $ | 654,563 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | J. T. Nesser | | | 02/25/10 | | | | 02/25/10 | | | $ | 62,398 | | | $ | 356,563 | | | $ | 713,125 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | 03/04/10 | | | | 02/25/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 24,828 | | | | — | | | | — | | | $ | 324,986 | | | | | 03/04/10 | | | | 02/25/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 36,818 | | | $ | 13.09 | | | $ | 224,998 | | | | | 08/02/10 | | | | 08/02/10 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | 69,478 | | | | — | | | | — | | | $ | 871,254 | |
2011. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | Grant Date | | | Committee Action Date | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | All Other Stock Awards: Number of Shares of Stock or Units(3) | | All Other Option Awards: Number of Securities Underlying Options(4) | | Exercise or Base Price of Option Awards | | Grant Date Fair Value of Stock and Option Awards(5) | | | | | Threshold | | Target | | Maximum | | Threshold (#) | | Target (#) | | Maximum (#) | | | | | S.M. Johnson | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EICP | | | 02/28/11 | | | | 02/28/11 | | | $115,469 | | $942,603 | | $1,885,205 | | — | | — | | — | | — | | — | | — | | | — | | PShares | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | 28,265 | | 56,529 | | 113,058 | | — | | — | | — | | $ | 2,382,132 | | RSUs | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | — | | — | | — | | 39,000 | | — | | — | | $ | 999,960 | | Stock Options | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | — | | — | | — | | — | | 98,133 | | $25.64 | | $ | 944,089 | | | | | | | | | | | | | | | P.L. Elders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EICP | | | 02/28/11 | | | | 02/28/11 | | | $41,272 | | $336,911 | | $673,822 | | — | | — | | — | | — | | — | | — | | | — | | PShares | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | 7,065 | | 14,130 | | 28,260 | | — | | — | | — | | $ | 595,438 | | RSUs | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | — | | — | | — | | 9,750 | | — | | — | | $ | 249,990 | | Stock Options | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | — | | — | | — | | — | | 24,531 | | $25.64 | | $ | 236,000 | | | | | | | | | | | | | | | G.L. Carlson | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EICP | | | 02/28/11 | | | | 02/28/11 | | | $24,406 | | $199,233 | | $398,466 | | — | | — | | — | | — | | — | | — | | | — | | PShares | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | 2,826 | | 5,652 | | 11,304 | | — | | — | | — | | $ | 238,175 | | RSUs | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | — | | — | | — | | 4,551 | | — | | — | | $ | 116,688 | | Stock Options | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | — | | — | | — | | — | | 9,813 | | $25.64 | | $ | 94,406 | | | | | | | | | | | | | | | L.K. Hinrichs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EICP | | | 02/28/11 | | | | 02/28/11 | | | $32,019 | | $261,381 | | $522,763 | | — | | — | | — | | — | | — | | — | | | — | | PShares | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | 6,359 | | 12,717 | | 25,434 | | — | | — | | — | | $ | 535,894 | | RSUs | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | — | | — | | — | | 10,014 | | — | | — | | $ | 256,759 | | Stock Options | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | — | | — | | — | | — | | 22,080 | | $25.64 | | $ | 212,421 | | | | | | | | | | | | | | | J.T. McCormack | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EICP | | | 02/28/11 | | | | 02/28/11 | | | $33,632 | | $274,549 | | $549,098 | | — | | — | | — | | — | | — | | — | | | — | | PShares | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | 3,285 | | 6,570 | | 13,140 | | — | | — | | — | | $ | 276,860 | | RSUs | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | — | | — | | — | | 4,533 | | — | | — | | $ | 116,226 | | Stock Options | | | 03/04/11 | | | | 02/28/11 | | | — | | — | | — | | — | | — | | — | | — | | 11,406 | | $25.64 | | $ | 109,731 | | PShares | | | 05/13/11 | | | | 05/06/11 | | | — | | — | | — | | 5,637 | | 11,274 | | 22,548 | | — | | — | | — | | $ | 357,160 | | RSUs | | | 05/13/11 | | | | 05/06/11 | | | — | | — | | — | | — | | — | | — | | 8,058 | | — | | — | | $ | 164,947 | | Stock Options | | | 05/13/11 | | | | 05/06/11 | | | — | | — | | — | | — | | — | | — | | — | | 18,312 | | $20.47 | | $ | 144,115 | | | | | | | | | | | | | | | J.T. Nesser | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EICP | | | 02/28/11 | | | | 02/28/11 | | | $43,948 | | $358,756 | | $717,511 | | — | | — | | — | | — | | — | | — | | | — | |
(1) | This column reflects the threshold, target and maximum payout opportunities under the Executive Incentive Compensation Plan, or EICP. For 2011, the EICP awards were based 70% on the attainment of financial goals and 30% on the attainment of individual goals. The 70% financial component was based 70% on consolidated operating income and 30% on consolidated return on invested capital. The financial goals contain threshold, target and maximum performance levels which, if achieved, result in payments of 25%, 100% and 200% of the financial component, respectively. The threshold payout amount provided was determined based on achieving the consolidated operating income threshold (or 12.25% of the target amounts shown), which, if not achieved, would result in no amounts being paid on an EICP award. |
| On February 28, 2011, our Compensation Committee established target EICP awards expressed as a percentage of the Named Executive’s 2011 annual base salary earned, as follows: Mr. Johnson — 100%, Mr. Elders — 70%, Mr. Carlson — 60%, Ms. Hinrichs — 60%, Mr. McCormack — 50% and Mr. Nesser — 70%. With the exception of Mr. McCormack, the target amounts shown were computed according to the following formula: Target % * [(2010 base salary * 90/365) + (2011 base salary * 275/365)]. In connection with Mr. McCormack’s June 30, 2011 promotion to EVP, COO, on May 6, 2011 our Compensation Committee approved an increase in target EICP award for Mr. McCormack from 50% to 70% effective and for the period beginning June 30, 2011. Accordingly, the amount shown in Mr. McCormack’s target column reflects his target EICP award under his former and current positions, prorated based on the length of service in each position. The target amount shown for Mr. McCormack was computed according to the following formula: SVP Target % * [(2010 base salary * 90/365) + (2011 SVP base salary * 90/365)] + EVP, COO Target % * (2011 EVP, COO base salary * 185/365). The actual EICP payouts for the Named Executives for 2011 are provided in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column. |
(2) | This column reflects the target, threshold and maximum payout opportunities of grants of performance shares under the 2009 LTIP. Each grant represents the right to receive one share of McDermott common stock for each vested performance share. The amount of performance shares that vest, if any, is scheduled to initially be determined on December 31, 2013 based on our total shareholder return relative to the Proxy Peer Group during the same period, with subsequent measurements of total shareholder return relative to the Proxy Peer Group on December 31, 2014 and December 31, 2015. The amounts shown in the “threshold” column represent the number of performance shares that will vest, which is 50% of the amount granted, and the amounts shown in the “maximum” column represent the number of performance shares that will vest, which is 200% of the amount granted, based on our total shareholder return relative to the Proxy Peer Group. The maximum number of performance shares which will vest based on performance through December 31, 2013 is 150% of the amount granted if our total shareholder return ranks in the 75th percentile or higher relative to the Proxy Peer Group. A maximum of 200% of the amount of performance shares granted may vest based on performance through December 31, 2014 and 2015, less any amount previously vested. The following table provides the measurement periods, total shareholder return percentile rank and corresponding vesting percentage of the amount of performance shares granted: |
| | (1) | See “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” below for a discussion of the amounts included in this column. | | | (2) Measurement Period | See “All Other Stock Awards” below | Total Shareholder Return Percentile Rank | | Vesting Percentage of Performance Shares Granted | 36 Months Ending December 31, 2013 | | ³90th Percentile 75th Percentile 50th Percentile 25th Percentile < 25th Percentile | | 150% 150% 100% 50% 0% | 48 Months Ending December 31, 2014 | | ³90th Percentile 75th Percentile 50th Percentile 25th Percentile < 25th Percentile | | 200%* 150%* 100%* 50%* 0%* | 60 Months Ending December 31, 2015 | | ³90th Percentile 75th Percentile 50th Percentile 25th Percentile < 25th Percentile | | 200%* 150%* 100%* 50%* 0%* | |
| *Less | any amounts vested through prior measurement periods. |
(3) | This column reflects grants of restricted stock units under the 2009 LTIP. Each restricted stock unit represents the right to receive one share of McDermott common stock and is generally scheduled to vest in one-third increments on the first, second and third anniversaries of the date of grant. Upon vesting, the restricted stock units are converted into shares of McDermott common stock. |
(4) | This column reflects grants of stock options under the 2009 LTIP. Each grant represents the right to purchase at the exercise price shares of McDermott common stock over a period of seven years. The stock options are generally scheduled to vest and become exercisable in one-third increments on the first, second and third anniversaries of the date of grant. |
(5) | This column reflects the full grant date fair values of the equity awards computed in accordance with FASB ASC Topic 718. Grant date fair values are determined using the closing price of our common stock on the date of grant for restricted stock units, a Monte Carlo simulation model for performance shares, and the Black-Scholes option pricing model for stock options. The Monte Carlo simulation model for performance shares and the Black-Scholes option pricing model for stock options each requires various assumptions, including but not limited to the expected life of the award and stock return and stock price volatility. For more information regarding the compensation expense related to 2011 awards, and a discussion of the amountsvaluation assumptions utilized in performance share and option pricing, see Note 8 to our consolidated financial statements included in this column. | | (3) | See “All Other Option Awards” belowour annual report on form 10-K for a discussion of the amounts included in this column. | | (4) | See “Grant Date Fair Value of Stock and Option Awards” below for a discussion of the amounts included in this column. | | (5) | Equity award amounts provided for Mr. Bethards reflect the pre Spin-off awards granted to him by McDermott. In connection with the Spin-off, Mr. Bethards’ outstanding equity awards were converted into B&W equity awards. For more information, see “Compensation Discussion and Analysis — Long-Term Incentive Compensation — Treatment of Equity-Based Compensation in Connection with the Spin-off” above.year ended December 31, 2011. |
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OUTSTANDING EQUITY AWARDSAT FISCAL YEAR-END Estimated Possible Payouts Under Non-Equity Incentive Plan Awards
Our Compensation Committee administers the Executive Incentive Compensation Plan, an annual cash incentive program, which we refer to as the EICP. The payment amount, if any, of an EICP award is determined based on: (1) the attainment of short-term financial goals; (2) the attainment of short-term individual goals; and (3) the exercise of the Compensation Committee’s discretionary authority. Each year, our Compensation Committee establishes financial goals and, with respect to our Chief Executive Officer, individual goals. For 2010, our Chief Executive Officer established or approved individual goals for the other Named Executives.
The financial goals contain threshold, target and maximum performance levels which, if achieved, result in payments of 25%, 100% and 200% of the financial component, respectively. If the threshold financial goal is not achieved, no amount is paid on an EICP. For purposes of evaluating McDermott’s performance under the financial performance component, our Compensation Committee may adjust our results prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for unusual, nonrecurring or other items in the Committee’s discretion, subject to certain limitations set forth in the EICP. For 2010, payment is made on an EICP award under the individual component only if the threshold financial goal is achieved. Any such payment is based on the attainment of the Named Executive’s individual goals as determined and evaluated by our Chief Executive Officer or, with respect to our Chief Executive Officer, by our Governance Committee. In addition, our Compensation Committee may decrease an EICP award in its discretion. The maximum EICP award a Named Executive can earn is 200% of his or her target EICP award.
The amounts shown reflect grants of 2010 EICP awards. Our Compensation Committee established target EICP awards expressed as a percentage of the Named Executive’s 2010 base salary. With the exception of Messrs. Johnson, Elders and Carlson, the amount shown in the “target” column represents the value of the target EICP award determined by multiplying the target percentage established for each Named Executive by the Named Executive’s 2009 and 2010 base salaries, prorated to take into account the April 1, 2010 effective date of the 2010 base salaries. For 2010, the target percentage of base salary for each Named Executive and the formula used to
compute the target EICP award (with the exception of Messrs. Johnson, Elders and Carlson) were as follows:
| | | Named Executive | | Target Percentage of Base Salary | | J. A. Fees | | 100% | M. S. Taff | | 70% | B. C. Bethards | | 70% | L. K. Hinrichs | | 55% | J. T. Nesser | | 70% | | | | | | | | | | Formula to Compute Target EICP Awards:
| | | | Target % * [(2009 base salary *1/4) + (2010 base salary *3/4)]
|
In connection with Mr. Johnson’s July 30, 2010 promotion from President and Chief Executive Officer of JRM to President and Chief Executive Officer of McDermott, on August 5, 2010 our Compensation Committee approved a base salary increase and an increase in the target EICP award for Mr. Johnson. Accordingly, the amount shown in Mr. Johnson’s target column represents his target EICP award under his former and current position, prorated based on the length of service in each position and to take into account the changes in base salary that occurred throughout the year. For 2010, the target percentage of base salary for Mr. Johnson and the formula used to compute the target EICP award were as follows:
| | | Named Executive | | Target Percentage of Base Salary | | S. M. Johnson | | | Pres. & CEO, JRM | | 85% | Pres. & CEO, MII | | 100% | | | | | | | | | | Formula to Compute Target EICP Award:
| | | | 85% * [(2009 base salary *3/12) + (2010 JRM salary *4/12)]
| + | 100% * (2010 MII salary *5/12)
|
Because Mr. Elders was hired on April 30, 2010, the amount shown in his “target” column represents the value of the target EICP award determined by multiplying the target percentage established for Mr. Elders by his 2010 base salary, prorated to take into account his time of employment during the year. For 2010, the target percentage of base salary for
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Mr. Elders and the formula used to compute the target EICP award were as follows:
| | | Named Executive | | Target Percentage of Base Salary | | P. L. Elders | | 70% | | | | | | | | | | Formula to Compute Target EICP Award:
| | | | 70% * (2010 base salary *2/3)
|
The amount shown in Mr. Carlson’s “target” column represents the value of the target EICP award determined by multiplying the target percentage established for Mr. Carlson by his 2010 base salary. For 2010, the target percentage of base salary for Mr. Carlson and the formula used to compute the target EICP award were as follows:
| | | Named Executive | | Target Percentage of Base Salary | | G. L. Carlson | | 55% | | | | | | | | | | Formula to Compute Target EICP Award:
| | | | 55% * 2010 base salary |
With the exception of Messrs. Fees and Taff and Ms. Hinrichs, the amount shown in the “threshold” column represents the amount payable under the EICP assuming the threshold level of the financial goals, but no individual goal, is attained and our Compensation Committee does not exercise any discretion over the EICP award. The financial goal represents 70% of the target EICP award. Attaining only the threshold level, or 25%, of the financial goal results in an EICP payment of 17.50% of the target EICP award. Prior to the completion of the Spin-off, the Compensation Committee determined that for all EICP participants not employed through one of McDermott’s pre-Spin-off operating segments (our Corporate executive officers), including Messrs. Fees and Taff and Ms. Hinrichs, the 2010 target award opportunity through the effective date of the Spin-off would be attributable to the completion of the Spin-off. Accordingly, the amount shown in the “threshold” column for Messrs. Fees and Taff and Ms. Hinrichs represents the amount payable under the EICP assuming the target award opportunity, but prorated based on the actual period of service during 2010 as a Corporate executive officer through the effective date of the Spin-off. For Ms. Hinrichs, who continued to be
employed by McDermott following the Spin-off, 70% and 30% of the 2010 target award opportunity for the period in 2010 after the effective date of the Spin-off was attributable to financial performance and individual performance, respectively, prorated for the period in 2010 after the effective date of the Spin-off.
The amount shown in the “maximum” column represents the maximum amount payable under the EICP, which is 200% of the target amount shown, with the exception of Messrs. Fees and Taff and Ms. Hinrichs. The amount shown in the “maximum” column for these individuals is comprised of 100% of their target EICP award, prorated for the actual period of service during 2010 as a Corporate executive officer through the effective date of the Spin-off, and 200% of their target EICP award, prorated for the balance of 2010. See “Compensation Discussion and Analysis — Annual Incentive Compensation” above for more information about the 2010 EICP awards and performance goals.
All Other Stock Awards
The amounts shown reflect grants of restricted stock units and restricted stock under the 2009 LTIP.
Each restricted stock unit represents the right to receive one share of McDermott common stock and, with the exception of the restricted stock units granted to Mr. Carlson, are scheduled to vest in one-third increments on the first, second and third anniversaries of the date of grant. The restricted stock units granted to Mr. Carlson are scheduled to vest on the first, second and third anniversaries of his date of hire. Upon vesting, the restricted stock units are converted into shares of McDermott common stock.
The August 2, 2010 grants were grants of restricted stock made in accordance with the indicated Named Executives’ retention agreements and are scheduled to vest one year following the completion of the Spin-off. Upon vesting, the restrictions on the shares lapse. With the exception of the restricted stock awards granted on August 2, 2010 and the stock awards made to Mr. Bethards, the stock awards reflect the as-adjusted number of restricted stock units following adjustments made to the awards in connection with the Spin-off. See “Compensation Discussion and Analysis — Long-Term Incentive Compensation” above for more information regarding the 2010 restricted stock units and restricted stock and the treatment of equity-based awards in connection with the Spin-off.
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All Other Option Awards
The amounts shown reflect grants of stock options under the 2009 LTIP. Each grant represents the right to purchase at the exercise price shares of McDermott common stock over a period of seven years. With the exception of grants of stock options awarded to Mr. Carlson, the stock options are generally scheduled to vest and become exercisable in one-third increments on the first, second and third anniversaries of the date of grant. The stock options granted to Mr. Carlson are scheduled to vest and become exercisable on the first, second and third anniversaries of his date of hire. With the exception of grants of stock options awarded to Mr. Bethards, the stock options and exercise prices included are the as-adjusted number of stock options and exercise prices following conversions made to the awards in connection with the Spin-off. See “Compensation Discussion and Analysis — Long-Term Incentive Compensation” above for more information regarding the 2010 stock options and the treatment of equity-based awards in connection with the Spin-off.
Grant Date Fair Value of Stock and Option Awards
The amounts included in the “Grant Date Fair Value of Stock and Option Awards” column represent
the full grant date fair values of the equity awards computed in accordance with FASB ASC Topic 718. The grant date fair values shown for Messrs. Johnson, Elders, Carlson and Taff and Ms. Hinrichs are based on (1) the number of shares, units or options as converted in connection with the Spin-off, and (2) the closing price of our common stock on the date of grant as adjusted to reflect the Spin-off; provided, that the grant date fair values shown for Mr. Taff are attributable to the one-half of his pre Spin-off McDermott awards that were converted to post Spin-off McDermott awards. The grant date fair values shown for Mr. Bethards represent the pre Spin-off grant date fair value of his awards. We use a Black-Scholes option-pricing model for measuring the fair value of stock options granted. The determination of the fair value of an award on the date of grant using an option-pricing model requires various assumptions, such as the expected life of the award and stock price volatility. For more information regarding the compensation expense related to 2010 awards, and a discussion of valuation assumptions utilized in option pricing, see Note 9 to our consolidated financial statements included in our annual report onForm 10-K for the year ended December 31, 2010.
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Outstanding Equity Awards at Fiscal Year-End
The following Outstanding Equity Awards at Fiscal Year-End table summarizes the equity awards we have made to our Named Executives which were outstanding as of December 31, 2010. With the exception of the restricted stock awards granted on August 2, 2010, the awards in this table reflect the original grant date and the as-adjusted award amounts outstanding and as-adjusted exercise prices following adjustments and conversions in connection with the Spin-off. See “Compensation Discussion and Analysis — Long-Term Incentive Compensation — Treatment of Equity-Based Compensation in Connection with the Spin-off.” | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards(1) | | | Stock Awards(2) | | | | | | | | | | | | | | | | | | | | | | | | Equity
| | | | | | | | | | | | | | | | | | | | | | | | Incentive
| | | | | | | | | | | | | | | | | | | | | | | | Plan Awards:
| | | | | | | | | | | | | | | | | | | | | | Equity
| | Market
| | | | | | | | | | | | | | | | | | | | | | Incentive
| | or Payout
| | | | | | | | | | | Equity
| | | | | | | | | | | Plan Awards:
| | Value of
| | | | | | | | | | | Incentive
| | | | | | | | | Market
| | Number of
| | Unearned
| | | | | | | | | | | Plan Awards:
| | | | | | | | | Value of
| | Unearned
| | Shares,
| | | | | | | Number of
| | Number of
| | Number
| | | | | | | Number of
| | Shares or
| | Shares,
| | Units or
| | | | | | | Securities
| | Securities
| | of Securities
| | | | | | | Shares or
| | Units of
| | Units or
| | Other
| | | | | | | Underlying
| | Underlying
| | Underlying
| | | | | | | Units of
| | Stock That
| | Other
| | Rights That
| | | | | | | Unexercised
| | Unexercised
| | Unexercised
| | Option
| | Option
| | | Stock That
| | Have Not
| | Rights That
| | Have
| | | | | | | Options
| | Options
| | Unearned
| | Exercise
| | Expiration
| | | Have Not
| | Vested
| | Have Not
| | Not Vested
| Name | | | Grant Date | | | Exercisable | | Unexercisable | | Options | | Price | | Date | | | Vested | | (3) | | Vested | | (3) | S. M. Johnson | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | 05/14/09 | | | | | 85,248 | | | | 170,496 | | | | — | | | $ | 9.36 | | | | 05/14/16 | | | | | | | | | | | | | | | | | | | Stock Options | | | | 03/04/10 | | | | | — | | | | 141,597 | | | | — | | | $ | 13.09 | | | | 03/04/17 | | | | | | | | | | | | | | | | | | | RSU | | | | 05/14/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 120,149 | | | $ | 2,485,883 | | | | — | | | | — | | RSU(4) | | | | 05/14/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 104,302 | | | $ | 2,158,008 | | | | — | | | | — | | RSU | | | | 03/04/10 | | | | | | | | | | | | | | | | | | | | | | | | | | 95,493 | | | $ | 1,975,750 | | | | — | | | | — | | Restricted Stock | | | | 08/02/10 | | | | | | | | | | | | | | | | | | | | | | | | | | 113,412 | | | $ | 2,346,494 | | | | — | | | | — | | J. A. Fees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RSU | | | | 10/01/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 142,445 | | | $ | 2,947,187 | | | | — | | | | — | | P. L. Elders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | 05/13/10 | | | | | — | | | | 60,292 | | | | — | | | $ | 13.37 | | | | 05/13/17 | | | | | | | | | | | | | | | | | | | RSU | | | | 05/13/10 | | | | | | | | | | | | | | | | | | | | | | | | | | 38,661 | | | $ | 799,896 | | | | — | | | | — | | M. S. Taff | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | 03/05/09 | | | | | — | | | | 52,870 | | | | — | | | $ | 5.64 | | | | 03/05/16 | | | | | | | | | | | | | | | | | | | Stock Options | | | | 03/04/10 | | | | | — | | | | 34,324 | | | | — | | | $ | 13.09 | | | | 03/04/17 | | | | | | | | | | | | | | | | | | | Restricted Stock | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 2,225 | | | $ | 46,035 | | | | — | | | | — | | RSU(4) | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 24,092 | | | $ | 498,463 | | | | — | | | | — | | RSU | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 37,258 | | | $ | 770,868 | | | | — | | | | — | | RSU(4) | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 32,343 | | | $ | 669,177 | | | | — | | | | — | | RSU | | | | 03/04/10 | | | | | | | | | | | | | | | | | | | | | | | | | | 23,148 | | | $ | 478,932 | | | | — | | | | — | | G. L. Carlson | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | 05/13/10 | | | | | — | | | | 25,189 | | | | — | | | $ | 13.37 | | | | 03/29/17 | | | | | | | | | | | | | | | | | | | RSU | | | | 05/13/10 | | | | | | | | | | | | | | | | | | | | | | | | | | 39,411 | | | $ | 815,414 | | | | — | | | | — | | L. K. Hinrichs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | 03/05/09 | | | | | — | | | | 54,405 | | | | — | | | $ | 5.64 | | | | 03/05/16 | | | | | | | | | | | | | | | | | | | Stock Options | | | | 03/04/10 | | | | | — | | | | 45,313 | | | | — | | | $ | 13.09 | | | | 03/04/17 | | | | | | | | | | | | | | | | | | | Restricted Stock | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 2,616 | | | $ | 54,125 | | | | — | | | | — | | RSU(4) | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 28,317 | | | $ | 585,879 | | | | — | | | | — | | Restricted Stock | | | | 11/10/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 7,417 | | | $ | 153,458 | | | | — | | | | — | | RSU | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 38,337 | | | $ | 793,193 | | | | — | | | | — | | RSU(4) | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 33,283 | | | $ | 688,625 | | | | — | | | | — | | RSU | | | | 03/04/10 | | | | | | | | | | | | | | | | | | | | | | | | | | 30,556 | | | $ | 632,204 | | | | — | | | | — | | Restricted Stock | | | | 08/02/10 | | | | | | | | | | | | | | | | | | | | | | | | | | 52,198 | | | $ | 1,079,977 | | | | — | | | | — | | J. T. Nesser | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | | 03/05/09 | | | | | — | | | | 45,172 | | | | — | | | $ | 5.64 | | | | 03/05/16 | | | | | | | | | | | | | | | | | | | Stock Options | | | | 03/04/10 | | | | | — | | | | 36,818 | | | | — | | | $ | 13.09 | | | | 03/04/17 | | | | | | | | | | | | | | | | | | | Restricted Stock | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 4,651 | | | $ | 96,229 | | | | — | | | | — | | RSU(4) | | | | 03/03/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 17,113 | | | $ | 354,068 | | | | — | | | | — | | Restricted Stock | | | | 08/14/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 3,754 | | | $ | 77,670 | | | | — | | | | — | | RSU(4) | | | | 08/14/08 | | | | | | | | | | | | | | | | | | | | | | | | | | 9,240 | | | $ | 191,176 | | | | — | | | | — | | RSU | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 23,874 | | | $ | 493,953 | | | | — | | | | — | | RSU(4) | | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | | | | | 18,516 | | | $ | 383,096 | | | | — | | | | — | | RSU | | | | 03/04/10 | | | | | | | | | | | | | | | | | | | | | | | | | | 24,828 | | | $ | 513,691 | | | | — | | | | — | | Restricted Stock | | | | 08/02/10 | | | | | | | | | | | | | | | | | | | | | | | | | | 69,478 | | | $ | 1,437,500 | | | | — | | | | — | |
2011. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards(1) | | | Stock Awards | | Name | | Grant Date | | | Number of Securities Underlying Unexercised Options Exercisable | | | Number of Securities Underlying Unexercised Options Unexercisable | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | | Option Exercise Price | | | Option Expiration Date | | | Number of Shares or Units of Stock That Have Not Vested(2) | | | Market Value of Shares or Units of Stock That Have Not Vested(4) | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(5) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(4) | | S.M. Johnson | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | 05/14/09 | | | | 170,496 | | | | 85,248 | | | — | | $ | 9.36 | | | | 05/14/16 | | | | | | | | | | | | | | | | | | Stock Options | | | 03/04/10 | | | | 47,199 | | | | 94,398 | | | — | | $ | 13.09 | | | | 03/04/17 | | | | | | | | | | | | | | | | | | Stock Options | | | 03/04/11 | | | | — | | | | 98,133 | | | — | | $ | 25.64 | | | | 03/04/18 | | | | | | | | | | | | | | | | | | RSU | | | 05/14/09 | | | | | | | | | | | | | | | | | | | | | | 60,075 | | | $ | 691,463 | | | | — | | | | — | | RSU(3) | | | 05/14/09 | | | | | | | | | | | | | | | | | | | | | | 104,302 | | | $ | 1,200,516 | | | | — | | | | — | | RSU | | | 03/04/10 | | | | | | | | | | | | | | | | | | | | | | 63,663 | | | $ | 732,761 | | | | — | | | | ��� | | RSU | | | 03/04/11 | | | | | | | | | | | | | | | | | | | | | | 39,000 | | | $ | 448,890 | | | | — | | | | — | | Performance Shares | | | 03/04/11 | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 28,265 | | | $ | 325,330 | | P.L. Elders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | 05/13/10 | | | | 20,097 | | | | 40,195 | | | — | | $ | 13.37 | | | | 05/13/17 | | | | | | | | | | | | | | | | | | Stock Options | | | 03/04/11 | | | | — | | | | 24,531 | | | — | | $ | 25.64 | | | | 03/04/18 | | | | | | | | | | | | | | | | | | RSU | | | 05/13/10 | | | | | | | | | | | | | | | | | | | | | | 25,774 | | | $ | 296,659 | | | | — | | | | — | | RSU | | | 03/04/11 | | | | | | | | | | | | | | | | | | | | | | 9,750 | | | $ | 112,223 | | | | — | | | | — | | Performance Shares | | | 03/04/11 | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 7,065 | | | $ | 81,318 | | G.L. Carlson | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | 05/13/10 | | | | 8,396 | | | | 16,793 | | | — | | $ | 13.37 | | | | 03/29/17 | | | | | | | | | | | | | | | | | | Stock Options | | | 03/04/11 | | | | — | | | | 9,813 | | | — | | $ | 25.64 | | | | 03/04/18 | | | | | | | | | | | | | | | | | | RSU | | | 05/13/10 | | | | | | | | | | | | | | | | | | | | | | 26,274 | | | $ | 302,414 | | | | — | | | | — | | RSU | | | 03/04/11 | | | | | | | | | | | | | | | | | | | | | | 4,551 | | | $ | 52,382 | | | | — | | | | — | | Performance Shares | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 2,826 | | | $ | 32,527 | | L.K. Hinrichs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | 03/05/09 | | | | — | | | | 27,203 | | | — | | $ | 5.64 | | | | 03/05/16 | | | | | | | | | | | | | | | | | | Stock Options | | | 03/04/10 | | | | 15,104 | | | | 30,209 | | | — | | $ | 13.09 | | | | 03/04/17 | | | | | | | | | | | | | | | | | | Stock Options | | | 03/04/11 | | | | — | | | | 22,080 | | | — | | $ | 25.64 | | | | 03/04/18 | | | | | | | | | | | | | | | | | | RSU | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | 19,169 | | | $ | 220,635 | | | | — | | | | — | | RSU(3) | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | 33,283 | | | $ | 383,087 | | | | — | | | | — | | RSU | | | 03/04/10 | | | | | | | | | | | | | | | | | | | | | | 20,371 | | | $ | 234,470 | | | | — | | | | — | | RSU | | | 03/04/11 | | | | | | | | | | | | | | | | | | | | | | 10,014 | | | $ | 115,261 | | | | — | | | | — | | Performance Shares | | | 03/04/11 | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 6,359 | | | $ | 73,192 | | J.T. McCormack | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | 03/05/09 | | | | — | | | | 14,155 | | | — | | $ | 5.64 | | | | 03/05/16 | | | | | | | | | | | | | | | | | | Stock Options | | | 03/04/10 | | �� | | 8,518 | | | | 17,037 | | | — | | $ | 13.09 | | | | 03/04/17 | | | | | | | | | | | | | | | | | | Stock Options | | | 03/04/11 | | | | — | | | | 11,406 | | | — | | $ | 25.64 | | | | 03/04/18 | | | | | | | | | | | | | | | | | | Stock Options | | | 05/13/11 | | | | — | | | | 18,312 | | | — | | $ | 20.47 | | | | 05/13/18 | | | | | | | | | | | | | | | | | | RSU | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | 9,974 | | | $ | 114,800 | | | | — | | | | — | | RSU(3) | | | 03/05/09 | | | | | | | | | | | | | | | | | | | | | | 17,316 | | | $ | 199,307 | | | | — | | | | — | | RSU | | | 03/04/10 | | | | | | | | | | | | | | | | | | | | | | 11,490 | | | $ | 132,250 | | | | — | | | | — | | RSU | | | 03/04/11 | | | | | | | | | | | | | | | | | | | | | | 4,533 | | | $ | 52,175 | | | | — | | | | — | | Performance Shares | | | 03/04/11 | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 3,285 | | | $ | 37,810 | | RSU | | | 05/13/11 | | | | | | | | | | | | | | | | | | | | | | 8,058 | | | $ | 92,748 | | | | — | | | | — | | Performance Shares | | | 05/13/11 | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 5,637 | | | $ | 64,882 | | J.T. Nesser | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock Options | | | 03/05/09 | | | | 45,172 | | | | — | | | — | | $ | 5.64 | | | | 03/05/16 | | | | | | | | | | | | | | | | | | Stock Options | | | 03/04/10 | | | | 12,273 | | | | 24,545 | | | — | | $ | 13.09 | | | | 03/04/17 | | | | | | | | | | | | | | | | | | RSU | | | 03/04/10 | | | | | | | | | | | | | | | | | | | | | | 16,184 | | | $ | 186,278 | | | | — | | | | — | |
(1) | The awards in this column represent grants of stock options, which generally become exercisable in accordance with the following vesting schedule: |
| | | (1)Grant Date | | See “Option Awards” below for a discussionVesting Schedule: | 03/05/09 | | 1/3 per year on first, second and third anniversaries of the amounts reportedgrant date | 05/14/09 | | 1/3 per year on first, second and third anniversaries of grant date | 03/04/10 | | 1/3 per year on first, second and third anniversaries of grant date | 05/13/10 | | Mr. Elders: 1/3 per year on first, second and third anniversaries of grant date | 05/13/10 | | Mr. Carlson: 1/3 per year on March 29, 2011, 2012 and 2013 (the first, second and third anniversaries of Mr. Carlson’s hire date) | 03/04/11 | | 1/3 per year on first, second and third anniversaries of grant date | 05/13/11 | | 1/3 per year on first, second and third anniversaries of grant date |
(2) | The awards in this column includingrepresent grants of restricted stock units, which, with the exception of those grants of restricted stock units discussed in Note (3) below, generally vest in accordance with the following vesting dates of unexercisable option awards.schedule: |
| | | Grant Date | | Vesting Schedule: | 03/05/09 | | 1/3 per year on first, second and third anniversaries of grant date | (2)05/14/09 | | See “Stock Awards” below for a discussion1/3 per year on first, second and third anniversaries of the amounts reported in this column including the vesting dates of outstanding stock awards.grant date | 03/04/10 | | 1/3 per year on first, second and third anniversaries of grant date | 05/13/10 | | Mr. Elders: 1/3 per year on first, second and third anniversaries of grant date | (3)05/13/10 | | Market values in these columns are basedMr. Carlson: 1/3 per year on the closing priceMarch 29, 2011, 2012 and 2013 (the first, second and third anniversaries of our common stock as of December 31, 2010 ($20.69), as reported on the New York Stock Exchange.Mr. Carlson’s hire date) | 03/04/11 | | 1/3 per year on first, second and third anniversaries of grant date | 05/13/11 | | 1/3 per year on first, second and third anniversaries of grant date |
(4) | (3) | The grant of restricted stock units was converted from an original grant of performance shares in connection with the Spin-off and generally vests 100% on the third anniversary of the grant date. |
(4) | Market values in these columns are based on the closing price of our common stock as reported on the New York Stock Exchange as of December 30, 2011 ($11.51). | |
(5) | | No information is provided for Mr. Bethards because he had no outstanding equityThe awards granted by McDermottin this column represent grants of performance shares, which generally may vest on the third, fourth and/or fifth anniversaries of the grant date based on the attainment of performance levels as of December 31, 2010. In connection with the Spin-off, all of Mr. Bethards’ outstanding equity awards,2013, 2014 and one half of Mr. Taff’s equity awards, were converted to equity awards of2015. The Babcock & Wilcox Company. See “Compensation Discussionnumber and Analysis — Long-Term Incentive Compensation — Conversion of Equity in Connection with the Spin-off” for more information. |
56
Option Awards. Information presented in the “Option Awards” columns relates to options to purchase shares of our common stock held by our Named Executives as of December 31, 2010. With the exception of Mr. Carlson, whose unexercisable options vest in three equal installments on the first, second and third anniversaries of his date of hire, all unexercisable options generally vest in three equal installments on the first, second and third anniversaries of the grant date, as follows:
| | | Grant Date | | One third of grant vests on: | | | 03/05/09 | | March 5, 2011 and 2012 | 05/14/09 | | May 14, 2011 and 2012 | 03/04/10 | | March 4, 2011, 2012 and 2013 | 05/13/10 | | Mr. Carlson: March 29, 2011, 2012 and 2013 | 05/13/10 | | Mr. Elders: May 13, 2011, 2012 and 2013 |
Stock Awards. Information presented in the Stock Awards columns relates to awards of restricted stock and restricted stock units held by our Named Executives as of December 31, 2010. The awards reported in the “Number of Shares or Units of Stock that have not Vested” column reflect stock awards subject to service-based vesting.
Restricted Stock Awards. With the exception of the restricted stock granted on August 2, 2010, shares of restricted stock are generally scheduled to vest in one-third increments on the first, second and third anniversaries of the grant date. The restricted stock awards granted on August 2, 2010 were granted pursuant to retention agreements we entered into with certain of our Named Executives in connection with the Spin-off. See “Compensation Discussion and Analysis — Employment and Severance Arrangements — Retention Agreements” above for more information regarding the retention agreements. The vesting schedule of the restricted stock outstanding as of December 31, 2010 is as follows:
| | | Grant Date | | Restricted Stock Awards vest: | | | 03/03/08 | | One-third of grant vests on March 3, 2011 | 08/14/08 | | One-third of grant vests on August 14, 2011 | 11/10/08 | | One-third of grant vests on November 10, 2011 | 08/02/10 | | 100% of grant vests on July 30, 2011 |
Restricted Stock Units. Restricted stock units represent the right to receive one share of our common stock for each vested restricted stock unit. With the exception of restricted stock units that were converted from performance shares in connection with the Spin-off and restricted stock units granted to Mr. Carlson, restricted stock units outstanding as of December 31, 2010 are generally scheduled to vest in one-third increments on the first, second and third anniversaries of the grant date. Restricted stock units that were converted from performance shares in connection with the Spin-off generally vest 100% on the third anniversary of the grant date, as discussed in footnote (4) to the “Outstanding Equity Awards at Fiscal Year-End” table above. Restricted stock units granted to Mr. Carlson generally vest in three equal installments on the first, second and third anniversaries of his date of hire. The vesting schedule of the restricted stock units outstanding as of December 31, 2010 is as follows:
| | | Grant Date | | Vesting Schedule: | | | 03/03/08(1)
| | 100% of grant vests on March 3, 2011 | 08/14/08(1)
| | 100% of grant vests on August 14, 2011 | 10/01/08(2)
| | 100% of grant is vested | 03/05/09 | | One-third of grant vests on March 5, 2011 and 2012 | 03/05/09(1)
| | 100% of grant vests on March 5, 2012 | 05/14/09 | | One-third of grant vests on May 14, 2011 and 2012 | 05/14/09(1)
| | 100% of grant vests on May 14, 2012 | 03/04/10 | | One-third of grant vests on March 4, 2011, 2012 and 2013 | 05/13/10 | | Mr. Carlson: One-third of grant vests on March 29, 2011, 2012 and 2013 | 05/13/10 | | Mr. Elders: One-third of grant vests on May 13, 2011, 2012 and 2013 |
| | | (1) | | The grant of restricted stock units was converted from an original grantvalue of performance shares in connection with the Spin-off. | | (2) | | The grant of restricted stock units was converted from an original grant ofreported is based on achieving threshold performance shares in connection with the Spin-off. 100%as of the grant is vested, but will settle on October 1, 2011 in accordance with the terms of Mr. Fees’ retention agreement.December 31, 2013 measurement date. |
57
OPTION EXERCISESAND STOCK VESTED Option Exercises and Stock Vested
The following Option Exercises and Stock Vested table provides additional information about the value realized by our Named Executives on exercises of option awards and vesting of stock awards during the year ended December 31, 2010. | | | | | | | | | | | | | | | | | | | Option Awards | | Stock Awards | | | Shares
| | | | Shares
| | | | | Acquired
| | Value Realized
| | Acquired
| | Value Realized
| Name | | on Exercise (#) | | on Exercise | | on Vesting (#) | | on Vesting | S. M. Johnson | | | 0 | | | | N/A | | | | 30,995 | | | $ | 743,620.10 | | J. A. Fees | | | 295,716 | | | $ | 1,832,421.36 | | | | 467,935 | | | $ | 7,770,761.52 | | P. L. Elders | | | 0 | | | | N/A | | | | 0 | | | | N/A | | M. S. Taff | | | 48,724 | | | $ | 462,249.66 | | | | 59,019 | | | $ | 1,471,140.67 | | B. C. Bethards(1) | | | 23,383 | | | $ | 332,155.52 | | | | 70,427 | | | $ | 1,783,605.96 | | G. L. Carlson | | | 0 | | | | N/A | | | | 0 | | | | N/A | | L. K. Hinrichs | | | 14,035 | | | $ | 205,612.75 | | | | 52,827 | | | $ | 1,274,986.04 | | J. T. Nesser | | | 11,653 | | | $ | 169,609.42 | | | | 151,031 | | | $ | 2,847,018.83 | |
2011. | | | | | | | | | | | | | | | | | | | Option Awards(1) | | | Stock Awards(2) | | Name | | Shares Acquired on Exercise (#) | | | Value Realized on Exercise | | | Shares Acquired on Vesting (#) | | | Value Realized on Vesting | | S. M. Johnson | | | 0 | | | | N/A | | | | 205,316 | | | $ | 4,333,356 | | P. L. Elders | | | 0 | | | | N/A | | | | 12,887 | | | $ | 263,797 | | G. L. Carlson | | | 0 | | | | N/A | | | | 13,137 | | | $ | 327,374 | | L. K. Hinrichs | | | 27,202 | | | $ | 526,200 | | | | 119,901 | | | $ | 2,679,780 | | J. T. McCormack | | | 14,154 | | | $ | 273,959 | | | | 29,822 | | | $ | 762,999 | | J. T. Nesser | | | 0 | | | | N/A | | | | 85,423 | | | $ | 2,036,053 | |
| | | (1) | Each stock option exercise reported was effected as a simultaneous exercise and sale. The value realized on exercise was calculated based on the difference between the exercise prices of the stock options and the prices at which the shares were sold. |
(2) | Information provided for Mr. Bethards is through July 31, 2010. InThe number of shares acquired on vesting reported represents the aggregate number of shares that vested during 2011 in connection with awards of restricted stock and restricted stock units. The value realized on vesting was calculated based on the Spin-off, Mr. Bethards’ outstanding optionfair market value of the underlying shares on the vesting date. The following table sets forth the amounts of shares attributable to restricted stock and restricted stock awards were convertedunits for each Named Executive and the value realized on vesting of each respective type of award, as well as the number of shares withheld by McDermott to B&W option and stock awards. See “Compensation Discussion and Analysis — Long-Term Incentive Compensation — Conversion of Equity in Connection withsatisfy the Spin-off” for more information.minimum statutory withholding tax due upon vesting: |
Option Awards. Each stock option exercise reported in the Option Exercises and Stock Vested table was effected as a simultaneous exercise and sale, with the exception of one stock option exercise without a simultaneous sale of the underlying shares by each of Messrs. Fees, Bethards and Nesser and Ms. Hinrichs representing 98,572, 23,383, 11,653 and 14,035 shares, respectively. For simultaneous exercise and sales, the value realized on exercise was calculated based on the difference between the exercise prices of the stock options and the prices at which the shares were sold. For the exercise without a simultaneous sale of the underlying shares of options by Messrs. Fees, Bethards and Nesser and Ms. Hinrichs, the value realized on exercise was calculated based on the difference between the exercise price of the stock options and the average of the highest and lowest reported trading price of our common stock on the date of exercise.
Stock Awards. For each Named Executive, the number of shares acquired on vesting reported in the Option Exercises and Stock Vested table represents the aggregate number of shares that vested during 2010 in connection with awards of performance shares, restricted stock, restricted stock unitsand/or deferred stock units. The awards of deferred stock units reflected in this table were payable entirely in cash in an amount equal to the number of vested units multiplied by the average of the highest and lowest price of our common stock on the date of vesting. As a result, no shares of stock were actually acquired upon the vesting of these deferred stock units. The following table sets forth the amount of shares attributable to performance shares, restricted stock, restricted stock units and deferred stock units, for each Named Executive:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performance Shares | | Restricted Stock | | Restricted Stock Units | | Deferred Stock Units | | | Number of
| | | | Number of
| | | | Number of
| | | | Number of
| | | | | Shares
| | Value
| | Shares
| | Value
| | Shares
| | Value
| | Shares
| | Value
| | | Acquired on
| | Realized
| | Acquired
| | Realized
| | Acquired
| | Realized
| | Acquired
| | Realized
| Name | | Vesting | | on Vesting | | on Vesting | | on Vesting | | on Vesting | | on Vesting | | on Vesting | | on Vesting | S. M. Johnson | | | 0 | | | | N/A | | | | 0 | | | | N/A | | | | 30,995 | | | $ | 743,260.10 | | | | 0 | | | | N/A | | J. A. Fees | | | 63,600 | | | $ | 1,603,356.00 | | | | 32,880 | | | $ | 458,417.60 | | | | 362,305 | | | $ | 5,470,996.42 | | | | 9,150 | | | $ | 237,991.50 | | P. L. Elders | | | 0 | | | | N/A | | | | 0 | | | | N/A | | | | 0 | | | | N/A | | | | 0 | | | | N/A | | M. S. Taff | | | 33,000 | | | $ | 831,930.00 | | | | 2,296 | | | $ | 58,938.32 | | | | 19,223 | | | $ | 490,474.85 | | | | 4,500 | | | $ | 89,797.50 | | B. C. Bethards | | | 44,400 | | | $ | 1,119,324.00 | | | | 1,310 | | | $ | 33,627.70 | | | | 24,717 | | | $ | 630,654.26 | | | | 0 | | | | N/A | | G. L. Carlson | | | 0 | | | | N/A | | | | 0 | | | | N/A | | | | 0 | | | | N/A | | | | 0 | | | | N/A | | L. K. Hinrichs | | | 33,300 | | | $ | 839,493.00 | | | | 8,767 | | | $ | 160,520.99 | | | | 9,890 | | | $ | 252,343.35 | | | | 870 | | | $ | 22,628.70 | | J. T. Nesser | | | 52,500 | | | $ | 1,323,525.00 | | | | 6,153 | | | $ | 110,922.42 | | | | 85,988 | | | $ | 1,246,367.51 | | | | 6,390 | | | $ | 166,203.90 | |
58
| | | | | | | | | | | | | | | | | | | | | | | Restricted Stock | | | Restricted Stock Units | | | | | Name | | Shares Acquired on Vesting (#) | | | Value Realized on Vesting | | | Shares Acquired on Vesting (#) | | | Value Realized on Vesting | | | Shares Acquired by McDermott on Vesting of Stock Awards (#) | | S. M. Johnson | | | 113,412 | | | $ | 2,287,520 | | | | 91,904 | | | $ | 2,045,836 | | | | 71,653 | | P. L. Elders | | | 0 | | | | N/A | | | | 12,887 | | | $ | 263,797 | | | | 3,408 | | G. L. Carlson | | | 0 | | | | N/A | | | | 13,137 | | | $ | 327,374 | | | | 3,474 | | L. K. Hinrichs | | | 62,231 | | | $ | 1,204,301 | | | | 57,670 | | | $ | 1,475,479 | | | | 39,842 | | J. T. McCormack | | | 1,196 | | | $ | 30,354 | | | | 28,626 | | | $ | 732,645 | | | | 7,957 | | J. T. Nesser | | | 8,405 | | | $ | 192,972 | | | | 77,018 | | | $ | 1,843,081 | | | | 27,253 | |
The number of shares acquired in connection with the exercise of stock options, to the extent applicable, and the vesting of performance shares, restricted stock awards and restricted stock units includes the following number of shares withheld by us at the election of each Named Executive to satisfy the minimum statutory withholding tax due upon exercise or vesting. For more information on the withholding of shares to cover taxes due upon exercise or vesting, see the “Certain Relationships and Related Transactions” section of this proxy statement.
| | | | | | | | | | | Shares Acquired by McDermott
| | Shares Acquired by McDermott
| Name | | on Exercise of Stock Options | | on Vesting of Stock Awards | S. M. Johnson | | | N/A | | | | 11,297 | | J. A. Fees | | | 62,550 | | | | 155,899 | | P. L. Elders | | | N/A | | | | N/A | | M. S. Taff | | | N/A | | | | 17,777 | | B. C. Bethards | | | 15,744 | | | | 27,163 | | G. L. Carlson | | | N/A | | | | N/A | | L. K. Hinrichs | | | 8,123 | | | | 16,943 | | J. T. Nesser | | | 7,423 | | | | 51,304 | |
59
Pension BenefitsPENSION BENEFITS
The following Pension Benefits table shows the present value of accumulated benefits payable to each of our Named Executives under the qualified defined benefit pension plansplan (referred to as the Retirement Plans)Plan) and nonqualified pension plansplan (referred to as the Excess Plans)Plan) that we sponsored prior to the Spin-off and those we have continued to sponsor since the Spin-off. | | | | | | | | | | | | | | | Present Value of
| | Payments
| | | | | Number of Years
| | Accumulated
| | During
| Name | | Plan Name | | Credited Service | | Benefit(1) | | 2010 | S.M. Johnson | | N/A | | N/A | | N/A | | N/A | | | N/A | | N/A | | N/A | | N/A | J.A. Fees(2) | | B&W Governmental Operations Retirement Plan | | 31.167 | | $1,224,477 | | $0 | | | B&W Governmental Operations Excess Plan | | 31.167 | | $3,216,141 | | $0 | P.L. Elders | | N/A | | N/A | | N/A | | N/A | | | N/A | | N/A | | N/A | | N/A | M.S. Taff | | N/A | | N/A | | N/A | | N/A | | | N/A | | N/A | | N/A | | N/A | B.C. Bethards(3) | | B&W Governmental Operations Retirement Plan | | 37.000 | | $1,246,422 | | $0 | | | B&W Governmental Operations Excess Plan | | 37.000 | | $1,719,768 | | $0 | G.L. Carlson | | N/A | | N/A | | N/A | | N/A | | | N/A | | N/A | | N/A | | N/A | L.K. Hinrichs | | McDermott Retirement Plan | | 11.167 | | $315,251 | | $0 | | | McDermott Excess Plan | | 11.167 | | $131,970 | | $0 | J.T. Nesser | | McDermott Retirement Plan | | 11.750 | | $391,366 | | $0 | | | McDermott Excess Plan | | 11.750 | | $440,724 | | $0 |
sponsor.
| | | | | | | | | | | | | | | Name | | Plan Name | | Number of Years Credited Service | | | Present Value of Accumulated Benefit(1) | | | Payments During 2011 | | S. M. Johnson | | N/A | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | N/A | | | | N/A | | | | N/A | | P. L. Elders | | N/A | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | N/A | | | | N/A | | | | N/A | | G. L. Carlson | | N/A | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | N/A | | | | N/A | | | | N/A | | L. K. Hinrichs | | McDermott Retirement Plan | | | 11.167 | | | $ | 369,359 | | | $ | 0 | | | | McDermott Excess Plan | | | 11.167 | | | $ | 154,621 | | | $ | 0 | | J. T. McCormack | | N/A | | | N/A | | | | N/A | | | | N/A | | | | N/A | | | N/A | | | | N/A | | | | N/A | | J. T. Nesser | | McDermott Retirement Plan | | | 11.75 | | | $ | 468,199 | | | $ | 0 | | | | McDermott Excess Plan | | | 11.75 | | | $ | 527,248 | | | $ | 0
| |
| | | (1) | | In connection with the Spin-off and pursuant to the Employee Matters Agreement, the accumulated pension benefits of Messrs. Fees and Bethards were transferred to B&W on June 30, 2010. The present valuesvalue of accumulated benefits provided for Messrs. Fees and Bethards arereflected above is based on a 5.6%4.8% discount rate and the 1994 Group Annuity Mortality Table projected to 2010, which are the assumptions used by B&WIRS static table for valuation years beginning in computing the present values. | | (2) | | In connection with Mr. Fees’ retirement from McDermott on July 30, 2010, Mr. Fees commenced receiving an unreduced early retirement benefit under the B&W Governmental Operations Retirement Plan as of August 1, 2010. Such payments were made by B&W and are not included in the table above. | | (3) | | The number of years of credited service for Mr. Bethards includes 0.417 years (July31-December 31, 2010) when he was no longer an employee of McDermott following the Spin-off.2012. |
Overview of Qualified Plans.Plan. The Retirement Plans we sponsor in which the eligible Named Executives participate arePlan is funded by trustsa trust and generally covercovers eligible regular full-time employees of McDermott and its subsidiaries, as described below in the section entitled “Participation and Eligibility.” Nonresident alien employees who do not earn income in the United States and temporary resident alien employees are not eligible to participate in the Retirement Plans.Plan. In reviewing pension benefits payable to our Named Executives, it is important to note: | | | | • | Ms. Hinrichs and Mr. Nesser participated in the MI Retirement Plan until their participation was transferred to the JRM Retirement Plan through the merger of the MI |
Of the Named Executives, only Ms. Hinrichs and Mr. Nesser participate in the Retirement Plan; and | | | | | Retirement Plan into the JRM Retirement Plan in connection with the Spin-off; the JRM Retirement Plan was thereafter renamed the “McDermott (U.S.) Retirement Plan” (referred to herein as the “McDermott Retirement Plan”) and provides benefits for eligible McDermott employees. As of June 30, 2010, benefit accruals under the McDermott Retirement Plan were frozen for all participants, including Ms. Hinrichs and Mr. Nesser; | | | • | Mr. Fees participated in the MI Retirement Plan until his participation was transferred to the B&W Governmental Operations Retirement Plan in connection with the Spin-off; |
60As of 2006, all new participation in the Retirement Plan was closed, and benefit accruals under the Retirement Plan were frozen for all participants, including Ms. Hinrichs and Mr. Nesser, as of June 30, 2010.
| | | | • | Mr. Bethards participates in the B&W Governmental Operations Retirement Plan; and | | | • | Due to their respective employment dates, Messrs. Johnson, Elders, Taff and Carlson do not participate in our Retirement Plans. |
For more information on our Retirement Plans,retirement plans, see “Compensation Discussion and Analysis — Post-employment Compensation — Retirement Plans.” Participation and Eligibility.Eligibility. The Retirement Plan includes provisions related to eligibility, participation and benefit formulas for employees who were employed by McDermott’s subsidiary J. Ray McDermott Holdings, LLC and other designated affiliates thereof (collectively, the “JRM Coverage Group”), as well as for employees who were employed by McDermott Incorporated (now known as McDermott Investments, LLC) (collectively, the “MI Coverage Group”) and certain former salaried employees of a subsidiary of The Babcock & Wilcox Company who transferred to employment with McDermott Incorporated (collectively, “Former B&W Coverage Group”). Generally, employees over the age of 21 yearsparticipating employers who met a one-year service requirement were hired before April 1, 2005 are eligible to participate in the McDermott Retirement Plan or the B&W Governmental Operations Retirement Plan, subject to the following: For the MI Coverage Group (which includes Ms. Hinrichs and Mr. Nesser): New participation in the Retirement Plan was closed effective April 1, 2006. For participants with less than five years of service as of March 31, 2006 — Benefit accruals under the Retirement Plan were frozen as of that date, but cost-of-living increases continued to be paid, as discussed further below. Affected employees received service- based employer cash contributions to their Thrift Plan accounts. On June 30, | | | | • | For participants with less than five years of service as of March 31, 2006 — The plans were closed to new salaried participants and benefit accruals were frozen as of that date, butcost-of-living increases continued to be paid, as discussed further below. Affected employees received annual service-based company cash contributions to their Thrift Plan accounts. On June 30, 2010, the provision of thecost-of-living increase under the McDermott Retirement Plan was terminated, and, for affected participants, the Thrift Plan service-based contribution was replaced by a cash contribution equal to 3% of thriftablebase pay, plus overtime pay, expatriate pay and commissions, which we refer to collectively as “thriftable earnings. | | | • | For participants with more than five but less than ten years of service as of January 1, 2007 — If a participant made an election to do so, benefit accruals were frozen as of March 31, 2007, with the electing participants receiving annual service-based company cash contributions to their Thrift Plan accounts. As of June 30, 2010, benefit accruals under the McDermott Retirement Plan were frozen altogether, and in lieu of any service-based cash contributions, affected participants now receive a cash contribution to their Thrift Plan accounts equal to 3% of thriftable earnings. | | | • | Frozen accrued benefits of affected employees under these plans increased annually in line with increases in the Consumer Price Index, up to a maximum of 8% and a minimum of 1%, for each year the employee remained employed. However, as of June 30, 2010, the provision of thecost-of-living” |
For participants with more than five but less than ten years of service as of January 1, 2007 (which includes Mr. Nesser and Ms. Hinrichs) — A one-time irrevocable choice was offered to (1) continue benefit accruals under the Retirement Plan, or (2) freeze benefit accruals as of March 31, 2007, subject to annual cost-of-living increases, and receive instead service-based employer cash contributions to their Thrift Plan accounts. As of June 30, 2010, benefit accruals under the Retirement Plan were frozen altogether, and in lieu of any service-based cash contributions, affected participants now receive a cash contribution to their Thrift Plan accounts equal to 3% of thriftable earnings. With respect to the cost-of-living increase, frozen accrued benefits of affected employees increased annually in line with increases in the Consumer Price Index, up to a maximum of 8% and a minimum of 1%, for each year the employee remained employed. As of June 30, 2010, the provision of the cost-of-living increase under the Retirement Plan was terminated, and the accrued benefits under the Retirement Plan were frozen altogether. For the JRM Coverage Group (which includes Mr. McCormack), new participation was closed and benefit accruals were frozen effective April 1, 2003, with no cost-of-living allowance. Mr. McCormack did not meet the Plan’s one-year service requirement for eligibility to participate in the Retirement Plan prior to the participation closure for the JRM Coverage Group. | | | | | increase under the McDermott Retirement Plan was terminated and the accrued benefits under the McDermott Retirement Plan were frozen altogether. |
Benefits. Benefits applicable toNo Named Executives are included in the Former B&W Coverage Group. Benefits. Mr. Nesser and Ms. Hinrichs are the only Named Executives entitled to benefits under these Plansthe Retirement Plan. Their benefits are calculated as follows: | | | | • | For participants originally employed by our former Power Generation Systems or Government Operations segments (“Tenured Employees”) before April 1, 1998 (which includes Messrs. Fees and Bethards) — benefits are calculated based on years of credited service and final average cash compensation (including bonuses and commissions). | | | • | For salaried participants originally hired by our subsidiary formerly known as McDermott Incorporated on or after April 1, 1998 (which includes Mr. Nesser and Ms. Hinrichs) — benefits are calculated as 1.2% of final average monthly compensation up to the Social Security limit times credited service up to 35 years, plus 1.65% of final average monthly compensation in excess of the Social Security limit times credited service up to 35 years. Final average monthly compensation excludes bonuses and commissions. |
The present value of accumulated benefits reflectedfinal average monthly compensation as of June 30, 2010 up to the Social Security limit times credited service up to 35 years, plus 1.65% of final average monthly compensation as of June 30, 2010 in excess of the Pension Benefit Table above is based on a 5.25% discount rateSocial Security limit times credited service up to 35 years. Final average monthly compensation excludes bonuses and the 1994 Group Annuity Mortality Table projected to 2005.
commissions.Retirement and Early Retirement.Retirement. Under each of these plans,the Retirement Plan, normal retirement is age 65. The normal form of payment is a single-life annuity or a 50% joint and survivor annuity, depending on the employee’s marital status when payments are scheduled to begin. Early retirement eligibility and benefits under these plansthe Retirement Plan depend on the employee’s date of hire and age. Mr. Bethards is currently eligible for early retirement. Mr. Fees retired on July 31, 2010 and at that time was eligible for an unreduced early retirement benefit. For Tenured Employees hired before April 1, 1998 (which includes Messrs. Fees and Bethards):
| | | | • | an employee is eligible for early retirement if the employee has completed at least 15 years of credited service and attained the age of 50; and |
61
| | | | • | early retirement benefits are based on the same formula as normal retirement, but the pension benefit is unreduced if the sum of the employee’s age and years of service equals 75 or greater at the date benefits commence; otherwise the pension benefit is reduced 4% for each “point” less than 75. |
For employees hired on or after April 1, 1998: 1998 (including Mr. Nesser and Ms. Hinrichs): | | | | • | an employee is eligible for early retirement after completing at least 15 years of credited service and attaining the age of 55; and | | | • | early retirement benefits are based on the same formula as normal retirement, but the pension benefit is generally reduced 0.4% for each month that benefits commence before age 62. |
Mr. Fees commenced receiving an unreduced early retirement after completing at least 15 years of credited service and attaining the age of 55; and
early retirement benefits are based on the same formula as normal retirement, but the pension benefit under the B&W Governmental Operations Retirement Plan as of August 1, 2010.is generally reduced 0.4% for each month that benefits commence before age 62. Neither Mr. Nesser nor Ms. Hinrichs havehas not accrued enough credited service to be eligible for early retirement under the McDermott Retirement Plan. At Mr. Nesser’s resignation from employment with McDermott on July 29, 2011, he had not accrued enough credited service to be eligible for early retirement under the Retirement Plan.Overview of Nonqualified Plans.Plan. To the extent benefits payable under thesethe Retirement PlansPlan are limited by Section 415(b) or 401(a)(17) of the Internal Revenue Code, pension benefits will be paid directly by the applicable subsidiary of McDermott or B&W under the terms of the unfunded excess benefit plansplan maintained by themMcDermott (referred to as the “Excess Plans”Plan”). Effective January 1, 2006, the Excess Plans werePlan was amended to limit the annual bonus payments taken into account in calculating the Excess Plan benefits to the lesser of the actual bonus paid or 25% of the prior year’s base salary. Furthermore, because benefits entitlement under the Excess Plan and the Retirement Plan are linked, benefits under the Excess Plan have been frozen since 2006 when benefit accruals under the Retirement Plan were frozen. Mr. Nesser and Ms. Hinrichs Mr. Fees and Mr. Bethards each participate in anthe Excess Plan. Based on Mr. Fees retired on July 31, 2010Nesser’s age and commenced receiving anaccrued service at his resignation from employment, he will not be entitled to commence benefit payments under the Excess Plan benefit on February 1, 2011. His benefit commencement was subject to a six-month delay following hisuntil normal retirement date, based on his status as a “specified employee” as defined in Code Section 409A(a)(2)(B)(i) and related IRS regulations and rulings.under the Retirement Plan.
62
NONQUALIFIED DEFERRED COMPENSATION Nonqualified Deferred Compensation
The following Nonqualified Deferred Compensation table summarizes our Named Executives’ compensation under the McDermott International, Inc. Director and Executive Deferred Compensation Plan (the “Deferred Compensation Plan”). The compensation shown in this table is entirely attributable to ourthe Deferred Compensation Plan. | | | | | | | | | | | | | | | | | | | | | | | Executive
| | Company
| | Aggregate
| | Aggregate
| | Aggregate
| | | Contributions in
| | Contributions in
| | Earnings
| | Withdrawals/
| | Balance
| Name | | 2010 | | 2010 | | in 2010 | | Distributions | | at 12/31/10 | S. M. Johnson | | $ | 0 | | | $ | 69,375 | | | $ | 7,252 | | | $ | 0 | | | $ | 76,627 | | J. A. Fees | | $ | 0 | | | $ | 87,051 | | | $ | 49,735 | | | $ | 0 | | | $ | 422,469 | | P. L. Elders | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | M. S. Taff | | $ | 0 | | | $ | 37,810 | | | $ | 20,439 | | | $ | 0 | | | $ | 198,227 | | B. C. Bethards | | $ | 0 | | | $ | 52,275 | | | $ | 25,782 | | | $ | 0 | | | $ | 524,588 | | G. L. Carlson | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | L. K. Hinrichs | | $ | 0 | | | $ | 29,549 | | | $ | 0 | | | $ | 0 | | | $ | 91,059 | | J. T. Nesser | | $ | 0 | | | $ | 36,806 | | | $ | 83,667 | | | $ | 0 | | | $ | 746,029 | |
Overview of our Deferred Compensation Plan. OurThe Deferred Compensation Plan is an unfunded, defined contribution retirement plan for directors and officers of McDermott and its subsidiaries selected to participate by our Compensation Committee. Benefits under the Deferred CompensationCompensa-
tion Plan are based on (1) the participant’s deferral account, which is comprised of the notional account balance reflecting any executive contributions of deferred compensation, and (2) the participant’s vested percentage in his or her company account, which is comprised of the notional account balance reflecting any company contributions. A participant is at all times 100% vested in his or her deferral account. A participant generally vests in his or her company account 20% each year, subject to accelerated vesting for death, disability and termination without cause or termination within 24 months following a change in control. In connection with the Spin-off, | | | | | | | | | | | | | | | | | | | | | Name | | Executive Contributions in 2011(1) | | | Company Contributions in 2011(2) | | | Aggregate Earnings in 2011(3) | | | Aggregate Withdrawals/ Distributions | | | Aggregate Balance at 12/31/11(4) | | S. M. Johnson | | $ | 0 | | | $ | 97,932 | | | ($ | 9,651 | ) | | $ | 0 | | | $ | 164,908 | | P. L. Elders | | $ | 0 | | | $ | 39,950 | | | $ | 796 | | | $ | 0 | | | $ | 40,746 | | G. L. Carlson | | $ | 0 | | | $ | 24,800 | | | ($ | 286 | ) | | $ | 0 | | | $ | 24,514 | | L. K. Hinrichs | | $ | 0 | | | $ | 43,511 | | | $ | 0.00 | | | $ | 0 | | | $ | 134,570 | | J. T. McCormack | | $ | 0 | | | $ | 36,170 | | | $ | 1,383 | | | $ | 0 | | | $ | 37,553 | | J. T. Nesser | | $ | 0 | | | $ | 55,219 | | | ($ | 34,873 | ) | | $ | 0 | | | $ | 766,375 | |
(1) | In November 2010, our Compensation Committee approved the deferral of eligible executives’ compensation beginning January 1, 2011. Under the terms of our Deferred Compensation Plan, an eligible executive may defer up to 50% of his or her annual salary and/or up to 100% of any bonus earned in any year. |
(2) | We make annual contributions to specified participants’ notional accounts equal to a percentage of the participant’s prior-year compensation. Under the terms of the Deferred Compensation Plan, the contribution percentage does not need to be the same for each participant. Additionally, our Compensation Committee may make a discretionary contribution to a participant’s account at any time. With the exception of Messrs. Elders and Carlson, for 2011, our contributions on behalf of Named Executives who were participants equaled 5% of the respective Named Executives’ base salaries and annual incentive compensation awards paid in 2010. Messrs. Elders and Carlson received a Company Contribution in an amount equal to 5% of their respective prior-year base salary paid. In addition, Messrs. Elders and Carlson received a discretionary contribution equal in value to 5% of their respective target bonus for 2010 and the value of their respective prior-year target base salaries they would have earned for the period January 1, 2010 through their respective hire dates. All of our 2011 contributions are included in the Summary Compensation Table above as “All Other Compensation.” |
(3) | The amounts reported in this column represent hypothetical accrued gains or losses during 2011 on each Named Executive’s account. The accounts are “participant-directed,” in that each participant personally directs the investment of contributions made on his or her behalf. As a result, any accrued gains or losses are attributable to the performance of the Named Executive’s notional mutual fund investments. No amount of the earnings shown is reported as compensation in the Summary Compensation Table. |
(4) | The amounts reported in this column consist of contributions made by McDermott and hypothetical accrued gains or losses as of December 31, 2011. The balances shown include contributions from previous years which have been reported as compensation to the Named Executives in the Summary Compensation Table for those years — to the extent a Named Executive was included in the Summary Compensation Table during those years. The amounts of such contributions previously included in the Summary Compensation Table and years reported are as follows: Mr. Johnson received a contribution from McDermott of $69,375 in 2010; Ms. Hinrichs received a contribution from McDermott of $29,549 in 2010; and Mr. Nesser received contributions from McDermott of $36,806, $55,104 and $44,926 in 2010, 2009 and 2008, respectively. |
As of December 31, 2011, Messrs. Johnson, Elders, Carlson and McCormack are 20% vested in their respective Deferred Compensation Plan balances shown as a result of becoming participants in the Deferred Compensation Plan accounts of Messrs. Fees, Taff and Bethards were transferred, and B&W assumed the liabilities of those accounts, pursuant to the Employee Matters Agreement. Executive Contributions in 2010. In November 2010, our Compensation Committee approved the deferral of eligible executives’ compensation beginning January 1,during 2011. Under the terms of our Deferred Compensation Plan, an eligible executive may defer up to 50% of his or her annual salaryand/or up toMr. Nesser is 100% of any bonus earned in any year. No executive contributions were made in 2010.
Company Contributions in 2010. We make annual contributions to specified employees’ notional accounts equal to a percentage of the employee’s prior-year compensation. Under the terms of the SERP, the contribution percentage does not need to be the same for each participant. Additionally, our Compensation Committee may make a discretionary contribution to a participant’s account at any time.
With the exception of Mr. Johnson, for 2010, our contributions on behalf of Named Executives who were participants equaled 5% of the Named Executives’ base salaries and annual incentive compensation awards paid in 2009. Mr. Johnson received a company contribution in an amount equal to 5% of his prior-year base salary paid, and received a discretionary contribution equal in value to 5% of his target bonus for 2010 and the value of his prior-year target base salary for the period January 1, 2009 through his April 1, 2009 hire date. Because Messrs. Elders and Carlson were added as participants to the Deferred Compensation Plan in August 2010, no contributions were made to their respective accounts during the year. To the extent a contribution was made, all of our 2010 contributions are included in the Summary Compensation Table above as “All Other Compensation.”
Aggregate Earnings in 2010. The amount reported in this table as earnings represents hypothetical accrued gains during 2010 on each Named Executive’s account. The accounts are “participant-directed,” in that each participating officer personally directs the investment of contributions made on his or her behalf. As a result, any accrued gains or losses are
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attributable to the performance of the Named Executive’s notional mutual fund investments.
No amount of the earnings shown is reported as compensation in the Summary Compensation Table.
Aggregate Balance at12/31/10. The balance of a participating officer’s account consists of contributions made by us and hypothetical accrued gains or losses. The balances shown represent the accumulated account values (including gains and losses) for each Named Executive as of December 31, 2010.
The balances shown include contributions from previous years which have been reported as compensation to the Named Executives in the Summary Compensation Table for those years — to the extent a Named Executive was included in the Summary Compensation Table during those years. The amounts and years reported are as follows:
| | | | | | | | | | | | | Amount
| Named Executive(1) | | Year | | Reported | J.A. Fees | | | 2009 | | | $ | 64,774.00 | | | | | 2008 | | | $ | 54,155.00 | | M.S. Taff | | | 2009 | | | $ | 41,378.00 | | | | | 2008 | | | $ | 31,125.00 | | B.C. Bethards | | | 2009 | | | $ | 44,948.00 | | | | | 2008 | | | $ | 31,042.00 | | J. T. Nesser | | | 2009 | | | $ | 55,104.00 | | | | | 2008 | | | $ | 44,926.00 | |
| | | (1) | | No information is provided for Mr. Johnson because he was not a participant in the Deferred Compensation Plan prior to 2010. No information is provided for Messrs. Elders and Carlson and Ms. Hinrichs because they did not become Named Executives until 2010. |
As of December 31, 2010, Mr. Johnson is 0% vested in his Deferred Compensation Plan balance shown as a result of becoming a participant in the Deferred Compensation Plan during 2010. Messrs. Fees, Taff, Nesser and Bethards are each 100% vested in their Deferred Compensation Plan balance shown.
In May 2009, our Compensation Committee amended the Deferred Compensation Plan to vest Deferred Compensation Plan balances that were unvested as of December 31, 2008 (including future gains and losses thereon). Amounts allocated on or after January 1, 2009 vest pursuant to the participant’s vested percentage, based on years of participation. Accordingly, Ms. Hinrichs is 72.95%84.38% vested in her Deferred Compensation Plan balance shown.
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POTENTIAL PAYMENTS UPON TERMINATIONOR CHANGEIN CONTROL Potential Payments Upon Termination or Change in Control
The following tables show potential payments to certain of our Named Executives under existing contracts, agreements, plans or arrangements, whether written or unwritten, for various scenarios under which a payment would be due (assuming each is applicable) involving a change in control or termination of employment of each of our Named Executives, assuming a December 31, 20102011 termination date and, where applicable, using the closing price of our common stock of $20.69$11.51 (as reported on the New York Stock Exchange) as of December 31, 2010.30, 2011. These tables do not reflect amounts that would be payable to the Named Executives pursuant to benefits or awards that are already vested. The amounts reported in the below tables for stock options, restricted stock units and restricted stock units,performance shares represent the value of unvested and accelerated shares or units, as applicable, calculated by: for stock options: multiplying the number of accelerated options by the difference between the exercise price and $11.51 (the closing price of our common stock on December 30, 2011, as reported on the New York Stock Exchange); and for restricted stock units and performance shares: multiplying the number of accelerated shares or units by $11.51 (the closing price of our common stock on December 30, 2011, as reported on the New York Stock Exchange). | | | | • | for stock options: multiplying the number of accelerated options by the difference |
| | | | | between the exercise price and $20.69 (the closing price of our common stock on December 31, 2010, as reported on the New York Stock Exchange); and | | | • | for restricted stock and restricted stock units: multiplying the number of accelerated shares or units by $20.69 (the closing price of our common stock on December 31, 2010, as reported on the New York Stock Exchange). |
Mr. Nesser retired from McDermott on July 29, 2011. In connection with his retirement, a subsidiary of McDermott entered into a Separation Agreement with Mr. Nesser. Under the Spin-off, Messrs. Fees, Taff and Bethards terminated employment with McDermott effective July 30, 2010. Becauseterms of the Separation Agreement, Mr. Taff joined B&W following the Spin-off, and Mr. Bethards continued employment with B&W following the Spin-off, no termination event occurred under which they wereNesser was entitled to any payments. Payments made to Mr. Feesreceive the payments and benefits detailed in connection with his termination are discussed below under the “Estimated ValueSection 1 of Benefits to Be Received Upon Termination under the Restructuring Transaction Retention Agreements” table. Estimated Value of Benefits to Be Received Upon Termination under the Restructuring Transaction Retention Agreements
The following table shows the estimated value of payments and other benefits due to certain of the Named Executives assuming termination under the restructuring transaction retention agreements as of December 31, 2010.
| | | | | | | | | | | | | | | | | | | | | | | S.M. Johnson | | P.L. Elders | | G.L. Carlson | | L.K. Hinrichs | | J.T. Nesser | Severance Payments | | $ | 3,361,042 | | | | — | | | | — | | | $ | 1,305,748 | | | $ | 1,738,126 | | EICP | | $ | 920,000 | | | | — | | | | — | | | $ | 232,265 | | | $ | 358,750 | | Deferred Compensation Plan | | $ | 76,627 | | | | — | | | | — | | | $ | 24,634 | | | | — | | Benefits | | $ | 8,843 | | | | — | | | | — | | | $ | 2,664 | | | $ | 26,974 | | Thrift Plan | | $ | 12,658 | | | | — | | | | — | | | | — | | | | — | | Stock Options (unvested and accelerated) | | $ | 1,931,720 | | | | — | | | | — | | | $ | 818,795 | | | $ | 679,839 | | Restricted Stock (unvested and accelerated) | | | — | | | | — | | | | — | | | $ | 207,583 | | | $ | 173,899 | | Restricted Stock Units (unvested and accelerated) | | $ | 4,643,891 | | | | — | | | | — | | | $ | 2,067,697 | | | $ | 1,422,293 | | TaxGross-Up | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 10,954,781 | | | | — | | | | — | | | $ | 4,659,386 | | | $ | 4,399,881 | |
In contemplation of the Spin-off, on December 10, 2009, weAgreement entered into retention agreements with certain key members of our management, including Messrs. Johnson andbetween Mr. Nesser and Ms. Hinrichs. The retention agreements provide either a retention or severance payment to these employees in connection with the dispositionsubsidiary of all or substantially all of the stock or assets of B&W or JRM (whether by a spin-off, sale or otherwise), which we have referred to
as a “restructuring transaction” in the retention agreements. In the event the applicable employee is terminated prior to the first anniversary of the effective date of the restructuring transaction, either (1) by the employer company for any reason other than cause or disability or (2) by the employee for good reason, the employer company would be required to pay the employee a cash severance payment, an EICP payment, 200% of the annual cost of coverage for medical,
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dental and vision benefits, and an amount equal to the unvested portion of the Named Executive’s Thrift Plan account. The employee would also receive accelerated vesting with respect to the unvested portion of his or her Deferred Compensation Plan account balance and certain of his or her outstanding, unvested equity awards.
Severance Payment. The severance payment that would be made to the applicable Named Executive in connection with his or her termination of employment is a cash payment equal to 200% of the sum of his or her annual base salary prior to termination and his or her EICP target award applicable to the year in which the termination occurs. For a hypothetical termination as of December 31, 2010, the severance payment under a restructuring transaction would have been calculated in the same manner as a severance payment under a change in control. For more information, see “Estimated Value of Benefits to be Received Upon Change in Control — Severance Payment.” Severance payments under a restructuring transaction would be in lieu of any payment under any severance policy generally applicable to the salaried employees of McDermott.
EICP Payment. The EICP Payment that would be made to each applicable Named Executive in connection with his or her termination of employment would be calculated in the same manner as an EICP Payment under a change in control. For more information, see “Estimated Value of Benefits to be Received Upon Change in Control — EICP Payment” below.
Deferred Compensation Plan. The amounts reported represent 100% of Mr. Johnson’s and 27.05% of Ms. Hinrichs’ respective Deferred Compensation Plan balance as of December 31, 2010 that would become vested if terminated under the retention agreements.
Benefits. The amounts reported represent two times the full annual cost of coverage for medical, dental and vision benefits provided to the applicable Named Executive and the Named Executive’s covered dependents for the year ended December 31, 2010.
Thrift Plan. The amount reported represents the unvested portion of the Named Executive’s Thrift Plan account balance as of December 31, 2010.
Equity Awards. The amounts reported for stock options, restricted stock and restricted stock units represent the value of unvested and accelerated shares or units, as applicable, for the 2008 and 2009 grants of such awards. The amount reported for restricted stock units also includes the value of unvested and accelerated units resulting from the conversion of the 2008 and 2009 grants of performance shares into restricted stock unitsMcDermott in connection with the Spin-off. For more information on the conversion or adjustment of equity awards, see “Compensation DiscussionThese payments and Analysis — Long-Term Incentive Compensation — Treatment of Equity-Based Awards in Connection with the Spin-off”.
Mr. Fees terminated his employment with McDermott for good reason effective July 30, 2010. In connection with his termination, Mr. Fees receivedbenefits included: (1) a cash severance payment in the amount of $5,516,550,$1,742,527, (2) payment of his 20102011 target EICP award, prorated to take into account his length of service in 2010,2011, in the amount of $535,808,$206,408, (3) two times the full annual cost of coverage for medical, dental and vision benefits in the amount of $30,257,$35,127, (4) unused vacation for 20102011 in the amount of $70,962,$39,424, (5) the value of unvested and accelerated stock options in the amount of $1,360,294,$328,174, and (6) the value of unvested and accelerated restricted stock in the amount of $379,354, and (7) the value of unvested and accelerated restricted stock units in the amount of $3,698,622.$547,034. Pursuant to the terms of his Separation Agreement, Mr. FeesNesser will also was fully vestedcontinue to vest in a grant of 144,54024,545 stock options and 16,553 restricted stock units that have not settled in accordance with his retention agreement.as if he had remained employed by McDermott through March 4, 2013. The value of thesethe stock options and restricted stock units, less a number of restricted stock units that were forfeited in connection with the payment of certain taxes, will be determined on the original measurement date, which is October 1, 2011.
March 4, 2012 and March 4, 2013. In addition, Mr. FeesNesser received $25,000 per month for the performance of consulting services as set forth in accordance with the Employee Matters Agreement, a number of shares of B&W common stock generally equal to the number of shares that would have been distributed in the Spin-off with respect to the number of shares of McDermott common stock received on his vested McDermott equity awards. His outstanding McDermott equity was converted pursuant to the Employee MattersSeparation Agreement.
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Estimated Value of Benefits to Be Received Upon Retirement
The following table shows the estimated value of payments and other benefits due the Continuing Named Executives assuming their retirement as As of December 31, 2010. This table does not reflect amounts that would be payable pursuant to benefits or awards that are already vested; for example, pension benefits. See the “Pension Benefits” table above for more information on pension benefits.2011, Mr. Nesser informedhad received $125,000 for the Company that he intends to retire by year-end 2011.provision of these consulting services.
| | | | | | | | | | | | | | | | | | | | | | | S.M. Johnson | | | P.L. Elders | | | G.L. Carlson | | | L.K. Hinrichs | | | J.T. Nesser | | Severance Payments | | | — | | | | — | | | | — | | | | — | | | | — | | EICP | | | — | | | | — | | | | — | | | | — | | | | — | | Deferred Compensation Plan | | | — | | | | — | | | | — | | | | — | | | | — | | Stock Options (unvested and accelerated) | | | — | | | | — | | | | — | | | | — | | | $ | 169,960 | | Restricted Stock (unvested and accelerated) | | | — | | | | — | | | | — | | | | — | | | $ | 86,950 | | Restricted Stock Units (unvested and accelerated) | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 256,910 | |
Deferred Compensation Plan. Under the terms of the Deferred Compensation Plan, participants are eligible for retirement upon attaining age 65. None of the Named Executives are currently eligible for retirement under the terms of the Deferred Compensation Plan.
Equity Awards. Generally, the terms of our restricted stock and option award grants define retirement as a voluntary termination of employment after attaining age 60 and completing 10 years of service with McDermott, and the terms of our restricted stock unit award grants define retirement as attaining age 60 and completing 10 years of service with McDermott. Under this definition, the only Named Executive eligible for retirement as of a December 31, 2010 is Mr. Nesser. With the exception of grants of restricted
stock under the retention agreements, the outstanding grants of restricted stock and the unvested grants of stock options provide for accelerated vesting of a percentage of the Named Executive’s outstanding shares if his or her retirement date is on or after the first anniversary of the grant date, and a greater percentage of accelerated vesting if his or her retirement date is on or after the second anniversary of the grant date. The outstanding grants of restricted stock units provide for accelerated vesting of a percentage of the Named Executive’s outstanding units if the date he or she becomes retirement eligible is on or after the first anniversary of the grant date, and a greater percentage of accelerated vesting if he or she becomes retirement eligible on or after the second anniversary of the grant date.
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Estimated Value of Benefits to Be Received Upon Termination Due to Death or Disability The following table shows the value of payments and other benefits due the Continuing Named Executives assuming their death or disability as of December 31, 2010. | | | | | | | | | | | | | | | | | | | | | | | S.M. Johnson | | P.L. Elders | | G.L. Carlson | | L.K. Hinrichs | | J.T. Nesser | Severance Payments | | | — | | | | — | | | | — | | | | — | | | | — | | EICP | | | — | | | | — | | | | — | | | | — | | | | — | | Deferred Compensation Plan | | $ | 76,627 | | | | — | | | | — | | | $ | 24,634 | | | | — | | Stock Options (unvested and accelerated) | | $ | 3,007,857 | | | $ | 441,337 | | | $ | 184,383 | | | $ | 1,163,174 | | | $ | 959,655 | | Restricted Stock (unvested and accelerated) | | $ | 2,346,494 | | | | — | | | | — | | | $ | 1,287,559 | | | $ | 1,611,399 | | Restricted Stock Units (unvested and accelerated) | | $ | 6,619,641 | | | $ | 799,896 | | | $ | 815,414 | | | $ | 2,699,900 | | | $ | 1,935,984 | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 12,050,619 | | | $ | 1,241,233 | | | $ | 999,797 | | | $ | 5,175,267 | | | $ | 4,507,038 | |
Deferred Compensation Plan. The amount reported represents 100% of Mr. Johnson’s and 27.05% of Ms. Hinrichs’ respective Deferred Compensation Plan balance as of December 31, 2010 that would become vested on death or disability. Each of Messrs. Elders and Carlson has a zero balance in his Deferred Compensation Plan account as of December 31, 2010. Mr. Nesser was 100% vested in his
Deferred Compensation Plan balance as of December 31, 2010.
Equity Awards. Under the terms of the awards outstanding for each Named Executive as of December 31, 2010, all unvested stock awards become vested and all unvested option awards become vested and exercisable on death or disability.
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2011.
| | | | | | | | | | | | | | | | | | | | | | | S.M. Johnson | | | P.L. Elders | | | G.L. Carlson | | | L.K. Hinrichs | | | J.T. McCormack | | Severance Payments | | | — | | | | — | | | | — | | | | — | | | | — | | EICP | | | — | | | | — | | | | — | | | | — | | | | — | | Deferred Compensation Plan(1) | | $ | 131,926 | | | $ | 32,597 | | | $ | 19,611 | | | $ | 21,020 | | | $ | 30,042 | | Stock Options(2) (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Restricted Stock Units(3) (unvested and accelerated) | | $ | 3,073,630 | | | $ | 408,881 | | | $ | 354,796 | | | $ | 953,454 | | | $ | 591,280 | | Performance Shares(4) (unvested) | | $ | 650,649 | | | $ | 162,636 | | | $ | 65,055 | | | $ | 146,373 | | | $ | 205,384 | | Total | | $ | 3,856,205 | | | $ | 604,114 | | | $ | 439,462 | | | $ | 1,120,847 | | | $ | 826,706 | |
(1) | The amounts reported represent 80% of Messrs. Johnson’s, Elders’, Carlson’s, and McCormack’s and 15.62% of Ms. Hinrichs’ respective Deferred Compensation Plan balance as of December 31, 2011 that would become vested on death or disability. |
(2) | Under the terms of the stock option awards outstanding for each of the Continuing Named Executives as of December 31, 2011, all unvested option awards would become vested and exercisable on death or disability. Due to the exercise price of the stock options outstanding and the closing price of our common stock on December 30, 2011, the aggregate value of stock options that would become vested and exercisable on death or disability for all Continuing Named Executives would be $0. |
(3) | Under the terms of the restricted stock unit awards outstanding for each of the Continuing Named Executives as of December 31, 2011, all unvested restricted stock unit awards would become vested and exercisable on death or disability. |
(4) | Under the terms of the performance share awards outstanding for each of the Continuing Named Executives as of December 31, 2011, 100% of the initial performance shares granted would vest on the third, fourth and fifth anniversary of the grant date on death or disability. The number of performance shares that would vest is the number of performance shares that would have vested based on actual performance had the Continuing Named Executive remained employed with McDermott until the third, fourth and fifth anniversaries of the grant date. Accordingly, each Continuing Named Executive may vest in a number of performance shares ranging from 0% — 200% of the initial performance shares granted, depending on McDermott’s total shareholder return relative to its peers during the applicable measurement periods. The amounts reported assume a total of 100% of the initial performance shares granted will vest during the applicable measurement periods, valued at the closing price of McDermott stock as reported on the NYSE on December 30, 2011, although the actual value of such performance shares that may vest on the third, fourth and fifth anniversary of the date of grant could be $0 for each Continuing Named Executive and up to $1,301,298 for Mr. Johnson, $325,273 for Mr. Elders, $130,109 for Mr. Carlson, $292,745 for Ms. Hinrichs, and $410,769 for Mr. McCormack, in each case representing a total of 200% of the initial performance shares granted. Additionally, the value of McDermott stock could be greater or less than the amount used to value the performance shares for this table. |
Estimated Value of Benefits to Be Received Upon Change in Control The following table shows the estimated value of payments and other benefits due the Continuing Named Executives assuming a change in control and termination as of December 31, 2010.
| | | | | | | | | | | | | | | | | | | | | | | S.M. Johnson | | P.L. Elders | | G.L. Carlson | | L.K. Hinrichs | | J.T. Nesser | Severance Payments | | $ | 5,024,758 | | | $ | 1,378,666 | | | $ | 992,000 | | | $ | 1,305,748 | | | $ | 1,738,126 | | EICP | | $ | 920,000 | | | $ | 329,000 | | | $ | 176,000 | | | $ | 232,265 | | | $ | 358,750 | | Deferred Compensation Plan | | $ | 76,627 | | | | — | | | | — | | | $ | 24,634 | | | | — | | Stock Options (unvested and accelerated) | | $ | 3,007,857 | | | $ | 441,337 | | | $ | 184,383 | | | $ | 1,163,174 | | | $ | 959,655 | | Restricted Stock (unvested and accelerated) | | $ | 2,346,494 | | | | — | | | | — | | | $ | 1,287,559 | | | $ | 1,611,399 | | Restricted Stock Units (unvested and accelerated) | | $ | 6,619,641 | | | $ | 799,896 | | | $ | 815,414 | | | $ | 2,699,900 | | | $ | 1,935,984 | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 17,995,377 | | | $ | 2,948,899 | | | $ | 2,167,797 | | | $ | 6,713,280 | | | $ | 6,603,914 | |
We havechange-in-control agreements with various officers, including each of our Continuing Named Executives. Generally, under these agreements, if a Continuing Named Executive is terminated within one year following a change in control either (1) by the company for any reason other than cause or death or disability;disability, or (2) by the Continuing Named Executive for good reason, the companyMcDermott is required to pay the Continuing Named Executive a cash severance payment based on the Continuing Named Executives’ salary and ana severance payment based on the Continuing Named Executives’ target EICP payment.percentage. In addition to these payments, the Continuing Named Executive would be entitled to various accrued benefits earned through the date of termination, such as earned but unpaid salary, earned but unused vacation and reimbursements. Under these agreements, a “change in control” generally occurs on the occurrence of any of the following: a person becomes the beneficial owner of 30% or more of the combined voting power of McDermott’s then outstanding voting stock unless such acquisition is made directly from McDermott in a transaction approved by a majority of McDermott’s incumbent directors; individuals who are incumbent directors cease for any reason to constitute a majority of McDermott’s board; | | | | • | a person becomes the beneficial owner of 30% or more of the combined voting power of McDermott’s then outstanding voting stock unless such acquisition is made directly from McDermott in a transaction approved by a majority of McDermott’s incumbent directors; | | | • | individuals who are incumbent directors cease for any reason to constitute a majority of McDermott’s board; | | | • | completion of a merger or consolidation of McDermott with another company or an acquisition by McDermott or its subsidiaries, unless immediately following such merger, consolidation or acquisition: (1) all or substantially all of the individuals or entities that were the beneficial owners of outstanding McDermott voting securities immediately before such merger, consolidation or |
| | | | | acquisition beneficially own at least 50% of the then outstanding shares of voting stock of the parent corporation resulting from the merger, consolidation or acquisition in the same relative proportions as their ownership immediately before such merger, consolidation or acquisition; (2) if such merger, consolidation or acquisition beneficially own at least 50% of the then outstanding shares of voting stock of the parent corporation resulting from the merger, consolidation or acquisition in the same relative proportions as their ownership immediately before such merger, consolidation or acquisition; (2) if such merger, consolidation or acquisition | | involves the issuance or payment by McDermott of consideration to another entity or its shareholders,stockholders, the total fair market value of such consideration plus the principal amount of the consolidated long-term debt of the entity or business being acquired, does not exceed 50% of the sum of the fair market value of the outstanding McDermott voting stock plus the principal amount of the Company’s consolidated long-term debt; (3) no person beneficially owns 30% or more of the then outstanding shares of the voting stock of the parent company resulting from such merger, consolidation or acquisition; and (4) a majority of the members of the board of directors of the parent corporation resulting from such merger, consolidation or acquisition were incumbent directors of McDermott immediately before such merger, consolidation or acquisition; | | | • | completion of the sale or disposition of 50% or more of the assets of McDermott and its subsidiaries on a consolidated basis, unless immediately following such sale or disposition: (1) the individuals and entities that were beneficial owners of outstanding McDermott voting stock immediately before such sale or disposition beneficially own at least 50% of the then outstanding shares of voting |
completion of the sale or disposition of 50% or more of the assets of McDermott and its subsidiaries on a consolidated basis, unless immediately following such sale or disposition: (1) the individuals and entities that were beneficial owners of outstanding McDermott voting stock immediately before such sale or disposition beneficially own at least 50% of the then outstanding shares of voting stock of McDermott and of the entity that acquires the largest portion of such assets, and (2) a majority of the members of the McDermott Board (if it continues to exist) and the board of directors of the entity that acquires the largest portion of such assets were incumbent directors of McDermott immediately before the completion of such sale or disposition; or any other set of circumstances is deemed by the Board in its sole discretion to constitute a change in control.
69The change-in-control agreements do not provide for excise tax gross-ups. They do, however, provide for the potential reduction in payments to the applicable officer in order to avoid excise taxes.
The following table shows the estimated value of payments and other benefits due the Continuing Named Executives assuming a change in control and termination as of December 31, 2011. | | | | | | | | | | | | | | | | | | | | | | | S.M. Johnson | | | P.L. Elders | | | G.L. Carlson | | | L.K. Hinrichs | | | J.T. McCormack | | Salary-Based Severance Payment(1) | | $ | 5,658,882 | | | $ | 1,643,822 | | | $ | 1,070,466 | | | $ | 1,402,763 | | | $ | 1,549,098 | | EICP-Based Severance Payment(2) | | $ | 950,000 | | | $ | 339,500 | | | $ | 201,600 | | | $ | 264,000 | | | $ | 350,000 | | Deferred Compensation Plan(3) | | $ | 131,926 | | | $ | 32,597 | | | $ | 19,611 | | | $ | 21,020 | | | $ | 30,042 | | Stock Options(4) (unvested and accelerated) | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Restricted Stock Units(4) (unvested and accelerated) | | $ | 3,073,630 | | | $ | 408,881 | | | $ | 354,796 | | | $ | 953,454 | | | $ | 591,280 | | Performance Shares(4) (unvested and accelerated) | | $ | 650,649 | | | $ | 162,636 | | | $ | 65,055 | | | $ | 146,373 | | | $ | 205,384 | | Total | | $ | 10,465,087 | | | $ | 2,587,436 | | | $ | 1,711,528 | | | $ | 2,787,610 | | | $ | 2,725,804 | |
(1) | | | | | stock of McDermott and of the entity that acquires the largest portion of such assets, and (2) a majority of the members of the McDermott Board (if it continues to exist) and the board of directors of the entity that acquires the largest portion of such assets were incumbent directors of McDermott immediately before the completion of such sale or disposition; or |
| | | | • | any other set of circumstances is deemed by the Board in its sole discretion to constitute a change in control. |
Severance Payment.The salary-based severance payment made to each Continuing Named Executive, with the exception of Mr. Johnson, in connection with a change in control would be a cash payment equal to 200% of the sum of his or her annual base salary prior to termination and his or her EICP target award applicable to the year in which the termination occurs. The severance payment made to Mr. Johnson in connection with a change in control would be a cash payment equal to 299% of the sum of his annual base salary prior to termination and his EICP target award applicable to the year in which the termination occurs. The severance payment made to Mr. Johnson in connection with a change in control would be a cash payment equal to 299% of the sum of his annual base salary prior to termination and his EICP target award applicable to the year in which the termination occurs.
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For a hypothetical termination as of December 31, 2010,2011, the salary-based severance payment under a change in control would have been calculated based on the following base salary and target EICP awards: | | | | • | Mr. Johnson: $920,000 base salary and $760,521 target EICP; | | • | Mr. Elders: $470,000 base salary and $219,333 target EICP; | | • | Mr. Carlson: $320,000 base salary and $176,000 target EICP; | | • | Ms. Hinrichs: $422,300 base salary and $230,574 target EICP; and | | • | Mr. Nesser: $512,500 base salary and $356,563 target EICP. |
awards. See “Grants of Plan-Based Awards — Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” above for more information on the calculation of target EICP awards. | | | | | | | | | | | | | Continuing Named Executive | | Annual Base Salary | | | Target EICP Award | | S. M. Johnson | | $ | 950,000 | | | $ | 942,603 | | P. L. Elders | | $ | 485,000 | | | $ | 336,911 | | G. L. Carlson | | $ | 336,000 | | | $ | 199,233 | | L. K. Hinrichs | | $ | 440,000 | | | $ | 261,381 | | J. T. McCormack | | $ | 500,000 | | | $ | 274,549 | | | | | |
(2) | Each Continuing Named Executive could receive up to two EICP-based severance payments in connection with a change in control depending on the timing of the termination relative to the payment of an EICP award, as follows: |
If an EICP Payment. The EICP is an annual cash-based performance incentive plan under which payments are made inaward for the year followingprior to termination is paid to other EICP participants after the date of the Continuing Named Executive’s termination, the Continuing Named Executive would be entitled to a cash payment equal to the product of the Continuing Named Executive’s target EICP percentage (or, if greater, the actual amount of the bonus determined under the EICP for the year prior to termination) and the Continuing Named Executive’s annual base salary for the applicable period. No such payment would have been due a Continuing Named Executive on a December 31, 2011 termination, because the 2010 EICP awards had already been paid prior to the Continuing Named Executive’s termination date. The Continuing Named Executive would be entitled to a prorated EICP payment based upon the Continuing Named Executive’s target EICP percentage for the year in which performance is measured. For example, 2010the termination occurs and the number of days in which the Continuing Named Executive was employed with us during that year. Based on a hypothetical December 31, 2011 termination, each Continuing Named Executive would have been entitled to an EICP awards are paid inpayment equal to 100% of his or her 2011 for performance achieved during 2010. As a result, dependingtarget EICP percentage times annual base salary, calculated based on the timingfollowing base salary and target EICP percentage: | | | | | | | | | | | Continuing Named Executive | | Annual Base Salary | | | Target EICP Percentage | | S. M. Johnson | | $ | 950,000 | | | | 100 | % | P. L. Elders | | $ | 485,000 | | | | 70 | % | G. L. Carlson | | $ | 336,000 | | | | 60 | % | L. K. Hinrichs | | $ | 440,000 | | | | 60 | % | J. T. McCormack | | $ | 500,000 | | | | 70 | % | | | | |
(3) | The amounts reported represent 80% of Messrs. Johnson’s, Elders’, Carlson’s and McCormack’s and 15.62% of Ms. Hinrichs’ respective Deferred Compensation Plan balance as of December 31, 2011 that would become vested in connection with a termination of employment following a change in control. Under the Deferred Compensation Plan, a “change in control” generally occurs if: |
a person (other than a McDermott employee benefit plan or a corporation owned by McDermott stockholders in substantially the same proportion as the ownership of McDermott voting shares) is or becomes the beneficial owner of 30% or more of the termination relativecombined voting power of McDermott’s then outstanding voting stock; during any period of two consecutive years, individuals who at the beginning of such period constitute McDermott’s Board of Directors, and any new director whose election or nomination by McDermott’s Board was approved by at least two-thirds of the directors of McDermott’s Board then still in office who either were directors at the beginning of the period or whose election or nomination was previously approved, cease to constitute a majority of McDermott’s Board; a merger or consolidation of McDermott, with any other corporation or entity has been completed, other than a merger or consolidation which results in the outstanding McDermott voting securities immediately prior to such merger or consolidation continuing to represent at least 50% of the combined voting power of the voting securities of McDermott or the surviving entity outstanding immediately after such merger or consolidation; McDermott’s stockholders approve (1) a plan of complete liquidation of McDermott; or (2) an agreement for the sale or disposition by McDermott of all or substantially all of McDermott’s assets; or within one year following the completion of a merger or consolidation transaction involving McDermott, (1) individuals who, at the time of execution and delivery of definitive agreements completing such transaction constituted the Board, cease for any reason (excluding death, disability or voluntary resignation) to constitute a majority of the Board; or (2) either individual, who at the first execution and delivery of definitive agreements completing the transaction, served as Chief Executive Officer or Chief Financial Officer does not, for any reason (excluding death, disability or voluntary resignation), serve as the Chief Executive Officer or Chief Financial Officer, as applicable, of McDermott, or if McDermott does not continue as a registrant with a class of equity securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, as the Chief Executive Officer or Chief Financial Officer, as applicable, of a corporation or other entity that is (A) a registrant with a class of equity securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, and (B) the surviving entity in such transaction or a parent entity of the surviving entity or McDermott following the completion of such transaction; provided, however, that a Change in Control would not be deemed to have occurred pursuant to this clause in the case of a merger or consolidation which results in the voting securities of McDermott outstanding immediately prior to the paymentcompletion of an EICP award, a Named Executive could receive upthe transaction continuing to two represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 55% of the combined voting power of the voting securities of the McDermott or the surviving entity outstanding immediately after such merger or consolidation.EICP payments in connection with a change in control, as follows:
(4) | | | | • | If an EICP award forUnder the year prior to termination is paid to other EICP participants after the dateterms of the stock option and restricted stock unit awards outstanding, all unvested stock options would become vested and exercisable and all unvested restricted stock units would become vested on a change in control, regardless of whether there is a subsequent termination of employment. Due to the exercise price of the stock options outstanding for our Continuing Named Executive’sExecutives and the closing price of our common stock on December 30, 2011, the aggregate value of stock options that would become vested and exercisable on a change in control, regardless of whether there is a subsequent termination the Named Executiveof employment, would be entitled to a cash payment equal to$0. Under the productterms of the Named Executive’s EICP targetperformance share awards outstanding, the greater of (1) 100% of the initial performance shares granted, or (2) the vested percentage of initial performance shares determined in accordance with the grant agreement would become vested on a change in control, regardless of whether there is a subsequent termination of employment. Under our 2001 D&O Plan and 2009 LTIP, a “change in control” generally occurs under the same circumstances described above with respect to our Deferred Compensation Plan, except that the 2001 D&O Plan and the Named Executive’s annual base salary for2009 LTIP do not include, as a change in control event, the applicable period. No such payment would have been due a Named Executive on a December 31, 2010 termination, becauseevent described in the 2009 EICP awards had already been paid prior to the Named Executive’s termination date. | | | • | The Named Executive would be entitled to a prorated EICP payment based upon the Named Executive’s target award for the yearlast bullet in which the termination occurs and the number of days in which the executive was employed with us during that year. Based on a hypothetical December 31, 2010 termination, each Continuing Named Executive would have been entitled to an EICP payment equal to 100% of his or her 2010 target EICP. See the schedule of target EICP amounts for each Named Executive under “Severance Payment”note (3) above. |
Deferred Compensation Plan. The amount reported represents 100% of Mr. Johnson’s and 27.05% of Ms. Hinrichs’ respective Deferred Compensation Plan balance as of December 31, 2010 that would become vested in connection with a termination of employment following a change in control. Each of Messrs. Elders and Carlson has a zero balance in his Deferred Compensation Plan account as of December 31, 2010. Mr. Nesser was 100% vested in his Deferred Compensation Plan balance as of December 31, 2010. Under the Deferred Compensation Plan, a “change in control” generally occurs if:
| | | | • | a person (other than a McDermott employee benefit plan or a corporation owned by McDermott shareholders in substantially the same proportion as the ownership of McDermott voting shares) is or becomes the beneficial owner of 30% or more of the combined voting power of McDermott’s then outstanding voting stock; | | | • | during any period of two consecutive years, individuals who at the beginning of such |
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ADVISORY VOTETO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION (ITEM 2) | | | | | period constitute McDermott’s Board of Directors, and any new director whose election or nomination by McDermott’s Board was approved by at least two-thirds of the directors of McDermott’s Board then still in office who either were directors at the beginning of the period or whose election or nomination was previously approved, cease to constitute a majority of McDermott’s Board; |
| | | | • | a merger or consolidation of McDermott, with any other corporation or entity has been completed, other than a merger or consolidation which results in the outstanding McDermott voting securities immediately prior to such merger or consolidation continuing to represent at least 50% of the combined voting power of the voting securities of McDermott or the surviving entity outstanding immediately after such merger or consolidation; | | | • | McDermott’s stockholders approve (1) a plan of complete liquidation of McDermott; or (2) an agreement for the sale or disposition by McDermott of all or substantially all of McDermott’s assets; | | | • | within one year following the completion of a merger or consolidation transaction involving McDermott, (1) individuals who, at the time of execution and delivery of definitive agreements completing such transaction constituted the Board, cease for any reason (excluding death, disability or voluntary resignation) to constitute a majority of the Board; or (2) either individual, who at the first execution and delivery of definitive agreements completing the transaction, served as Chief Executive Officer or Chief Financial Officer does not, for any reason (excluding death, disability or voluntary resignation), serve as the Chief Executive Officer or Chief Financial Officer, as applicable, of McDermott, or if McDermott does not continue as a registrant with a class of equity securities registered pursuant to Section 12(b) of the Securities Exchange Act |
| | | | | of 1934, as amended, as the Chief Executive officer or Chief Financial Officer, as applicable, of a corporation or other entity that is (A) a registrant with a class of equity securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, and (B) the surviving entity in such transaction or a parent entity of the surviving entity or McDermott following the completion of such transaction; provided, however, that a Change in Control shall not be deemed to have occurred pursuant to this clause in the case of a merger or consolidation which results in the voting securities of the McDermott outstanding immediately prior to the completion of the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 55% of the combined voting power of the voting securities of the McDermott or the surviving entity outstanding immediately after such merger or consolidation. |
TaxGross-Up. Thechange-in-control agreements do not provide for excise taxgross-ups.
Equity Awards. Under the terms of the awards outstanding, all unvested restricted stock and restricted stock units would become vested on a change in control, regardless of whether there is a subsequent termination of employment. All unvested stock options would become vested and exercisable on a change in control, regardless of whether there is a subsequent termination of employment. Under our 2001 D&O Plan and 2009 LTIP, a “change in control” generally occurs under the same circumstances described above with respect to our Deferred Compensation Plan, except that the 2001 D&O Plan and the 2009 LTIP do not include, as a change in control event, the event described in the last bullet above under “Deferred Compensation Plan.”
Excise Tax Cutback Provision. Thechange-in-control agreements provide for the potential reduction in payments to the applicable officer in order to avoid excise taxes.
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Advisory Vote on Executive Compensation
(Item 2)
As required by Section 14A(a)(1) of the Exchange Act, we are providing our stockholders with an advisory vote onto approve named executive officer compensation. The Compensation Committee has overall responsibility for our compensation plans, policies and programs with respect to the Named Executives. Additional information regarding the Compensation Committee and its role is described under “Compensation Discussion and Analysis” and the related tables and narrative disclosures. Our compensation programs are based on our belief that our ability to attract, retain and motivate qualified employees to develop, expand and execute sound business opportunities is essential to the success of our company. To that end, the Compensation Committee, with the assistance of its compensation consultant, designs and administers compensation programs with the participation of our management. These programs generally seek to provide compensation that: incentivizes and rewards short- and long-term performance, continuity of service and individual contributions; and promotes retention of well-qualified executives, while aligning the interests of our executives with those of our stockholders. | | | | • | incentivizes and rewards short- and long-term performance, continuity of service and individual contributions; and | | | • | promotes retention of well-qualified executives, while aligning the interests of our executives with those of our stockholders. |
We believe our compensation programs motivate and retain the Continuing Named Executives, while allowing for appropriate levels of business risk through some of the following features: | | | | • | | Reasonable and Competitive Compensation Programs — Using the elements of total direct compensation, the Compensation Committee seeks to provide compensation opportunities for the Named Executivesemployees targeted within approximately 15% ofat or near the median compensation of comparable positions in our market. As a result, we believe the total direct compensation of the Named Executivesexecutive officer employees provides ana reasonable and appropriate mix of cash and equity, annual and longer-term incentives, and performance metrics. | |
| • | | Emphasize Long-Term Incentive Over Annual Incentive Compensation — Long-term incentive compensation typically makes up a larger percentage of a Named Executive’san executive officer employee’s total direct compensation thancompen- |
| | | | | sation than annual incentive compensation. Incentive compensation helps drive performance and align the interests of the Named Executivesthose employees with those of stockholders. Furthermore,In addition, tying a significant portion of a Named Executive’san employee’s total direct compensation to long-term incentives (which typically vest over a period of three or more years) helps to promote longer-term perspectives regarding companyour company’s performance. | |
| • | | Clawback Policy — The Compensation Committee has adopted a policy under which McDermott shall seek to recover any incentive-based award granted to any executive officer as required by the provisions of the Dodd-Frank Wall-StreetWall Street Reform and Consumer Protection Act or any other “clawback” provision required by law or the listing standards of the New York Stock Exchange. | |
| • | | Long-Term Incentive Compensation Subject to Forfeiture — The Compensation Committee may terminate any outstanding stock award if the recipient, while employed by McDermott or performing services on behalf of McDermott under any consulting agreement: (1) is convicted of a misdemeanor involving fraud, dishonesty or moral turpitude or a felony,felony; or (2) engages in conduct that adversely affects or, in the sole judgment of the Compensation Committee, may reasonably be expected to adversely affect, our business reputation or economic interests. | |
| • | | Linear and Capped Incentive Compensation Payouts — The Compensation Committee establishes financial performance goals which are used to plot a linear payout formula for annual incentive compensation, eliminating payout “cliffs” between the established performance goals. The maximum payout for the annual incentive compensation is capped at 200% percent of target. | |
| • | | Use of Multiple and Appropriate Performance Metrics — Utilizing diversified performance measures helps prevent compensation opportunities from being overly weighted toward the performance |
| | result of a single measure. In general, our incentive programs are historically based on a mix of financial and individual goals. In recent years our primary financial |
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| | | | | performance metric has been operating income. OperatingCompared to other financial metrics, operating income is a measure of the profitability of our business. Use of this measurebusiness which helps drive accountability at our operating segments thereby reducing risks related to incentive compensation by putting the focus on quality of revenues not quantity. Additionally, commencing in 2011, the Compensation Committee utilized total shareholder return and return on invested capital as additional performance measures. |
| | | | • | | Stock Ownership Guidelines — The Named ExecutivesOur executive officers and directors are subject to share ownership guidelines which also helps promote longer-term perspectives and align the interests of the Named Executivesour executive officers and directors with those of our stockholders. In 2010, we increased the stock ownership requirements for both our Named Executivesexecutive officers and nonemployee directors to further promoteemphasize this alignment of interests. |
As discussedReflecting these compensation objectives, compensation arrangements in more detail under “Compensation Discussion and Analysis,” the compensation payments we made to several2011 for our Continuing Named Executives resulted in: target total direct compensation within approximately 15% of the median compensation for officers in 2010 includedcomparable positions in our market, with the exception of Mr. Johnson, whose target total direct compensation was set slightly above market due to his demonstrated leadership following the Spin-off; performance-based compensation accounting for over 60% of target total direct compensation, on average, as compared to 46% in 2010; and performance-based compensation, accounting for 75% of target long-term incentive compensation, as compared to 50% in 2010. McDermott’s financial performance in 2011 included: Consolidated revenue of $3.4 billion, as compared to $2.4 billion for 2010; Consolidated operating income of $250.7 million, as compared to $314.9 million for 2010; and Operationally, in 2011 McDermott also: Achieved backlog of $3.88 billion as of December 31, 2011; Achieved substantial payments, primarilygrowth in our Asia Pacific segment, as reflected by increases of over 115% in both revenue and operating income in the segment as compared to 2010; Amended/refinanced our credit facility to extend the scheduled maturity date, provide additional liquidity, obtain improved covenants and reduce fees; and Established a joint venture entity which we co-own with two Brazilian companies, which joint venture plans to bid to provide engineering, procurement and construction (“EPC”) services to the oil and gas industry offshore Brazil. Under McDermott’s 2011 compensation program, None of the Continuing Named Executives were awarded bonuses under the 2011 EICP. Based on McDermott’s 2011 financial results, the Continuing Named Executives were eligible to earn approximately 18% of their respective 2011 target EICP compensation, subject to the assessment of their respective individual goals. Upon the recommendation of Mr. Johnson based on the 2011 financial results, the Compensation Committee, in the exercise of its discretion, determined that, although the Continuing Named Executives and other participants in the EICP were eligible to earn approximately 18% of their target EICP compensation, 0% would be awarded in light of the financial results. Instead, as recommended by Mr. Johnson, the Compensation Committee determined that the bonus amounts that otherwise would have been payable should effectively be returned to the shareholders in the form of restricted stock grants, made pursuant to retention agreements we entered intoadditional operating income. In making this recommendation and decision, respectively, Mr. Johnson and the Compensation Committee considered the increase in contemplation of the Spin-off. We entered into those retention agreements to assist in our efforts to retain the Named Executives through the spin-off process and to motivate them to contribute towards the successful completion of the Spin-off, which was completed on July 30, 2010. Upon completion of the Spin-off, one of the Named Executives retired and became the Chairman of the Board of B&W, and two of the Named Executives became the CEO and CFO, respectively, of B&W.2011 Reflecting our Compensation Committee’s compensation philosophy, compensation arrangements in 2010 for our Named Executives (excluding retention payments made in connection with the Spin-off and the sign-on equity grant provided to Mr. Carlson, as discussed in further detail below) resulted in:
| | | | • | target total direct compensation within approximately 15% of the median |
| | | | | revenues of approximately 43%, together with the decrease in 2011 operating income by approximately 20% from 2010 levels, the continued performance issues in the Atlantic segment and issues relating to several projects in other segments. |
In making its decision not to award bonuses for 2011 under the EICP, the Compensation Committee noted that Mr. Johnson had achieved the individual performance component, based on the Governance Committee’s assessment of Mr. Johnson’s individual performance against stated goals, and each of Messrs. Elders, Carlson and McCormack and Ms. Hinrichs had achieved their respective individual performance components based on Mr. Johnson’s assessment of their respective individual performance achievements against stated goals, with the exception of the financial performance goal and a safety goal for Mr. McCormack. As of December 31, 2011, (1) the estimated payout as a percent of target for the performance shares granted in 2011 was 0%, and (2) the share price of our common stock had not exceeded the strike price of the stock options granted in 2011, although as noted below, the estimated payout and share price may change during the term of the performance shares and stock options. The following table summarizes the 2011 performance-based compensation opportunities for each of our Continuing Named Executives as compared to the realizable value of such opportunities as of December 31, 2011: 2011 Performance-Based Compensation Opportunity vs. Realizable Value as of December 31, 2011 | | | | | | | | | | | | | | | | | | | EICP(1) | | | Performance Shares(2)(3) | | | Stock Options(2)(3) | | | Total | | S. M. Johnson | | | | | | | | | | | | | | | | | 2011 Opportunity | | $ | 942,603 | | | $ | 2,382,132 | | | $ | 944,089 | | | $ | 4,268,824 | | 2011 Realizable Value | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | P. L. Elders | | | | | | | | | | | | | | | | | 2011 Opportunity | | $ | 336,911 | | | $ | 595,438 | | | $ | 236,000 | | | $ | 1,168,349 | | 2011 Realizable Value | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | G. L. Carlson | | | | | | | | | | | | | | | | | 2011 Opportunity | | $ | 199,233 | | | $ | 238,175 | | | $ | 94,406 | | | $ | 531,814 | | 2011 Realizable Value | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | L. K. Hinrichs | | | | | | | | | | | | | | | | | 2011 Opportunity | | $ | 261,381 | | | $ | 535,894 | | | $ | 212,421 | | | $ | 1,009,696 | | 2011 Realizable Value | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | J. T. McCormack | | | | | | | | | | | | | | | | | 2011 Opportunity | | $ | 274,549 | | | $ | 634,020 | | | $ | 253,847 | | | $ | 1,162,416 | | 2011 Realizable Value | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
(1) | 2011 Opportunity Values for officersEICP are disclosed at the Continuing Named Executives’ target EICP award. The 2011 Opportunity Value provided for Mr. McCormack reflects his target EICP award following his promotion to EVP, COO. |
(2) | 2011 Opportunity Values for performance shares and stock options are disclosed at the grant date fair value of the respective awards. |
(3) | The 2011 Realizable Values shown above are measured as of December 31, 2011. However, the amount of the performance shares granted in comparable positions2011 that ultimately vest, if any, will be determined by reference to our total shareholder return over three-, four- and five-year periods. See “Long-Term Incentive Compensation — Analysis of 2011 Equity Grants.” The vesting of any of these performance shares would impact the future Realizable Value of these performance share awards. In addition, an increase in our market, withstock price compared to our stock price at December 31, 2011 may impact the exception of Messrs. Elders and Nesser; | | | • | performance-based compensation accounting for over 46% of target total direct compensation, on average; and | | | • | performance-based compensation accounting for 50% of target long-term incentive compensation. |
The performance-based compensation that was paid out in 2010 reflected the Compensation Committee’s commitment to pay for performance.
Highlights of McDermott’s performance in 2010 include:
| | | | • | Completionfuture Realizable Value of the Spin-off on July 30, 2010; | | | • | Consolidated operating income of $314.9 million, which was the primary metric for annual incentive compensation for our Named Executives; | | | • | Stock price appreciation from December 31, 2009 to December 31, 2010 of approximately 65%, excluding the value attributable to the distribution of B&W common stock option awards granted in the Spin-off.2011. |
For the reasons discussed above, the Board of Directors unanimously recommends that stockholders vote FOR the following resolution: “RESOLVED, that the compensation paid to the Named Executives, as disclosed pursuant to Item 402 ofRegulation S-K, including the Compensation Discussion and Analysis, compensation tables and accompanying narrative discussion in McDermott’s proxy statement relating to its 20112012 annual meeting of stockholders is hereby APPROVED.” While the resolution is non-binding, the Board of Directors plans to consider the outcome of the vote when making future compensation decisions.
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Advisory Vote on the Frequency of
Advisory Votes on Executive Compensation
(Item 3)
As required by Section 14A(a)(2) of the Exchange Act, we are providing our stockholders with an advisory vote to determine whether the stockholder vote on executive compensation should occur every one, two or three years.
We believe having an advisory vote on executive compensation every year, rather than every two or three years, should help our stockholders evaluate our executive compensation and communicate their approval or disapproval to us on a prompt basis as is practicable.
For the reasons discussed above, the Board of Directors recommends that stockholders vote to hold the advisory vote on executive compensation every
year. Stockholders are not voting, however, to approve or disapprove of this particular recommendation. The proxy card provides for four choices and stockholders are entitled to vote on whether the advisory vote on executive compensation should be held every one, two or three years, or to abstain from voting.
While the result of this advisory vote on the frequency of the vote on executive compensation is non-binding, the Board of Directors plans to consider the outcome of the vote when deciding how frequently to conduct the vote on executive compensation.
The Board of Directors unanimously recommends that you vote to hold the advisory vote on executive compensation EVERY YEAR.
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AUDIT COMMITTEE REPORT Approval of the Company’s
Executive Incentive Compensation Plan
(Item 4)
Since 2001, we have utilized our Executive Incentive Compensation Plan, effective February 1, 2001. Effective February 28, 2006, our Board adopted the amended and restated Executive Incentive Compensation Plan (the “EICP”) to provide annual incentive compensation to various employees, including our executive officers. Our Board approved the most recent version of the EICP, which is described below, on February 28, 2011. Stockholder approval of the EICP is necessary at least once every five years in order for awards paid under the EICP to be considered “performance-based compensation” under Internal Revenue Code Section 162(m).
Summary of the EICP
The following summary of the EICP is qualified in its entirety by reference to the full text of the EICP, which is attached as Appendix A to this Proxy Statement.
The EICP is administered by the Compensation Committee of our Board of Directors, composed entirely of non-management, independent directors appointed by our Board of Directors. All of our employees are eligible to participate in the EICP. Our Chief Executive Officer automatically participates in the EICP, and the participants are selected by the Compensation Committee, in its sole discretion. During 2010, 20 employees participated in the EICP, not including those employees who participated in the EICP prior to the Spin-off.
Under the EICP, the Compensation Committee establishes, for each plan year, performance goals and award opportunities. The award opportunities correspond to various levels of achievement of the preestablished performance goals based on combinations of one or more corporate, group, divisional or individual goals. The award opportunity is typically based on the achievement of preestablished targeted performance goals, including company, group or division performance. The potential final award varies in relation to the various levels of achievement of the preestablished performance goals with a minimum or “threshold” performance achievement required before there is any payout and a limitation on the maximum payout. Performance goals and measures used to determine
award opportunities are based on one or more of the following criteria:
| | | | • | revenue and income measures (which include revenue, gross margin, income from operations, net income, net sales and earnings per share); | | | • | expense measures (which include costs of goods sold, sales, general and administrative expenses and overhead costs); | | | • | operating measures (which include volume, margin, breakage and shrinkage, productivity and market share); | | | • | cash flow measures (which include net cash flow from operating activities and working capital); | | | • | liquidity measures (which include earnings before or after the effect of certain items such as interest, taxes, depreciation and amortization, cash flow and free cash flow); | | | • | leverage measures (which include equity ratio and net debt); | | | • | market measures (including those relating to market price, stock price, total shareholder return and market capitalization measures); | | | • | return measures (which include return on equity, return on assets, cash flow return on assets, cash flow return on capital, cash flow return on equity, return on capital and return on invested capital); | | | • | corporate value measures (which include compliance, safety, environmental and personnel matters); | | | • | other measures such as those relating to acquisitions, dispositions or customer satisfaction; and | | | • | other measures consistent with deductibility under Section 162(m). |
Once established, performance goals normally are not changed during the plan year. However, the Compensation Committee may adjust performance goals to account for changes in accounting principles and the occurrence of external changes or other
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unanticipated business conditions that may materially affect the fairness of the goals or unduly influence our ability to meet them, to the extent permitted under Section 162(m). The Compensation Committee has the authority to reduce or eliminate final awards, based on any criteria it deems appropriate. In addition, the Compensation Committee may use such other performance goals and measures, including subjective measures, and make adjustments to performance goals and measures during the plan year, if the Compensation Committee determines that compliance with Section 162(m) is not desired.
Following the end of each plan year, awards are computed for each plan participant. The EICP places a $3 million limit on payouts to any one plan participant in respect of any one-year period. The Board of Directors may amend the EICP from time to time.
EICP Benefits
Future benefits that will be received under the EICP by particular individuals or groups cannot be determined at this time. For the year ended December 31, 2010, approximately $6,749,444 in cash bonuses were paid to our employees under the EICP, of which approximately $4,766,960 was paid to the Company’s executive officers as a group. The cash bonus paid to the Named Executives is described above under “Compensation Discussion and Analysis — Annual Incentive Compensation.” Performance goals and award opportunities were established for certain of our officers, including the Continuing Named Executives, in February 2011. The award
opportunities for certain of these officers, including the Continuing Named Executives, are subject to stockholder approval of the EICP.
Recommendation and Vote Required
Our Board of Directors unanimously recommends a vote “FOR” approval of the EICP. We believe strongly that the EICP has served as an essential component of compensation, allowing us to provide reasonable incentives to and reward the performance results achieved by executive officers and other key employees in a manner most favorable to our stockholders. Approval of this proposal requires the affirmative vote of a majority of the outstanding shares of common stock present in person or represented by proxy and entitled to vote and actually voting on this proposal at the Annual Meeting. Because abstentions are not actual votes with respect to this proposal, they will have no effect on the outcome of the vote on this proposal. In general, brokers do not have discretionary authority on proposals relating to executive compensation. Therefore, absent instructions from you, your broker may not vote your shares on this proposal. Broker non-votes will have no effect on the vote.
Stockholder approval of the EICP is only necessary for awards under the EICP to be considered “performance-based compensation” under Internal Revenue Code Section 162(m). In the event this proposal is not approved by stockholders, the Board of Directors may continue to make awards under the EICP.
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Audit Committee Report
The Board of Directors appoints an Audit Committee to review McDermott International, Inc.’s financial matters. Each member of the Audit Committee meets the independence requirements established by the New York Stock Exchange. The Audit Committee is responsible for the appointment, compensation, retention and oversight of McDermott’s independent registered public accounting firm. We are also responsible for recommending to the Board that McDermott’s audited financial statements be included in its Annual Report onForm 10-K for the fiscal year. In making our recommendation that McDermott’s financial statements be included in its Annual Report onForm 10-K for the year ended December 31, 2010,2011, we have taken the following steps: We discussed with Deloitte & Touche LLP (“D&T”), McDermott’s independent registered public accounting firm for the year ended December 31, 2011, those matters required to be discussed by Statements on Auditing Standards No. 61, as amended, issued by the Auditing Standards Board of the American Institute of Certified Public Accountants, including information regarding the scope and results of the audit. These communications and discussions are intended to assist us in overseeing the financial reporting and disclosure process. We conducted periodic executive sessions with D&T, with no members of McDermott management present during those discussions. D&T did not identify any material audit issues, questions or discrepancies, other than those previously discussed with management, which were resolved to the satisfaction of all parties. | | | | • | We discussed with Deloitte & Touche LLP (“D&T”), McDermott’s independent registered public accounting firm for the year ended December 31, 2010, those matters required to be discussed by Statements on Auditing Standards No. 114, each as amended, issued by the Auditing Standards Board of the American Institute of Certified Public Accountants, including information regarding the scope and results of the audit. These communications and discussions are intended to assist us in overseeing the financial reporting and disclosure process. | | | • | We conducted periodic executive sessions with D&T, with no members of McDermott management present during those discussions. D&T did not identify any material audit issues, questions or discrepancies, other than those previously discussed with management, which were resolved to the satisfaction of all parties. | | | • | We conducted periodic executive sessions with McDermott’s internal audit department and regularly received reports regarding McDermott’s internal control procedures. | | | • | We reviewed, and discussed with McDermott’s management and D&T, management’s report and D&T’s report and attestation on internal control over financial reporting, each of which was prepared in accordance with Section 404 of the Sarbanes-Oxley Act. | | | • | We received and reviewed the written disclosures and the letter from D&T required by applicable requirements of the Public Company Accounting Oversight Board regarding D&T’s communications with the audit committee concerning D&T’s independence from McDermott, and have discussed with D&T their independence from McDermott. We also considered whether the provision of nonaudit services to McDermott is compatible with D&T’s independence. | | | • | We determined that there were no former D&T employees, who previously participated in the McDermott audit, engaged in a financial reporting oversight role at McDermott. | | | • | We reviewed, and discussed with McDermott’s management and D&T, McDermott’s audited consolidated balance sheet at December 31, 2010, and consolidated statements of income, comprehensive income, cash flows and shareholders’ equity for the year ended December 31, 2010. |
We conducted periodic executive sessions with McDermott’s internal audit department and regularly received reports regarding McDermott’s internal control procedures. We reviewed, and discussed with McDermott’s management and D&T, management’s report and D&T’s report and attestation on internal control over financial reporting, each of which was prepared in accordance with Section 404 of the Sarbanes-Oxley Act. We received and reviewed the written disclosures and the letter from D&T required by applicable requirements of the Public Company Accounting Oversight Board regarding D&T’s communications with the audit committee concerning D&T’s independence from McDermott, and have discussed with D&T its independence from McDermott. We also considered whether the provision of non-audit services to McDermott is compatible with D&T’s independence. We determined that there were no former D&T employees, who previously participated in the McDermott audit, engaged in a financial reporting oversight role at McDermott. We reviewed, and discussed with McDermott’s management and D&T, McDermott’s audited consolidated balance sheet at December 31, 2011, and consolidated statements of income, comprehensive income, cash flows and stockholders’ equity for the year ended December 31, 2011. Based on the reviews and actions described above, we recommended to the Board that McDermott’s audited financial statements be included in its Annual Report onForm 10-K for the year ended December 31, 20102011 for filing with the Securities and Exchange Commission.
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RATIFICATIONOF APPOINTMENTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMFOR YEAR ENDING DECEMBER 31, 2012 (ITEM 3) Ratification of Appointment of Independent Registered Public Accounting Firm for Year Ending December 31, 2011
(Item 5)
Our Board of Directors has ratified the decision of the Audit Committee to appoint Deloitte & Touche LLP to serve as the independent registered public accounting firm to audit our financial statements for the year ending December 31, 2011.2012. Although we are not required to seek stockholder approval of this appointment, it has been our practice to do so. No determination has been made as to what action the Audit Committee and the Board of Directors would take if our stockholders fail to ratify the appointment. Even if the appointment is ratified, the Audit Committee retains discretion to appoint a new independent registered public accounting firm at any time if the Audit Committee concludes such a change would be in the best interests of McDermott. Representatives of Deloitte & Touche LLP are expected toD&T will be present at the Annual Meeting and will have an opportunity to make a statement if they desire to do so and to respond to appropriate questions. For the years ended December 31, 20102011 and 2009,2010, McDermott paid Deloitte & Touche fees, including expenses and taxes, totaling $5,888,537$3,621,356 and $8,649,858,$5,888,537, which can be categorized as follows: | | | | | | | | | | | 2010 | | 2009 | Audit | | | | | | | | | The Audit fees for the years ended December 31, 2010 and 2009 were for professional services rendered for the audits of the consolidated financial statements of McDermott, the audit of McDermott’s internal control over financial reporting, statutory and subsidiary audits, reviews of the quarterly consolidated financial statements of McDermott and assistance with review of documents filed with the SEC | | $ | 3,992,500 | (1) | | $ | 7,195,103 | | Audit-Related | | | | | | | | | The Audit-Related fees for the years ended December 31, 2010 and 2009 were for assurance and related services, employee benefit plan audits and advisory services related to Sarbanes-Oxley Section 404 compliance | | $ | 518,205 | (2) | | $ | 271,405 | | Tax | | | | | | | | | The Tax fees for the years ended December 31, 2010 and 2009 were for professional services rendered for consultations on various U.S. federal, state and international tax matters, international tax compliance and tax planning, and assistance with tax examinations | | $ | 1,232,498 | (3) | | $ | 916,131 | | All Other | | | | | | | | | The fees for All Other services for the years ended December 31, 2010 and 2009 were for professional services rendered for translation services and other advisory or consultation services not related to audit or tax | | $ | 145,334 | (4) | | $ | 267,219 | | Total | | $ | 5,888,537 | | | $ | 8,649,858 | |
| | | | | | | | | | | 2011 | | | 2010 | | Audit | | | | | | | | | The Audit fees for the years ended December 31, 2011 and 2010 were for professional services rendered for the audits of the consolidated financial statements of McDermott, the audit of McDermott’s internal control over financial reporting, statutory and subsidiary audits, reviews of the quarterly consolidated financial statements of McDermott and assistance with review of documents filed with the SEC. | | $ | 3,220,477 | | | $ | 3,992,500 | (1) | Audit-Related | | | | | | | | | The Audit-Related fees for the years ended December 31, 2011 and 2010 were for assurance and related services, employee benefit plan audits and advisory services related to Sarbanes-Oxley Section 404 compliance. | | $ | 114,367 | | | $ | 518,205 | (2) | Tax | | | | | | | | | The Tax fees for the years ended December 31, 2011 and 2010 were for professional services rendered for consultations on various U.S. federal, state and international tax matters, international tax compliance and tax planning, and assistance with tax examinations. | | $ | 286,512 | | | $ | 1,232,498 | (3) | All Other | | | | | | | | | The fees for All Other services for the years ended December 31, 2011 and 2010 were for professional services rendered for translation services and other advisory or consultation services not related to audit or tax. | | $ | 0 | | | $ | 145,334 | (4) | Total | | $ | 3,621,356 | | | $ | 5,888,537 | |
| | | (1) | | Audit fees for 2010 include $215,000 of fees paid by McDermott attributable to the audit of B&W. | |
(2) | | Audit-Related fees for 2010 include $480,205 of fees paid by McDermott attributable to audit-related services for B&W. | |
(3) | | Tax fees for 2010 include $91,800 of fees paid by McDermott attributable to tax services for B&W. | |
(4) | | All Other fees for 2010 include $140,000 of fees paid by McDermott attributable to other services for B&W. |
It is the policy of our Audit Committee to preapprove all audit, review or attest engagements and permissible non-audit services to be performed by our independent registered public accounting firm, subject to, and in compliance with, thede minimisexception for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934 and the applicable rules and regulations of the SEC. Our Audit Committee did not rely on thede minimisexception for any of the fees disclosed above.
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Recommendation and Vote Required Our Board of Directors recommends that stockholders vote “FOR” the ratification of the decision of our Audit Committee to appoint Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2011.2012. The proxy holders will vote all proxies received for approval of this proposal unless instructed otherwise. Approval of this proposal requires the affirmative vote of a majority of the outstanding shares of common stock present in person or represented by proxy and entitled to vote and actually voting on this proposal at the Annual Meeting. Because abstentions are not actual votes with respect to this proposal, they have no effect on the outcome of the vote on this proposal.
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SECURITY OWNERSHIPOF DIRECTORSAND EXECUTIVE OFFICERS Security Ownership of Directors and Executive Officers
The following table sets forth the number of shares of our common stock beneficially owned as of February 28, 201129, 2012 by each director or nominee as a director, and each Named Executive and all our directors and executive officers as a group, including shares that those persons have the right to acquire within 60 days on the vesting of restricted stock units or the exercise of stock options. | | | | | Name | | | Shares Beneficially Owned | | | | Shares
| | | Beneficially
| Name | | Owned | Brandon C. Bethards | | | 0 | | | | | 34,24440,106 | | | | | 68,90474,766 | | Ronald C. CambreGary L. Carlson(3) | | | 33,93344,423 | | GaryPerry L. CarlsonElders(3)(4) | | | 21,57241,030 | | Perry L. Elders(4)
Stephen G. Hanks | | | 2616,620 | | John A. FeesLiane K. Hinrichs(5) | | | 36,444205,715 | | Stephen G. HanksM. Johnson(6) | | | 10,758514,834 | | Liane K. HinrichsD. Bradley McWilliams(6)(7) | | | 228,95370,671 | | Stephen M. JohnsonJohn T. McCormack(7)(8) | | | 316,39870,845 | | D. Bradley McWilliamsJohn T. Nesser(8)(9) | | | 64,809409,470 | | John T. NesserThomas C. Schievelbein(9)(10) | | | 617,046103,108 | | Thomas C. Schievelbein(10)
Mary Shafer-Malicki | | | 97,2466,790 | | Mary Shafer-MalickiDavid A. Trice | | | 016,165 | | Michael S. Taff(11)
| | | 90,537 | | David A. Trice | | | 10,303 | | All directors and executive officers as a group (23(16 persons)(12)(11) | | | 2,095,8441,938,545 | |
| | | (1) | | Shares owned by Mr. Bookout include 6,105 shares of common stock that he may acquire on the exercise of stock options, as described above. | |
(2) | | Shares owned by Mr. Brown include 38,085 shares of common stock that he may acquire on the exercise of stock options, as described above. | |
(3) | | Shares owned by Mr. Carlson include 8,39620,064 shares of common stock that he may acquire on the exercise of stock options, as described above, 13,13614,654 shares of common stock that he will acquire on the vesting of restricted stock units, as described above, and 4042 shares of common stock held in the McDermott Thrift Plan. | |
(4) | | Shares owned by Mr. Elders include 26 shares of common stock held in the McDermott Thrift Plan. Not included are 12,886 shares of common stock that Mr. Elders will acquire on the vesting of restricted stock units on May 13, 2011 and 20,09728,274 shares of common stock that he may acquire on the exercise of stock options, at any time after they vestas described above, 3,250 shares of common stock that he will acquire on May 13, 2011. | | (5) | | Shares owned by Mr. Fees include 17,796the vesting of restricted stock units, as described above, and 27 shares of common stock held in the McDermott Thrift Plan. Not included in this amount are 142,445 restricted stock units in which Mr. Fees is 100% vested, but which have not settled pursuant to the terms of his retention agreement. |
| (6) | (5) | Shares owned by Ms. Hinrichs include 62,231 restricted shares of common stock as to which she has sole voting power but no dispositive power, 42,30664,772 shares of common stock that she may acquire on the exercise of stock options, as described above, 57,76065,975 shares of common stock that she will acquire on the vesting of restricted stock units, as described above, and 2,8572,980 shares of common stock held in the McDermott Thrift Plan. |
| (7) | (6) | Shares owned by Mr. Johnson include 113,412 restricted shares of common stock as to which he has sole voting power but no dispositive power, 132,447297,605 shares of common stock that he may acquire on the exercise of stock options, as described above, 31,83044,831 shares of common stock that he will acquire on the vesting of restricted stock units, as described above, and 611637 shares of common stock held in the McDermott Thrift Plan. |
| (8) | (7) | Shares owned by Mr. McWilliams include 37,876 shares of common stock that he may acquire on the exercise of stock options, as described above. |
| (9) | (8) | Shares owned by Mr. NesserMcCormack include 77,883 restricted shares of common stock as to which he has sole voting power but no dispositive power, 34,85934,994 shares of common stock that he may acquire on the exercise of stock options, as described above, 53,52634,546 shares of common stock that he will acquire on the vesting of restricted stock units, as described above, and 14,4801,305 shares of common stock held in the McDermott Thrift Plan. |
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(9) | | Shares owned by Mr. Nesser include 62,121 shares of common stock held in a grantor retained annuity trust of which he is trustee and has indirect beneficial ownership, 69,717 shares of common stock that he may acquire on the exercise of stock options, as described above, and 8,276 shares of common stock that he will acquire on the vesting of restricted stock units. |
(10) | | Shares owned by Mr. Schievelbein include 72,538 shares of common stock that he may acquire on the exercise of stock options, as described above. | |
(11) | | Shares owned by Mr. Taff include 2,225 restricted shares of common stock as to which he has sole voting power but no dispositive power, 37,876 shares of common stock that he may acquire on the exercise of stock options, as described above, and 50,436 shares of common stock that he will acquire on the vesting of restricted stock units, as described above. | | (12) | | Shares owned by all directors and executive officers as a group include 261,151 shares of common stock as to which they have sole voting power but no dispositive power, 594,914792,219 shares of common stock that may be acquired on the exercise of stock options, as described above, 299,989213,188 shares of common stock that may be acquired on the vesting of restricted stock units, as described above, and 59,84123,172 shares of common stock held in the McDermott Thrift Plan. |
Shares beneficially owned in all cases constituted less than one percent of the outstanding shares of common stock on February 28, 2011,29, 2012, as determined in accordance withRule 13d-3(d)(1) under the Securities Exchange Act of 1934. Security Ownership of Certain Beneficial OwnersSECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERS
The following table furnishes information concerning all persons known by us to beneficially own 5% or more of our outstanding shares of common stock, which is our only class of voting stock outstanding:
| | | | | | | | | | | Title of Class | | | | | | | | | | | | | | | Amount and
| | | | | | | Nature of
| | | | | | | Beneficial
| | Percent of
| Title of Class | | Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | | Percent of Class(1) | | Common Stock | | T. Rowe Price Associates, Inc. 100 E. Pratt Street
Baltimore, MD 21202 | | | 37,243,988 | (2) | | | 34,137,175(215.84 | % | Common Stock | | BlackRock, Inc. 40 East 52)nd Street New York, NY 10022 | | | 15,391,846 | (3) | | | 14.596.55 | % | Common Stock | | Artisan Partners Holdings LP 875 East Wisconsin Avenue Suite 800 Milwaukee, WI 53202 | | | 13,551,800 | (4) | | | 5.77 | % | Common Stock | | | | | | | | Common Stock | | BlackRock, Inc.
40 East 52nd Street
New York, NY 10022 | | | 19,075,409(3 | ) | | | 8.15 | % | | | | | | | | | | | | Common Stock | | PRIMECAP Management Company 225 South Lake Ave., #400
Pasadena, CA 91101 | | | 12,406,760 | (5) | | | 13,123,360(45.28 | % | Common Stock | | FMR LLC 82 Devonshire Street Boston, MA 02109 | | ) | 11,820,617 | (6) | | | 5.615.03 | % |
| | | (1) | | Percent is based on outstanding shares of our common stock on February 28, 2011.29, 2012. | |
(2) | | As reported onSchedule 13G/A filed with the SEC on February 10, 2011.2012. TheSchedule 13G/A reports beneficial ownership of 34,137,17537,243,988 shares of our common stock by T. Rowe Price Associates, Inc. (“Price Associates”), which has sole voting power over 8,636,6098,642,022 shares and sole dispositive power over 34,137,17537,243,988 shares. These securities are owned by various individual and institutional investors, including T. Rowe Price Mid-Cap Growth Fund, which has sole voting power over 12,500,00013,000,000 shares and sole dispositive power over no shares, for which Price Associates serves as an investment adviser with power to direct investments and/or sole power to vote the securities. For the purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be the beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. | |
(3) | | As reported on Schedule 13G/A filed with the SEC on February 7, 2011.13, 2012. The Schedule 13G/A reports beneficial ownership of 19,075,40915,391,846 shares of our common stock and sole voting power and sole dispositive power over 19,075,40915,391,846 shares. | |
(4) | As reported on Schedule 13G filed on February 7, 2012. The Schedule 13G reports beneficial ownership of 13,551,800 shares of our common stock, shared voting power over 13,219,900 shares and shared dispositive power over 13,551,800 shares. |
(5) | As reported on Schedule 13G/A filed with the SEC on February 14, 2011.13, 2012. The Schedule 13G/A reports beneficial ownership of 13,123,36012,406,760 shares of our common stock, sole voting power over 7,600,1606,929,160 shares and sole dispositive power over 13,123,36012,406,760 shares. |
(6) | As reported on Schedule 13G filed jointly by FMR LLC, Edward C. Johnson 3d and Fidelity Management & Research Company with the SEC on February 14, 2012. According to the Schedule 13G, FMR LLC has sole voting power over 880,417 shares and sole dispositive power over 11,820,617 shares. Of the shares reported, 10,940,200 shares are beneficially owned by Fidelity Management & Research Company, an investment adviser and a wholly-owned subsidiary of FMR LLC, as a result of acting as investment advisor to various investment companies (collectively, the “Fidelity Funds”); and each of FMR LLC and Mr. Edward C. Johnson 3d exercise sole dispositive power and the Fidelity Funds’ Board of Trustees exercises sole voting power with respect to these shares. In addition, FMR LLC and Mr. Edward C. Johnson 3d each exercise sole dispositive power and sole voting power with respect to 454 shares. |
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CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS Certain Relationships and Related Transactions
Pursuant to our Code of Business Conduct, all employees (including our Named Executives) who have, or whose immediate family members have, any direct or indirect financial or other participation in any business that competes with, supplies goods or services to, or is a customer, of McDermott, are required to disclose to us and receive written approval from our Corporate Ethics and Compliance department prior to transacting such business. Our employees are expected to make reasoned and impartial decisions in the workplace. As a result, approval of the business is denied if we believe that the employee’s interest in such business could influence decisions relative to our business, or have the potential to adversely affect our business or the objective performance of the employee’s work. Our Corporate Ethics and Compliance department implements our Code of Business Conduct and related policies and the Governance Committee of our Board is responsible for overseeing our Ethics and Compliance Program, including compliance with our Code of Business Conduct. Our Board members are also responsible for complying with our Code of Business Conduct. Additionally, our Governance Committee is responsible for reviewing the professional occupations and associations of our Board members and reviews transactions between McDermott and other companies with which our Board members are affiliated. To obtain a copy of our Code of Business Conduct, please see the “Corporate Governance” section above in this proxy statement. Certain of ourOur grant agreements for restricted stock and restricted stock units awarded under various long-term incentive plans provide that the withholding obligation of any applicable federal, state or other taxes that may be due on the vesting in the year ending December 31, 2011 of those awards be satisfied by the grantee returning to us the number of such vested shares having a fair market value equal to the amount of such taxes. Additionally, eachAccordingly, in the year ending December 31, 2012, this withholding method will apply to an aggregate of 209,208 shares held by Mr. Johnson, 16,137 shares held by Mr. Elders, 14,654 shares held by Mr. Carlson, 10,302 shares held by Mr. Cummins, 65,975 shares held by Ms. Hinrichs, 15,577 shares held by Mr. Daniel M. Houser, 37,232 shares held by Mr. McCormack, 10,057 shares held by Mr. Mitchell and 21,297 shares held by Mr. Roll. In the year ended December 31, 2011, a similar withholding method applied with respect to certain of our grant agreements, and Messrs. Johnson, Elders, Houser, McCormack, Mitchell, Nesser and Roll and Ms. Hinrichs has irrevocably elected to satisfy withholding obligations relating to all or a portion of any applicable federal, state or other taxes that maywould be due on the vesting in the year ending December 31, 2011 of certain shares of restricted stock and restricted stock units awarded under various long-term incentive plans that dodid not provide for a withholding method in the same manner. These elections arewere subject to the approval of the Compensation Committee of our Board, which approval was granted. Accordingly, this withholding method will applyapplied to an aggregate of 205,316 shares held by Mr. Johnson, 142,445 shares held by Mr. Fees, 12,88612,887 shares held by Mr. Elders, 13,13613,137 shares held by Mr. Carlson, 12,9649,165 shares held by Mr. Cummins, 119,901 shares held by Ms. Hinrichs, 19,452 shares held by Mr. Houser, 29,822 shares held by Mr. McCormack, 14,021 shares held by Mr. Mitchell, 120,46985,423 shares held by Mr. Nesser and 21,479 shares held by Mr. Roll. In the year ended December 31, 2010, a similar withholding method applied, including with respect to the exercise price and tax withholding on the exercise and hold of stock options prior to the Spin-off, to an aggregate of 30,995 shares held by Mr. Johnson, 566,507 shares held by Mr. Fees, 59,019 shares held by Mr. Taff, 93,810 shares held by Mr. Bethards, 11,805 shares held by Mr. Cummins, 66,862 shares held by Ms. Hinrichs, 19,613 shares held by Mr. Houser, 27,992 shares held by Mr. McCormack, 22,031 shares held by Mr. Mitchell, 162,684 shares held by Mr. Nesser and 20,342 shares held by Mr. Roll, that vested in the year ended December 31, 2010. Those elections were also approved by the Compensation Committee. We expect any transfers reflecting shares of restrictedMcDermott stock returned to us will be reported in the SEC filings made by those transferring holders who are obligated to report transactions in our securities under Section 16 of the Securities Exchange Act of 1934. Additionally, during 2011, the Investment Committee of the McDermott Master Trust (the “Trust”), the funding vehicle underlying the Retirement Plan, entered into an agreement with BlackRock Institutional Trust Company, N.A. (“BlackRock”), pursuant to which BlackRock agreed to manage the investment of a portion of the Trust assets. BlackRock is a subsidiary of BlackRock, Inc. and, collectively with certain other subsidiaries of BlackRock, Inc., owned approximately 6.55% of McDermott common stock on December 31, 2011 as reported on BlackRock, Inc.’s Schedule 13G/A filed with the SEC on February 13, 2012. The amount of Trust assets under management with BlackRock may vary from time to time. As of December 31, 2011, the value of the Trust assets under management with BlackRock was approximately $78.6 million. BlackRock receives a fee for investment management services for the portion of the Trust assets allocated to BlackRock. These fees are calculated quarterly in arrears by averaging the account’s prior three month-end market values and applying 25% of the annual fee schedule (6.0 basis points), or 1.5 basis points quarterly. 82
The Investment Committee of the Trust is a fiduciary of the Retirement Plan appointed by McDermott’s subsidiary that maintains the Retirement Plan. The Investment Committee is responsible for the management and control of the Trust assets and is authorized to appoint fund managers under the Section 16(a) Beneficial Ownership Complianceterms of the Retirement Plan and the Trust. Selection of fund managers is performed with the assistance of a third party investment consulting firm, in accordance with an investment policy statement approved and adopted by the Investment Committee. SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own 10% or more of our voting stock, to file reports of ownership and changes in ownership of our equity securities with the SEC and the New York Stock Exchange. Directors, executive officers and 10% or more holders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of those forms furnished to us, or written representations that no forms were required, we believe that our directors, executive officers and 10% or more beneficial owners complied with all Section 16(a) filing requirements during the year ended December 31, 2010,2011, with the exception of the following: (1) Mr. Stephen G. Hanks, Director, filed one late Form 4 to report open market purchases occurring in two broker-directed transactions; (2) Mr. Michael S. Taff, Former Senior Vice President and Chief Financial Officer,Ms. Hinrichs, who filed one late Form 4 reporting the settlement of cash-based deferred stock units; and (3) Mr. John T. Nesser, Executive Vice President and Chief Operating Officer, filed two late Forms 4, one of which reported tax withholding on the vesting of restricted stock, and the other of which reported the vesting of restricted stock units and tax withholding on such vesting. Stockholders’ Proposals
open market sale transaction. STOCKHOLDERS’ PROPOSALS Any stockholder who wishes to have a qualified proposal considered for inclusion in our proxy statement for our 20122013 Annual Meeting must send notice of the proposal to our Corporate Secretary at our principal executive office no later than November 26, 2011.30, 2012. If you make such a proposal, you must provide your name, address, the number of shares of common stock you hold of record or beneficially, the date or dates on which such common stock was acquired and documentary support for any claim of beneficial ownership. In addition, any stockholder who intends to submit a proposal for consideration at our 20122013 Annual Meeting, but not for inclusion in our proxy materials, or who intends to submit nominees for election as directors at the meeting must notify our Corporate Secretary. Under our By-Laws, such notice must (1) be received at our executive offices no earlier than November 8, 201111, 2012 or later than January 7, 201210, 2013, and (2) satisfy specified requirements. A copy of the pertinent By-Law provisions can be found on our Web site atwww.mcdermott.comat “Corporate“About Us — Leadership & Corporate Governance — Governance Policies.Corporate Governance.” By Order of the Board of Directors, 30, 2012
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Appendix A
Mcdermott International, Inc.
Executive Incentive Compensation Plan
(As Amended and Restated March 1, 2011)
1. Plan. This McDermott International, Inc. Executive Incentive Compensation Plan (this “Plan”) was adopted by McDermott International, Inc., a Panamanian corporation (the “Company”), to incentivize certain employees of the Company, its Subsidiaries or Affiliated Companies by enabling them to receive performance-based cash compensation.
2. Objectives. This Plan is designed to attract and retain employees of the Company, its Subsidiaries and its Affiliated Companies and to stimulate the active interest of such persons in the development and financial success of the Company, its Subsidiaries and its Affiliated Companies. These objectives are to be accomplished by making cash awards under this Plan based on the achievement of certain performance goals. All awards payable under this Plan to Executive Officers are intended to be deductible by the Company under Section 162(m) (as such terms are defined below).
3. Definitions. As used herein, the terms set forth below shall have the following respective meanings:
“Affiliated Company” means any corporation, joint venture, or other legal entity in which the Company, directly or indirectly, through one or more Subsidiaries, owns less than fifty percent but at least twenty percent of its voting control.
“Award Agreement” means (i) any written agreement (including in electronic form) between the Company and a Participant or (ii) any resolution of the Committee, in either case setting forth the terms, conditions and limitations applicable to a Performance Cash Award.
“Board” means the board of directors of the Company.
“Code” means the Internal Revenue Code of 1986, as amended.
“Committee” means the Compensation Committee of the Board, any successor committee thereto, such other committee of the Board as may be designated by the Board to administer this Plan including any subcommittee of the Board as designated by the Board.
“Disability” means permanent and total disability as determined under the Company’s long-term disability plan applicable to the Participant, or if there is no such plan applicable to the Participant, “Disability” means a determination of total disability by the Social Security Administration; provided that, in either case, the Participant’s condition also qualifies as a “disability” for purposes of Section 409A with respect to an Award subject to Section 409A.
“Employee” means an employee of the Company or any of its Subsidiaries or Affiliated Companies.
“Executive Officer” means a “covered employee” within the meaning of Section 162(m)(3) or any other executive officer designated by the Committee for purposes of exempting compensation payable under this Plan from the deduction limitations of Section 162(m).
“Participant” means an Employee to whom a Performance Cash Award has been made under this Plan.
“Performance Cash Award” or “Award” means the grant of any award to a Participant pursuant to such applicable terms, conditions and limitations as the Committee may establish in accordance with the objectives of this Plan, which award is subject to the attainment of one or more Performance Goals.
“Performance Goal” means a standard established by the Committee, to determine in whole or in part whether a Performance Cash Award shall be earned.
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“Section 162(m)” means Section 162(m) of the Code and any Treasury Regulations and guidance promulgated thereunder.
“Section 409A” means Section 409A of the Code and any Treasury Regulations and guidance promulgated thereunder.
“Separation from Service,” with respect to Awards that are subject to Section 409A, means a Participant’s Termination of Employment with the Company and any of its Subsidiaries or Affiliated Companies, other than by reason of death or Disability, that qualifies as a ‘separation from service’ for purposes of Section 409A. A Separation from Service will be deemed to occur where the Participant and the Company, its Subsidiary or its Affiliated Company reasonably anticipate that the bona fide level of services the Participant will perform (whether as an employee or as an independent contractor) will be permanently reduced to a level that is 49% or less of the average level of bona fide services the Participant performed during the immediately preceding 36 months (or the entire period the Participant has provided services if the Participant has been providing services to the Company and any of its Subsidiaries or Affiliated Companies for less than 36 months).
“Subsidiary” means any corporation, joint venture or other legal entity in which the Company, directly or indirectly, owns more than fifty percent (50%) of its voting control.
“Termination of Employment” means the termination of a Participant’s employment with, or performance of services for, the Company and any of its Subsidiaries or Affiliated Companies. Unless otherwise determined by the Committee, if a Participant’s employment with the Company, its Subsidiaries or its Affiliated Companies terminates but such Participant continues to provide services to the Company, its Subsidiaries or its Affiliated Companies in a non-employee capacity, such change in status shall not be deemed a Termination of Employment. Temporary absences from employment because of illness, vacation or leave of absence and transfers among the Company, its Subsidiaries and its Affiliated Companies do not constitute a Termination of Employment. If an Award is subject to Section 409A, however, Termination of Employment for purposes of that Award shall mean the Participant’s Separation from Service.
4. Eligibility. All Employees are eligible for Performance Cash Awards under this Plan in the sole discretion of the Committee.
5. Administration.
(a) Authority of the Committee. This Plan shall be administered by the Committee, which shall have the powers vested in it by the terms of this Plan, such powers to include the authority (within the limitations described in this Plan):
| | | | • | to select the Employees to be granted Performance Cash Awards under this Plan; | | | • | to determine the terms of Performance Cash Awards to be made to each Participant; | | | • | to determine the time when Performance Cash Awards are to be granted and any conditions that must be satisfied before a Performance Cash Award is granted; | | | • | to establish objectives and conditions for earning Performance Cash Awards; | | | • | to determine the terms and conditions of Award Agreements (which shall not be inconsistent with this Plan) and, if required, who must sign each Award Agreement; | | | • | to determine whether the conditions for earning a Performance Cash Award have been met and whether a Performance Cash Award will be paid at the end of an applicable performance period; | | | • | except as otherwise provided in paragraph 10, to modify the terms of Performance Cash Awards made under this Plan; | | | • | to determine if, when and under what conditions payment of all or any part of a Performance Cash Award may be deferred; | | | • | to determine whether the amount or payment of a Performance Cash Award should be reduced or eliminated; |
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| | | | • | to determine the guidelinesand/or procedures for the payment of Performance Cash Awards; | | | • | to determine whether a Performance Cash Award should qualify, regardless of its amount, as deductible in its entirety for federal income tax purposes, including whether a Performance Cash Award granted to an Executive Officer should qualify as performance-based compensation; | | | • | to interpret and administer this Plan any instrument or agreement relating to, or Award made under this Plan; | | | • | to establish, amend, suspend, or waive such rules and guidelines; | | | • | to appoint such agents as it shall deem appropriate for the proper administration of this Plan; and | | | • | to make any other determination and take any other action that the Committee deems necessary or desirable for the administration of this Plan. |
The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Performance Cash Award in the manner and to the extent the Committee deems necessary or desirable to further Plan purposes. Any decision of the Committee in the interpretation and administration of this Plan shall lie within its sole discretion and shall be final, conclusive and binding on all parties concerned.
(b) Limitation of Liability. No member of the Committee or officer of the Company to whom the Committee has delegated authority in accordance with the provisions of paragraph 6 of this Plan shall be liable for anything done or omitted to be done by him or her, by any member of the Committee or by any officer of the Company in connection with the performance of any duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute.
6. Delegation of Authority. Except with respect to matters under Section 162(m) that are required to be determined or established by the Committee to qualify Performance Cash Awards to Executive Officers as qualified “performance-based compensation” the Committee may delegate to the Chief Executive Officer and to other senior officers of the Company or to such other committee of the Board its duties under this Plan pursuant to such conditions or limitations as the Committee may establish.
7. Performance Cash Awards.
(a) The Committee shall determine the type or types of Performance Cash Awards to be made under this Plan and shall designate from time to time the Participants who are to be the recipients of such Performance Cash Awards. Each Performance Cash Award shall be embodied in an Award Agreement, which shall contain such terms, conditions and limitations as shall be determined by the Committee in its sole discretion. All or part of a Performance Cash Award may be subject to conditions established by the Committee, which may include, but are not limited to, continuous service with the Company and its Subsidiaries. Except as otherwise provided in paragraph 13, upon the termination of employment by a Participant, any deferred, unvested or unpaid Performance Cash Awards shall be treated as set forth in the applicable Award Agreement.
The terms, conditions and limitations applicable to any Performance Cash Awards granted to Participants pursuant to this Plan shall be determined by the Committee, subject to the limitations specified below. The Committee shall set Performance Goals in its sole discretion which, depending on the extent to which they are met, will determine the amount of Performance Cash Awards that will be paid out to the Participant.
(i) Nonqualified Performance Cash Awards. Performance Cash Awards granted to Employees that are not intended to qualify as qualified performance-based compensation under Section 162(m) shall be based on achievement of such Performance Goals and be subject to such terms, conditions and restrictions as the Committee or its delegate shall determine.
(ii) Qualified Performance Cash Awards. Performance Cash Awards granted to Executive Officers under this Plan that are intended to qualify as qualified performance-based compensation under Section 162(m) shall be paid on account of the attainment of one or more pre-established, objective Performance Goals established and administered by the Committee in accordance with Section 162(m) prior to the earlier to occur of (x) 90 days after the commencement of the period of service to which the Performance Goal relates and (y) the lapse of 25% of the
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period of service (as scheduled in good faith at the time the goal is established), and in any event while the outcome is substantially uncertain. A Performance Goal is objective if a third party having knowledge of the relevant facts could determine whether the goal is met. Such a Performance Goal may be based on one or more business criteria that apply to an Executive Officer, one or more business units, divisions or sectors of the Company, or the Company as a whole, and if so desired by the Committee, by comparison with a peer group of companies. A Performance Goal may include one or more of the following and need not be the same for each Executive Officer:
| | | | • | revenue and income measures (which include revenue, gross margin, income from operations, net income, net sales and earnings per share); | | | • | expense measures (which include costs of goods sold, sales, general and administrative expenses and overhead costs); | | | • | operating measures (which include volume, margin, breakage and shrinkage, productivity and market share); | | | • | cash flow measures (which include net cash flow from operating activities and working capital); | | | • | liquidity measures (which include earnings before or after the effect of certain items such as interest, taxes, depreciation and amortization, cash flow and free cash flow); | | | • | leverage measures (which include equity ratio and net debt); | | | • | market measures (including those relating to market price, stock price, total shareholder return and market capitalization measures); | | | • | return measures (which include return on equity, return on assets, cash flow return on assets, cash flow return on capital, cash flow return on equity, return on capital and return on invested capital); | | | • | corporate value measures (which include compliance, safety, environmental and personnel matters); and | | | • | other measures such as those relating to acquisitions, dispositions or customer satisfaction. |
Unless otherwise stated, such a Performance Goal need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo, performance relative to a peer group determined by the Committee or limiting economic losses (measured, in each case, by reference to specific business criteria). In interpreting Plan provisions applicable to Performance Goals and qualified Performance Cash Awards, it is the intent of this Plan to comply with Section 162(m), including, without limitation, Treasury Regulation § 1.162-27(e)(2)(i), as to grants to Executive Officers and the Committee in establishing such goals and interpreting this Plan shall be guided by such provisions. Prior to the payment of any compensation based on the achievement of Performance Goals applicable to qualified Performance Cash Awards, the Committee must certify in writing that applicable Performance Goals and any of the material terms thereof were, in fact, satisfied. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any qualified Performance Cash Awards made pursuant to this Plan shall be determined by the Committee to the extent permitted under Section 162(m). Unless an Award Agreement provides to contrary, the Committee reserves the right in its sole discretion to reduce the amount payable pursuant to a Performance Cash Award to any lesser amount, including zero.
(b) The Committee shall adjust the Performance Goals (either up or down) and the level of the Performance Cash Award that a Participant may earn under this Plan, to the extent permitted pursuant to Section 162(m), if it determines that the occurrence of external changes or other unanticipated business conditions have materially affected the fairness of the goals and have unduly influenced the Company’s ability to meet them, including without limitation, events such as material acquisitions, changes in the capital structure of the Company, and extraordinary accounting changes. In addition, Performance Goals and Performance Cash Awards shall be calculated without regard to any changes in accounting standards that may be required by the Financial Accounting Standards Board after such Performance Goals are established. Further, in the event a period of service to which a Performance Goal relates is less than 12 months, the Committee shall have the right, in its sole discretion, to adjust the Performance Goals and the level of Performance Cash Award opportunity.
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(c) Notwithstanding anything to the contrary contained in this Plan, the amount payable to a Participant under this Plan in respect of any one-year period shall not exceed $3,000,000.
8. Performance Cash Award Payment.
(a) General. With the approval of the Committee and subject to paragraph 8(b), payment of Performance Cash Awards shall be made in the form of cash and shall be paid on or before March 15th of the year following the year in which Performance Goals are achieved. The payment of a Performance Cash Award may include such restrictions as the Committee shall determine.
(b) Deferral. If permitted by the Committee, amounts payable in respect of Performance Cash Awards may be deferred and paid in accordance with the terms of the Company’s Director and Executive Deferred Compensation Plan (or any successor or similar plan), subject to the terms and conditions of such plan as it may be amended from time to time.
9. Taxes. The Company shall have the right to deduct applicable taxes from any Performance Cash Award payment and withhold, at the time of delivery or vesting of cash under this Plan, an appropriate amount of cash for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes.
10. Amendment, Modification, Suspension or Termination. The Board or the Committee may amend, modify, suspend or terminate this Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law, except that (i) no amendment or alteration that would materially adversely affect the rights of any Participant under any Performance Cash Award previously granted to such Participant shall be made without the consent of such Participant and (ii) no amendment or alteration shall be effective prior to its approval by the shareholders of the Company to the extent shareholder approval is otherwise required by applicable legal requirements.
11. Assignability. Unless otherwise determined by the Committee in the Award Agreement, no Performance Cash Award or any other benefit under this Plan shall be assignable or otherwise transferable. Any attempted assignment of a Performance Cash Award or any other benefit under this Plan in violation of this paragraph 11 shall be null and void.
12. Adjustments. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board may make such adjustments to Performance Cash Awards or other provisions for the disposition of Awards as it deems equitable, and shall be authorized, in its sole discretion, (i) to provide for the substitution of a new Performance Cash Award or other arrangement (which, if applicable, may be exercisable for such property or stock as the Board determines) for a Performance Cash Award or the assumption of the Performance Cash Award, (ii) to provide, prior to the transaction, for the acceleration of the vesting of the Performance Cash Award or (iii) to cancel any such Performance Cash Awards and to deliver to the Participants cash in an amount that the Board shall determine in its sole discretion.
13. Forfeiture. An Award Agreement may provide that any or all Awards, including vested Awards, shall be forfeited, and a Participant shall be obligated to repay gains previously realized from Awards upon any event or condition established by the Committee. The Committee shall have the right to suspend any and all rights or benefits a Participant may have under an Award Agreement pending its investigation and final determination with regard to possible forfeiture or repayment events.
14. Unfunded Plan. This Plan is unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash or rights thereto, nor shall this Plan be construed as providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash or rights thereto to be granted under this Plan. Any liability or obligation of the Company to any Participant with respect to a Performance Cash Award of cash or rights thereto under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge
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or other encumbrance on any property of the Company. Neither the Company nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan.
15. Section 409A of the Code. It is intended that the payment of Performance Cash Awards under this Plan shall satisfy the short-term deferral exclusion from Section 409A, unless deferred in accordance with paragraph 8(b) in which case the Performance Cash Award shall be subject to the terms of the applicable of the Company’s Director and Executive Deferred Compensation Plan or other deferral plan, which is designed to be in compliance with Section 409A.
16. Governing Law. Except to the extent preempted by U.S. federal law, the terms and provisions of this Plan shall be construed in accordance with the laws of the State of Texas, other than any conflicts of laws provisions thereof which would result in the application of the laws of any other jurisdiction.
17. No Right to Employment. Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Company, a Subsidiary or an Affiliated Company to terminate any Participant’s employment or other service relationship at any time, nor confer upon any Participant any right to continue in the capacity in which he or she is employed or otherwise serves the Company, any Subsidiary or any Affiliated Company.
18. Tax Consequences. Nothing in this Plan or an Award Agreement shall constitute a representation by the Company to an Employee regarding the tax consequences of any Performance Cash Award received by an Employee under this Plan. Although the Company may endeavor to (i) qualify a Performance Cash Award for favorable U.S. or foreign tax treatment or (ii) avoid adverse tax treatment (e.g. under Section 409A), the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or unavoidable tax treatment. The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on holders of Performance Cash Awards under this Plan.
19. Successors. All obligations of the Company under this Plan with respect to Performance Cash Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the businessand/or assets of the Company.
20. Effectiveness. This Plan was previously amended and restated effective February 28, 2006. This Plan is effective March 1, 2011.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer on the date first written above.
MCDERMOTT INTERNATIONAL, INC.
| | | | Title: | President and Chief Executive Officer |
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VOTE BY INTERNET — -www.proxyvote.comUse the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time on May 5, 20119, 2012 (May 3, 20117, 2012 for participants in McDermott’s Thrift Plan). Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. MCDERMOTT INTERNATIONAL, INC. VOTE BY PHONE —- 1-800-690-6903 757 N. ELDRIDGE PKWY Use any touch-tone telephone to transmit your voting instructions up until HOUSTON, TX 77079 11:59 p.m. Eastern Time on May 5, 20119, 2012 (May 3, 20117, 2012 for participants in McDermott’s Thrift Plan). Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: M32514-P06575 KEEP THIS PORTION FOR YOUR RECORDS |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: M43299-P20059 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY WHEN SIGNED AND DATED. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | MCDERMOTT INTERNATIONAL, INC. | | For All | | Withhold All | | For All Except | | To withhold authority to vote for any individual All All Except nominee(s), mark “For All Except” and write the The Board of Directors recommends you vote FOR number(s) of the nominee(s) on the line below. the following: 1. Election of Directors 0 0 0 Nominees: 01) John F. Bookout, III 05) D. Bradley McWilliams 02) Roger A. Brown 06) Thomas C. Schievelbein 03) Stephen G. Hanks 07) Mary Shafer-Malicki 04) Stephen M. Johnson 08) David A. Trice For Against Abstain | | | | | | | | | | | The Board of Directors recommends you vote FOR the following proposal: 2. Advisory vote on executive compensation. 0 0 0 1 Year 2 Years 3 Years Abstain The Boardfollowing: | | | | | | | | | | | | | | | | | | 1. | | Election of Directors recommends you vote 1 YEAR on the following proposal: 3. Advisory vote to determine the frequency with which to hold advisory votes on executive compensation. 0 0 0 0 For Against Abstain | | ¨ | | ¨ | | ¨ | | | | | | | | | | | | | | | | | Nominees: | | | | | | | | | | | | | | | | | | | | | | | 01) John F. Bookout, III | | 05) D. Bradley McWilliams | | | | | | | | | | | | | | | | | | | | | | | | | 02) Roger A. Brown | | 06) Thomas C. Schievelbein | | | | | | | | | | | | | | | | | | | | | | | | | 03) Stephen G. Hanks | | 07) Mary Shafer-Malicki | | | | | | | | | | | | | | | | | | | | | | | | | 04) Stephen M. Johnson | | 08) David A. Trice | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Board of Directors recommends you vote FOR the following proposals: 4. Approval | | | | | | For | | Against | | Abstain | | | | | 2. | | Advisory vote to approve named executive officer compensation. | | ¨ | | ¨ | | ¨ | | | | | 3. | | Ratification of our Executive Incentive Compensation Plan for tax deductibility reasons. 0 0 0 5. Ratification ofthe appointment of McDermott’s independent registered public accounting firm for the year ending December 31, 2011. 0 0 0 2012. | | ¨ | | ¨ | | ¨ | | | | | The shares represented by this proxy when properly executed will be voted in the manner directed herein by the undersigned Stockholder(s).If no direction is made, this proxy will be voted FOR ALL for item 1, and FOR items 2 4 and 5, and 1 Year for item 3. If any other matters properly come before the meeting, the persons named in this proxy will vote in their discretion. | | | | | | | | | | | For address changes and/or comments, please check this box and write them 0 on the back where indicated. Please indicate if you plan to attend this meeting. 0 0 | | ¨ | | ¨ ¨ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Yes | | No | | | | | | | | | | | | | | | Please sign your name exactly as it appears hereon. When signing as attorney, executor, administrator, trustee, guardian or other fiduciary, please give full title as such. When signing as joint tenants, all parties in the joint tenancy must sign. If a signer is a corporation or partnership, please sign in full corporate or partnership name by duly authorized officer. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX] | | Date | | | | | | | | Signature (Joint Owners) | | Date | | | | | | | | |
| | | | | | | McDermott International, Inc. Annual Meeting Friday, Thursday, May 6, 201110, 2012 at 3:10:00 p.m. Intercontinental Miramar Hotel Miramar Plaza, Balboa Avenue Panama City, Panama a.m. 757 N. Eldridge Parkway, 14th Floor Houston, Texas 77079 | | |
| | | | | | | Dear Stockholder: McDermott International, Inc. encourages you to vote the shares electronically through the Internet or the telephone, which are available 24 hours a day, 7 days a week. This eliminates the need to return the proxy card. Your electronic vote authorizes the named proxies in the same manner as if you marked, signed, dated and returned the proxy card. If you choose to vote the shares electronically, there is no need for you to mail back the proxy card. Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com. IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE M32515-P06575 www.proxyvote.com | | |
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE | | | | | | | | | | | | | | | McDERMOTT INTERNATIONAL, INC. This proxy is solicited on behalf of the Board of Directors Annual Meeting of Stockholders — Friday,- Thursday, May 6, 2011 3:10, 2012 at 10:00 p.m. a.m. The undersigned hereby appoints Stephen M. Johnson and Liane K. Hinrichs, and each of them individually, as proxies, each with the power to appoint his or her substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of MCDERMOTT INTERNATIONAL, INC. (“McDermott”) that the stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to be held at 3:10:00 p.m.a.m. local time, on Friday,Thursday, May 6, 201110, 2012 at Intercontinental Miramar Hotel, Miramar Plaza, Balboa Avenue, Panama City, Panama,757 N. Eldridge Parkway, 14th floor, Houston, Texas 77079, and any adjournment or postponement thereof. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED UNDER ITEM 1 ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS, AND FOR EACH OF ITEMS 2 4 AND 5 AND FOR 1 YEAR FOR ITEM 3. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF MCDERMOTT’S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 20102011 AND ITS NOTICE OF 20112012 ANNUAL MEETING AND RELATED PROXY STATEMENT. ATTENTION PARTICIPANTS IN MCDERMOTT’S THRIFT PLAN: If you hold shares of McDermott common stock through the McDermott Thrift Plan (the “Thrift Plan”), this proxy covers all shares for which the undersigned has the right to give voting instructions to Vanguard Fiduciary Trust Company (“Vanguard”), Trustee of the McDermott Thrift Plan. Your proxy must be received no later than 11:59 p.m. Eastern Time on May 3, 2011.7, 2012. Any shares of McDermott common stock held in the Thrift Plan that are not voted or for which Vanguard does not receive timely voting instructions, will be voted in the same proportion as the shares for which Vanguard receives timely voting instructions from other participants in the Thrift Plan. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE REPLY CARD ENVELOPE | | | | | | | | | | | | | | Address Changes/Comments: ___________________________ ________________________ (If | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) CONTINUED AND TO BE SIGNED ON REVERSE SIDE | | |
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