SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrantþ
Filed by a Party other than the Registranto¨
Check the appropriate box:
¨ | Preliminary Proxy Statement |
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
þ | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material Pursuant to §240.14a-12 |
McDermott International, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ | No fee required. |
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McDermott International, Inc. |
Stephen M. Johnson | 757 N. Eldridge Pkwy. | |||
Chairman of the Board of Directors, President and Chief Executive Officer | Houston, Texas 77079 | |||
March 28, 2013
Dear Stockholder:
You are cordially invited to attend this year’s Annual Meeting of Stockholders of McDermott International, Inc., which will be held on Friday,Tuesday, May 6, 2011,7, 2013, at The Westin Houston Hotel, 945 Gessner Road, Houston, Texas 77024, in the Intercontinental Miramar Hotel, Miramar Plaza, Balboa Avenue, Panama City, Panama,Birch Room, commencing at 3:10:00 p.m.a.m. local time. The notice of annual meetingAnnual Meeting and proxy statement following this letter describe the matters to be acted on at the meeting.
McDermott is pleased to, again, be taking advantage ofutilizing the Securities and Exchange Commission’s Notice and Access proxy rule, which allows companies to furnish proxy materials via the Internet as an alternative to the traditional approach of mailing a printed set to each stockholder. In accordance with these rules, we have sent a Notice of Internet Availability of Proxy Materials to all stockholders who have not previously elected to receive a printed set of proxy materials. The Notice contains instructions on how to access our 20112013 Proxy Statement and Annual Report to Stockholders, as well as how to vote either online, by telephone or in person at the 20112013 Annual Meeting.
It is very important that your shares are represented and voted at the Annual Meeting. Please vote your shares by Internet or telephone, or, if you received a printed set of materials by mail, by returning the accompanying proxy card, as soon as possible to ensure that your shares are voted at the meeting. Further instructions on how to vote your shares can be found in our Proxy Statement.
Thank you for your support of our company.
Sincerely yours,
STEPHEN M. JOHNSON
YOUR VOTE IS IMPORTANT.
Whether or not you plan to attend the meeting, please take a few minutes now to vote your shares.
The proxy statement and annual report are available on the Internet at www.proxyvote.com.
The following information applicable to the Annual Meeting may be found in the proxy statement and accompanying proxy card:
The date, time and location of the meeting;
A list of the matters intended to be acted on and our recommendations regarding those matters;
Any control/identification numbers that you need to access your proxy card; and
Information about attending the meeting and voting in person.
McDERMOTT INTERNATIONAL, INC.
757 N. Eldridge Pkwy.
Houston, Texas 77079
NOTICEOF 2013 ANNUAL MEETINGOF STOCKHOLDERS
Time and Date | 10:00 a.m., local time, on Tuesday, May 7, 2013 |
Place | The Westin Houston Hotel |
945 Gessner Road |
Birch Room |
Houston, Texas 77024 |
Items of Business | 1. | To elect eight members to our Board of Directors, each for a term of one year. |
2. | To conduct an advisory vote to approve named executive officer compensation. |
3. | To ratify our Audit Committee’s appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2013. |
4. | To transact such other business that properly comes before the meeting or any adjournment thereof. |
Record Date | You are entitled to vote if you were a stockholder of record at the close of business on March 8, 2013. |
Notice and Access | Instead of mailing a printed copy of our proxy materials, including our Annual Report, to each stockholder of record, we are providing access to these materials via the Internet. This reduces the amount of paper necessary to produce these materials, as well as the costs associated with mailing these materials to all stockholders. Accordingly, on March 28, 2013, we began mailing a Notice of Internet Availability of Proxy Materials (the “Notice”) to all stockholders of record as of March 8, 2013, and posted our proxy materials on the Web site referenced in the Notice (www.proxyvote.com). As more fully described in the Notice, all stockholders may choose to access our proxy materials on the Web site referred to in the Notice and/or may request a printed set of our proxy materials. In addition, the Notice and Web site provide information regarding how you may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. |
Proxy Voting | Your vote is important. Please vote your proxy promptly so your shares can be represented, even if you plan to attend the Annual Meeting. You can vote by Internet, by telephone, or by requesting a printed copy of the proxy materials and using the proxy card enclosed with the printed materials. |
Admission to the Meeting | Attendance at the meeting is limited to stockholders and beneficial owners as of the record date or duly appointed proxies. No guests will be admitted, except for guests invited by McDermott. Registration will begin at 9:00 a.m., and the meeting will begin promptly at 10:00 a.m. If your shares are held in “street name” through a broker, bank, trustee or other nominee, you are a beneficial owner, and beneficial owners will need to show proof of beneficial ownership, such as a copy of a brokerage account statement, reflecting stock ownership as of the record date in order to be admitted to the meeting. If you are a proxy holder for a stockholder, you will need to bring a validly executed proxy naming you as the proxy holder, together with proof of record ownership of the stockholder naming you as proxy holder. Please note that you may be asked to present valid photo identification, such as a driver’s license or passport, when you check in for registration. |
By Order of the Board of Directors,
LIANE K. HINRICHS
Secretary
March 28, 2013
PROXY STATEMENTFOR 2013 ANNUAL MEETINGOF STOCKHOLDERS
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This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully.
McDERMOTT INTERNATIONAL, INC.757 N. Eldridge Pkwy.Houston, Texas 77079
• Time and Date | 10:00 a.m. Central Time, May 7, 2013 | |
• Place | The Westin Houston Hotel 945 Gessner Road Birch Room Houston, Texas 77024 | |
• Record Date | March 8, 2013 | |
• Voting | Stockholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the other proposals to be voted on. |
Items of Business for the Annual Meeting of the Stockholders of McDermott International, Inc., a Panamanian corporation, will be held at the Intercontinental Miramar Hotel, Miramar Plaza, Balboa Avenue, Panama City, Panama, on Friday, May 6, 2011, at 3:00 p.m. local time, in order to:
Item of Business | Board Vote Recommendation | Page Reference | ||||
Election of directors | FOR Each Director Nominee | 5 | ||||
Advisory vote to approve named executive officer compensation | FOR | 56 | ||||
Ratification of Deloitte & Touche LLP as auditor for 2013 | FOR | 60 |
Your vote is important. Please vote your proxy promptly so your shares can be represented, even if you plan to attend the annual meeting. YouAnnual Meeting. Stockholders of record can vote by Internet, by telephone, or by requesting a printed copy of the proxy materials and using the proxy card enclosed with the printed materials.
Election of Directors — Item 1
The Board of Directors has nominated eight candidates, each for a one-year term. Our Board of Directors recommends that stockholders vote “For” each of the nominees named below.
Name | Age | Director Since | Independent | Committee Memberships | ||||||||||||||||
Audit | Compensation | Finance | Governance | |||||||||||||||||
John F. Bookout, III | 59 | 2006 | X | X | X | |||||||||||||||
Roger A. Brown | 68 | 2005 | X | X | Chairman | |||||||||||||||
Stephen G. Hanks | 62 | 2009 | X | X | X | |||||||||||||||
Stephen M. Johnson | 61 | 2010 | ||||||||||||||||||
D. Bradley McWilliams | 71 | 2003 | X | X | Chairman | |||||||||||||||
William H. Schumann, III | 62 | 2012 | X | X | X | |||||||||||||||
Mary L. Shafer-Malicki | 52 | 2011 | X | Chairman | X | |||||||||||||||
David A. Trice | 65 | 2009 | X | Chairman | X |
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Advisory Vote to Approve Named Executive Officer Compensation — Item 2
Our stockholders have the opportunity to cast a non-binding advisory vote on the compensation of our executive officers named in the Summary Compensation Table of this proxy card.statement (our “named executive officers” or NEOs”). Last year, we received the support of our stockholders with over 97% of the votes cast in favor of our executive compensation program. We recommend that you review our Compensation Discussion and Analysis beginning on page 25, which explains the philosophy of the Compensation Committee and their actions and decisions during 2012 regarding our compensation programs. Our Board of Directors recommends that stockholders vote “For” the advisory vote to approve named executive officer compensation.
2012 Performance and Compensation Highlights
For 2012:
NEO target total direct compensation was within approximately 5% of the median compensation for officers in comparable positions in our market.
NEO performance-based compensation accounted for over 64% of target total direct compensation, on average, as compared to 60% in 2011 and 46% in 2010.
Performance-based compensation accounted for 75% of NEO target long-term incentive compensation.
Compensation and Corporate Governance Policies and Procedures
The Board has implemented several policies and structures that we believe are “best practices” in corporate governance, including:
Appointing an independent Lead Director who presides over executive sessions of the independent members of our Board of Directors;
Holding executive sessions with only independent directors present in connection with meetings of the Board;
Engaging Pay Governance LLC, an independent executive compensation consultant;
Maintaining minimum stock ownership guidelines applicable to directors and executive officers;
Approving a policy prohibiting all directors, officers and employees from engaging in “short sales” or trading in puts, calls or other options on McDermott’s common stock, and from engaging in hedging transactions and from holding McDermott shares in a margin account or pledging McDermott shares as collateral for a loan; and
Eliminating excise tax gross-ups.
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Ratification of Appointment of Deloitte & Touche LLP as Auditors — Item 3
Our Board of Directors has ratified our Audit Committee’s appointment of Deloitte & Touche LLP as McDermott’s independent registered public accounting firm for the year ending December 31, 2013, and as a matter of good governance, we are seeking stockholder ratification of this appointment. For the years ended December 31, 2012 and 2011, McDermott paid Deloitte & Touche LLP the following fees:
Service | 2012 | 2011 | ||||||
Audit | $ | 3,487,789 | $ | 3,528,477 | ||||
Audit-Related | $ | 144,280 | $ | 114,367 | ||||
Tax | $ | 211,268 | $ | 286,512 | ||||
All Other | $ | 45,000 | $ | 0 | ||||
Total | $ | 3,888,337 | $ | 3,929,356 |
Our Board of Directors recommends that stockholders vote “For” the ratification of Deloitte & Touche LLP as McDermott’s independent registered public accounting firm for the year ending December 31, 2013.
Communicating with the Board of Directors
Stockholders or other interested persons may send written communications to the independent members of our Board, addressed to Board of Directors (independent members), c/o McDermott International, Inc., Corporate Secretary’s Office, 757 N. Eldridge Pkwy., Houston, Texas 77079.
QUESTIONSAND ANSWERSABOUTTHE ANNUAL MEETINGOF STOCKHOLDERSAND VOTING
What is the purpose of these proxy materials?
McDermott, on behalf of its Board of Directors, is soliciting your proxy to vote your shares at the 20112013 Annual Meeting of Stockholders. We solicit proxies to give all stockholders of record an opportunity to vote on matters that will be presented at the annual meeting.Annual Meeting. In this proxy statement, you will find information on these matters, which is provided to assist you in voting your shares.
Who will pay for the cost of this proxy solicitation?
We will bear all expenses incurred in connection with this proxy solicitation, which we expect to conduct primarily by mail. We have engaged The Proxy Advisory Group, LLC to assist in the solicitation for a fee that will not exceed $12,500, plusout-of-pocket expenses. In addition, our officers and regular employees may solicit your proxy by telephone, by facsimile transmission or in person, for which they will not be separately compensated. If your shares are held through a broker or other nominee (i.e., in “street name”) and you have requested printed versions of these materials, we have requested that your broker or nominee forward this proxy statement to you and obtain your voting instructions, for which we will reimburse them for reasonableout-of-pocket expenses. If your shares are held through the McDermott Thrift Plan and you have requested printed versions of these materials, the trustee of that plan has sent you this proxy statement and you can instruct the trustee on how to vote your plan shares.
Voting Information
Our Board of Directors selected March 7, 20118, 2013 as the record date (the “Record Date”) for determining stockholders entitled to vote at the Annual Meeting.
This means that if you owned McDermott common stock on the Record Date, you may vote your shares on
There were 233,914,181236,417,455 shares of our common stock outstanding on the Record Date. Each outstanding share of common stock entitles its holder to one vote on each matter to be acted on at the meeting.
Attendance at the meeting is limited to Votestockholders and beneficial owners as of the record date or duly appointed proxies. No guests will be admitted, except for guests invited by McDermott. Registration will begin at 9:00 a.m., and the meeting will begin promptly at 10:00 a.m. If your shares are held in “street name” through a broker, bank, trustee or other nominee, you are a beneficial owner, and beneficial owners will need to show proof of beneficial ownership, such as a copy of a brokerage account statement, reflecting stock ownership as of the record date in order to be admitted to the meeting. If you are a proxy holder for a stockholder, you will need to bring a validly executed proxy naming you as the proxy holder, together with proof of record ownership of the stockholder naming you as proxy holder. Please note that you may be asked to present valid photo identification, such as a driver’s license or passport, when you check in for registration. No cameras, recording equipment or other electronic devices will be allowed to be brought into the meeting room by stockholders or beneficial owners.
What is the difference between holding shares as a stockholder of record and as a beneficial owner through a brokerage account or other arrangement with a holder of record?
If your shares are registered in your name with McDermott’s transfer agent and registrar, Computershare Trust Company, N.A., you are the “stockholder of record” of those shares. The Notice and the proxy materials have been provided or made available directly to you by McDermott.
If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” but not the holder of record of those shares, and the Notice and the proxy materials have been forwarded to you by your broker, bank or other holder of record. As the beneficial owner, you have the right to direct your broker,
bank or other holder of record how to vote your shares by using the voting instruction card or by following their instructions for voting by telephone or on the Internet.
How do I cast my vote?
Most stockholders can vote by proxy in three ways:
• | by Internet atwww.proxyvote.com; | ||
by telephone; or
by mail.
If you are a stockholder of record, i.e. a stockholder registered with our transfer agent and registrar, Computershare Trust Company, N.A., on the Record Date, you can vote your shares in person at the Annual Meeting or vote now by giving us your proxy. You may give us your proxy by following the instructions included in the Notice or, if you received a printed version of these proxy materials, in the enclosed proxy card. If you want to vote by mail but have not received a printed version of these proxy materials, you may request a full packet of proxy materials through the instructions in the Notice. If you vote using either telephone or the Internet, you will save us mailing expense.
By giving us your proxy, you will be directing us how to vote your shares at the meeting. Even if you plan on attending the meeting, we urge you to vote now by giving us your proxy. This will ensure that your vote is represented at the meeting. If you do attend the meeting, you can change your vote at that time, if you then desire to do so.
If youryou are the beneficial owner but not the holder of record, of shares are held in street name, i.e. through a broker or nominee, you should refer to the instructions provided by your broker or nominee for further information. The broker or nominee that holds your shares has the authority to vote them, absent your approval, only as to matters for which they have discretionary authority under the applicable New York Stock Exchange rules. TheNeither the election of directors is not considered a routine matter. Additionally, stockholder actions on executive compensation matters (including advisory votes on executive compensation, the frequency with which to holdnor the advisory vote onto approve named executive officer compensation and the approval of our Executive Incentive Compensation Plan (the “EICP”)) are not considered routine matters. That means that brokers
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If you received a printed version of these proxy materials, you should have received a voting instruction form from your broker or nominee that holds your shares. For shares held in street name,of which you are the beneficial owner but not the holder of record, follow the
instructions contained in the Notice or voting instruction form to vote by Internet, telephone or mail. If you want to vote by mail but have not received a printed version of these proxy materials, you may request a full packet of proxy materials as instructed by the Notice. If you want to vote your shares in person at the Annual Meeting, you must obtain a valid proxy from your broker or nominee. You should contact your broker or nominee or refer to the instructions provided by your broker or nominee for further information. Additionally, the availability of telephone or Internet voting depends on the voting process used by the broker or nominee that holds your shares.
Why did I receive more than one Notice or proxy statement and proxy card or voting instruction form?
You may receive more than one Notice or proxy statement and proxy card or voting instruction form if your shares are held through more than one account (e.g., through different brokers or nominees). Each proxy card or voting instruction form only covers those shares of common stock held in the applicable account. If you hold shares in more than one account, you will have to provide voting instructions as to all your accounts to vote all your shares.
How to Change Your VoteWhat can I do if I change my mind after I vote?
If you are a stockholder of record, you may change your vote by written notice to our Corporate Secretary, by granting a new proxy before the Annual Meeting or by voting in person at the Annual Meeting. Unless you attend the meeting and vote your shares in person, you should change your vote before the meeting using the same method (by telephone, Internet or mail) that you first used to vote your shares. That way, the inspectors of election for the meeting will be able to verify your latest vote.
If youryou are the beneficial owner, but not the holder of record, of shares are held in street name, you should follow the instructions in the information provided by your broker or nominee to change your vote.vote before the meeting. If you want to change your vote as to shares held in street nameof which you are the beneficial owner by voting in person at the Annual Meeting, you must obtain a valid proxy from the broker or nominee that holds those shares for you.
What is a broker non-vote?
If you are a beneficial owner whose shares are held of record by a broker or other holder of record, you must instruct the broker or other holder of record how to vote your shares. If you do not provide voting instructions, your shares will not be voted on any proposal on which the broker does not have discretionary authority to vote. This is called a “broker non-vote.” In these cases, the broker or other holder of record can include your shares as being present at the Annual Meeting for purposes of determining the presence of a quorum but will not be able to vote on those matters for which specific authorization is required under the rules of the New York Stock Exchange (“NYSE”).
With respect to this Annual Meeting, if you are a beneficial owner whose shares are held by a broker or other holder of record, your broker or other holder of record has discretionary voting authority under NYSE rules to vote your shares on the ratification of Deloitte & Touche LLP (“Deloitte”), even if it has not received voting instructions from you. However, such holder does not have discretionary authority to vote on the election of directors or the advisory vote to approve named executive officer compensation without instructions from you, in which case a broker non-vote will occur and your shares will not be voted on those matters.
What is the quorum for the Annual Meeting?
The Annual Meeting will be held only if a quorum exists. The presence at the meeting, in person or by proxy, of holders of a majority of our outstanding shares of common stock as of the Record Date will constitute a quorum. If you attend the meeting or vote your shares by Internet, telephone or mail, your shares will be counted toward a quorum, even if you abstain from voting on a particular matter. Shares held by brokers and other nomineesBroker non-votes will be treated as to which they have not received voting instructions frompresent for the beneficial owners and lackpurpose of determining a quorum.
Which items will be voted on at the discretionary authority to vote on a particular matter are called “broker non-votes” and will count for quorum purposes.
At the Annual Meeting, we are asking you to vote on the following:
the election of John F. Bookout, III, Roger A. Brown, Stephen G. Hanks, Stephen M. Johnson, D. Bradley McWilliams, William H. Schumann, III, Mary L. Shafer-Malicki
and David A. Trice to our Board of Directors, each for a term of one year; | ||
the advisory vote to approve named executive officer compensation; and
the ratification of our Audit Committee’s appointment of Deloitte as our independent registered public accounting firm for the year ending December 31, 2013.
We are not aware of any other matters that may be presented or acted on at the Annual Meeting. If you vote by signing and returning the enclosed proxy card or using the telephone or Internet voting procedures, the individuals named as proxies on the card may vote your shares, in their discretion, on any other matter requiring a stockholder vote that comes before the meeting.
What are the Board’s voting recommendations?
For the reasons set forth in more detail later in this proxy statement, our Board recommends a vote:
FOR the election of each director nominee;
FOR the advisory vote to approve named executive officer compensation; and
FOR the ratification of our Audit Committee’s appointment of Deloitte as our independent registered public accounting firm for the year ending December 31, 2013.
What are the voting requirements to elect the Directors and to approve each of the proposals discussed in this proxy statement?
Our By-Laws provide that, in all matters arising at a stockholders’ meeting, a majority of the voting power of our outstanding shares present in person or represented by proxy at the meeting and entitled to vote and actually voting on the matter shall be necessary and sufficient for approval, except where some larger percentage is required by applicable law or our articlesArticles of incorporation.Incorporation. No such larger percentage is applicable to any of the items we are asking you to vote on at the meeting.Annual Meeting. Because abstentions and broker non-votes are not actual votes with respect to a proposal, they will have no effect on the outcome of the vote on a proposal. If none of the alternatives in the advisory vote to determine the frequency of the advisory vote on executive
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not receive a “FOR” vote by a majority of shares present in person or by proxy and entitled to vote and actually voting on the matter to promptly tender his or her resignation to the Governance Committee, subject to acceptance by our Board. Pursuant to our Corporate Governance Guidelines, theThe Governance Committee will then make a recommendation to the Board with respect to the director nominee’s resignation and the Board will consider the recommendation and take appropriate action within 120 days from the date of the certification of the election results.
What happens if I do not specify a signedchoice for a proposal when returning a proxy or do not cast my vote?
You should specify your choice for each proposal on your proxy card without specifying your vote, your sharesor voting instruction form. Shares represented by proxies will be voted “FOR” the election of all director nominees, the advisory vote on executive compensation, the approval of our EICP and the ratification of our Audit Committee’s appointment of Deloitte as our independent registered public accounting firm for the year ending December 31, 2011. If you submit a signed proxy card without specifying your vote on the frequency of the advisory vote on executive compensation, your shares will be voted to require the advisory vote every year, in accordance with the recommendation of our Board of Directors.
If you vote by signingare the beneficial owner, but not the holder of record, of shares and returning the enclosed proxy cardfail to provide voting instructions, your broker or using the telephone or Internet voting procedures, the individuals named as proxies on the card mayother holder of record is permitted to vote your shares in their discretion, on anythe ratification of Deloitte as our independent registered public accounting firm. However, absent instructions from you, your broker or other matter requiring a stockholderholder of record may not vote that comes beforeon the meeting.
Confidential VotingIs my vote confidential?
All voted proxies and ballots will be handled in a manner intended to protect your voting privacy as a stockholder. Your vote will not be disclosed except:
to meet any legal requirements;
in limited circumstances such as a proxy contest in opposition to our Board of Directors;
to permit independent inspectors of election to tabulate and certify your vote; or
to adequately respond to your written comments on your proxy card.
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Election of Directors
Our Articles of Incorporation our Board ceased to be classified andprovide that, at each annual meeting of stockholders, all directors became subject toshall be elected annually for a term expiring at the next succeeding annual election.
Our By-Laws provide that (1) a person shall not be nominated for election or reelection to our Board of Directors if such person shall have attained the age of 72 prior to the date of election or reelection and (2) any director who attains the age of 72 during his or her term shall be deemed to have resigned and retired at the first Annual Meeting following his or her attainment of the age of 72. Accordingly, a directordirec-
tor nominee
Unless otherwise directed, the persons named as proxies on the enclosed proxy card intend to vote “FOR” the election of each of the nominees. If any nominee should become unavailable for election, the shares will be voted for such substitute nominee as may be proposed by our Board of Directors. However, we are not aware of any circumstances that would prevent any of the nominees from serving.
In nominating individuals to become members of the Board of Directors, the Governance Committee considers the experience, qualifications and skills of each potential member. Each nominee brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas. The Governance Committee and the Board of Directors considered the following information, including the specific experience, qualifications, attributes or skills, in concluding each individual was an appropriate nominee to serve as a member of our Board for the term commencing at this year’s Annual Meeting (ages are as of May 6, 2011)7, 2013).
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John F. Bookout, III | Director Since 2006 | |
Age — 59
Finance Committee — Member
Governance Committee — Member
Mr. Bookout has served as a Managing Director of Kohlberg Kravis Roberts & Co., a private equity firm, since March 2008. Previously, he served as Senior Advisor to First Reserve Corporation, a private equity firm specializing in the energy industry, from 2006 to March 2008. Until 2006, he was a director of McKinsey & Company, a global management consulting firm, which he joined in 1978. Mr. Bookout previously served as a director of Tesoro Corporation from2006-2010. The Board of Directors is nominating Mr. Bookout in consideration of his:
global experience with the petroleum refining and marketing industry and oil and gas exploration and development industry;
expertise in private equity and finance; and
experience as a board member of public companies, including McDermott.
Roger A. Brown | ||
Director Since 2005 | ||
Age — 68
Compensation Committee — Member
Governance Committee — Chairman
From 2005 until his retirement in 2007, Mr. Brown was Vice President, Strategic Initiatives of Smith International, Inc., a supplier of goods and services to the oil and gas exploration and production industry, the petrochemical industry and other industrial markets. Mr. Brown was President of Smith Technologies (a business unit of Smith International, Inc.) from 1998 until 2005. Mr. Brown has also served as a director of Ultra Petroleum Corp. since 2007 and Boart Longyear Limited since 2010. The Board of Directors is nominating Mr. Brown in consideration of his:
executive leadership experience in the oil and gas exploration and production industry;
knowledge of corporate governance issues; and
experience as a board member of public companies, including McDermott.
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Stephen G. Hanks | ||
Director Since 2009 | ||
Age — 62
Audit Committee — Member
Finance Committee — Member
Mr. Hanks was President of the Washington Division of URS Corporation, an engineering, construction and technical services company, and he also served asin various roles over a member of URS Corporation’s Board of Directors during that time. Previously, from June 2001 to November 2007 he was President and CEO of30-year career with Washington Group International, Inc. (“Washington Group”)(and its predecessor, Morrison Knudsen Corporation), an integrated engineering, construction and management services company, which was acquired by URS Corporation inand from 2000 through 2007 served as President, Chief Executive Officer and also served ona member of its Boardboard of Directors.directors. Mr. Hanks has also served as a director of Lincoln Electric Holdings, Inc. since 2006 and as a director of The Babcock & Wilcox Company since 2010. The Board of Directors is nominating Mr. Hanks in consideration of his:
experience in executive leadership, including his position as the Chief Executive Officer of Washington Group;
background and knowledge in the areas of accounting, auditing and financial reporting, having previously served as a Chief Financial Officer;
experience in the engineering and construction industry; and
experience as a board member of public companies, including McDermott.
Stephen M. Johnson | ||
Director Since 2010 | ||
Age — 61
Chairman of the Board, President and Chief Executive Officer
Mr. Johnson has been President and Chief Executive Officer of McDermott and a member of our Board since July 2010.2010, and has served as Chairman of our Board since May 2011. Previously, he served as President and Chief Executive Officer of J. Ray McDermott, S.A., one of our subsidiaries, from January 2010 to July 2010;2010, and President and Chief Operating Officer of McDermott from April 2009 to December 2009, and from2009. From 2001 to 2008, asMr. Johnson was Senior Executive Vice President and Member, Office of the Chairman, at Washington Group and at URS Corporation, which acquired Washington Group in 2007. Prior to joining Washington Group, Mr. Johnson held various management positions within Fluor Corporation, an engineering, procurement, construction and maintenance services company, from 1973 through 2001. The Board of Directors is nominating Mr. Johnson in consideration of his:
position as our Chairman, President and Chief Executive Officer;
experience in executive leadership for public companies in the engineering and construction industry, encompassing global experience, technical knowledge and complex business and financial structuring, as well as experience in the oil & gas, chemical processing, power generation, transportation, mining and government businesses;
operational and financial expertise in the engineering and construction industry, both in the United States and in international markets, including having resided, worked or led complex business transactions in the United States, Europe, Africa, the Middle East and Asia Pacific regions;
experience as a recognized leader in the area of risk management within the engineering and construction industry, having participated in the founding of the Engineering & Construction Risk Institute, a global organization focused on developing best practices in risk management, of which he served as Chairman; and
broad knowledge of the demands and expectations of our core customers.
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D. Bradley McWilliams | ||
Director Since 2003 | ||
Age — 71
Lead Director
Audit Committee — Member
Finance Committee — Chairman
Mr. McWilliams has served as our Lead Director since May 2011. From April 1995 until his retirement in April 2003, Mr. McWilliams was Senior Vice President and Chief Financial Officer of Cooper Industries Ltd., a worldwide manufacturer of electrical products, tools and hardware. He was Vice President of Cooper Industries from 1982 until April 1995. Mr. McWilliams has served as a director and Lead Director of The Babcock & Wilcox Company since 2010 and previously served as a director of Kronos Incorporated from 1993 to 2005. The Board of Directors is nominating Mr. McWilliams in consideration of his:
background in public accounting;
background and knowledge in the areas of accounting, auditing and financial reporting, having served as a Chief Financial Officer of a public company; and
experience as a board member and lead director of public companies, including McDermott.
William H. Schumann, III | ||
Director Since | ||
2012 |
Age — 62
Audit Committee — Member
Governance Committee — Member
From November 2001February 2007 until his retirement in November 2004,August 2012, Mr. Schievelbein was President of Northrop Grumman Newport News, a subsidiary of the Northrop Grumman Corporation, a global defense company. From October 1995 to October 2001, heSchumann served as Executive Vice President of FMC Technologies, Inc. (“FMC”), a global provider of technology solutions for the energy industry. Mr. Schumann previously served in the following capacities at FMC Technologies and its predecessor, FMC Corporation: Chief OperatingFinancial Officer from 2001 until his retirement from that position in December 2011; Vice President, Corporate Development from 1998 to 1999; Vice President and General Manager, Agricultural Products Group from 1995 to 1998; Regional Director, North America Operations, Agricultural Products Group from 1993 to 1995; Executive Director of Newport News Shipbuilding,Corporate Development from 1991 to 1993, and other various management positions from the time he joined FMC in 1981. Mr. Schumann also previously served on the board of directors of UAP Holding Corp. from 2005 to 2008 and currently serves as Chairman of the Board of Avnet, Inc. Mr. Schievelbein has also served as a directorand on the board of Huntington Ingalls Industries, Inc. since 2011, The Brinks Company since 2009 and New York Life Insurance Company since 2006.directors of AMCOL International. The Board of Directors is nominating Mr. SchievelbeinSchumann in consideration of his:
executive leadership experience in the energy industry;
background and knowledge in the areas of accounting, auditing and financial reporting, having served as a Chief Financial Officer of a public company; and
experience as a board member of public companies, including as a chairman of a public company.
Mary L. Shafer-Malicki | ||
Director Since 2011 | ||
Age — 52
Compensation Committee — Chairman
Finance Committee — Member
From July 2007 until her retirement in March 2009, Ms. Shafer-Malicki was Senior Vice President and Chief Executive Officer of BP Angola, a subsidiary of BP p.l.c., an oil and natural gas exploration, production, refining and marketing company. Previously, Ms. Shafer-Malicki served as Chief Operating Officer of BP Angola from January 2006 to June 2007 and in various other international engineering and managerial positions withinwith BP p.l.c. Ms. Shafer-Malicki has also served as a director of Ausenco Limited since January 2011.2011 and John Wood Group PLC since June 2012. The Board of Directors is nominating Ms. Shafer-Malicki in consideration of her:
experience in the upstream energy and supporting infrastructure businesses;
knowledge of and experience with our core customers;
executive experience and business leadership skills, including operations, strategy, commercial, safety and supply chain management;
significant international experience, having executive or management experience in Europe, Asia Pacific and Africa; and
experience as a board member of public companies.
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David A. Trice | ||
Director Since 2009 | ||
Age — 65
Audit Committee — Chairman
Compensation Committee — Member
From February 2000 until his retirement in May 2009, Mr. Trice was Chief Executive Officer of Newfield Exploration Company, an oil and natural gas exploration and production company, and served as Chairman of its board from September 2004 to May 2010. Mr. Trice has served as a director of New Jersey Resources Corporation since 2004.2004 and QEP Resources, Inc. since 2011. Mr. Trice previously served as a director of Grant PrideCo, Inc. from 2003 to 2008 and Hornbeck Offshore Services, Inc. from 2002 to 2011. The Board of Directors is nominating Mr. Trice in consideration of his:
executive experience as a Chief Executive Officer | ||
experience in the nominees named above.oil and gas exploration and production business;
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background and knowledge in the areas of accounting, auditing and financial reporting; and
experience as a board member of public companies, including as a chairman of a public company.
Corporate GovernanceCORPORATE GOVERNANCE
We maintain a corporate governance section on our Web site which contains copies of our principal governance documents. The corporate governance section may be found atwww.mcdermott.comat “Corporateunder “About Us — Leadership & Corporate Governance —Corporate Governance” and “About Us —Leadership & Corporate Governance — Board Committees” and “Corporate Governance — Governance Policies.Committees.” The corporate governance section contains the following documents:
By-Laws
Corporate Governance Guidelines
Code of Ethics for CEO and Senior Financial Officers
Board of Directors Conflicts of Interest Policies and Procedures
Audit Committee Charter
Compensation Committee Charter
Finance Committee Charter
Governance Committee Charter
In addition, our Code of Business Conduct may be found on our Web site atwww.mcdermott.comat “Corporate Governance“About Us — Code of Conduct.Leadership & Corporate Governance.”
The New York Stock Exchange listing standards require our Board of Directors to be comprised of at least a majority of independent directors. For a director to be considered independent, our Board must determine that the director does not have any direct or indirect material relationship with us. To assist it in determining director independence, and as permitted by New York Stock Exchange rules then in effect, the Board previously established categorical standards which conform to, or are more exacting than, the independence requirements in the New York Stock Exchange listing standards. These standards are contained in the Corporate Governance Guidelines, which can be found on our Web site atwww.mcdermott.comunder Based on these independence standards, our Board of Directors has affirmatively determined that the following directors are independent and meet our categorical standards:“Corporate“About Us — Leadership & Corporate Governance — Governance Policies.Corporate Governance.”
John F. Bookout, III | William H. Schumann, III | |
Roger A. Brown | ||
Mary L. Shafer-Malicki | ||
Stephen G. Hanks | David A. Trice | |
D. Bradley McWilliams |
In determining the independence of the directors, our Board considered ordinary course transactions between us and other entities with which the directors are associated, none of which were determined to constitute a material relationship with us. Messrs. Cambre, SchievelbeinBrown, Schumann and Trice have no relationship with McDermott, except as a director and stockholder. Messrs. Brown andMr. Hanks and Ms. Shafer-Malicki are directors of entities with which we transact business in the ordinary course. Mr. Bookout is an outside consultantManaging Director for an affiliate ofa private equity firm which has invested in an entity with which we transact business in the ordinary course. Messrs. Hanks and McWilliams are directors of The Babcock & Wilcox Company (“B&W,&W”), which pursuant to the transition services agreements entered into by McDermott and B&W prior to the Spin-off,spin-off of B&W (the “Spin-off”), McDermott has transacted with following the Spin-off. Our Board also considered unsolicited contributions by us to charitable organizations with which the directors were associated.associated, including one in 2013 to a charitable organization for which Mr. HanksMcWilliams serves as a director. No director is related to any executive or significant stockholder of McDermott, nor is any director, with the exception of Mr. Johnson, a charitable organization to which we made unsolicited contributions between 2008 and 2009. The charitable contribution was in the usual coursecurrent or former employee of our annual giving programs.
Our independent directors meet in executive session without management on a regular basis. Currently, Ronald C. Cambre,Mr. D. Bradley McWilliams, our non-executive Chairman of the Board,Lead Director, serves as the presiding director for these executive sessions.Communications With the Board
Stockholders or other interested persons may send written communications to the independent members of our Board, addressed to Board of Directors (independent members),c/o McDermott International, Inc., Corporate Secretary’s Office, 757 N. Eldridge Pkwy., Houston, Texas 77079. Information regarding this process is posted on our Web site atwww.mcdermott.comunder “Corporate“About Us — Leadership & Corporate Governance — Board Committees.Independent Director Access Information.”
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Our Board met 13eight times during 2010.2012. All directors attended 75% or more of the meetings of the Board and of the committees on which they served during 2010.2012, with the exception of Mr. Schumann. Due to a pre-existing conflict that was scheduled prior to Mr. Schumann joining our Board in September 2012 and which conflict the Board was aware of when appointing him, Mr. Schumann was unable to attend the November 7-8 Board and Committee meetings. Mr. Schumann has attended all Board and Committee meetings held year to date in 2013. In addition, as reflected in our Corporate Governance Guidelines, we have adopted a policy that each member of our Board must make reasonable efforts to attend our Annual Meeting. All directors then serving on the Board attended our 20102012 Annual Meeting.
Board currently separatesLeadership Structure
Mr. Johnson has served as Chairman of the Board in addition to his service as Chief Executive Officer since May 2011. In May 2012, our Board reevaluated whether the positions of Chairman of the Board and Chief Executive Officer should be separate or occupied by the same individual, and determined that Mr. Johnson should continue to serve as Chairman of the Board. As the individual with primary responsibility for managing our day-to-day operations, Mr. Johnson servesis most familiar with our business and the complex challenges faced by McDermott. As a result, our Board believes that he is best positioned at this time to identify strategic priorities and lead Board discussions and decision-making processes regarding key business and strategic issues, as ourwell as to oversee the execution of important strategic initiatives. As Chief Executive Officer, and Mr. Cambre serves as our non-executive Chairman. Our Board believes that this leadership structure is appropriate for McDermott at this time because it allows Mr. Johnson who was appointedis in an optimal position to facilitate the flow of information between management and the
Board and is able to ensure that McDermott presents its message and strategy to stockholders, employees, customers and other stakeholders with a unified voice.
McDermott has adopted a governance structure that includes:
a designated independent Lead Director;
a Board composed entirely of independent directors, with the exception of Mr. Johnson;
annual election of directors; and
committees composed entirely of independent directors.
The independent Lead Director, Mr. McWilliams, acts as an intermediary between the Board and management and is responsible for presiding at executive sessions of the independent directors and serving as a liaison on Board-wide issues between the independent directors and the Chief Executive Officer, as needed.
Board’s Role in July 2010, to set our strategic direction and manage ourday-to-dayRisk Oversight operations and performance, while our non-executive Chairman is able to lead the Board in its responsibilities while also monitoring and objectively evaluating Mr. Johnson’s performance as Chief Executive Officer.
As part of its oversight function, the Board monitors various risks that McDermott faces.is actively involved in overseeing risk management through our Enterprise Risk Management (“ERM”) program. Our Chief Risk Officer administers our Enterprise Risk Program, or ERP,ERM program and presents information to senior management and the Board on matters relating to the ERP.risk management on at least an annual basis. In connection with the ERP,ERM program, the Board reviewedexercises its oversight responsibility with respect to key external, strategic, operational and financial risks and discusseddiscusses the effectiveness of current efforts to mitigate certain focus risks. Ourrisks as identified by senior management and the Board through anonymous risk surveys.
Although the Board is ultimately responsible for risk oversight, the Board has delegated risk oversight responsibility to each of the Audit, Compensation, Finance and Governance Committees oversight of risks for each committee’s areas of oversight, areas, as set forth in their respective charters,charters. Each committee oversees risks, including but not limited to, those set forth below, and has directed that each committee periodically reportreports to the Board on those risks.risks:
the Audit Committee oversees risks with respect to financial reports and other financial information provided by us to our stockholders;
the Compensation Committee oversees risks with respect to our compensation policies and practices with respect to executives as well as employees generally, employee benefit plans and the administration of equity plans;
the Finance Committee oversees risks with respect to our policies and processes relating to capital structure, capital expenditures, financing, mergers and acquisitions; and
the Governance Committee oversees risks with respect to the review and recommendation of Board member candidates, the annual evaluation of the performance of the Board and its members, review of compensation for our nonemployee directors, our Compliance and Ethics Program (excluding responsibilities assigned to the Audit Committee) and director and officer insurance coverage.
At their respective November 2012 meetings, each committee undertook an in-depth assessment of
those areas of risk oversight that were delegated to it and provided a report to the Board. Also, at its November 2012 meeting, the Board received an ERM report from the Chief Risk Officer and performed an assessment and review of the risks described in that report that were not delegated to the committees.
Board Committees
Our Board currently has, and appoints the members of, standing Audit, Compensation, Finance and Governance Committees. Each of those committees is comprised entirely of independent non-managementnonemployee directors and has a written charter approved by the Board. The current charter for each standing Board committee is posted on our Web site atwww.mcdermott.comunder “Corporate“About Us — Leadership & Corporate Governance — Board Committees.” Additionally, in January 2010 our Board established a special Restructuring Committee in connection with the Spin-off. Following the completion of the Spin-off, that committee was dissolved in August 2010.
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Committees and Current Members | Principal Functions and Additional Information | Meetings Held in 2012 | ||
AUDIT Mr. Trice (Chair) Mr. Hanks Mr. McWilliams Mr. Schumann | • Monitors our financial reporting process and internal control system. • Oversees the integrity of our financial statements. • Monitors our compliance with legal and regulatory financial requirements, including our compliance with the applicable reporting requirements established by the Securities and Exchange Commission (the “SEC”). • Evaluates the independence, qualifications, performance and compensation of our independent registered public accounting firm. • Oversees the performance of our internal audit function. • Oversees certain aspects of our Compliance and Ethics Program relating to financial matters, books and records and accounting and as required by applicable statutes, rules and regulations. • Provides an open avenue of communication among our independent registered public accounting firm, financial and senior management, the internal audit department and the Board. Our Board has determined that Messrs. Trice, Hanks, McWilliams and Schumann each qualify as an “audit committee financial expert” within the definition established by the SEC. For more information on the backgrounds of those directors, see their biographical information under “Election of Directors” above. | 4 Meetings in 2012 |
COMPENSATION Ms. Shafer-Malicki (Chair) Mr. Brown Mr. Trice | • Evaluates our officer and director compensation plans, policies and programs and our employee benefit plans. • Approves and/or recommends to the Board for approval such officer and director compensation plans, policies and programs. • Oversees our disclosures relating to compensation plans, policies and programs, including overseeing the preparation of the Compensation Discussion and Analysis included in this proxy statement. • Acts in its sole discretion to retain or terminate any compensation consultant to be used to assist the Compensation Committee in the discharge of its responsibilities. For additional information on the role of compensation consultants, please see “Compensation Discussion and Analysis — Role of Compensation Committee, Compensation Consultant and Management” below. • For 2012, the Compensation Committee authorized our Chief Executive Officer, in consultation with his direct reports, to establish individual goals under our Executive Incentive Compensation Plan (“EICP”) for our other executive officers who participate in the EICP. • Under our 2009 McDermott International, Inc. Long-Term Incentive Plan (the “2009 LTIP”), the Compensation Committee may delegate some of its duties to our Chief Executive Officer or other senior officers. • Under the McDermott International, Inc. Director and Executive Deferred Compensation Plan, which we refer to as the “DCP,” the Compensation Committee may delegate any of its powers or responsibilities to one or more members of the Committee or any other person or entity. | 8 Meetings in 2012 | ||
FINANCE Mr. McWilliams (Chair) Mr. Bookout Mr. Hanks Ms. Shafer-Malicki | • Reviews and oversees financial policies and strategies, mergers and acquisitions, financings, liabilities, investment performance of our pension plans and our capital structure. • Recommends any change in dividend policies or stock repurchase programs. • Oversees capital expenditures and capital allocation strategies. • Oversees our tax structure and monitors any developments relating to changes in tax legislation. • Generally has responsibility over such matters up to $50 million, and for activities involving amounts over $50 million, reviews each such activity and makes a recommendation to the Board. | 5 Meetings in 2012 |
GOVERNANCE Mr. Brown (Chair) Mr. Bookout Mr. Schumann | • Identifies individuals qualified to become Board members and recommends to the Board each year the director nominees for the next annual meeting of stockholders. • Develops, reviews and recommends to the Board any changes to our Corporate Governance Guidelines the Governance Committee deems appropriate. • Leads the Board in its annual review of the Board’s performance and, in conjunction with the Compensation Committee, oversees the annual evaluation of our Chief Executive Officer. • Reviews our executive management succession plan on at least an annual basis. • Recommends to the Board the directors to serve on each Board committee. • Recommends to the Board the compensation of nonemployee directors. • Serves as the primary committee overseeing our Compliance and Ethics Program, excluding certain oversight responsibilities assigned to the Audit Committee. • Oversees our director and officer insurance program. | 6 Meetings in 2012 |
The Compensation Committee has concluded that risks arising from McDermott’s compensation
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The Compensation Committee regularly reviews the design of our significant compensation programs with the assistance of its compensation consultant. We believe our compensation programs motivate and retain our executive officer employees while allowing for appropriate levels of business risk through some of the following features:
• | Reasonable Compensation Programs — Using the elements of total direct compensation, the Compensation Committee seeks to provide compensation opportunities for employees targeted at or near the median compensation of comparable positions in our market. As a result, we believe the total direct compensation of executive officer employees provides a reasonable and appropriate mix of cash and equity, annual and longer-term incentives and performance metrics. | ||
• | Emphasize Long-Term Incentive Compensation Over Annual Incentive Compensation — Long-term incentive compensation typically makes up a larger percentage of an executive officer employee’s total direct compensation than annual incentive compensation. Incentive compensation helps drive performance and align the interests of | ||
• | 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 | ||
• | 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 | ||
• | Annual Incentive Compensation Subject to Threshold Performance and Linear and Capped | ||
• | Use of Multiple | ||
• | Stock Ownership Guidelines — Our executive officers and directors are subject to |
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All members of our Compensation Committee are independent in accordance with the New York Stock ExchangeNYSE listing standards. No member of the Compensation Committee (1) was, during the year ended December 31, 2010,2012, or had previously been, an officer or employee of McDermott or any of its subsidiaries, or (2) had any material interest in a transaction of McDermott or a business relationship with, or any indebtedness to, McDermott. No interlocking relationship existed during the year ended December 31, 20102012 between any member of the Board of Directors or the Compensation Committee and an executive officer of McDermott.
Our Governance Committee has determined that a candidate for election to our Board of Directors must meet specific minimum qualifications. Each candidate should: have a record of integrity and ethics in his/her personal and professional life; have a record of professional accomplishment in his/her field; be prepared to represent the best interests of our stockholders; not have a material personal, financial or professional interest in any competitor of ours; and be prepared to participate fully in Board activities, including active membership on at least one Board committee and attendance at, and active participation in, meetings of the Board and the committee(s) of which he or she is a member, and not have other personal or professional commitments that would, in the Governance Committee’s
sole judgment, interfere with or limit his or her ability to do so. |
In addition, the Governance Committee also considers it desirable that candidates possess the following qualities or skills:
each candidate should contribute positively to the collaborative culture among Board members; and
each candidate should possess professional and personal experiences and expertise relevant to our business and industry.
While McDermott does not have a specific policy addressing board diversity, the Board recognizes the benefits of a diversified board and believes that any search for potential director candidates should consider diversity as to gender, ethnic background and personal and professional experiences. The Governance Committee solicits ideas for possible candidates from a number of sources — including independent director candidate search firms, members of the Board and our senior level executives.
In 2010,2012, our Governance Committee engaged Russell Reynolds Associates (“Russell Reynolds”), an independent director search firm, in order to assist in selecting director candidates. After review and consideration of approximately 25 prospective candidates identified by Russell Reynolds, Ms. Shafer-MalickiMr. Schumann was appointed to
the Board on February 17, 2011September 24, 2012 in consideration of herhis extensive experience in our industry and other qualifications.
Any stockholder may nominate one or more persons for election as one of our directors at an annual meeting of stockholders if the stockholder complies with the notice, information and consent provisions contained in our By-Laws. See “Stockholders’ Proposals” in this proxy statement and our By-Laws, which may be found on our Web site atwww.mcdermott.comat “Corporate“About Us — Leadership & Corporate Governance — Governance Policies.Corporate Governance.”
The Governance Committee will consider candidates identified through the processes described above and will evaluate each of them, including incumbents, based on the same criteria. The Governance Committee also takes into account the contributions of incumbent directors as Board members and the benefits to us arising from their experience on the Board. Although the Governance Committee will consider candidates identified by stockholders, the Governance Committee has sole discretion whether to recommend those candidates to the Board. None of the director nominees for the 20112013 Annual Meeting are standing for election for the first time, with the exception of Mr. Johnson and Ms. Shafer-Malicki,Schumann, who werewas appointed to the Board in July 2010 and February 2011, respectively.September 2012.
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In May 2011, at the request of the Governance Committee, Pay Governance LLC performed a market analysis of nonemployee director compensation and made recommendations regarding nonemployee director compensation to the Governance Committee. Based upon those recommendations, the Governance Committee recommended revisions to our 2011 nonemployee director compensation program, which were approved by the Board. No changes were made to the nonemployee director compensation program for 2012 as compared to 2011.
Under our 2012 nonemployee director compensation program, cash compensation for nonemployee directors consisted of retainers (paid monthly and prorated for partial terms) and meeting fees as follows:
annual Board member retainer: $75,000;
additional retainer for the chair of Directorseach of the Finance Committee and Governance Committee: $10,000;
additional retainer for the Lead Director: $20,000; and
meeting fees of $2,500 for each meeting of the Board or a Committee (of which the nonemployee director is a member) attended, in person or by telephone, in excess of the eighth Board or Committee meeting per calendar year.
The table below summarizes the compensation earned by or paid to our nonemployee directors during the year ended December 31, 2010. In connection with the Spin-off, Messrs. Goldman and Kingsley and Admiral Mies resigned as members of the2012. Mr. Thomas C. Schievelbein retired from our Board of Directors on July 30, 2010.
Director Compensation TableDIRECTOR COMPENSATION TABLE Fees Earned or Stock Name Paid in Cash(1) Awards(2) Total John F. Bookout, III $ 95,000 $ 109,979 $ 204,979 Roger A. Brown $ 106,750 $ 109,979 $ 216,729 Ronald C. Cambre $ 247,500 $ 109,979 $ 357,479 Robert W. Goldman $ 68,000 $ 109,979 $ 177,979 Stephen G. Hanks $ 91,750 $ 109,979 $ 201,729 Oliver D. Kingsley Jr. $ 57,250 $ 109,979 $ 167,229 D. Bradley McWilliams $ 108,250 $ 109,979 $ 218,229 Richard W. Mies $ 57,250 $ 109,979 $ 167,229 Thomas C. Schievelbein $ 107,750 $ 109,979 $ 217,729 David A. Trice $ 105,750 $ 109,979 $ 215,729
Name | Fees Earned or Paid in Cash | Stock Awards(1) | Total | |||||||||
John F. Bookout, III | $ | 75,000 | $ | 119,996 | $ | 194,996 | ||||||
Roger A. Brown | $ | 85,000 | $ | 119,996 | $ | 204,996 | ||||||
Stephen G. Hanks | $ | 75,000 | $119,996 | $ | 194,996 | |||||||
D. Bradley McWilliams | $ | 105,000 | $ | 119,996 | $ | 224,996 | ||||||
Thomas C. Schievelbein | $ | 71,250 | $ | 119,996 | $ | 191,246 | ||||||
William H. Schumann, III | $ | 18,750 | $ | 75,276 | $ | 94,026 | ||||||
Mary L. Shafer-Malicki | $ | 80,000 | $ | 119,996 | $ | 199,996 | ||||||
David A. Trice | $ | 95,000 | $ | 119,996 | $ | 214,996 |
(1) | ||
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Equity Awards | ||||||||||||||||||||||
Granted in 2010 | ||||||||||||||||||||||
Shares of | Equity Awards Outstanding at | |||||||||||||||||||||
Restricted | Grant Date | December 31, 2010 | ||||||||||||||||||||
Name | Grant Date | Stock | Fair Value | Stock Awards | Option Awards | |||||||||||||||||
John F. Bookout, III | May 13, 2010 | 4,243 | $ | 109,979 | 0 | 6,105 | ||||||||||||||||
Roger A. Brown | May 13, 2010 | 4,243 | $ | 109,979 | 0 | 38,085 | ||||||||||||||||
Ronald C. Cambre | May 13, 2010 | 4,243 | $ | 109,979 | 0 | 0 | ||||||||||||||||
Robert W. Goldman | May 13, 2010 | 4,243 | $ | 109,979 | 0 | 0 | ||||||||||||||||
Stephen G. Hanks | May 13, 2010 | 4,243 | $ | 109,979 | 0 | 0 | ||||||||||||||||
Oliver D. Kingsley, Jr. | May 13, 2010 | 4,243 | $ | 109,979 | 0 | 0 | ||||||||||||||||
D. Bradley McWilliams | May 13, 2010 | 4,243 | $ | 109,979 | 0 | 37,876 | ||||||||||||||||
Richard W. Mies | May 13, 2010 | 4,243 | $ | 109,979 | 0 | 0 | ||||||||||||||||
Thomas C. Schievelbein | May 13, 2010 | 4,243 | $ | 109,979 | 0 | 72,538 | ||||||||||||||||
David A. Trice | May 13, 2010 | 4,243 | $ | 109,979 | 0 | 0 |
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The Continuing Named Executives, our former Chief Executive Officer, Mr. John A. Fees, who became Chairman of the Board of Directors of B&W following the Spin-off, our former Chief Financial Officer, Mr. Michael S. Taff, who became Chief Financial Officer of B&W following the Spin-off, and Mr. Brandon C. Bethards, who became the Chief Executive Officer of B&W following the Spin-off, and would have been one of our three other most highly compensated executive officers had he been employed by McDermott as of December 31, 2010, are collectively referred to as our “Named Executives.” Information on Messrs. Fees, Taff and Bethards is provided in the
provided in the Compensation Discussion and Analysis (“CD&A”) and executive compensation tables in this proxy statement. These profiles are supplemental, and are being provided in addition to, and not in substitution for, the detailed compensation tables required by the Securities Exchange CommissionSEC that follow the Compensation Discussion and Analysis.CD&A. Please consult the more detailed compensation tables and the accompanying footnotes following the Compensation Discussion and AnalysisCD&A for an explanation of how the compensation information is calculated.
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STEPHEN M. JOHNSON
CHAIRMANOFTHE BOARD, PRESIDENTAND CHIEF EXECUTIVE OFFICER
Annual Base Salary | ||||
Base Salary Earned | $ | 827,083 | ||
Annual Incentive Compensation | ||||
Executive Incentive Compensation Plan | $ | 1,218,863 | ||
Long-Term Incentive Compensation | ||||
Restricted Stock Units(1) | $ | 1,249,956 | ||
Stock Options(1) | $ | 865,313 | ||
Retention Agreement Grant | ||||
Restricted Stock(1) | $ | 1,422,186 | ||
Pension Plan | ||||
Annual Change in Present Value of Accumulated Pension Benefit | N/A | |||
Other Compensation | ||||
Deferred Compensation Plan Contribution | $ | 69,375 | ||
Thrift Match | $ | 7,095 | ||
Service-Based Thrift Contribution | $ | 7,350 | ||
TaxGross-Ups | $ | 21,025 | ||
Perquisites and Personal Benefits | $ | 58,838 |
Age: 61 Tenure with McDermott: 4 years Mr. Johnson has served as our President and Chief Executive Officer since July 2010. Previously, he served as: President and Chief Executive Officer of J. Ray McDermott, S.A., one of our subsidiaries, from January 2010 to July 2010 and our President and Chief Operating Officer from April 2009 to December 2009. From 2001 to 2008, Mr. Johnson was Senior Executive Vice President and Member, Office of the Chairman, at Washington Group International, Inc. (“Washington Group”) and at URS Corporation, which acquired Washington Group in 2007. | 2012 COMPENSATION | |||||||||||
Annual Base Salary | ||||||||||||
Base Salary Earned | $ 950,000 | |||||||||||
Annual Incentive Compensation | ||||||||||||
Executive Incentive Compensation Plan | $ 760,000 | |||||||||||
Long-Term Incentive Compensation(1) | ||||||||||||
Restricted Stock Units | $1,249,999 | |||||||||||
Stock Options | $1,249,999 | |||||||||||
Performance Shares | $2,499,980 | |||||||||||
Pension Plan(2) | ||||||||||||
Annual Change in Present Value of Accumulated Pension Benefit | N/A | |||||||||||
Other Compensation | ||||||||||||
Deferred Compensation Plan Contribution | $ 108,068 | |||||||||||
Thrift Match | $ 6,979 | |||||||||||
Service-Based Thrift Contribution | $ 7,500 | |||||||||||
Tax Gross-Ups | $ 0 | |||||||||||
Perquisites | $ 20,000 | |||||||||||
2012 TOTAL COMPENSATION
| ||||||||||||
EQUITY AWARDEDIN 2012 | ||||||||||||
March | Restricted Stock Units | | 86,565 units | |||||||||
March 5, 2012 | Stock Options | 179,856 shares |
March 5, 2012 | Performance Shares | 108,459 shares | ||||||||||
(1) Each equity (2) Mr. Johnson does not participate in our qualified defined benefit plan due to commencing his employment with the Company after the plan was closed to new participants in 2006. |
PERRY L. ELDERS
SENIOR VICE PRESIDENTAND CHIEF FINANCIAL OFFICER
Age: 51 Tenure with McDermott: 3 years Mr. Elders has served as our Senior Vice President and Chief Financial Officer since July 2010, and served in that capacity at our subsidiary J. Ray McDermott, S.A. from April 2010 to July 2010. Previously, he served as: Executive Vice President and Chief Financial Officer from February 2006 to April 2009, and Senior Financial Advisor from November 2005 to February 2006, of Bristow Group, Inc., a worldwide provider of helicopter services; Director, Financial Consulting of Sirius Solutions, an independent business consulting firm, from July 2005 to February 2006; and Vice President and Chief Accounting Officer of Vetco International, Ltd., a provider of upstream oil and gas production facilities, process systems, technology and products, from August 2004 to May 2005. Mr. Elders spent 20 years (1983-2003) in public accounting firms where he became an audit partner specializing in multi-national energy service companies. Mr. Elders is a Certified Public Accountant. | 2012 COMPENSATION | |||||||||||
Annual Base Salary | ||||||||||||
Base Salary Earned | $493,750 | |||||||||||
Annual Incentive Compensation | ||||||||||||
Executive Incentive Compensation Plan | $207,383 | |||||||||||
Long-Term Incentive Compensation(1) | ||||||||||||
Restricted Stock Units | $337,463 | |||||||||||
Stock Options | $337,499 | |||||||||||
Performance Shares | $674,973 | |||||||||||
Pension Plan(2) | ||||||||||||
Annual Change in | N/A |
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Annual Base Salary | ||||
Base Salary Earned(1) | $ | 315,114 | ||
Annual Incentive Compensation | ||||
Executive Incentive Compensation Plan | $ | 398,147 | ||
Long-Term Incentive Compensation | ||||
Restricted Stock Units(2) | $ | 517,021 | ||
Stock Options(2) | $ | 396,788 | ||
Pension Plan | ||||
Annual Change in Present Value of Accumulated Pension Benefit | N/A | |||
Other Compensation | ||||
Deferred Compensation Plan Contribution(1) | $ | 0 | ||
Thrift Match | $ | 6,709 | ||
Service-Based Thrift Contribution | $ | 7,350 | ||
TaxGross-Ups | $ | 0 | ||
Perquisites and Personal Benefits | $ | 0 |
Other Compensation | ||||||||||||
Deferred Compensation Plan Contribution | $ 43,970 | |||||||||||
Thrift Match | $ 7,500 | |||||||||||
Service-Based Thrift Contribution | $ 7,500 | |||||||||||
Tax Gross-Ups | $ 0 | |||||||||||
Perquisites | $ 20,000 | |||||||||||
2012 TOTAL COMPENSATION
| ||||||||||||
EQUITY AWARDEDIN 2012 | ||||||||||||
March 5, 2012 | Restricted Stock Units | 23,370 units |
March 5, 2012 | Stock Options | 48,561 shares | ||||||||||
March 5, 2012 | Performance Shares | 29,283 shares | ||||||||||
(1) Each equity (2) Mr. Elders does not participate in our qualified defined benefit plan due to commencing his employment with the Company after the plan was closed to new participants in 2006. |
GARY L. CARLSON
SENIOR VICE PRESIDENTAND CHIEF ADMINISTRATION OFFICER
Age: 58 Tenure with McDermott: 3 years Mr. Carlson has served as our Senior Vice President and Chief Administration Officer since February 2012. Previously, he served as: Senior Vice President, Chief Human Resources Officer from May 2011 to February 2012; Senior Vice President, Human Resources from July 2010 to May 2011; Senior Vice President, Human Resources and Organization Development for our subsidiary J. Ray McDermott, S.A. from March 2010 to July 2010; Senior Vice President, Human Resources of MWH Global, Inc., an energy and environmental engineering, construction and water resource management firm, from 2008 to 2010; and Vice President, Human Resources of KBR, Inc., an engineering, construction and services company, from 2004 to 2008. | 2012 COMPENSATION | |||||||||||
Annual Base Salary | ||||||||||||
Base Salary Earned | $358,750 | |||||||||||
Annual Incentive Compensation | ||||||||||||
Executive Incentive Compensation Plan | $210,976 | |||||||||||
Long-Term Incentive Compensation(1) | ||||||||||||
Restricted Stock Units | $187,489 | |||||||||||
Stock Options | $187,483 | |||||||||||
Performance Shares | $374,931 | |||||||||||
Pension Plan(2) | ||||||||||||
Annual Change in | N/A |
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Annual Base Salary | ||||
Base Salary Earned(1) | $ | 243,333 | ||
Annual Incentive Compensation | ||||
Executive Incentive Compensation Plan | $ | 334,400 | ||
Long-Term Incentive Compensation | ||||
Restricted Stock Units(2) | $ | 527,051 | ||
Stock Options(2) | $ | 165,771 | ||
Pension Plan | ||||
Annual Change in Present Value of Accumulated Pension Benefit | N/A | |||
Other Compensation | ||||
Deferred Compensation Plan Contribution(1) | $ | 0 | ||
Thrift Match | $ | 6,583 | ||
Service-Based Thrift Contribution | $ | 7,300 | ||
TaxGross-Ups | $ | 24,600 | ||
Perquisites and Personal Benefits | $ | 68,367 |
Other Compensation | ||||||||||||
Deferred Compensation Plan Contribution | $ 33,320 | |||||||||||
Thrift Match | $ 6,088 | |||||||||||
Service-Based Thrift Contribution | $ 7,500 | |||||||||||
Tax Gross-Ups | $ 0 | |||||||||||
Perquisites | $ 20,000 | |||||||||||
2012 TOTAL COMPENSATION
| ||||||||||||
EQUITY AWARDEDIN 2012 | ||||||||||||
March 5, 2012 | Restricted Stock Units | 12,984 units |
March 5, 2012 | Stock Options | 26,976 shares | ||||||||||
March 5, 2012 | Performance Shares | 16,266 shares | ||||||||||
(1) Each equity (2) Mr. Carlson does not participate in our qualified defined benefit plan due to commencing his employment with the Company after the plan was closed to new participants in 2006. |
LIANE K. HINRICHS
SENIOR VICE PRESIDENT, GENERAL COUNSELAND CORPORATE SECRETARY
Age: 55 Tenure with McDermott: 14 years Ms. Hinrichs has been our Senior Vice President, General Counsel and Corporate Secretary since October 2008. Previously, she served as our: Vice President, General Counsel and Corporate Secretary from January 2007 to September 2008; Corporate Secretary and Associate General Counsel, Corporate Compliance and Transactions from January 2006 to December 2006; Associate General Counsel, Corporate Compliance and Transactions, and Deputy Corporate Secretary from June 2004 to December 2005; Assistant General Counsel, Corporate Secretary and Transactions from October 2001 to May 2004; and Senior Counsel from May 1999 to September 2001. Prior to joining McDermott in 1999, she was a partner in a New Orleans law firm. | 2012 COMPENSATION | |||||||||||
Annual Base Salary | ||||||||||||
Base Salary Earned | $448,750 | |||||||||||
Annual Incentive Compensation | ||||||||||||
Executive Incentive Compensation Plan | $301,573 | |||||||||||
Long-Term Incentive Compensation(1) | ||||||||||||
Restricted Stock Units | $250,000 | |||||||||||
Stock Options | $249,992 | |||||||||||
Performance Shares | $499,955 | |||||||||||
Pension Plan | ||||||||||||
Annual Change in | $103,766 |
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Annual Base Salary | ||||
Base Salary Earned | $ | 419,225 | ||
Annual Incentive Compensation | ||||
Executive Incentive Compensation Plan | $ | 317,673 | ||
Long-Term Incentive Compensation | ||||
Restricted Stock Units(1) | $ | 399,963 | ||
Stock Options(1) | $ | 276,912 | ||
Retention Agreement Grant | ||||
Restricted Stock(1) | $ | 654,563 | ||
Pension Plan | ||||
Annual Change in Present Value of Accumulated Pension Benefit | $ | 121,620 | ||
Other Compensation | ||||
Deferred Compensation Plan Contribution | $ | 29,549 | ||
Thrift Match | $ | 6,629 | ||
Service-Based Thrift Contribution | $ | 1,108 | ||
TaxGross-Ups | $ | 0 | ||
Perquisites and Personal Benefits | $ | 0 |
Other Compensation | ||||||||||||
Deferred Compensation Plan Contribution | $ 37,662 | |||||||||||
Thrift Match | $ 6,833 | |||||||||||
Service-Based Thrift Contribution | $ 7,500 | |||||||||||
Tax Gross-Ups | $ 0 | |||||||||||
Perquisites | $ 20,000 | |||||||||||
2012 TOTAL COMPENSATION
| ||||||||||||
EQUITY AWARDEDIN 2012 | ||||||||||||
March | Restricted Stock Units | 17,313 units | ||||||||||
March 5, 2012 | Stock Options | 35,970 shares |
March 5, 2012 | Performance Shares | 21,690 shares | ||||||||||
(1) Each equity |
JOHN T. MCCORMACK
EXECUTIVE VICE PRESIDENTAND CHIEF OPERATING OFFICER
Age: 66 Tenure with McDermott: 10 years Mr. McCormack, 65, has served as our Executive Vice President and Chief Operating Officer since June 2011. Previously, he served as our Senior Vice President, Operations, from July 2010 to June 2011; Senior Vice President, Operations of our subsidiary J. Ray McDermott, S.A. from January 2006 to July 2010; Vice President of J. Ray McDermott, S.A. from May 2004 to January 2006; and Vice President, Project Services of J. Ray McDermott, S.A. from January 2003 to May 2004. | 2012 COMPENSATION | |||||||||||
Annual Base Salary | ||||||||||||
Base Salary Earned | $535,000 | |||||||||||
Annual Incentive Compensation | ||||||||||||
Executive Incentive Compensation Plan | $308,208 | |||||||||||
Long-Term Incentive Compensation(1) | ||||||||||||
Restricted Stock Units | $374,978 | |||||||||||
Stock Options | $374,987 | |||||||||||
Performance Shares | $749,932 | |||||||||||
Pension Plan(2) | ||||||||||||
Annual Change in | N/A |
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Annual Base Salary | ||||
Base Salary | $ | 509,381 | ||
Annual Incentive Compensation | ||||
Executive Incentive Compensation Plan | $ | 609,729 | ||
Long-Term Incentive Compensation | ||||
Restricted Stock Units(1) | $ | 324,986 | ||
Stock Options(1) | $ | 224,998 | ||
Retention Agreement Grant | ||||
Restricted Stock(1) | $ | 871,254 | ||
Pension Plan | ||||
Annual Change in Present Value of Accumulated Pension Benefit | $ | 160,951 | ||
Other Compensation | ||||
Deferred Compensation Plan Contribution | $ | 36,806 | ||
Thrift Match | $ | 6,577 | ||
Service-Based Thrift Contribution | $ | 0 | ||
TaxGross-Ups | $ | 0 | ||
Perquisites and Personal Benefits | $ | 0 |
Other Compensation | ||||||||||||
Deferred Compensation Plan Contribution | $ 38,828 | |||||||||||
Thrift Match | $ 7,500 | |||||||||||
Service-Based Thrift Contribution | $ 7,500 | |||||||||||
Tax Gross-Ups | $ 0 | |||||||||||
Perquisites | $ 20,000 | |||||||||||
2012 TOTAL COMPENSATION
| ||||||||||||
EQUITY AWARDEDIN 2012 | ||||||||||||
March | Restricted Stock Units | 25,968 units | ||||||||||
March 5, 2012 | Stock Options | 53,955 shares |
March 5, 2012 | Performance Shares | 32,535 shares | ||||||||||
(1) Each equity | ||||||||||||
(2) Mr. McCormack does not participate in our qualified defined benefit plan because he had not met the applicable eligibility requirements at the time the plan was closed to new participants in 2006. |
22
Scott V. Cummins, 48,50, has served as ourSenior Vice President and General Manager, Asia Pacific, of McDermott International Management, Inc. (“MIMI”) since July 2010.February 2012. Previously, he served as: our Senior Vice President and General Manager, Asia Pacific from November 2011 to February 2012; Vice President and General Manager, Asia Pacific, from July 2010 to November 2011; Vice President and General Manager, Asia Pacific, of our subsidiary J. Ray McDermott, S.A. (“JRM”) from April 2008 to July 2010; Vice President, Asia Pacific Business Development, Sales and Marketing, of JRM from September 2006 to April 2008; Business Development Director of JRM from September 2003 to August 2006; and Division Manager, Middle East Fabrication Operations of JRM from November 1999 to September 2003. Mr. Cummins joined McDermott in June 1986, and his earlier positions with the Company include positions in marine, fabrication and project operations roles.
Stewart A. Mitchell, 46, has served as our Senior Vice President, Operations, since November 2010. Previously, he served as: our Vice President and General Manager, Europe and Caspian, from July 2010 to November 2010; Vice President and General Manager of JRM from May 2000 to July 2010; Vice President of JRM from August 1999 to May 2000; Vice President and Area Executive of JRM from March 1998 to August 1999; and Vice President and Group Executive of JRM from March 1997 to March 1998. Mr. Houser has held various other positions since he joined McDermott in 1977.
Steven W. Roll, 52,54, has served as Vice President and General Manager, Atlantic, of MIMI since February 2012. Previously, he served as: our Vice President and General Manager, Atlantic, from November 2011 to February 2012; Vice President, Global Commercial Development from June 2011 to November 2011; Vice President, Global Business Development from May 2011 to June 2011; Vice President, Business Development and Operational Strategy sincefrom July 2010. Previously, he served as:2010 to May 2011; Vice President, Business Development and Operational Strategy of JRM from May 2010 to July 2010; Vice President of JRM from April 2008 to May 2010; and Vice President and General Manager of JRM from January 2002 to April 2008. Mr. Roll has held various other positions since he joined McDermott in 1980.
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COMPENSATION DISCUSSIONAND ANALYSIS
The following Compensation Discussion and Analysis, or CD&A, provides information relevant to understanding the 20102012 compensation of our executive officers identified in the Summary Compensation Table, whom we refer to as our Named Executives.NEOs. The following discussion also contains statements regarding future individual and company performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We caution investors not to apply these statements toin other contexts.
McDermott’s compensation programs are designed to develop, attract, retain and motivate qualified employees to develop, expand and execute sound business opportunities for our company. The Compensation Committee continued its commitmentis committed to targeting reasonable and competitive total direct compensation for our Named Executives,NEOs, with a significant portion of that compensation being performance-based. Our compensation programs provide competitive opportunities, but the earning of most of those opportunities is dependent upon achievement of performance goals and/or stock price performance. The Compensation Committee, also took into special considerationwith the intended Spin-offassistance of its compensation consultant, has designed and administered compensation programs with the participation of our subsidiary, B&W, which was completed on July 30, 2010. Becausemanagement in light of this philosophy. 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 complexity and significance of the anticipated Spin-off and the material changes it would have on the company and its operations, our Compensation Committee implemented compensation practices during this transitional year that differed from our traditional practices. Individual elementsinterests of our compensation structure during this transitional year sought to incentivize operational performance, long-term stock appreciation andexecutives with those of our stockholders.
2012 Compensation Program.
Reflecting the completion of the Spin-off, and the individual elements of total direct compensation were structured with these goals in mind.
NEO target total direct compensation within approximately 5% of the median compensation for officers in comparable positions in our Named Executives (excluding retention payments mademarket;
NEO performance-based compensation accounting for over 64% of target total direct compensation, on average, as compared to 60% in connection with the Spin-off2011 and the sign-on equity grant provided to Mr. Carlson, as discussed46% in further detail below) resulted in:
Performance-based compensation accounting for 75% of NEO target long-term incentive, or LTI, compensation.
As in prior years, our Compensation Committee continued to believe that a significant portion of a Named Executive’sNEO’s compensation should be performance-based, designed to promote and rewardfor the achievementpurpose of short-and longer-term objectivesaligning the interests of our NEOs with those of stockholders by rewarding performance that are expected to drivemeets or exceeds established goals, with the ultimate objective of increasing stockholder value. Performance-based compensation for 20102012 reflected a balance among the goals of driving operational performance and pursuing long-term stock appreciation and completing the Spin-off. As a result, McDermottappreciation. With these goals in mind, in 2012 we continued to utilize traditional metrics, such asthe approach of tying annual incentives to operating income and return on invested capital, and granting stock options and total shareholder return performance shares as a componentcomponents of long-term incentives, while adding incentivesLTI.
For the 2012 annual incentive compensation, the Compensation Committee revised target compensation such that 100% of the 2012 target award opportunity was attributable to financial performance goals. The target award for certain Named Executive OfficersMr. Johnson was then subject to adjustment by the Compensation Committee, in its sole discretion, based on completionobjectives established for Mr. Johnson by the Compensation Committee, and the target award for the other participants, including the remaining NEOs, was subject to adjustment by Mr. Johnson based on each participant’s individual performance, with any such adjustment subject to the approval of the Spin-off. Compensation Committee.
In using thesethe performance metrics and emphasizing longer-term performance incentives,described above for the 2012 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. See “Corporate
2012 Performance Highlights.
McDermott’s 2012 financial and operational performance highlights included:
Consolidated revenue of $3.6 billion, as compared to $3.4 billion for 2011;
Consolidated operating income of $319.3 million and operating margin of 8.8%, as compared to operating income of $250.7 million and operating margin of 7.4% for 2011;
Consolidated return on invested capital of 10.3%, as compared to 8% for 2011;
Basic earnings per share of $0.88, as compared to $0.59 for 2011;
Historic year-end backlog of $5.1 billion as of December 31, 2012, as compared to $3.9 billion as of December 31, 2011;
Award of the approximately $2 billion INPEX Ichthys project, representing the largest contract McDermott has been awarded to date; and
• | Continuation of the fleet renewal program with execution of contracts to construct theLV108 andDLV2000, which will be the |
newest additions to McDermott’s high performance vessel fleet. |
Realizable Value of Performance-Based Awards.
Notwithstanding the financial improvements and operational milestones noted above, the realizable value of NEOs’ performance-based compensation opportunities as of December 31, 2012 differed significantly from the grant date fair value of such opportunities. As of December 31, 2012, (1) the share price of our common stock did not exceed the strike price of the stock options granted in 2012, and (2) the estimated payout as a percent of target for the performance shares granted in 2012 was 59%, 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 and 2012 performance-based compensation opportunities for each of our NEOs as compared to the realizable value of such opportunities as of December 31, 2012:
2011 & 2012 Performance-Based Compensation Opportunity vs. Realizable Value as of December 31, 2012
EICP(1) | Performance Shares(2)(3) | Stock Options(2)(3) | Total | |||||||||||||
S. M. Johnson | ||||||||||||||||
2012 Opportunity | $ | 950,000 | $ | 2,499,980 | $ | 1,249,999 | $ | 4,699,979 | ||||||||
2012 Realizable Value | $ | 760,000 | $ | 705,170 | $ | 0 | $ | 1,465,170 | ||||||||
2011 Opportunity | $ | 942,603 | $ | 2,382,132 | $ | 944,089 | $ | 4,268,824 | ||||||||
2011 Realizable Value | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
P. L. Elders | ||||||||||||||||
2012 Opportunity | $ | 345,639 | $ | 674,973 | $ | 337,499 | $ | 1,358,111 | ||||||||
2012 Realizable Value | $ | 207,383 | $ | 190,382 | $ | 0 | $ | 397,765 | ||||||||
2011 Opportunity | $ | 336,911 | $ | 595,438 | $ | 236,000 | $ | 1,168,349 | ||||||||
2011 Realizable Value | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
G. L. Carlson | ||||||||||||||||
2012 Opportunity | $ | 251,162 | $ | 374,931 | $ | 187,483 | $ | 813,576 | ||||||||
2012 Realizable Value | $ | 210,976 | $ | 105,748 | $ | 0 | $ | 316,724 | ||||||||
2011 Opportunity | $ | 199,233 | $ | 238,175 | $ | 94,406 | $ | 531,814 | ||||||||
2011 Realizable Value | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
L. K. Hinrichs | ||||||||||||||||
2012 Opportunity | $ | 314,139 | $ | 499,955 | $ | 249,992 | $ | 1,064,086 | ||||||||
2012 Realizable Value | $ | 301,573 | $ | 141,023 | $ | 0 | $ | 442,596 | ||||||||
2011 Opportunity | $ | 261,381 | $ | 535,894 | $ | 212,421 | $ | 1,009,696 | ||||||||
2011 Realizable Value | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
J. T. McCormack | ||||||||||||||||
2012 Opportunity | $ | 428,066 | $ | 749,932 | $ | 374,987 | $ | 1,552,985 | ||||||||
2012 Realizable Value | $ | 308,208 | $ | 211,529 | $ | 0 | $ | 519,737 | ||||||||
2011 Opportunity | $ | 274,549 | $ | 634,020 | $ | 253,847 | $ | 1,162,416 | ||||||||
2011 Realizable Value | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
(1) | Opportunity Values for EICP are disclosed at the NEOs’ target EICP award. |
(2) | Opportunity Values for performance shares and stock options are disclosed at the grant date fair value of the respective awards. |
(3) | The 2011 and 2012 realizable values shown above are measured as of December 31, 2012, with the exception of the 2011 realizable value of EICP awards, which is shown as the value of the EICP award paid in 2012 for 2011 performance. The value of performance share awards shown above is based on the estimated payout as a percent of target, or 59% of the performance shares granted in 2012 and 0% of the performance shares granted in 2011, multiplied by the closing price of our common stock as reported on the New York Stock Exchange as of December 31, 2012 ($11.02). The number of the performance shares granted in 2011 and 2012 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 2012 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, 2012 may impact the future realizable value of the stock option awards granted in 2011 and 2012. |
Compensation and Governance — Board of Directors and Its Committee — Policies and Practices on Risk” for information regarding the relationship betweenProcedures.
Below we highlight certain of our executive compensation practices and risks.governance policies and practices,
which we utilize to drive performance and serve our stockholders’ long-term interests:
Our Policies and Practices Include | Our Policies and Practices Exclude | |
Performance-Based Pay • | ||
24
CEO. Tally Sheets • |
Double Trigger Change-in-Control Agreements
• | Our
• All of our NEOs and | |||
Modest Perquisite Allowance • We provide a modest perquisite allowance to certain officers, including the NEOs, in order to cover company-required physicals, financial planning and non-company-required spousal travel. Annual Review of Share Utilization • We evaluate share utilization levels annually by reviewing overhang levels (the dilutive impact of equity compensation on our | We do not provide employment agreements for our NEOs • Except for change-in-control agreements, we do not currently have any employment or severance agreements with any of our NEOs. We do not backdate or reprice any equity awards. We do not provide tax gross-ups for perquisite allowances. We do not provide excise tax gross-ups under our change in control agreements. We do not permit derivatives trading or hedging. • We prohibit all directors, officers and employees from engaging in “short sales” or trading in puts, calls or other options on McDermott’s common stock, |
Our Policies and Practices Include | Our Policies and Practices Exclude | |
Risk Assessment • | Our compensation consultant assists the Compensation Committee in conducting an annual risk assessment of our compensation programs. Clawback Policy • We have adopted a clawback policy under which |
25
required by law or the listing standards of the New York Stock Exchange. |
Impact of 2012 Say-on-Pay Vote on Executive Compensation Committee returned to
In approving the use2013 compensation of performance shares as a component of long-term incentive compensation. Long — term incentive awards to Continuing Named Executives in 2011 were comprised of 50% performance shares, 25% restricted stock units and 25% stock options, excluding Mr. Nesser who did not receive any long-term incentive compensation for 2011 as a result of his intentions to retire by year-end 2011. Combining the grant of performance shares with the continued use of stock options, 75% of target long-term incentive compensation for 2011 is performance-based.
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 has designedas well as from our human resources department and administeredmanagement to assist in compensation programs with the participation of our management. These programs generally seek to provide compensation that:
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, Pay Governance LLC, or “Pay Governance,” was selected, and has served as the consultant to thebeen engaged by our Compensation Committee to serve as its consultant on executive and director compensation matters since November 2010. Pay Governance provides advice and analysis to the Compensation Committee on the
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, on executive and director compensation. Prior to its spin-off of Meridian, Hewitt served as the consultant to the Compensation Committee since October 2007.
During 2012, Pay Governance did not perform any services for McDermott other than as described above. Hewitt assistedIn January 2013, our management in preparingCompensation Committee assessed whether the performance graph included in our annual report onForm 10-Kwork performed by Pay Governance during 2012 raised any conflict of interest, and determined that Pay Governance’s work performed for the year ended December 31, 2010. Hewitt had been providing that service to management for several years prior to serving as the Compensation Committee’s consultant,Committee raised no conflict of interest.
Role of CEO and the fees for that service amounted to less than $2,000 in 2010.
Overview of Compensation Elements
The following table summarizes the principal elements of our compensation program for our NEOs, 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 NEO at the beginning of the year. • The annual incentive aligns the NEOs’ 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 based on financial performance. • This element is paid in cash. | ||
Long-Term Incentive | ||||
• | Long-term awards for our NEOs in 2012 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 shareholder 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 NEOs’ interests with those of our stockholders with a focus on long-term 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 NEOs, as the value of the stock options 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 NEOs 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 “total direct compensation”Compensation Committee relies on “benchmarking.” This involves reviewing the compensation of a Named Executive.
At the achievementdirection of performance
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Proxy Peer Group. Pay Governance utilized market data based on a set of 17 comparator companies (the “Proxy Peer Group”) identified through a screen of companies whose business focus and/or operations are similar to McDermott and are considered by the Compensation Committee to be representative of competitors for managerial talent. The component companies of the Proxy Peer Group are included on page 40 of this CD&A. The Compensation Committee believes that identification of peers using a broad industry sector code is inadequate and does not establish similarity of operations and business models, nor identify historical competitors for managerial talent – factors the Compensation Committee considers in the selection of the Proxy Peer Group. It is the Compensation Committee’s practice to periodically review and consider the individual companies included in the Proxy Peer Group.
The Proxy Peer Group was used as the primary reference point for the NEOs, with the exception of Mr. Carlson, due to the lack of comparable information within the Proxy Peer Group for his position. Market data from the Proxy Peer Group represented 2010 compensation, as reported in the proxy statements of the companies in the Proxy Peer Group, and is not size-adjusted, although the
Compensation Committee is aware of these differences when making individual pay decisions.
Survey Peer Group. Pay Governance also administers several plansutilized 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 industry classifications, no further refinements or judgments were applied in the identification of companies within the sample. The component companies of the Survey Peer Group are included on page 40 of this CD&A. The Survey Peer Group was used as parta secondary reference for the NEOs, with the exception of our post-employmentMr. Carlson, for whom Proxy Peer Group data was unavailable, making the Survey Peer Group data the primary reference. Market data from the Survey Peer Group represents 2010 compensation arrangements designedas reported to reward long-term servicethe survey and, performance.
In this CD&A, references to “market” or “our market” are references to the compensation of executives at companies within the Proxy Peer Group for each NEO, with the exception of Mr. Carlson, and 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 ExecutivesNEOs 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’sNEO’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’sNEO’s compensation.
When making decisions regarding individual compensation elements, the Compensation CommitteeCommit-
tee also consideredconsiders the effect on the Named Executive’sNEO’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 ExecutiveNEO that is reasonable and competitive.competitive and supports the Company’s compensation philosophy and objectives.
Defining Market Range Compensation — Benchmarking.2012 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
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The chart below shows the 20102012 target total direct compensation by element for each Named Executive.NEO. Because the amount of compensation actually paid through the compensation elements that are performance-based is not fixed at the outset, Named ExecutivesNEOs may earn compensation above or below the market range for similarly situated executives in our market.
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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 |
NEO | Annual Base Salary | Annual (% 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% | $ | 5,000,000 | 101% | 68% | |||||||
P. L. Elders | $ | 500,000 | 70% | $ | 1,350,000 | 95% | 62% | |||||||
G. L. Carlson | $ | 375,000 | 70% | $ | 750,000 | 102% | 59% | |||||||
L. K. Hinrichs | $ | 455,000 | 70% | $ | 1,000,000 | 101% | 60% | |||||||
J. T. McCormack | $ | 560,000 | 80% | $ | 1,500,000 | 102% | 62% | |||||||
Average Mix of Compensation Elements | 19% | 16% | 65% | N/A | 64% |
(1) | ||
When making decisions as to the elements of a |
(2) | The values provided in this column are the target values of LTI approved by the Compensation Committee. For more information on |
(3) | Market = Median total direct compensation, based on the benchmark applicable to the executive. 100% represents median compensation. |
(4) | ||
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’sNEO’s total direct compensation should be performance-based. Excluding the retention grants and Mr. Carlson’s sign-on grant,As shown above, on average, performance-based compensation accounted for approximately 46.5%64% of a Named Executive’s 2010NEO’s 2012 target total direct compensation and 50%75% of his or her long-term incentive compensation. The average 2010 mixLTI compensation, representing that portion of target total directLTI compensation elements for our Named Executives was as follows:attributable to performance shares and stock options.
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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 | % |
NEO | 2012 Annual Base Salary | Percent Increase | Percent of Market(1) | |||||
S. M. Johnson | $ | 950,000 | 0.00% | 102% | ||||
P. L. Elders | $ | 500,000 | 3.09% | 100% | ||||
G. L. Carlson | $ | 375,000 | 11.61% | 91% | ||||
L. K. Hinrichs | $ | 455,000 | 3.41% | 107% | ||||
J. T. McCormack | $ | 560,000 | 12.00% | 100% |
(1) | ||
Market = Median annual base salary, based on the benchmark applicable to the executive. 100% represents median compensation. |
The Compensation Committee typically approves base salary increases at its regularly scheduled February meeting, with such increases effective April 1. In consideration of the Company’s performance during the fourth quarter of 2011, however, the Compensation Committee deferred base salary increases until later in 2012 for each of the NEOs, as well as Corporate and Atlantic operating segment employees earning over a certain annual base salary threshold. Following the Company’s improved performance during the first quarter of 2012, the Compensation Committee reevaluated base salary increases and approved such increases effective June 1, 2012 for each of the NEOs, with the exception of Mr. Johnson. At Mr. Johnson’s request, the Compensation Committee did not provide any base salary increase to Mr. Johnson for 2012.
When considering base salaries, effective April 1, 2010, 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 NEO, with year-over-year increases ranging from 0-5%, with the exception of Messrs. Carlson and McCormack. Mr. Nesser. Although Mr. Nesser’sCarlson received an 11.61% base salary was above market range, the Compensation Committee considered this to be appropriate, based uponincrease in light of his experience and depth of knowledge of our operations and in anticipation ofincreased job duties following his promotion to Senior Vice President and Chief Administration Officer in February 2012. Mr. McCormack received a 12% base salary increase to further align his annual base salary with market range following his promotion to Executive Vice President and Chief Operating Officer of McDermott following the Spin-off.in June 2011.
20102012 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 is a cash incentive plan designed to motivate and reward our Named ExecutivesNEOs 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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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 | % |
NEO | Target EICP (% of annual base salary) | Percent of Market(1) | ||
S. M. Johnson | 100% | 91% | ||
P. L. Elders | 70% | 75% | ||
G. L. Carlson | 70% | 90% | ||
L. K. Hinrichs | 70% | 85% | ||
J. T. McCormack | 80% | 78% |
(1) | Market = Median target annual incentive compensation, based on the benchmark applicable to the executive. 100% represents median compensation. | |
The 2012 target EICP, as a percentage of base salary earned, for Messrs. Johnson and Elders remained unchanged from the 2009their respective 2011 targets. Mr. Carlson’s and Ms. Hinrichs’ respective targets exceptwere each increased to 70% of annual base salary earned for 2012, and Mr. Johnson, whose 2010McCormack’s target was increased to 80% of base salary earned for 2012, in order to bring their target EICP was increased effective and for the period beginning August 1, 2010 in connection with his promotionawards closer to President and Chief Executive Officer of McDermott. In connection with their hiring in 2010, the Compensation Committee setor within market range. Messrs. Elders’ and Carlson’s 2010McCormack’s target EICP at 70% and 55%, respectively, whichawards for 2012 were each below market range; however, combined with the other components of compensation for 2012, their target total direct compensation was within the 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 compensation and benefits at his previous employer. The Compensation Committee set 2010 target EICP for Messrs. Taff, Nesser and Bethards at the same level for internal equity reasons.
20102012 EICP Performance Goals.Goals. Traditionally, EICP compensation has consisted of a financial performance component representing 70% of EICP compensation and an individual performance component.component representing 30% of EICP compensation. To further drive performance of McDermott’s operations, the 2010 EICP target compensation for business unit officers, including Messrs. Johnson and Bethards, was set utilizing the traditional financial and individual performance components. However, to drive the timely and successful completion of the Spin-off, 2010 EICP target compensation for our Corporate officers, including Messrs. Fees and Taff and
established for Mr. Johnson by the Compensation Committee, and the target award for the other participants in the EICP, including the remaining NEOs, was subject to adjustment by Mr. Johnson based on each participant’s individual componentperformance, with any such adjustment subject to the approval of the Compensation Committee. The financial performance goals were attributable 70% to the Company’s consolidated operating income and 30% to return on invested capital, or ROIC, for 2010 at 30% ofdetermining the minimum (25%), target (100%) and maximum (200%) payment a participant would be eligible to earn under the EICP for 2010. However, toin 2012. To further maintain the emphasis on financial performance, payment ofearning any EICP compensation (including for individual performance)payment required the attainment of athe threshold level of operating income financial performance. Theperformance, and the maximum EICP compensation a Named ExecutiveNEO could earn in 20102012 was 200%a multiple of 2x his or her target EICP. For all Named Executives,award. Similarly, as in the recent past, the Compensation Committee had the discretion to decrease an EICP payment.
2012 Financial Performance Goals. Consistent with 2011, the EICP payment amount was principally determined based on: (1) the attainment of annual financial goals (which represented up to 140% of EICP compensation); and (2) the attainment of annual individual goals (which represented up to 60% of EICP compensation).
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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 comparisonThe Compensation Committee also considers ROIC an appropriate financial measure to net income, however, operating incomeuse for compensation purposes because it is more directly influencedan indicator of McDermott’s capital efficiency and productivity, and also incentivizes the management of assets and aligns management’s interests with those of our stockholders by measuring stockholder value creation and/or erosion when compared to the revenues generated and costs incurred as a resultcost of management action and is more readily allocable to our operating segments.
The 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 component ofEICP. In establishing the EICP, with target level, being based onthe Compensation Committee considered management’s internal estimatesprojections 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 ExecutivesNEOs 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 theat a maximum payout level, thereby reducing risk related to incentive compensation.
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A NEO would have been earnedeligible to earn the following amounts under the 2012 EICP for 2010 ifbased on attaining the following levels of operating income results had been below the threshold level.
2012 EICP Payout Matrix
Performance Goal | Consolidated (in millions) | Payout(1) (as a multiple | Performance Goal | Consolidated ROIC | Payout(2) (as a multiple of | |||||||||||
>120% | >$390 | 2.00 | >120% | >13.2% | 2.00 | |||||||||||
Maximum | 120% | $390 | 2.00 | 120% | 13.2% | 2.00 | ||||||||||
110% | $358 | 1.50 | 110% | 12.1% | 1.50 | |||||||||||
Target | 100% | $325 | 1.00 | 100% | 11.0% | 1.00 | ||||||||||
90% | $293 | 0.75 | 97% | 10.7% | 0.75 | |||||||||||
80% | $260 | 0.50 | 93% | 10.2% | 0.50 | |||||||||||
Threshold | 70% | $228 | 0.25 | 90% | 10.0% | 0.25 | ||||||||||
< 70% | <$228 | 0.00 | <90% | <10.0% | 0.00 |
(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 |
2012 Individual Performance Goals. While EICP target award opportunities for 2012 are 100% attributable to financial performance goals, the Compensation Committee recognizes the importance of individual performance, which serves as an important metric to help promote the achievement of strategic goals that may not be measured in an annual financial metric. Accordingly, Mr. Johnson’s EICP award was subject to adjustment by the Compensation Committee, in its sole discretion, based on Mr. Johnson’s individual performance, including but not limited to the individual performance objectives established for Mr. Johnson by the Compensation Committee. The EICP awards of the other NEOs
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Stephen M. Johnson: | ||
• Lead McDermott using a philosophy that is well understood, widely supported, consistently applied and effectively implemented; • Continue to implement the strategy for McDermott to conserve cash and leverage capital expenditures in a conservative manner; • Establish • Develop, attract, retain, motivate and supervise an effective top management team | ||
• Serve as the chief spokesperson for McDermott, communicating effectively with stockholders and | ||
other stakeholders; • • 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 our company. |
Perry L. Elders: | • • Enhance capital discipline; • Work closely with the operating units on ventures; and • Develop talent of finance team through new/expanded duties by movement of people among functions and | |
Gary L. Carlson: | • • Recruit and hire a Vice President, Human Resources; • Facilitate talent development and succession planning | |
the organization; global requisition management solution;• Develop and • Lead, develop, attract, retain and motivate an effective Information Technology leadership team; • Recruit and hire a Vice President and Chief Technology Officer; and • Oversee the 2012 information technology initiatives on time and within budget. | ||
Liane K. Hinrichs: | • • Lead the review of risk mitigation analysis pertaining to certain specific risks; • Lead and facilitate the integrated working group teams for • Enhance terms and conditions for certain potential contractual matters. | |
John T. McCormack: | ||
• Achieve | ||
and objectives; • Implement management reserve policy; • Implement project management best practices on capital expenditure projects; • Optimize vessel utilization; • Ensure focus and adequate resources applied to “Delivering Certainty” initiative; • Ensure acceptable goals achieved in Atlantic region turnaround; and • Identify and pursue subsea firms for acquisition and partnering. |
20102012 Annual Incentive Compensation Payments.The 20102012 target and final EICP compensation amounts for each Named ExecutiveNEO 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
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NEO | 2012 EICP Target % of Salary | Final 2012 Annual Incentive Payment | ||||
S. M. Johnson | 100% | $ | 760,000 | |||
P. L. Elders | 70% | $ | 207,383 | |||
G. L. Carlson | 70% | $ | 210,976 | |||
L. K. Hinrichs | 70% | $ | 301,573 | |||
J. T. McCormack | 80% | $ | 308,208 |
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 |
Analysis of 20102012 EICP Payments.Payments. In February 2011,2013, the Compensation Committee considered (1) McDermott’s 20102012 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 adjustments to each other Continuing Named Executive’s 2010NEO’s 2012 EICP compensation based on his assessment of the financial andeach other NEO’s 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 $319.3 million, and consolidated ROIC of $314.9 million, taking into account legacy corporate general and administrative expenses to establish10.3%. The consolidated ROIC percentage was derived from the operatingfollowing formula:
Net Income |
(Total Assets — Current Liabilities) |
; provided, however, that (1) Net Income included continuing operations only, (2) Net Income was determined before the deduction for net income attributable to JRM hadnon-controlling interests (minority interest expense), (3) Total Assets and Current Liabilities included continuing operations only, and (4) (Total Assets — Current Liabilities) was calculated quarterly, and the Spin-off not occurred. The Compensation Committee also specifically considered certain impairments and charges totaling approximately $73.1 million, including costs incurred in connection with the discontinuance of our fabrication yard in Kazakhstan, impairment charges on twoaverage of the four vessels we are retaining fromquarterly periods were used in the Secunda acquisition, which charges diminishedequation above for determining ROIC.
Based on the combined operating income and alsoROIC performance, participants in the asset impairment costsEICP were eligible to earn approximately 0.8x of our charter fleet business,their target EICP compensation, subject to adjustments for individual performance as discussed above. The consolidated operating income of $319.3 million resulted in our Annual
Mr. Johnson. As a result of McDermott’s 20102012 financial results,performance, Mr. Johnson was eligible to earn 190%$760,000 of his 20102012 target EICP compensation, subject to the assessment of his individual goals. Mr. Johnson’s 160.3% was comprised 132% under the financial performance component based on McDermott’s operating income and 28.3% under the individual component basedaward. Based on the Governance Committee’s assessment of Mr. Johnson’s individual performance against stated goals.
Mr. Elders. Mr. Elders earned approximately 181.5%As a result of his 2010 target EICP (which was prorated based on his length of service with McDermott during 2010), or $398,147. Based on McDermott’s 20102012 financial results,performance, Mr. Elders was eligible to earn 190%$276,511 of his 20102012 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 basedaward. Based on Mr. Johnson’s assessment of Mr. Elders’Elder’s individual performance against stated goals.
Mr. Carlson. Mr. Carlson earned 190%As a result of his 2010 target EICP, or $334,400. Based on McDermott’s 20102012 financial results,performance, Mr. Carlson was eligible to earn 190%$200,930 of his 20102012 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 basedaward. Based on Mr. Johnson’s assessment thatof Mr. Carlson met or exceeded hisCarlson’s individual goals.performance against stated goals, Mr. Johnson recommended an adjustment to Mr. Carlson’s 2012 EICP award, which the Compen-
sation Committee approved, resulting in a final EICP award of $210,976.
Ms. Hinrichs. As a Corporate employee, Ms. Hinrichs had 2 EICP periods during 2010. For
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Mr. McCormack. 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.
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 incentivesLTI 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 incentiveLTI compensation represents the single largest element of our Named Executives’NEOs’ total direct compensation.
Analysis of 20102012 Equity Grants.
Mix of 2010 Equity.2012 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. Consistent with 2011, in long-term incentives and (2) the anticipated Spin-off. As a result,2012, the Compensation Committee allocated long-term incentiveLTI compensation to officers, including certain Named Executives,the NEOs, as follows (excluding retention
50% performance shares;
25% non-qualified stock options; and
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 maintainfurther emphasize its commitment to performance-based compensation, the Compensation Committee utilizedcontinued using performance shares in 2012. 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 NEOs’ 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 a three-calendar year period (including 2012) 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 year periods (including 2012). 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, 2012, the estimated payout as a percentage of target for the performance shares granted in 2012 was 59%.
As it has in recent years, in 2012 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. As of December 31, 2012, the price of the Company’s shares did not exceed the strike price of the stock options granted in 2012.
As it has in recent years, in 2012 the Compensation Committee awarded restricted stock units to the NEOs. Restricted stock units are intended to promote the retention of employees, including the NEOs, and generally vest in one-third increments on the first, second and third anniversaries of the grant date.
For more information regarding the 2012 performance shares, stock options and restricted stock units, see the “Grants of Plan-Based Awards” table under “Compensation of Executive Officers” below.
Value of 2012 LTI Compensation. The 2012 target LTI compensation for our NEOs was as follows:
NEO | Target LTI Value | Percent of Market(1) | ||||
S. M. Johnson | $ | 5,000,000 | 104% | |||
P. L. Elders | $ | 1,350,000 | 101% | |||
G. L. Carlson | $ | 750,000 | 113% | |||
L. K. Hinrichs | $ | 1,000,000 | 105% | |||
J. T. McCormack | $ | 1,500,000 | 114% |
(1) | Market = Median target LTI based on the benchmark applicable to the executive. 100% represents median compensation. |
When considering the target values of LTI to be provided to the NEOs, the Compensation Committee
sought to set target values within the market range. Accordingly, each NEO’s target LTI value was within market range.
As of December 31, 2012, (1) the estimated payout as a percent of target for the performance shares granted in 2012 was 59%, and (2) the share price of our common stock did not exceed the strike price of the stock options granted in 2012. However, the amount of performance shares granted in 2012 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 performance shares would impact the future realizable value of these performance shares. In addition, an increase in our stock price compared to our stock price at December 31, 2012 may impact the future realizable value of the stock options granted in 2012.
Sizing LTI 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 and performance shares and shares underlying stock options granted can be expressed through the following formula:
target value of target LTI($)/FMV($).
The fair market value of one restricted stock unit 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 performance share was determined by Pay Governance using a Monte Carlo valuation model. The fair market value of an option to acquire one share of our common stock was determined by Pay Governance using a Black-Scholes model. Both of these valuation models consider the full fair market value of our common stock on the date of 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.
Timing of Equity Grants. To avoid timing equity grants ahead of the release of material nonpublic information, the Compensation Committee generally grants 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 on Form 10-K or quarterly report on Form 10-Q with the SEC. This practice was followed for all long-term incentive compensation grants to NEOs in 2012.
In 2012, our Compensation Committee adopted a perquisite allowance for certain officers, including our NEOs, in the amount of $20,000, consistent with 2011. 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 NEOs for the travel expenses of a guest accompanying a NEO, including the provision of a gross-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 NEOs with a tax gross-up on any relocation-related expense reimbursements that may be subject to tax.
Thrift Plan. We provide retirement benefits for most of our U.S. employees, including our NEOs, through sponsorship of the McDermott Thrift Plan, a qualified defined contribution 401(k) plan, which we refer to as our “Thrift Plan.”
Retirement and Excess Plans. We do not provide qualified defined benefit pension plans to any of our NEOs, with the exception of Ms. Hinrichs, who was eligible for participation under the McDermott (U.S.) Retirement Plan (the “Retirement Plan”) before it was closed to new participants in 2006. Benefit accruals under the Retirement Plan were frozen altogether in 2010.
Ms. Hinrichs is also a participant in our unfunded, nonqualified excess retirement plan (the “Excess Plan”), which covers a small group of highly compensated employees whose ultimate benefits under the Retirement Plan 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 Plan are paid from our general assets. As is the case with the Retirement Plan, benefits under the Excess Plan have been frozen since 2010, and no further benefits are accruing to Ms. Hinrichs under the Excess Plan.
See the “Pension Benefits” table under “Compensation of Executive Officers” below for more information regarding the Retirement Plan and the Excess Plan.
Deferred Compensation Plan. The Deferred Compensation Plan, or the DCP, is a defined contribution supplemental executive retirement plan established by our Board and the Compensation Committee to help maintain the competitiveness of our post-employment compensation as compared to our market. The DCP is an unfunded, nonqualified plan that provides each participant in the plan with benefits based on the participant’s notional account balance at the time of retirement or termination. Under the DCP, 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 2012, each of the NEOs were participants in the DCP and their respective accounts in the DCP received a Company Contribution in an amount equal to 5% of their respective prior-year base salaries paid in the prior year.
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. DCP benefits are based on the participant’s vested notional account balance at the time of retirement or termination. Please see the “Nonqualified Deferred Compensation” table and accompanying narrative below for more information about the DCP and Company Contributions to our NEOs’ DCP accounts.
Employment and Severance Arrangements
Employment and Severance Agreements. Except for change-in-control agreements described below, we do not currently have any employment or severance agreements with any of our NEOs.
Change-in-Control 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 NEOs protects stockholders’ interests by helping to assure management continuity and focus through and beyond a change in control. Accordingly, the Compensation Committee has offered change-in-control agreements to key senior
executives since 2005. Our change-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. The change-in-control agreements generally provide a cash severance payment of two (2.99 for Mr. Johnson) times the sum of the NEO’s annual base salary and target EICP and a pro-rated bonus payment under the EICP. In addition, upon a change in control, each such officer would become fully vested in any outstanding and unvested equity-based awards and his or her respective account balance in the DCP.
The change-in-control agreements: (1) do not provide for excise tax gross-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. See the “Potential Payments Upon Termination or Change in Control” table under “Compensation of Executive Officers” below and the accompanying disclosures for more information regarding the change-in-control agreements with our NEOs, as well as other plans and arrangements that have different trigger mechanisms that relate to a change in control.
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 requiring generally that our nonemployee 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:
Level | Base Salary or Annual Retainer Multiple | |||
CEO | 5x | |||
Executive Officers directly reporting to CEO | 3x | |||
Other Elected Vice Presidents | 2x | |||
Nonemployee Directors | 5x |
Directors and officers have five years from the effective date of the stock ownership guidelines (as amended in August 2010), 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. All NEOs currently meet or exceed their ownership requirement, or are within the five-year period to achieve compliance.
Derivatives Trading and Hedging. McDermott’s Insider Trading Policy prohibits all directors, officers and employees, including our NEOs, 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 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.
Forfeiture Provisions. Additionally, consistent with our recent past practice, our grant agreements for awards made in 2010 contained2012 contain a forfeiture provision. In 2010,2012, 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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Proxy Peer Group: | ||||
Baker Hughes Incorporated | Noble Corporation | |||
Cal Dive International, Inc. | Oceaneering International, Inc. | |||
Cameron International Corporation | Oil States International, Inc. |
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 | % |
Chicago Bridge & Iron Company | Jacobs Engineering Group, Inc. | Shaw Group, Inc. | ||
Dresser-Rand Group, Inc. | KBR, Inc. | Tidewater Inc. | ||
Foster Wheeler AG | National Oilwell Varco, Inc. | |||
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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 |
Ameron International Corporation | Parker Hannifin Corporation | |||
Anadarko Petroleum Corporation | Graco Inc. | Parsons Corporation | ||
A.O. Smith Corporation | Greif, Inc. | Pittsburgh Corning Corporation | ||
Ball Corporation | HD Supply, Inc. | Polymer Group, Inc. | ||
Barnes Group, Inc. | Herman Miller, Inc. | PolyOne Corporation | ||
Beam, Inc. | Hess Corporation | PulteGroup, Inc. | ||
Bemis Company, Inc. | HNTB Corporation | Saudi Arabian Oil Co. | ||
BG US Services | Holcim Ltd. | SCA Americas, Inc. | ||
Bovis Lend Lease International Ltd. | Hunt Consolidated, Inc. | Schlumberger Limited | ||
BP p.l.c. | Husky Injection Molding Systems Ltd. | Sealed Air Corp. | ||
Brady Corporation | Illinois Tool Works Inc. | Shell Oil Company | ||
Building Materials Corporation of | Ingersoll Rand plc | Simpson Manufacturing Company, Inc. | ||
Calgon Carbon Corporation | ION Geophysical Corporation | Sonoco Products Co. | ||
Cameron International Corporation | Irving Oil Commercial G.P. | Spectra Energy Corp | ||
Caterpillar Inc. | ITT Corporation | SPX Corporation | ||
Cemex Internacional S.A de C.V. | Jacobs Engineering Group, Inc. | Stantec Inc. | ||
Chevron Corporation | KBR, Inc. | Sunoco, Inc. | ||
CH2M Hill Companies, Ltd. | Key Energy Services, Inc. | Swagelok Company | ||
Cimarex Energy Co. | Koch Industries, Inc. | Terex Corporation | ||
Connell Limited Partnership | Lafarge North America Inc. | Tesoro Corporation | ||
ConocoPhillips | L.B. Foster Company | Textron Inc. | ||
Cooper Industries plc | Magellan Midstream Partners, L.P. | Thermadyne Industries, Inc. | ||
Corning Incorporated | MAG Industrial Automation Systems LLC | Thomas & Betts Corporation | ||
DCP Midstream LLC | The | 3M Company |
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Deere & Company | Marathon Oil Corporation | The Timken Company | ||
Devon Energy Corporation | Matthews International Corporation | The Toro Company | ||
Donaldson Company, Inc. | MeadWestvaco Corporation | Trinity Industries, Inc. | ||
Eaton Corporation | Milacron LLC | Unifi, Inc. | ||
EMCOR Group, Inc. | Mine Safety Appliances Company | USG Corporation | ||
Exterran Holdings, Inc. | Murphy Oil Corporation | Valero Energy Corporation | ||
Exxon Mobil Corporation | MWH Global, Inc. | Watts Water Technologies, Inc. | ||
Ferrovial, S.A. | Occidental Petroleum Corporation | |||
Flowserve Corporation | ||||
Fluor Corporation | ||
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THE COMPENSATION COMMITTEE
Mary L. Shafer-Malicki, Chairman
Roger A. Brown
David A. Trice
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COMPENSATIONOF EXECUTIVE OFFICERS
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(1) | Bonus | Stock Awards(2) | Option Awards(2) | Non-Equity Incentive Plan Compensation(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(4) | All Other Compensation(5) | Total | |||||||||||||||||||||||||||
S.M. Johnson President and Chief Executive Officer | 2012 | $ | 950,000 | $ | 0 | $ | 3,749,979 | $ | 1,249,999 | $ | 760,000 | N/A | $ | 142,547 | $ | 6,852,525 | ||||||||||||||||||||
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 | |||||||||||||||||||||
P.L. Elders Senior Vice President and Chief Financial Officer | 2012 | $ | 493,750 | $ | 0 | $ | 1,012,436 | $ | 337,499 | $ | 207,383 | N/A | $ | 78,970 | $ | 2,130,038 | ||||||||||||||||||||
2011 | $ | 481,250 | $ | 0 | $ | 845,428 | $ | 236,000 | $ | 0 | N/A | $ | 76,763 | $ | 1,639,441 | |||||||||||||||||||||
2010 | $ | 315,114 | $ | 0 | $ | 517,021 | $ | 396,788 | $ | 398,146 | N/A | $ | 14,059 | $ | 1,641,128 | |||||||||||||||||||||
G.L. Carlson Senior Vice President and Chief Administration Officer | 2012 | $ | 358,750 | $ | 0 | $ | 562,420 | $ | 187,483 | $ | 210,976 | N/A | $ | 66,908 | $ | 1,386,537 | ||||||||||||||||||||
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 | |||||||||||||||||||||
L.K. Hinrichs Senior Vice President, General Counsel and Corporate Secretary | 2012 | $ | 448,750 | $ | 0 | $ | 749,955 | $ | 249,992 | $ | 301,573 | $ | 103,766 | $ | 71,995 | $ | 1,926,031 | |||||||||||||||||||
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 | ||||||||||||||||||||
J.T. McCormack Executive Vice President and Chief Operating Officer | 2012 | $ | 535,000 | $ | 0 | $ | 1,124,910 | $ | 374,987 | $ | 308,208 | N/A | $ | 73,828 | $ | 2,416,933 | ||||||||||||||||||||
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 |
(1) | The amounts reported in this column for 2010 |
(2) | The amounts reported in this column represent the aggregate grant date fair value of stock awards or option awards, as applicable, granted to each NEO and computed in accordance with FASB ASC Topic 718. See the “Grants of Plan-Based Awards” table for more information regarding the stock awards and option awards we granted in 2012. |
(3) | The amounts reported in this column are attributable to the annual incentive awards earned |
(5) | The amounts |
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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(A) | Thrift Match(B) | Service-Based Thrift Contribution(B) | Perquisites(C) | Tax Gross-Ups(D) | ||||||||||||||||
S. M. Johnson | $ | 108,068 | $ | 6,979 | $ | 7,500 | $ | 20,000 | — | |||||||||||
P. L. Elders | $ | 43,970 | $ | 7,500 | $ | 7,500 | $ | 20,000 | — | |||||||||||
G. L. Carlson | $ | 33,320 | $ | 6,088 | $ | 7,500 | $ | 20,000 | — | |||||||||||
L. K. Hinrichs | $ | 37,662 | $ | 6,833 | $ | 7,500 | $ | 20,000 | — | |||||||||||
J. T. McCormack | $ | 38,828 | $ | 7,500 | $ | 7,500 | $ | 20,000 | — |
(A) | The amounts reported in this column are attributable to contributions made by McDermott under the Deferred Compensation Plan. |
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 | |
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(D) | No tax gross-ups were provided to |
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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 |
Name | Grant Date | Committee | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock 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 | 02/29/12 | 02/29/12 | $166,250 | $950,000 | $1,900,000 | — | — | — | — | — | — | — | ||||||||||||||||||
PShares | 03/05/12 | 02/29/12 | — | — | — | 54,230 | 108,459 | 216,918 | — | — | — | $ | 2,499,980 | |||||||||||||||||
RSUs | 03/05/12 | 02/29/12 | — | — | — | — | — | — | 86,565 | — | — | $ | 1,249,999 | |||||||||||||||||
Stock Options | 03/05/12 | 02/29/12 | — | — | — | — | — | — | — | 179,856 | $14.44 | $ | 1,249,999 | |||||||||||||||||
P.L. Elders | ||||||||||||||||||||||||||||||
EICP | 02/29/12 | 02/29/12 | $60,487 | $345,639 | $691,279 | — | — | — | — | — | — | — | ||||||||||||||||||
PShares | 03/05/12 | 02/29/12 | — | — | — | 14,642 | 29,283 | 58,566 | — | — | — | $ | 674,973 | |||||||||||||||||
RSUs | 03/05/12 | 02/29/12 | — | — | — | — | — | — | 23,370 | — | — | $ | 337,463 | |||||||||||||||||
Stock Options | 03/05/12 | 02/29/12 | — | — | — | — | — | — | — | 48,561 | $14.44 | $ | 337,499 | |||||||||||||||||
G.L. Carlson | ||||||||||||||||||||||||||||||
EICP | 02/29/12 | 02/29/12 | $43,953 | $251,162 | $502,325 | — | — | — | — | — | — | — | ||||||||||||||||||
PShares | 03/05/12 | 02/29/12 | — | — | — | 8,133 | 16,266 | 32,532 | — | — | — | $ | 374,931 | |||||||||||||||||
RSUs | 03/05/12 | 02/29/12 | — | — | — | — | — | — | 12,984 | — | — | $ | 187,489 | |||||||||||||||||
Stock Options | 03/05/12 | 02/29/12 | — | — | — | — | — | — | — | 26,976 | $14.44 | $ | 187,483 | |||||||||||||||||
L.K. Hinrichs | ||||||||||||||||||||||||||||||
EICP | 02/29/12 | 02/29/12 | $54,974 | $314,139 | $628,279 | — | — | — | — | — | — | — | ||||||||||||||||||
PShares | 03/05/12 | 02/29/12 | — | — | — | 10,845 | 21,690 | 43,380 | — | — | — | $ | 499,955 | |||||||||||||||||
RSUs | 03/05/12 | 02/29/12 | — | — | — | — | — | — | 17,313 | — | — | $ | 250,000 | |||||||||||||||||
Stock Options | 03/05/12 | 02/29/12 | — | — | — | — | — | — | — | 35,970 | $14.44 | $ | 249,992 | |||||||||||||||||
J.T. McCormack | ||||||||||||||||||||||||||||||
EICP | 02/29/12 | 02/29/12 | $74,911 | $428,066 | $856,131 | — | — | — | — | — | — | — | ||||||||||||||||||
PShares | 03/05/12 | 02/29/12 | — | — | — | 16,268 | 32,535 | 65,070 | — | — | — | $ | 749,932 | |||||||||||||||||
RSUs | 03/05/12 | 02/29/12 | — | — | — | — | — | — | 25,968 | — | — | $ | 374,978 | |||||||||||||||||
Stock Options | 03/05/12 | 02/29/12 | — | — | — | — | — | — | — | 53,955 | $14.44 | $ | 374,987 |
(1) | This column reflects the threshold, target and maximum payout opportunities under the Executive Incentive Compensation Plan, or EICP. For 2012, the EICP awards were based 100% on the attainment of financial goals. Mr. Johnson’s award was then subject to adjustment by the Compensation Committee, in its sole discretion, based on objectives established for Mr. Johnson by the Compensation Committee, and the target award for the other NEOs was subject to adjustment by Mr. Johnson based on each NEO’s individual performance, with any such adjustment subject to the approval of the Compensation Committee. The attainment of the financial goals 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%, respectively. The threshold payout amount provided was determined based on achieving the consolidated operating income threshold (or 17.50% of the target amounts shown), which, if not achieved, would result in no amounts being paid on an EICP award. |
On February 29, 2012, our Compensation Committee established target EICP awards expressed as a percentage of the NEO’s 2012 annual base salary earned, as follows: Mr. Johnson — 100%, Mr. Elders — 70%, Mr. Carlson — 70%, Ms. Hinrichs — 70% and Mr. McCormack — 80%. The target amounts shown were computed according to the following formula: Target % * [(2011 base salary * 152/366) + (2012 base salary * 214/366)]. The actual EICP payouts for the NEOs for 2012 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, 2014 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, 2015 and December 31, 2016. 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, 2014 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 number of performance shares granted may vest based on performance through December 31, 2015 and 2016, 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: |
Total Shareholder Return Percentile Rank | Vesting Percentage of Performance Shares Granted | |||
36 Months Ending December 31, 2014 | ³90th Percentile 75th Percentile 50th Percentile 25th Percentile < 25th Percentile | 150% 150% 100% 50% 0% | ||
48 Months Ending December 31, 2015 | ³90th Percentile 75th Percentile 50th Percentile 25th Percentile < 25th Percentile | 200%* 150%* 100%* 50%* 0%* | ||
60 Months Ending December 31, 2016 | 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 assumptions about the expected life of the award and stock return and stock price volatility. For more information regarding the compensation expense related to 2012 awards, and a discussion of |
52
OUTSTANDING EQUITY AWARDSAT FISCAL YEAR-END
53
54
55
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 | — | — |
Option Awards(1) | Stock Awards | |||||||||||||||||||||||||||||||||||||
Name | Grant Date | Number of Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise | 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(3) | Equity Units or | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(3) | ||||||||||||||||||||||||||||
S.M. Johnson | ||||||||||||||||||||||||||||||||||||||
Stock Options | 05/14/09 | 255,744 | — | — | $ | 9.36 | 05/14/16 | |||||||||||||||||||||||||||||||
Stock Options | 03/04/10 | 94,398 | 47,199 | — | $ | 13.09 | 03/04/17 | |||||||||||||||||||||||||||||||
Stock Options | 03/04/11 | 32,711 | 65,422 | — | $ | 25.64 | 03/04/18 | |||||||||||||||||||||||||||||||
Stock Options | 03/05/12 | — | 179,856 | — | $ | 14.44 | 03/05/19 | |||||||||||||||||||||||||||||||
RSUs | 03/04/10 | 31,832 | $ | 350,789 | — | — | ||||||||||||||||||||||||||||||||
RSUs | 03/04/11 | 26,000 | $ | 286,520 | — | — | ||||||||||||||||||||||||||||||||
RSUs | 03/05/12 | 86,565 | $ | 953,946 | — | — | ||||||||||||||||||||||||||||||||
Performance Shares | 03/04/11 | — | — | 28,265 | $ | 311,475 | ||||||||||||||||||||||||||||||||
Performance Shares | 03/05/12 | — | — | 108,459 | $ | 1,195,218 | ||||||||||||||||||||||||||||||||
P.L. Elders | ||||||||||||||||||||||||||||||||||||||
Stock Options | 05/13/10 | 40,195 | 20,097 | — | $ | 13.37 | 05/13/17 | |||||||||||||||||||||||||||||||
Stock Options | 03/04/11 | 8,177 | 16,354 | — | $ | 25.64 | 03/04/18 | |||||||||||||||||||||||||||||||
Stock Options | 03/05/12 | — | 48,561 | — | $ | 14.44 | 03/05/19 | |||||||||||||||||||||||||||||||
RSUs | 05/13/10 | 12,887 | $ | 142,015 | — | — | ||||||||||||||||||||||||||||||||
RSUs | 03/04/11 | 6,500 | $ | 71,630 | — | — | ||||||||||||||||||||||||||||||||
RSUs | 03/05/12 | 23,370 | $ | 257,537 | — | — | ||||||||||||||||||||||||||||||||
Performance Shares | 03/04/11 | — | — | 7,065 | $ | 77,856 | ||||||||||||||||||||||||||||||||
Performance Shares | 03/05/12 | — | — | 29,283 | $ | 322,699 | ||||||||||||||||||||||||||||||||
G.L. Carlson | ||||||||||||||||||||||||||||||||||||||
Stock Options | 05/13/10 | 16,793 | 8,396 | — | $ | 13.37 | 03/29/17 | |||||||||||||||||||||||||||||||
Stock Options | 03/04/11 | 3,271 | 6,542 | — | $ | 25.64 | 03/04/18 | |||||||||||||||||||||||||||||||
Stock Options | 03/05/12 | — | 26,976 | — | $ | 14.44 | 03/05/19 | |||||||||||||||||||||||||||||||
RSUs | 05/13/10 | 13,137 | $ | 144,770 | — | — | ||||||||||||||||||||||||||||||||
RSUs | 03/04/11 | 3,034 | $ | 33,435 | — | — | ||||||||||||||||||||||||||||||||
RSUs | 03/05/12 | 12,984 | $ | 143,084 | — | — | ||||||||||||||||||||||||||||||||
Performance Shares | 03/04/11 | — | — | 2,826 | $ | 31,143 | ||||||||||||||||||||||||||||||||
Performance Shares | 03/05/12 | — | — | 16,266 | $ | 179,251 | ||||||||||||||||||||||||||||||||
L.K. Hinrichs | ||||||||||||||||||||||||||||||||||||||
Stock Options | 03/05/09 | 27,203 | — | — | $ | 5.64 | 03/05/16 | |||||||||||||||||||||||||||||||
Stock Options | 03/04/10 | 30,209 | 15,104 | — | $ | 13.09 | 03/04/17 | |||||||||||||||||||||||||||||||
Stock Options | 03/04/11 | 7,360 | 14,720 | — | $ | 25.64 | 03/04/18 | |||||||||||||||||||||||||||||||
Stock Options | 03/05/12 | — | 35,970 | — | $ | 14.44 | 03/05/19 | |||||||||||||||||||||||||||||||
RSUs | 03/04/10 | 10,186 | $ | 112,250 | — | — | ||||||||||||||||||||||||||||||||
RSUs | 03/04/11 | 6,676 | $ | 73,570 | — | — | ||||||||||||||||||||||||||||||||
RSUs | 03/05/12 | 17,313 | $ | 190,789 | — | — | ||||||||||||||||||||||||||||||||
Performance Shares | 03/04/11 | — | — | 6,359 | $ | 70,071 | ||||||||||||||||||||||||||||||||
Performance Shares | 03/05/12 | — | — | 21,690 | $ | 239,024 | ||||||||||||||||||||||||||||||||
J.T. McCormack | ||||||||||||||||||||||||||||||||||||||
Stock Options | 03/05/09 | 14,155 | — | — | $ | 5.64 | 03/05/16 | |||||||||||||||||||||||||||||||
Stock Options | 03/04/10 | 17,037 | 8,518 | — | $ | 13.09 | 03/04/17 | |||||||||||||||||||||||||||||||
Stock Options | 03/04/11 | 3,802 | 7,604 | — | $ | 25.64 | 03/04/18 | |||||||||||||||||||||||||||||||
Stock Options | 05/13/11 | 6,104 | 12,208 | — | $ | 20.47 | 05/13/18 | |||||||||||||||||||||||||||||||
Stock Options | 03/05/12 | — | 53,955 | — | $ | 14.44 | 03/05/19 | |||||||||||||||||||||||||||||||
RSUs | 03/04/10 | 5,745 | $ | 63,310 | — | — | ||||||||||||||||||||||||||||||||
RSUs | 03/04/11 | 3,022 | $ | 33,302 | — | — | ||||||||||||||||||||||||||||||||
RSUs | 05/13/11 | 5,372 | $ | 59,199 | — | — | ||||||||||||||||||||||||||||||||
RSUs | 03/05/12 | 25,968 | $ | 286,167 | — | — | ||||||||||||||||||||||||||||||||
Performance Shares | 03/04/11 | — | — | 3,285 | $ | 36,201 | ||||||||||||||||||||||||||||||||
Performance Shares | 05/13/11 | — | — | 5,637 | $ | 62,120 | ||||||||||||||||||||||||||||||||
Performance Shares | 03/05/12 | — | — | 32,535 | $ | 358,536 |
(1) | ||
(2) | ||
(3) | Market values in these columns are based on the closing price of our common stock as | |
56
For a hypothetical termination as of December 31, 2010,2012, the salary-based severance payment under a change in control would have been calculated based on the following base salary and target EICP awards:
NEO | Annual Base Salary | Target EICP Award | ||||||
S. M. Johnson | $ | 950,000 | $ | 950,000 | ||||
P. L. Elders | $ | 500,000 | $ | 345,639 | ||||
G. L. Carlson | $ | 375,000 | $ | 251,162 | ||||
L. K. Hinrichs | $ | 455,000 | $ | 314,139 | ||||
J. T. McCormack | $ | 560,000 | $ | 428,066 | ||||
(2) | Each NEO 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 NEO’s termination, the NEO would be entitled to a cash payment equal to the product of the NEO’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 NEO’s annual base salary for the applicable period. No such payment would have been due a NEO on a December 31, 2012 termination, because the 2011 EICP awards had already been paid prior to the NEO’s termination date.
The NEO would be entitled to a prorated EICP payment based upon the NEO’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 NEO was employed with us during that year. Based on a hypothetical December 31, 2012 termination, each NEO would have been entitled to an EICP awards are paid in 2011 for performance achieved during 2010. As a result, dependingpayment equal to 100% of his or her 2012 target EICP percentage times annual base salary, calculated based on the timingfollowing base salary and target EICP percentage:
NEO | Annual Base Salary | Target EICP Percentage | ||||||
S. M. Johnson | $ | 950,000 | 100 | % | ||||
P. L. Elders | $ | 500,000 | 70 | % | ||||
G. L. Carlson | $ | 375,000 | 70 | % | ||||
L. K. Hinrichs | $ | 455,000 | 70 | % | ||||
J. T. McCormack | $ | 560,000 | 80 | % | ||||
(3) | The amounts reported represent 60% of Messrs. Johnson’s, Elders’, Carlson’s and McCormack’s respective Deferred Compensation Plan balance as of December 31, 2012 that would become vested in connection with a termination of employment following a change in control. Because Ms. Hinrichs is 100% vested in her Deferred Compensation Plan balance, no additional amount 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 paymentoutstanding 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 EICP award,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 Namedmerger 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 could receive upOfficer 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 two
(4) | ||
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ADVISORY VOTETO APPROVE NEO COMPENSATION
(ITEM 2)
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The Compensation Committee has overall responsibility for our compensation plans, policies and programs with respect to the Named Executives.NEOs. 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 develop, 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.
We believe our compensation programs motivate and retainencourage the Continuing Named Executives,retention of the NEOs, while allowing for appropriate levels of business risk through some of the following features:
• | Reasonable | ||
• | Emphasize Long-Term Incentive Compensation Over Annual Incentive Compensation — Long-term incentive compensation typically makes up a larger percentage of |
than annual incentive compensation. Incentive compensation helps drive performance and align the interests of | ||
• | 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 | ||
• | 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 | ||
• | 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% | ||
• | Use of Multiple |
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. |
• | Stock Ownership Guidelines — |
Reflecting these compensation payments we made to several Named Executives in 2010 included substantial payments, primarily in the form of restricted stock grants, made pursuant to retention agreements we entered into 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.
NEO target total direct compensation within approximately 5% of the median compensation for officers in comparable positions in our Named Executives (excluding retention payments mademarket;
NEO performance-based compensation accounting for over 64% of target total direct compensation, on average, as compared to 60% in connection with2011 and 46% in 2010; and
Performance-based compensation accounting for 75% of NEO target long-term incentive compensation.
McDermott’s 2012 financial and operational performance highlights included:
Consolidated revenue of $3.6 billion, as compared to $3.4 billion for 2011;
Consolidated operating income of $319.3 million and operating margin of 8.8%, as compared to consolidated operating income of $250.7 million and operating margin of 7.4% for 2011;
Consolidated return on invested capital of 10.3%, as compared to 8% for 2011;
Basic earnings per share of $0.88, as compared to $0.59 for 2011;
Historic year-end backlog of $5.1 billion as of December 31, 2012, as compared to $3.9 billion as of December 31, 2011;
Award of the Spin-offapproximately $2 billion INPEX Ichthys project, representing the largest contract McDermott has been awarded to date; and the sign-on equity grant provided to Mr. Carlson, as discussed in further detail below) resulted in:
• | Continuation of the |
The following table summarizes the 2011 and 2012 performance-based compensation opportunities for each of our NEOs as compared to the realizable value of such opportunities as of December 31, 2012:
2011 & 2012 Performance-Based Compensation Opportunity vs. Realizable Value as of December 31, 2012
EICP(1) | Performance Shares(2)(3) | Stock Options(2)(3) | Total | |||||||||||||
S. M. Johnson | ||||||||||||||||
2012 Opportunity | $ | 950,000 | $ | 2,499,980 | $ | 1,249,999 | $ | 4,699,979 | ||||||||
2012 Realizable Value | $ | 760,000 | $ | 705,170 | $ | 0 | $ | 1,465,170 | ||||||||
2011 Opportunity | $ | 942,603 | $ | 2,382,132 | $ | 944,089 | $ | 4,268,824 | ||||||||
2011 Realizable Value | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
P. L. Elders | ||||||||||||||||
2012 Opportunity | $ | 345,639 | $ | 674,973 | $ | 337,499 | $ | 1,358,111 | ||||||||
2012 Realizable Value | $ | 207,383 | $ | 190,382 | $ | 0 | $ | 397,765 | ||||||||
2011 Opportunity | $ | 336,911 | $ | 595,438 | $ | 236,000 | $ | 1,168,349 | ||||||||
2011 Realizable Value | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
G. L. Carlson | ||||||||||||||||
2012 Opportunity | $ | 251,162 | $ | 374,931 | $ | 187,483 | $ | 813,576 | ||||||||
2012 Realizable Value | $ | 210,976 | $ | 105,748 | $ | 0 | $ | 316,724 | ||||||||
2011 Opportunity | $ | 199,233 | $ | 238,175 | $ | 94,406 | $ | 531,814 | ||||||||
2011 Realizable Value | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
L. K. Hinrichs | ||||||||||||||||
2012 Opportunity | $ | 314,139 | $ | 499,955 | $ | 249,992 | $ | 1,064,086 | ||||||||
2012 Realizable Value | $ | 301,573 | $ | 141,023 | $ | 0 | $ | 442,596 | ||||||||
2011 Opportunity | $ | 261,381 | $ | 535,894 | $ | 212,421 | $ | 1,009,696 | ||||||||
2011 Realizable Value | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
J. T. McCormack | ||||||||||||||||
2012 Opportunity | $ | 428,066 | $ | 749,932 | $ | 374,987 | $ | 1,552,985 | ||||||||
2012 Realizable Value | $ | 308,208 | $ | 211,529 | $ | 0 | $ | 519,737 | ||||||||
2011 Opportunity | $ | 274,549 | $ | 634,020 | $ | 253,847 | $ | 1,162,416 | ||||||||
2011 Realizable Value | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
(1) | Opportunity Values for the EICP are disclosed at the NEOs’ target EICP award. |
(2) | Opportunity Values for performance shares and stock options are disclosed at the grant date fair value of the respective awards. |
(3) | ||
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,NEOs, 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 20112013 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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In making our recommendation that McDermott’s financial statements be included in its Annual Report onForm 10-K for the year ended December 31, 2010,2012, 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, 2012, 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 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, 2012, and consolidated statements of income, comprehensive income, cash flows and stockholders’ equity for the year ended December 31, 2012.
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, 20102012 for filing with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
David A. Trice, Chairman
Stephen G. Hanks
D. Bradley McWilliams
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RATIFICATIONOF APPOINTMENTOF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRMFOR YEAR ENDING DECEMBER 31, 2013
Our Board of Directors has ratified the decision of the Audit Committee to appoint Deloitte & Touche LLP (“D&T”) to serve as the independent registered public accounting firm to audit our financial statements for the year ending December 31, 2011.2013. 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, 20102012 and 2009,2011, McDermott paid Deloitte & ToucheD&T fees, including expenses and taxes, totaling $5,888,537$3,888,337 and $8,649,858,$3,929,356, 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 |
2012 | 2011 | |||||||
Audit | ||||||||
The Audit fees for the years ended December 31, 2012 and 2011 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. | $ | 3,487,789 | $ | 3,528,477 | ||||
Audit-Related | ||||||||
The Audit-Related fees for the years ended December 31, 2012 and 2011 were for assurance and related services, employee benefit plan audits and advisory services related to Sarbanes-Oxley Section 404 compliance. | $ | 144,280 | $ | 114,367 | ||||
Tax | ||||||||
The Tax fees for the years ended December 31, 2012 and 2011 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. | $ | 211,268 | $ | 286,512 | ||||
All Other | ||||||||
The fees for All Other services for the year ended December 31, 2012 were for professional services rendered for translation services and other advisory or consultation services not related to audit or tax. | $ | 45,000 | $ | 0 | ||||
Total | $ | 3,888,337 | $ | 3,929,356 |
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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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, 2011.2013. 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
Name | Shares Beneficially Owned | |||
John F. Bookout, III(1) | 201,227 | |||
Roger A. Brown(2) | ||||
Gary L. Carlson | ||||
Perry L. Elders | ||||
Stephen G. Hanks | ||||
Liane K. Hinrichs | ||||
Stephen M. Johnson | ||||
D. Bradley McWilliams | ||||
John T. McCormack(8) | ||||
William H. Schumann, III | ||||
Mary Shafer-Malicki | ||||
David A. Trice | ||||
All directors and executive officers as a group |
(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 | |
(4) | Shares owned by Mr. Elders include | |
(5) | Shares owned by Ms. Hinrichs include |
(6) | Shares owned by Mr. Johnson include |
(7) | Shares owned by Mr. McWilliams include |
(8) | Shares owned by Mr. |
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(9) | Shares owned by all directors and executive officers as a group include |
Shares beneficially owned in all cases constituted less than one percent of the outstanding shares of common stock on February 28, 2011,2013, as determined in accordance withRule 13d-3(d)(1) under the Securities Exchange Act of 1934.
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:Security Ownership of Certain Beneficial OwnersSECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERS
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 | 27,067,673 | (2) | % | ||||||||||||
Common Stock | FMR LLC 82 Devonshire Street Boston, MA 02109 | 21,197,296 | (3) | % | ||||||||||||
Common Stock | Artisan Partners Holdings LP 875 East Wisconsin Avenue, Suite 500 Milwaukee, WI 53202 | 14,650,762 | (4) | |||||||||||||
% | ||||||||||||||||
(1) | Percent is based on outstanding shares of our common stock on February 28, | |
(2) | As reported on a Schedule 13G/A filed with the SEC on February | |
(3) | As reported on | |
(4) | As reported on a Schedule 13G/A filed with the SEC on February 6, 2013. The Schedule 13G/A reports beneficial ownership of |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to our Code of Business Conduct, all employees (including our Named Executives)NEOs) 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.
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 our 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, each of Messrs. Johnson,
The Investment Committee of our Board, which approval was granted. Accordingly, this withholding method will applythe 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 terms 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 aggregate of 205,316 shares held by Mr. Johnson, 142,445 shares held by Mr. Fees, 12,886 shares held by Mr. Elders, 13,136 shares held by Mr. Carlson, 12,964 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, 120,469 shares held by Mr. Nesser,investment policy statement approved 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 approvedadopted by the CompensationInvestment Committee. We expect any transfers reflecting shares of restricted 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.
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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 SectionSec-
tion 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, with
2012.
Stockholders’ ProposalsSTOCKHOLDERS’ PROPOSALS
Any stockholder who wishes to have a qualified proposal considered for inclusion in our proxy statement for our 20122014 Annual Meeting must send notice of the proposal to our Corporate Secretary at our principal executive office no later than November 26, 2011.28, 2013. 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.
By Order of the Board of Directors,
LIANE K. HINRICHS
Secretary
Dated: March 25, 2011
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MCDERMOTT INTERNATIONAL, INC. 757 N. ELDRIDGE PKWY HOUSTON, TX 77079 | ||
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VOTE BY INTERNET Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 VOTE BY PHONE Use any touch-tone telephone to transmit your voting instructions up until VOTE BY MAIL Using a blue or black ink pen, 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:
M55936-P34527 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 | Withhold All | For All | To withhold authority to vote for any individual | ||||||||||||||||||||||||
The Board of Directors recommends you vote FOR the | ||||||||||||||||||||||||||||
1. | Election of Directors | ¨ | ¨ | ¨ | ||||||||||||||||||||||||
Nominees: | ||||||||||||||||||||||||||||
01) John F. Bookout, III | 05) D. Bradley McWilliams | |||||||||||||||||||||||||||
02) Roger A. Brown | 06) William H. Schumann, III | |||||||||||||||||||||||||||
03) Stephen G. Hanks | 07) Mary L. Shafer-Malicki | |||||||||||||||||||||||||||
04) Stephen M. Johnson | 08) David A. Trice | |||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR the following proposals: | For | Against | Abstain | |||||||||||||||||||||||||
2. | Advisory vote to approve named executive officer compensation. | ¨ | ¨ | ¨ | ||||||||||||||||||||||||
3. | Ratification of the appointment of Deloitte & Touche LLP as McDermott’s independent registered public accounting firm for the year ending December 31, | ¨ | ¨ | ¨ | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||
For address changes and/or comments, please check this box and write them | ¨ | |||||||||||||||||||||||||||
Please indicate if you plan to attend this meeting. | ¨ | ¨ | ||||||||||||||||||||||||||
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 Tuesday, May The Westin Houston Hotel, Houston, Texas 77024 |
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 |
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG PERFORATION,
DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE
M55937-P34527 |
McDERMOTT INTERNATIONAL, INC. This proxy is solicited on behalf of the Board of Directors Annual Meeting of Stockholders 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 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 ALL OF THE NOMINEES LISTED UNDER ITEM 1 ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS, AND FOR EACH OF ITEMS 2 THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF MCDERMOTT’S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 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 PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE REPLY CARD ENVELOPE | ||||||||||||
Address Changes/Comments: | ||||||||||||
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) CONTINUED AND TO BE SIGNED ON REVERSE SIDE |