UNITED
STATES
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 Registrant ☒
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Filed
by a Party other than the Registrant ☐
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Check
the appropriate box:
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☐
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Preliminary
Proxy Statement
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☐
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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☒
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Definitive
Proxy Statement
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☐
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Definitive
Additional Materials
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☐
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Soliciting
Material under §240.14a-12
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NABORS
INDUSTRIES LTD.
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(Name
of Registrant as Specified In Its Charter)
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(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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☒
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No
fee required.
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☐
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it
was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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☐
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Fee
paid previously with preliminary materials.
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☐
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Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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NOTICE
OF 2017 ANNUAL GENERAL MEETING OF SHAREHOLDERS
Tuesday,
June 6, 2017, 10 a.m. CT
Nabors
Corporate Services, Inc., 515 W. Greens Rd., Houston, Texas 77067
April
27, 2017
Dear
Fellow Shareholder:
On
behalf of the Board of Directors (the “Board”) of Nabors Industries Ltd. (the “Company”), we cordially
invite you to attend the Company’s 2017 annual general meeting of shareholders to be held on June 6, 2017 at 10 a.m. CT
(the “meeting”). You are entitled to vote at the meeting if you were a shareholder of record at the close of business
on April 7, 2017. This year, shareholders will consider:
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1.
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The
election of seven directors for a one-year term (Item 1);
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2.
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The
approval and appointment of PricewaterhouseCoopers LLP as the Company’s independent
auditor for the year ending December 31, 2017, and authorization for the Audit Committee
of the Board to set the independent auditor’s remuneration (Item 2);
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3.
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A
nonbinding, advisory “Say-on-Pay” vote regarding the compensation paid by
the Company to its named executive officers as disclosed in the Proxy Statement (Item
3);
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4.
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A
nonbinding, advisory vote to establish the frequency of submission to shareholders of
future “Say-on-Pay” votes (Item 4);
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5.
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A
nonbinding shareholder proposal regarding adopting a proxy access bye-law, if properly
presented by the shareholder proponents (Item 5); and
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6.
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Such
other business as may properly come before the meeting.
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The
Company’s annual audited financial statements for the year ended December 31, 2016, will also be presented at the meeting.
Further
information regarding the meeting and the above proposals is set forth in the Proxy Statement. We are mailing a Notice of Internet
Availability of Proxy Materials (the “Notice”) to shareholders on or about April 27, 2017, rather than a paper copy
of the Proxy Statement and the Company’s 2016 Annual Report. The Notice contains instructions on how to access the proxy
materials, vote online and obtain a paper copy of the proxy materials.
YOUR
VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE.
We
hope you will read the Proxy Statement and 2016 Annual Report and submit your proxy, or use telephone or Internet voting, prior
to the meeting. Even if you plan to attend the meeting, please submit a proxy as soon as possible to ensure that your shares are
voted at the meeting in accordance with your instructions.
On
behalf of the Board and our management team, I extend our appreciation for your continued support.
Sincerely
yours,
ANTHONY
G. PETRELLO
Chairman,
President and Chief Executive Officer
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS
FOR THE ANNUAL GENERAL MEETING TO BE HELD ON JUNE 6, 2017:
Our Proxy Statement and our 2016 Annual Report are
available at:
www.proxyvote.com
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Dear
Fellow Shareholder:
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April 27, 2017
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During
2016, the Board of Directors (the “Board”) of Nabors Industries Ltd. (the “Company”) and senior management
continued to focus on maximizing long-term shareholder value while delivering on key strategic business objectives during one
of the most challenging environments our industry has ever faced. Our response to the prolonged industry downcycle was to focus
on positioning our core, pure-play drilling business for future sustainable free cash flow generation. Our most noteworthy achievement
in this regard was the announcement of the signing of our joint venture with Saudi Arabia Development Company, a wholly-owned
subsidiary of Saudi Arabian Oil Company, in October 2016, further solidifying our long-standing position as a market leader in
what is considered to be the most important oil and gas region in the world. We believe this achievement demonstrates our ability
to capitalize on strategic opportunities as well as our commitment to creating greater long-term shareholder value. Further, despite
the difficult market conditions, our senior management delivered significant business and safety results in 2016:
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•
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Reduced
our total recordable incident rate from 0.82 in 2015 to 0.73 in 2016, moving us closer
to our ultimate goal of zero incidents across our entire workforce;
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•
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Responded
to the industry decline with disciplined cost and capital expenditure control, achieving
a reduction in net debt of over $100 million in 2016 and a $104.4 million reduction in
sales, general and administrative expenses (inclusive of research & engineering expenses);
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•
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Introduced
our fleet of SmartRig
™
drilling systems incorporating MPD-ready
®
technologies, and upgraded our U.S. rig fleet, while achieving a year-end Lower
48 rig count of 72 working rigs (a 106% increase over our trough of 35 working rigs in
May 2016), with a 67% increase in total onshore Lower 48 rig count per Baker Hughes;
and
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•
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Increased
market penetration of our Nabors Drilling Solutions offering, including performance drilling
tools, wellbore placement technologies and other value-add services, and unveiled our
new iRacker
®
automated pipe handling system.
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Since
the beginning of 2016, we also took important actions to address shareholder feedback on ongoing corporate governance and executive
compensation initiatives:
Board
Structure and Process
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•
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Nominated
a new director, Ms. Tanya S. Beder, to bring a fresh perspective and greater diversity
to the Board, as well as a wealth of relevant experience and expertise. We strongly believe
that Ms. Beder will be an excellent addition to the Board.
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•
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Undertook
a continuing education program for directors to further enhance the Board’s knowledge
and skills.
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•
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Extended
the 10% reduction in the annual and other cash retainers of our Board members to December
31, 2016.
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Executive
Compensation
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•
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Extended
the 10% reduction in the annual base salaries of our CEO, CFO and senior management in
light of industry conditions until December 31, 2016.
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•
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Modified
our peer group, effective as of January 1, 2016, against which our Compensation Committee
evaluates certain components of our executive compensation to better align with changes
in our business and industry.
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Corporate
Responsibility
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•
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Published
our second corporate sustainability report for the year ended December 31, 2015, further
demonstrating our commitment to and the importance of enhanced disclosure on environmental,
social and governance practices in our corporate culture.
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Further,
we continued to maintain regular, ongoing constructive dialogue with our shareholders. Following the results of last year’s
annual general meeting, we engaged in regular discussions and one-on-one meetings with a number of institutional investors. We
also invited all of our shareholders to an Investor Day event in Houston, TX, which I attended, where senior leadership presented
to approximately 90 attendees with an in-depth look at our business developments and outlook. This event highlighted our ability
to leverage our latest proprietary technologies for future growth opportunities, exhibiting our advancements in fully automated
technologies, including the introduction of the iRig
®
drilling system, our newest state-of-the-art rig, and other
technologies which provide for a sustainable differentiation from our competitors. We gained valuable insights on key shareholder
priorities from these interactions and also evaluated our strategic objectives, and corporate governance and executive compensation
programs based on your valuable feedback.
Lastly,
our people remained committed to our core values of safety, excellence, teamwork, accountability and innovation. The Board and
senior management believe these values serve as a foundation for our continued success and will enable us to continue delivering
higher performance results and maximizing long-term value for all stakeholders into the future. Thank you for your investment
in Nabors.
Sincerest
regards,
JOHN
YEARWOOD
Lead
Director
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2017Proxy Statement
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PROXY SUMMARY
This summary provides highlights of information contained
in this Proxy Statement. It does not contain all of the information that you should consider before voting. We encourage you to
read the entire Proxy Statement. For more complete information regarding the Company’s 2016 performance, please read our
2016 Annual Report. The annual meeting will take place:
Date:
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June 6, 2017
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Place:
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Nabors Corporate Services, Inc.
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Time:
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10 a.m. CT
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515 W. Greens Rd.
Houston, Texas 77067
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Please vote your shares
promptly, as this will save the expense of additional proxy solicitation.
You may submit your vote by Internet, telephone, mail or in person.
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Visit the website listed on your proxy card/voting instruction form to vote via the Internet.
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Call the telephone number on your proxy card/voting instruction form to vote by telephone.
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Sign, date and return your proxy card/voting instruction form to vote by mail.
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Vote in person at the annual meeting. Owners with shares held through a bank or broker may vote in person at the meeting if they have a legal proxy from the bank or broker and bring it to the meeting.
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ITEMS TO BE CONSIDERED & BOARD RECOMMENDATIONS
ITEM
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VOTES REQUIRED
FOR APPROVAL
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BOARD’S VOTING
RECOMMENDATION
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PAGE
REFERENCE
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Item 1
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Elect directors
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Plurality of votes cast
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FOR
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13
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Item 2
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Approve and appoint PricewaterhouseCoopers LLP as our independent auditor for the year ending December 31, 2017 and authorize the Board’s Audit Committee to set the independent auditor’s remuneration
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Majority of votes present
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FOR
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26
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Item 3
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Advisory vote regarding the compensation paid to the named executive officers (“say on pay”)
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Nonbinding
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FOR
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59
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Item 4
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Advisory vote on the frequency of shareholder “say-on-pay” votes
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Nonbinding
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FOR
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60
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Item 5
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Shareholder Proposal: Proxy Access Bye-Law
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Nonbinding
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AGAINST
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61
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This
Proxy Statement and our 2016 Annual Report are available electronically on our hosted website at
www.proxyvote.com
and accessible via the QR code at the right. The Notice and proxy
materials are first being made available to our shareholders on or about April 27, 2017.
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2017 Proxy Statement 1
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DIRECTOR NOMINEES
Upon the recommendation of the Governance & Nominating
Committee, our Board of Directors has nominated the following seven director nominees to be elected at the Annual General Meeting,
which comprise six of our current directors and one new nominee. All of the nominees for director are independent under the rules
of the NYSE, other than Mr. Petrello, who is our Chief Executive Officer. Detailed information about each director nominee, including
their background, skills and experience, can be found under “Corporate Governance—Director Nominees”. Mr. Wolf,
who has been a director since 2013, determined, at the end of last year’s meeting, not to stand for re-election in the Annual
General Meeting.
NAME
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AGE
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DIRECTOR
SINCE
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INDEPENDENT
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PRIMARY OCCUPATION
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Tanya S. Beder
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61
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—
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Yes
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Chairman and CEO of SBCC Group Inc.
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James R. Crane
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63
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2012
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Yes
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Chairman and CEO of Crane Capital Group Inc.
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John P. Kotts
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66
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2013
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Yes
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Private investor and entrepreneur
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Michael C. Linn
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65
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2012
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Yes
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President and CEO of MCL Ventures, LLC
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Anthony G. Petrello
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62
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1991
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No
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Chairman of the Board, President and CEO
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Dag Skattum
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56
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2014
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Yes
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Vice Chairman, Europe, the Middle East and Africa of JP Morgan
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John Yearwood
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57
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2010
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Yes
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Retired President, CEO and COO of Smith International, Inc.
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CORPORATE GOVERNANCE HIGHLIGHTS
We made the following changes to our corporate governance
practices effective in 2016, reflecting our ongoing, constructive dialogue with shareholders and commitment to transparency and
good corporate governance:
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•
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Extended the 10% reduction in the annual base salaries of our CEO, CFO and senior management and
the annual and other cash retainers for our Board members until December 31, 2016;
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•
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Modified our peer group, effective January 1, 2016, against which our Compensation Committee evaluates
certain components of our CEO and CFO’s compensation;
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•
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Published our second corporate sustainability report for the year ended December 31, 2015 (the
“2015 Corporate Sustainability Report”), demonstrating our commitment to enhanced disclosure on environmental, social
and governance practices;
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•
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Performed a review of the Company’s existing proxy access policy
in proactive response to the results of last year’s
annual general meeting and ongoing dialogue with certain shareholders;
and
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•
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Continued comprehensive development and succession planning to ensure long-term stability in the
Company’s key management positions.
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2016 TOTAL SHAREHOLDER RETURN
Our total
shareholder return (“TSR”) in 2016
outpaced all peers in the 2016 Performance Peer Group, as reflected
in the accompanying graph:
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Source: Bloomberg.
2
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2017 Proxy Statement
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COMPENSATION HIGHLIGHTS
The Compensation Committee strongly believes that executive
compensation should be set at levels appropriate to attract and retain talented leaders and should be closely aligned to Company
performance. Since 2011, we have significantly updated our compensation practices, including better aligning executive compensation
with business performance to account for the challenging industry environment and consistent with the Company’s overall compensation
philosophy. In particular, over the last three years, we took the following measures:
2014
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• Adopted a policy limiting severance
payments to 2.99 times the sum of each of our CEO and CFO’s average base salary and bonus for the 3 years prior to termination.
• Eliminated the CEO’s automobile
allowance and reduced perquisites generally across the Company.
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2015
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• Reduced by 10% the annual base
salaries of our executive officers, effective January 1, 2015 through June 30, 2016 in response to the decline in industry conditions.
• Rescheduled the annual grant of
restricted share awards to nonemployee directors to occur shortly after the annual general meeting of shareholders, ensuring that
such awards are granted only to directors for the current year and not any directors who are retiring or otherwise not continuing
in service.
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2016
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• Extended
the salary reduction a further 6 months through December 31, 2016.
• Refreshed the composition of our
peer group in light of changes in our business and the industry.
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In 2016, we continued to adhere to compensation practices that we believe
strengthen the link between the compensation of our executive officers and the performance of our business:
What
We Do
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What
We Don’t Do
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✓
Independent
Compensation Committee –
We have oversight by a Compensation
Committee comprised of only independent directors
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✘
No
excessive perquisites without a specific business rationale
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✓
Independent
Compensation Consultant
– Our Compensation Committee
engages an independent compensation consultant
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✘
No
repricing of underwater stock options without shareholder approval
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✓
Pay
for Performance
– Tie a majority of executive compensation
to performance with specific, measurable financial and operational objectives
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✘
No
excise tax gross-ups in connection with a change-of-control, and it is our policy not to include any such tax gross-ups in
any future executive officer agreements
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✓
Time-based
Awards
– Subject some earned performance-based equity
awards to further time-based vesting requirements
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✘
No
cash severance payments in the event of death, disability or termination for cause
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✓
Share
Ownership Policy
– Require our CEO and CFO to
hold shares equal in value to five times and three times base salary, respectively
✓
Capped
Severance
– Adopted a policy limiting severance
payments in our executive agreements to 2.99x the sum of average base salary and bonus for 3 years prior to termination
✓
Annual
Say-on-Pay Vote
– Conduct annual say-on-pay non-binding
advisory votes
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✘
No
discretionary bonuses except in the case of extraordinary specific developments that materially enhance the value of the Company
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2017 Proxy Statement 3
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MANAGEMENT SHARE OWNERSHIP
Management share ownership remains an important mechanism
in our executive compensation structure for aligning the interests of our executives with those of our other shareholders. Accordingly,
we require our executives to maintain equity ownership in the Company based on acquisition-date value. As of the record date, our
CEO owns more than 26 times the required equity value of 5x his base salary, and our CFO owns nearly seven times his required ownership
of 3x his base salary.
* Excludes
common shares for which the executive disclaims beneficial ownership. See “Corporate Governance—Beneficial Ownership
of Company Common Shares.”
FOCUS ON SHAREHOLDER VALUE
We are committed to generating shareholder value and
delivering results. In 2016, we maintained our quarterly dividend to shareholders of $0.06 per common share in the face of challenging
industry conditions, returning $68.0 million to shareholders compared to $69.4 million in 2015.
* Represents
dividends declared in corresponding year.
We will continue to identify and consider opportunities
to increase returns to our shareholders in the future.
4
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2017 Proxy Statement
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PROXY STATEMENT
GENERAL
This Proxy Statement and the proxy card are being furnished
to all shareholders on or about April 27, 2017, in connection with the solicitation of proxies by the Board of Directors (the “Board”)
of Nabors Industries Ltd. for the 2017 annual general meeting of shareholders (the “meeting”).
In this Proxy Statement, “Nabors”, the “Company”,
“we”, “us” and “our” refer to Nabors Industries Ltd. Where the context requires, these references
also include our consolidated subsidiaries and predecessors. Our principal executive offices are located at Crown House, 4 Par-la-Ville
Road, Second Floor, Hamilton, HM 08 Bermuda.
MEETING INFORMATION
We will hold the meeting at the offices of Nabors Corporate
Services, Inc., 515 W. Greens Rd., Houston, Texas, 77067, at 10:00 a.m. Central Time on Tuesday, June 6, 2017, unless adjourned
or postponed. Directions to the meeting can be found under the Investor Relations tab of our website at
www.nabors.com
or by calling our Investor Relations department at 281-775-8038.
WHO CAN VOTE & RECORD DATE
All shareholders of record at the close of business
on April 7, 2017 (the “record date”), are entitled to vote, in person or by proxy, on each matter submitted to a vote
of shareholders at the meeting. On the record date, 335,567,404 of the Company’s common shares were outstanding, the holders
of which are entitled to one vote per common share on all matters. The number of common shares outstanding includes shares held
by our subsidiaries, which will be voted consistent with the Board’s recommendation. We have no other class of securities
entitled to vote at the meeting.
MEETING ATTENDANCE
Only record or beneficial owners of the Company’s
common shares may attend the meeting in person. If you are a shareholder of record, you may be asked to present proof of identification,
such as a driver’s license or passport. Beneficial owners must also present evidence of share ownership, such as a recent
brokerage account or bank statement. All attendees must comply with our standing rules, which are available on our website and
will be distributed upon entrance to the meeting.
IMPORTANT NOTICE REGARDING INTERNET
AVAILABILITY OF MATERIALS
Pursuant to the Securities and Exchange Commission (the
“SEC”) “notice and access” rules, we may furnish proxy materials, including this Proxy Statement and our
2016 Annual Report for the year ended December 31, 2016, to our shareholders by providing access to such documents on the Internet
instead of mailing printed copies. Most shareholders will not receive printed copies of the proxy materials unless they request
them prior to distribution of the Proxy Statement. Instead, a Notice of Internet Availability of Proxy Materials (the “Notice”)
was mailed, which explains how you may access and review the proxy materials and how you may submit your proxy on the Internet.
We believe that this makes the proxy distribution process more efficient, less costly, and helps to conserve natural resources.
If you would like to receive a paper or electronic copy of our proxy materials, please follow the instructions included in the
Notice. Shareholders who requested paper copies of the proxy materials or previously elected to receive proxy materials electronically
did not receive the Notice and are receiving the proxy materials in the format requested. Proxy materials will also be provided
for distribution through brokers, custodians and other nominees and fiduciaries. We will reimburse these parties for their reasonable
out-of-pocket expenses for forwarding the proxy materials.
HOUSEHOLDING
The SEC permits a single set of annual reports and proxy
statements or a notice of Internet availability of proxy materials, as applicable, to be sent to any household at which two or
more shareholders reside if they appear to be members of the same family. Each shareholder continues to receive a separate proxy
card. This procedure,
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2017 Proxy Statement 5
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referred to as householding, reduces the volume of duplicate information shareholders receive and reduces
mailing and printing expenses. A number of brokerage firms have instituted householding. As a result, if a shareholder holds shares
through a broker and resides at an address at which two or more shareholders reside, that shareholder will likely receive only
one annual report and proxy statement or notice, as applicable, unless any shareholder at that address has given the broker contrary
instructions. However, if any such shareholder residing at such an address wishes to receive a separate annual report and proxy
statement or notice in the future, or if any such shareholder that elected to continue to receive such materials wishes to receive
a single set of materials in the future, that shareholder should contact their broker or send a request to the Corporate Secretary
at the Company’s principal executive offices. The Company will deliver, promptly upon written or oral request to the Corporate
Secretary, a separate copy of the annual report and proxy statement or notice, as applicable, to a shareholder at a shared address
to which a single copy of the documents was delivered.
PROXY SOLICITATION
We have retained Georgeson LLC, 1290 Avenue
of the Americas, 9
th
Floor, New York, NY 10104, to solicit proxies on behalf of the Board by mail, in person and by
telephone. We will pay the expenses of this solicitation and preparation of proxy materials, which are expected to be approximately
$19,500.
In addition, certain of our directors, officers, and employees may solicit proxies by telephone, personal contact,
or other means of communication. They will not receive any additional compensation for these activities.
VOTING INFORMATION
Quorum.
A
majority of the common shares outstanding on the record date, represented in person or by proxy, will constitute a quorum to transact
business at the meeting. Abstentions, withheld votes, and broker nonvotes will be counted for purposes of establishing a quorum.
Submitting voting instructions
for shares held in your name.
As an alternative to voting in person at the meeting, you may direct your vote for the
meeting by telephone or via the Internet, which saves the Company money, or, for those shareholders who receive a paper proxy card
in the mail, by mailing a completed and signed proxy card. A properly submitted proxy will be voted in accordance with your instructions,
unless you subsequently revoke your instruction. If you submit a signed proxy without indicating your vote, the person voting the
proxy will vote your shares according to the Board’s recommendation unless they lack the discretionary authority to do so.
Submitting voting instructions
for shares held in street name.
If you hold your shares through your broker, follow the instructions you receive from
your broker. If you want to vote in person, you must obtain a legal proxy from your broker and bring it to the meeting. If you
do not submit voting instructions to your broker, your broker may still be permitted to vote your shares. New York Stock Exchange
(“NYSE”) member brokers may vote your shares on the approval and appointment of the Company’s independent auditor
and authorization for the Audit Committee to set the independent auditor’s remuneration, which is a “discretionary”
item. All other items to be voted on at the meeting are “nondiscretionary” items. Absent specific voting instructions
from the beneficial owners, NYSE member brokers may not vote on these proposals. If your broker does not have discretion to vote
your shares on a matter, your shares will not be voted on that matter, resulting in a “broker nonvote”. Broker nonvotes
will be counted for purposes of establishing a quorum, but will not be counted in determining the outcome of “non-discretionary”
items. In other words, broker nonvotes will have no effect on the proposal.
Withholding your vote
or voting to “abstain”.
You may withhold your vote for any nominee for election as a director. Withheld
votes will be excluded from the vote. Because directors are elected by a plurality of votes, withheld votes will have no effect
on the election of directors. On the other proposals, you may vote to “abstain”. If you vote to “abstain”,
your shares will be counted as present at the meeting, and your abstention will have the effect of a vote
against
the proposal.
Revoking your proxy.
You may revoke your proxy at any time before it is actually voted by (1) delivering a written revocation notice prior to the meeting
to the Corporate Secretary in person or by courier at the address on the notice of meeting appearing at the front of this Proxy
Statement or by mail to P.O. Box HM3349, Hamilton, HMPX Bermuda; (2) submitting a later-dated proxy that we receive no later than
the conclusion of voting at the meeting; or (3) actually voting in person at the meeting. Please note that merely attending the
meeting will not, by itself, constitute a revocation of a proxy.
6
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2017 Proxy Statement
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Votes Required / Abstentions
and Broker Nonvotes.
The following chart provides information on the votes required to elect a director nominee or approve
a proposal and the treatment of abstentions and broker nonvotes:
VOTING ITEM
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VOTE REQUIRED TO ELECT OR APPROVE
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TREATMENT OF ABSTENTIONS AND
BROKER NONVOTES
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Election of
Directors
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Each director must receive a plurality of the votes cast; however, a nominee, other than Ms. Beder, who does not receive the affirmative vote of a majority of the shares voted in connection with his/her election must promptly tender his resignation from the Board, which the Board will accept unless it determines that it would not be in the Company’s best interests to do so. In the event Ms. Beder does not receive a majority of shares voted, the Board will consider whether it is in the best interest of the Company to appoint her to the Board to fill the position being vacated by Mr. Wolf.
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No effect
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Independent
Auditor
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Requires the affirmative vote of the holders of a majority of shares present in person or represented by proxy.
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Abstentions have the same effect as a vote against the proposal; brokers may vote undirected shares
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Say-on-Pay
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Requires the affirmative vote of the holders of a majority of shares present in person or represented by proxy. The vote on this item is nonbinding, but the Board will consider the results of the vote in making future decisions.
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Abstentions have the same effect as a vote against the proposal; broker nonvotes will have no effect
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Say-When-on-Pay
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Requires the affirmative vote of the holders of a majority of shares present in person or represented by proxy. The vote on this item is nonbinding, but the Board will consider the results of the vote in making future decisions.
|
Abstentions have the same effect as a vote against the proposal; broker nonvotes will have no effect
|
Proxy Access Proposal
|
Requires the affirmative vote of the holders of a majority of shares present in person or represented by proxy. The vote on this item is nonbinding, but the Board will consider the results of the vote in making future decisions.
|
Abstentions have the same effect as a vote against the proposal; broker nonvotes will have no effect
|
|
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2017 Proxy Statement 7
|
CORPORATE GOVERNANCE
ROLE OF THE BOARD OF DIRECTORS
The Board directs the management of the Company’s
business and affairs. The shareholders elect the Board to act on their behalf and to oversee their interests. Unless reserved to
the shareholders under applicable law of the Company’s bye-laws, all corporate authority resides in the Board as the representative
of the shareholders.
The Board selects and appoints executive officers to
manage the day-to-day operations of the Company, while retaining ultimate oversight responsibilities. Together, the Board and management
share an ongoing commitment to the highest standards of corporate governance and ethics. The Board reviews all aspects of our governance
policies and practices, including the “Board Guidelines on Significant Corporate Governance Issues” (the “Governance
Guidelines”) and the Company’s “Code of Business Conduct”, at least annually and makes changes as necessary.
The Governance Guidelines and the Code of Business Conduct along with all committee charters are available on the Company’s
website at
www.nabors.com
.
OVERVIEW OF KEY GOVERNANCE TOPICS
Director Independence
The Governance and Nominating Committee conducts a review
at least annually of the independence of each of the members of the Board and its committees and reports its findings to the full
Board. As permitted by the rules of the NYSE, the Board has adopted categorical standards to assist it in making determinations
of director independence. These standards incorporate and are consistent with the independence requirements of the NYSE and are
set forth in our Governance Guidelines available on our website at
www.nabors.com
. In
addition to these standards, the Board also reviews each of the transactions, relationships and arrangements described under “Certain
Relationships and Related-Party Transactions” below, as well as social and other relationships, in determining whether a
director is independent.
Upon the recommendation of the Governance and Nominating
Committee, the Board has determined that each director of the Board during 2016, other than Mr. Petrello, is independent. The Board
has also determined that each member of our Audit, Compensation and Governance and Nominating Committees meets the independence
standards established for these committees by the NYSE and the rules and regulations of the SEC. The Board also has determined
that, if elected, Ms. Beder will meet all requisite independence standards and that the Board will determine that Ms. Beder is
an independent director.
Director Nominations
The Governance and Nominating Committee, in consultation
with the CEO, recommends director candidates to the full Board. The Governance and Nominating Committee considers the entirety
of each candidate’s credentials including, especially, the ability of each candidate to assist the Board in fulfilling its
fiduciary duties to the Company and its shareholders. See “Item 1: Election of Directors” below for a more complete
discussion of the criteria used to select director nominees.
Shareholder Nominations and Proxy Access Policy
The Governance and Nominating Committee accepts shareholder
recommendations of director candidates and evaluates such candidates in the same manner as other candidates. Shareholders who wish
to submit a candidate for consideration by the Governance and Nominating Committee for election at our 2018 annual general meeting
of shareholders may do so by submitting in writing the candidate’s name, together with the information described in the Board’s
“Policy Regarding Direct Candidates Recommended by Shareholders” available at
www.nabors.com
.
In addition, shareholders beneficially owning more than 5% of the Company’s outstanding shares for at least 3 consecutive
years beginning on or after June 3, 2014 may nominate a single candidate for inclusion in the Company’s proxy materials by
following the procedures set forth in such policy (the “Proxy Access Policy”). Submissions to the Board should be delivered
in person or by courier to the address on the notice of meeting appearing at the beginning of this Proxy Statement or by mail to
P.O. Box HM3349, Hamilton, HMPX Bermuda, prior to April 7, 2018 (unless the date of next year’s meeting has been changed
by more than 30 days from the date of this year’s meeting, in which case the deadline is a reasonable time before we begin
to print and send proxy materials), but no earlier than March 8, 2018.
Shareholder Communications with the Board
Shareholders and other
interested parties may contact any of the Board’s directors, as a group or individually, committees, or nonemployee directors
as a group, by writing to them at Nabors Industries Ltd., c/o Corporate Secretary. Communications should be delivered in person
or by courier to the address on the notice of meeting appearing at the beginning of this Proxy Statement or by mail to P.O. Box
HM3349, Hamilton, HMPX Bermuda.
8
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2017 Proxy Statement
|
|
Shareholder communications
received in this manner will be handled in accordance with the Board’s “Policy Regarding Shareholder Communications
with the Board of Directors” which is available at
www.nabors.com
. In addition, any concern about the
Company’s conduct, or a complaint about the Company’s accounting, internal control or auditing matters, may be communicated
directly to the Lead Director, to the outside directors as a group, or to the Audit Committee. Such communications may be confidential
or anonymous, and may be submitted in writing in care of the Corporate Secretary, or reported by phone to the Nabors Hotline,
established specifically for reporting policy concerns, at 1-877-NABORS7.
Annual Meeting Attendance Policy
The Company encourages all directors to attend the annual
general meeting of the shareholders. Six of the seven directors then comprising the full Board attended the 2016 annual general
meeting of shareholders.
Executive Sessions of Nonemployee Directors
Our nonemployee directors, each of whom the Board has
determined is independent, meet in executive session at each regular meeting of the Board, and any executive sessions convened
by the Lead Director during the year, without the CEO or any other member of management present. The Lead Director presides over
these executive sessions.
Board Leadership Structure
Our Governance Guidelines were modified in 2014 to provide
for an independent chairman of the Board following the tenure of our current Chairman and CEO, Mr. Petrello, whose employment agreement
provides that he will serve in both roles. Until such time, the Board believes that the current coupling of the chairmanship with
an experienced, independent Lead Director creates an effective Board leadership structure for the Company. The Board believes that,
as the individual with primary responsibility for managing the Company’s day-to-day operations and with extensive knowledge
and understanding of the Company, Mr. Petrello is best positioned to chair regular Board meetings as the directors discuss key
business and strategic issues and to focus the Board’s attention on the issues of greatest importance to the Company and
its shareholders. Furthermore, combining the roles of Chairman and CEO in Mr. Petrello creates a clear line of authority that promotes
decisive and effective leadership, both within and outside the Company. The Board’s current view is that a combined Chairman
and CEO position, coupled with a predominantly independent board and a proactive, independent Lead Director, promotes a candid
discourse and responsible corporate governance.
Mr. Yearwood will continue to serve as our Lead Director,
a position he has held since 2011. The Lead Director’s primary responsibility is to preside over executive sessions of nonemployee
directors and to call meetings of the nonemployee directors as desirable. Such executive sessions provide nonemployee directors
an opportunity to independently evaluate management and the Company’s operations. In addition, the Lead Director:
|
•
|
chairs certain portions of Board meetings;
|
|
•
|
serves as liaison between the Chairman and the nonemployee directors;
|
|
•
|
develops and approves, together with the Chairman, the agenda for Board meetings, adding agenda
items where he deems appropriate;
|
|
•
|
leads the Board’s annual self-evaluation; and
|
|
•
|
performs other duties delegated by the Board from time to time.
|
The Board believes that the Company’s corporate
governance and leadership structures, including the composition of the Board, its committees and the presence of a strong Lead
Director, creates the most effective leadership structure for the Company at this time and provides effective independent oversight
of the Board itself and management. Both the Chairman and Lead Director serve on the Board’s Executive Committee, and any
director may raise a matter for consideration by the Board. This past year, our Lead Director:
|
•
|
partnered with our Chairman and others in extensive communications with significant shareholders
regarding governance matters;
|
|
•
|
supported the Continuing Education program for directors; and
|
|
•
|
participated at the Investor Day event in November 2016.
|
The Board believes that Mr. Yearwood’s extensive
management experience in the industry and effective performance in the role of Lead Director qualify him to continue to serve in
that capacity.
Board’s Role in Risk Oversight
Our full Board is responsible for risk oversight and
has designated the Risk Oversight Committee to provide assistance in fulfilling its oversight responsibilities with respect to
the Company’s processes and policies regarding risk assessment and risk management, including the Company’s enterprise
risk management, compliance and operational control activities. The Risk Oversight Committee currently is comprised of all nonemployee
directors on
|
|
2017 Proxy Statement 9
|
the Board and meets on a quarterly basis to evaluate the Company’s risk exposure and tolerance. Ms. Beder, our
newest Board nominee, has extensive experience in risk management, and the Board believes that, if elected, she will further bolster
the Board’s risk management process.
At each meeting, the Risk Oversight Committee receives
information from management regarding a variety of matters, including operations, legal, regulatory, finance, internal audit, cyber-security,
information technology, and strategy, as well as any material risks associated with each matter. In addition, the Risk Oversight
Committee receives an update from the chairman of each of the Company’s committees and in turn provides a comprehensive quarterly
risk report to the Board. The Board also has adopted a procedure for employees and shareholders to report concerns about the Company’s
conduct, accounting, internal controls and other matters directly to certain members of the Board. In addition, the Board oversees
management as management fulfills its responsibilities for the assessment and mitigation of risks and for taking appropriate risks.
CODE OF BUSINESS CONDUCT
The Company has adopted a Code of Business Conduct in
accordance with NYSE requirements. All of our employees, including our executive officers, senior management and nonemployee directors
are required to abide by our Code of Business Conduct, as well as related policies and procedures, to ensure that our business
is conducted in a consistently legal and ethical manner. The Code of Business Conduct is posted on our website at
www.nabors.com
.
We intend to disclose on our website any amendments to or waivers from any provision of the Code of Business Conduct that apply
to our CEO and CFO.
RESPONSE TO SHAREHOLDER CONCERNS
In making decisions regarding corporate governance issues,
the Board considers shareholder opinions and input, which it obtains in several ways. One way is through advisory votes on shareholder
and other proposals at our annual general meetings. In addition, our Chairman and Lead Director both maintain contact with a number
of significant shareholders on key governance issues, including those related to executive compensation. Our other directors and
certain members of management also participate in those discussions on occasion. Among other benefits, that continuous dialogue
affords our directors deeper insight into shareholder concerns than is provided by a vote on individual topics, which we believe
enables a more effective response to issues of most importance to shareholders.
Since the 2016 annual general meeting of shareholders,
we have engaged in dialogue with approximately 63 shareholders collectively holding over 73.2% of our outstanding shares
.
The
Board considered input from these and other shareholders, as well as the level of support for each proposal, as part of its overall
decision-making process on each issue raised and took actions consistent with many of the proposals. The table below summarizes
the Board’s response to the shareholder proposal presented at the 2016 annual general meeting of shareholders.
PROPOSAL
|
2016
VOTE
|
COMPANY RESPONSE
|
Shareholder proposal to allow proxy access to shareholders who have held
3% of Company’s shares continuously for 3 years
|
60.3%
|
Because
the Company is a member of the Russell 3000
®
index, where the majority of companies have not adopted a proxy access
policy, and the majority of the Company’s peer group has not adopted a proxy access policy akin to the proposed policy,
no action was taken to change the Company’s current Proxy Access Policy, which was adopted in 2013, allowing proxy access
to shareholders who have held 5% of Company’s shares continuously for 3 years. The Company believes that maintaining its
current Proxy Access Policy at this time is advisable because one of the seven directors nominated for election this year, Mr.
Skattum, was initially proposed in 2014 by our then-largest shareholder; all of our nonemployee director nominees are relatively
new, with average tenure of only four years; and we believe increased turnover on the Board at this time could have a negative
impact on the Company and its operations. See “Shareholder Proposal (Item 5)—Board’s Statement Against Shareholder
Proposal in Item 5” for more information on the Board’s stance on revising the current Proxy Access Policy.
|
10
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2017 Proxy Statement
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|
MEETINGS
OF THE BOARD AND COMMITTEES
The
Board met five times during 2016 and held two additional information sessions by telephone.
The
Board has six committees, which report their activities to the Board: (1) the Audit Committee, (2) the Compensation Committee,
(3) the Executive Committee, (4) the Governance and Nominating Committee, (5) the Risk Oversight Committee and (6) the Technology
and Safety Committee. Appointments to and chairmanships of the committees are recommended by the Governance and Nominating Committee
and approved by the Board. Directors are expected to attend all meetings of the Board and committees on which they serve.
Each
of our incumbent directors attended over 75% of all meetings of the Board and committees on which he served during 2016.
The
following chart shows the membership and chairmanship of each Board committee and the number of meetings held by each committee
of the Board during 2016. The Board will determine committee assignments for the remainder of 2017 shortly after the meeting.
|
AUDIT
|
COMPENSATION
|
EXECUTIVE
|
GOVERNANCE
AND
NOMINATING
|
RISK
OVERSIGHT
|
TECHNOLOGY
AND
SAFETY
|
James
R. Crane
|
|
•
|
•
|
|
•
|
Chair
|
John
P. Kotts
|
Chair
|
•
|
|
|
•
|
|
Michael
C. Linn
|
|
Chair
|
|
•
|
•
|
|
Anthony
G. Petrello
|
|
|
Chair
|
|
|
|
Dag
Skattum
|
•
|
|
|
|
Chair
|
|
Howard
Wolf *
|
|
|
|
•
|
•
|
•
|
John
Yearwood
|
•
|
|
•
|
Chair
|
•
|
•
|
Number
of Meetings
|
4
|
4
|
0
|
5
|
4
|
4
|
*
Mr. Wolf will retire from the Board at this year’s meeting.
In
addition, in 2016, the Audit Committee held two telephonic informational sessions.
Key
Committee Responsibilities
The
following table shows the key responsibilities of each Board Committee.
AUDIT
COMMITTEE
|
|
• Oversees
the integrity of our consolidated financial statements, system of internal controls, internal audit, financial risk management
and compliance with legal and regulatory requirements.
• Selects,
determines the compensation of, evaluates and, when appropriate, replaces the independent auditor, and preapproves audit and permitted
nonaudit services.
• Determines
the qualifications and independence of our independent auditor and evaluates the performance of our internal auditors and independent
auditor.
• After
review, recommends to the Board the acceptance and inclusion of the annual audited consolidated financial statements in our annual
report on Form 10-K.
• Conducts
information sessions in connection with the Company’s quarterly earnings releases and other matters.
|
All
members of the Audit Committee were determined to meet the independence, financial literacy
and experience requirements of the NYSE and SEC rules and regulations. The Board has
also determined that Messrs. Kotts, Skattum and Yearwood are “audit committee financial
experts” as defined under SEC rules.
The
Audit Committee operates under a written charter adopted by the Board. The charter is available on the Company’s
website at
http://www.nabors.com/about-nabors/corporate-governance
.
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|
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2017 Proxy Statement 11
|
COMPENSATION
COMMITTEE
|
• Reviews
and approves the compensation of our executive officers and other senior leaders.
• Oversees
the administration of our equity-based compensation plans for officers and employees.
|
All
members of the Compensation Committee were determined to meet the independence standards
of the NYSE.
The
Compensation Committee operates under a written charter adopted by the Board. The charter is available on the Company’s
website at
http://www.nabors.com/about-nabors/corporate-governance
.
|
EXECUTIVE
COMMITTEE
|
• As
necessary between meetings of the Board, exercises all power and authority of the Board
overseeing the management of the business and affairs of the Company.
|
GOVERNANCE
AND NOMINATING COMMITTEE
|
• Identifies
and recommends candidates for election to the Board.
• Establishes
procedures for the committee’s oversight of the evaluation of the Board.
• Recommends
director compensation.
• Reviews
corporate governance policies annually.
• Reviews
and approves any related-party transactions involving directors and executive officers.
|
All
members of the Governance and Nominating Committee were determined to meet the independence
standards of the NYSE.
The
Governance and Nominating Committee operates under a written charter adopted by the Board. The charter is available on
the Company’s website at
http://www.nabors.com/about-nabors/corporate-governance
.
|
RISK
OVERSIGHT COMMITTEE
|
• Monitors
management’s identification and evaluation of major strategic, operational, regulatory, information and external risks inherent
in the Company’s business.
• Reviews
the integrity of the Company’s systems of operational controls, regarding legal and regulatory compliance.
• Reviews
the Company’s processes for managing and mitigating operational and enterprise risk.
The
Risk Oversight Committee operates under a written charter adopted by the Board. The charter is available on the Company’s
website at
http://www.nabors.com/about-nabors/corporate-governance
.
|
TECHNOLOGY
AND SAFETY COMMITTEE
|
• Monitors
the Company’s compliance with health, safety and environmental standards.
• Reviews
the Company’s safety performance and strategic technology position.
• Effective
February 19, 2016, this Committee was renamed the “Technology and Safety Committee” to better reflect its
mission.
The
Technology & Safety Committee Charter Committee operates under a written charter adopted by the Board. The charter is available
on the Company’s website at
http://www.nabors.com/about-nabors/corporate-governance
.
|
12
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2017 Proxy Statement
|
|
ITEM
1: ELECTION OF DIRECTORS
Each
of the nominees for director who is elected at the meeting will serve a one-year term, expiring at the next annual meeting of
shareholders or until such later time as such director’s successor is duly elected and qualified. At the meeting, proxies
cannot be voted for a greater number of individuals than seven. The directors standing for election have been nominated by the
Board, upon the recommendation of the Governance and Nominating Committee, to serve until the 2017 annual general meeting, or
until such later time as their successors are duly elected and qualified. Each of the nominees has agreed to serve as a director
if elected, and we do not anticipate that any will be unable or unwilling to stand for election. If that were to occur, your proxy
will be voted for another person nominated by the Board.
CRITERIA
Ensuring
effective, ethical, oversight of the Company and its operations, and in the implementation of its strategic goals, is the Board’s
top priority. To accomplish this the Board, through the Governance and Nominating Committee, seeks director nominees that have
demonstrated exceptional skills, qualifications, attributes, and experience. In identifying and recommending director nominees,
the Governance and Nominating Committee places primary emphasis on the following criteria:
|
•
|
Reputation,
integrity and independence (for nonemployee directors);
|
|
•
|
Judgment
and diversity of viewpoints, backgrounds and experience, including gender, race and age;
|
|
•
|
Business
or other relevant experience;
|
|
•
|
The
extent to which the interplay of the nominee’s expertise, skills, knowledge and
experience with that of the other members of the Board will result in an effective board
that is responsive to the Company’s needs; and
|
|
•
|
For
director nominees who are current directors, history of attendance at Board and committee
meetings, as well as preparation for, participation in and contributions to the effectiveness
of those meetings.
|
These
criteria include those set forth in our Board Guidelines on Significant Corporate Governance Issues, which are available on our
website at
www.nabors.com
and to any shareholder who requests them in writing. Requests
should be addressed to the Corporate Secretary and delivered in person or by courier to the address on notice of meeting appearing
at the beginning of this Proxy Statement, or by mail to P.O. Box HM3349, Hamilton, HMPX Bermuda.
The
Governance and Nominating Committee believes that each nominee should be evaluated on his or her individual merits, taking into
account the needs of the Company at any given time as well as the overall composition of the Board. There are certain criteria
that are expected of all director nominees. For example, all nominees are expected to have high integrity and a reputation of
success in his or her field. In addition, all nominees are expected to have the time and ability to fulfill his or her responsibilities
to the Company and its shareholders, if elected. Other than these basic criteria, however, the Board does not set universal minimum
qualifications that all nominees must meet in order to be recommended. Rather, using the broad criteria set out above, the Board
identifies specific skills and qualifications that may be beneficial at any given time – including those that are determined
to be necessary for committees of the Board to fulfill their respective individual mandates – which the Governance and Nominating
Committee in turn utilizes to determine whether given director nominees are qualified to serve on our Board. Members of the Governance
and Nominating Committee then discuss and evaluate possible candidates in detail and suggest individuals to explore in greater
depth. Accordingly, while we believe that each director meets the broad criteria for inclusion as a director nominee, he or she
undoubtedly does so in a way specific to that director. The Board, together with the Governance and Nominating Committee, believes
this approach helps to ensure a diversity of viewpoints and experience that enables the Board, and the Company, to maintain the
highest levels of corporate governance and oversight. The Governance and Nominating Committee has discretion to engage outside
consultants to help identify candidates and also considers suggestions from shareholders, as described in our Governance Guidelines.
|
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2017 Proxy Statement 13
|
DIRECTOR
NOMINEE SNAPSHOT
Over
the past several years, the Governance and Nominating Committee has nominated qualified new independent directors to provide fresh
perspectives to the Board. The average tenure of the independent director nominees, including our new nominee, is a mere four
years. Last year, the Board reiterated its dedication to attaining a diverse composition of members, with particular emphasis
on achieving enhanced diversity. To that end, this year the Board has identified Ms. Tanya S. Beder as an ideal nominee to fill
the vacancy that will be created upon the retirement of Mr. Howard Wolf at this year’s annual meeting. More important than
her gender, however, is the considerable experience, expertise and insight she will bring to the Board, as identified in her professional
biography set forth under “—Director Nominees” below. After reviewing her credentials and interviewing Ms. Beder,
the members of the Governance and Nominating Committee were convinced that she is an excellent candidate to serve on the Board
at this time, and recommended her nomination to the full Board, along with the re-nomination of the continuing director nominees.
The full Board has agreed with the recommendations of the Governance and Nominating Committee and (i) formally nominated Ms. Beder
for election to the Board, and (ii) nominated each of Messrs. Crane, Kotts, Linn, Petrello, Skattum and Yearwood for re-election.
The
members of the Governance and Nominating Committee, as well as the full Board, believe that the combination of the various qualifications,
attributes, skills, and experience of the director nominees will contribute to an effective and well-functioning Board and that,
individually and as a whole, the director nominees possess the necessary qualifications and expertise to provide effective oversight
of the Company and its business.
In
the business descriptions that follow, except as otherwise noted, the companies for which directors have worked are not a parent,
subsidiary or otherwise affiliated with the Company.
14
|
2017 Proxy Statement
|
|
DIRECTOR
NOMINEES
TANYA
S. BEDER
Age:
61
Other
Public Company Boards: 1
|
Ms. Beder has served as a member of the CYS Investments, Inc. Board of Directors since May 2012, where she chairs the Nominating and Governance Committee and is also a member of the Audit and Compliance Committee. She currently serves as the Chairman and CEO of SBCC Group, Inc. (“SBCC”), which she founded in January 1987. SBCC is an independent advisory firm whose projects include assisting corporate management, institutional investors, large financial firms and other clients in solving complex financial problems under crisis and providing strategic advice to seize opportunities. Ms. Beder has served since 2011 on the board of the American Century mutual fund complex in Mountain View, California, where she chairs the Risk Committee and is a member of the Portfolio Committee. Previously, Ms. Beder was the Chief Executive Officer of Tribeca Global Management LLC, a $2.6 billion dollar fund with operations in Singapore, London, and New York; Managing Director of Caxton Associates LLC, a $10 billion asset management firm; and President of Capital Market Risk Advisors, Inc. Ms. Beder also spent time in various positions with The First Boston Corporation (now Credit Suisse) where she was a part of the first team of derivatives traders and structurers for currency and interest rate swaps, caps, collars, floors, futures, and options, and was on the mergers and acquisitions team in New York and London. In January 2013, she was appointed to the President’s Circle of the National Academies, after serving six years at the National Academy of Sciences on the Board of Mathematics and their Applications. Ms. Beder also serves on the Advisory Board of the Columbia University Financial Engineering Program, the Mathematical Finance Advisory Board of New York University and The Institute for Pure and Applied Mathematics at UCLA and is a Board Member Emeritus of the International Association of Quantitative Finance, where she previously served as Chairman. She is an appointed Fellow of the International Center for Finance at Yale University and teaches a course on finance and fintech at Stanford University. Ms. Beder holds a B.A. in mathematics and philosophy from Yale University, and an MBA from Harvard Business School.
Ms. Beder’s extensive asset management experience, vast knowledge of operational and risk management, and experience serving on public and private boards of directors are key factors that were considered in her nomination to the Board.
|
JAMES
R. CRANE
Director
since: 2012
Age: 63
Committees:
Executive, Technology and Safety, Risk Oversight, and Compensation
Other
Public Company Boards: 1
|
Chairman
and CEO of Crane Capital Group Inc., an investment management company, since 2006.
Mr.
Crane was Founder, Chairman and Chief Executive Officer of Eagle Global Logistics, Inc., a NASDAQ-listed global transportation,
supply chain management and information services company, from 1984 until its sale in August 2007. Crane Capital Group
has invested in transportation, power distribution, real estate and asset management. Its holdings include Crane Worldwide
Logistics, a premier global provider of customized transportation and logistics services with 105 offices in 30 countries
and Crane Freight & Cartage. Mr. Crane also led an investor group that in November 2011 purchased the Houston Astros.
He holds a B.S. in Industrial Safety from Central Missouri State University and serves on the board of directors of Western
Gas Holdings, LLC, a subsidiary of Anadarko Petroleum Corporation, as well as Cargojet Inc.
Mr.
Crane’s experience in marketing, logistics, global operations and creating shareholder value provide a valuable
resource to the Board.
|
|
|
2017 Proxy Statement 15
|
JOHN
P. KOTTS
Director
since 2013
Age: 66
Committees:
Audit,
Compensation
and Risk Oversight
Other
Public Company Boards: None
|
Mr.
Kotts is a private investor and entrepreneur. Through his management company, J.P. Kotts
& Co., Inc., Mr. Kotts also operates a private investment fund focused on the trading
of U.S. and international securities and other financial instruments. He also invests
in real estate and private equities. Mr. Kotts is currently the owner and CEO of Vesco/Cardinal,
an oil tool rental and service company, as well as several manufacturing companies. Mr.
Kotts previously held various financial, banking and investment banking positions in
companies specializing in leveraged buyouts, venture capital and turnaround transactions.
From 1990 to 1998, he owned and operated Cardinal Services, Inc., a leading supplier
of liftboat rentals and other production-related services, including mechanical wireline
services and plug and abandonment services, to oil companies operating in the Gulf of
Mexico. Mr. Kotts previously served on the board of directors for C&J Energy Services
Ltd. from March 2015 to September 2015. He holds a B.A. in Philosophy and an MBA in Finance
from Hofstra University and completed additional post-graduate work at McGill University
in Montréal, New York University and Harvard Business School.
Mr.
Kotts’ industry background and knowledge, business acumen and financial expertise were the primary factors considered
by the Board in deciding to appoint him as a director and nominate him for election to the Board.
|
MICHAEL
C. LINN
Director
since 2012
Age: 65
Committees:
Risk Oversight, Governance and Nominating, and Compensation
Other
Public Company Boards: 3
|
President
and CEO of MCL Ventures, LLC, an oil, gas and real estate investment firm, since 2012.
Mr.
Linn is the former Chairman, CEO, President and Director of LINN Energy, LLC, which he founded in 2003. Mr. Linn is currently
on the board of directors for the general partner of Black Stone Minerals, L.P., where he has served since 2015. He has
served as a Senior Advisor for Quantum Energy Partners, LLC since 2012, and on the board of directors, Chairman of the
Conflicts Committee, and member of the Audit Committee for Western Refining Logistics GP, LLC, since 2013. Mr. Linn is
on the Board of Managers of Cavallo Mineral Partners, LLC, and has served as a director of Jagged Peak Energy Inc. since
January 2017. Mr. Linn currently serves as a member of the National Petroleum Council’s Board of Directors and Chairman
of the Education Committee of the IPAA.
Mr. Linn was a lecturer at the C.T. Bauer
College of Business at the University of Houston.
Mr. Linn previously served on the board of directors of C&J
Energy Services Ltd., as Non-Executive Director and Chairman of the Safety, Health, Environment, Security and Ethics Committee
for Centrica plc, as Advisor chairman and director of the Natural Gas Council, as Chairman of the Independent Petroleum
Association of America, as director of the Natural Gas Supply Association, as Chairman and President of each of the Independent
Oil and Gas Associations of New York, Pennsylvania and West Virginia, and as Texas Representative for the Legal and Regulatory
Affairs Committee of the Interstate Oil and Gas Compact Commission.
He was named
the 2011 IPAA Chief Roughneck of the Year, inducted into the All American Wildcatters, and received The Woodrow Wilson
Award for Public Service. Mr. Linn also serves on the following: Texas Children’s Hospital—President of the
Board of Trustees; M.D. Anderson—Board of Visitors and Development Committee; Houston Methodist Hospital—
Senior Cabinet of the President’s Leadership Council; Museum of Fine Arts Houston—Board of Trustees and the
Building and Grounds, Long-Range Planning and Finance Committees; Houston Police Foundation—Board of Directors;
Villanova University—Founding and Honorary Member of the Dean’s Advisory Council for College of Liberal Arts
and Science; and the University of Houston—Board of Visitors.
Mr. Linn holds a B.A. in Political Science
from Villanova University and a J.D. from the University of Baltimore School of Law.
Mr.
Linn’s broad understanding of the energy landscape and insight into the needs of our customers, together with his
extensive industry knowledge and relationships, provide valuable resources to the Board.
|
16
|
2017 Proxy Statement
|
|
ANTHONY
G.
PETRELLO
Director
since 1991
Age: 62
Committees:
Executive
Other
Public Company Boards: None
|
Chairman
of the Board of Nabors and its subsidiary, Nabors Industries, Inc., since 2012 and director
of each since 1991; Deputy Chairman of Nabors 2003-2012; President and CEO of Nabors
and Nabors Industries, Inc. since 2011; President and Chief Operating Officer of Nabors
and Nabors Industries, Inc. from 1991-2011. Mr. Petrello holds a J.D. degree from Harvard
Law School and B.S. and M.S. degrees in Mathematics from Yale University. Mr. Petrello
also serves as a director of Stewart & Stevenson LLC and Hilcorp Energy Company.
In
addition to his operating functions, Mr. Petrello provides strategic planning initiative and direction enabling the Company
to adapt and prosper in our dynamic competitive environment.
|
DAG
SKATTUM
Director
since 2014
Age: 56
Committees:
Audit and Risk Oversight
Other
Public Company Boards: 1
|
Mr.
Skattum serves as Vice Chairman, Europe, the Middle East and Africa of JP Morgan since
January 2015.
Previously,
he served as Partner of TPG, a leading global private investment firm, based in London from 2007 until 2013. Prior to
that, Mr. Skattum worked for JP Morgan for 21 years in a variety of roles in New York and London until his departure as
Managing Director and Co-head of Global Mergers and Acquisitions in 2007. He currently serves on the board of Sonae SGPS
S.A. in Portugal, the advisory board of the UAMS Myeloma Institute for Research and Therapy, Little Rock, Arkansas; and
the International Board of Directors of Right To Play, a global organization leveraging sports and play to support children
in troubled parts of the world. He received a B.A. in History from Allegheny College and an MBA from the Simon Graduate
School of Business at the University of Rochester.
Mr.
Skattum was nominated to the Board in June 2014 upon the recommendation to the Governance and Nominating Committee of
our largest shareholders at the time. Mr. Skattum has derived valuable experience throughout his investment banking career
working with a variety of different industries throughout the world and advising other boards.
|
JOHN
YEARWOOD
Director
since 2010
Age: 57
Committees:
Audit, Governance and Nominating, Executive, Risk Oversight, and Technology and Safety
Other
Public Company Boards: 0
|
Mr.
Yearwood currently serves on the board of directors of Sheridan Production Partners,
Barra Energia, Foro Energy LLC, Dixie Electric LLC and Coil Tubing Partners LLC. He previously
served on the boards of Sabine Oil & Gas, LLC, until August 2016, and Premium Oilfield
Services, LLC, until April 2017. Until August 2010, he served as the Chief Executive
Officer, President and Chief Operating Officer of Smith International, Inc. (“Smith”).
He was first elected to Smith’s board of directors in 2006 and remained on the
board until he successfully negotiated and completed the sale of Smith to Schlumberger
Limited in August 2010. Before joining Smith, Mr. Yearwood spent 27 years with Schlumberger
Limited in numerous operations management and staff positions throughout Latin America,
Europe, North Africa and North America, including as President and in financial director
positions. He also previously served as Financial Director of WesternGeco, a 50:50 joint
venture between Schlumberger and Baker Hughes from 2004 to 2010. Mr. Yearwood received
a Bachelor of Science Honors Degree in Geology and the Environment from Oxford Brookes
University in England.
Mr.
Yearwood brings significant executive management experience in the oilfield services industry to the Board. His extensive
industry knowledge, combined with his keen insight into strategic development initiatives, operations and our competitive
environment, have provided the basis for the extraordinary leadership and critical independent oversight Mr. Yearwood
demonstrates as Lead Director.
|
|
|
2017 Proxy Statement 17
|
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR
EACH OF THESE
NOMINEES FOR
DIRECTOR WITH A TERM ENDING AT THE 2018 ANNUAL GENERAL MEETING.
|
OTHER
EXECUTIVE OFFICERS
WILLIAM
J. RESTREPO
Age:
57
|
CFO
of Nabors since March 2014. In this role, Mr. Restrepo has global oversight for finance
and accounting, including the treasury, tax, risk management, internal audit and supply
chain groups. He also works closely on Nabors’ corporate development and investor
relations initiatives.
Mr.
Restrepo formerly served as Chief Financial Officer at Pacific Drilling S.A. from February 2011 to February 2014. He also
previously served as Chief Financial Officer at Seitel from 2005 to 2009 and Smith from 2009 to 2010 until its merger
with Schlumberger Limited. Prior to that, from 1985 to 2005, Mr. Restrepo served in various senior financial and operational
positions for Schlumberger Limited, including operational responsibility for all product lines in the Continental Europe
and Arabian Gulf markets, as well as senior financial executive roles in Corporate Treasury and worldwide controller positions
with international posts in Europe, South America and Asia. Mr. Restrepo served on the boards of directors of C&J
Energy Services Ltd. from 2015 to 2017, Probe Technology Services from 2008 to 2016, and Platinum Energy Solutions, Inc.
from 2012 to 2013. Mr. Restrepo holds a B.A. in Economics and an MBA, both from Cornell University, as well as a B.S.
in Civil Engineering from the University of Miami.
|
MARK
D. ANDREWS
Age:
44
|
Corporate
Secretary of Nabors since September 2007. Prior to joining Nabors, Mr. Andrews served in various treasury and financial management
positions with General Electric Company, a diversified technology and financial services company, beginning in December 2000.
Mr. Andrews was employed by the public accounting firm of PricewaterhouseCoopers LLP from September 1996 to November 2000
in a number of capacities, including Tax Manager, within the firm’s Mining and Resource Practice. Mr. Andrews holds
a Bachelor of Business Administration degree from Wilfrid Laurier University and is also a Chartered Professional Accountant,
Chartered Secretary and a CFA charterholder.
|
18
|
2017 Proxy Statement
|
|
NONEMPLOYEE
DIRECTOR COMPENSATION
We
believe it is essential to attract outstanding nonemployee directors and align their economic interest in the Company with other
shareholders. We accomplish this through a combination of annual cash retainers and equity incentive awards. Director compensation
and benefits are set by the full Board, upon the recommendation of the Governance and Nominating Committee in consultation with
the Compensation Committee. Both the Governance and Nominating Committee and the Compensation Committee consist entirely of independent
directors, and have the authority to delegate authority to one or more subcommittees.
Our
annual cash retainer is set at $100,000 for each nonemployee director; an additional $50,000 for the chairman of each committee
(except the chairman of the Audit Committee, whose additional retainer is $100,000); and an additional $50,000 for the Lead Director.
In recognition of the significant additional time commitment requested of committee members, the non-Chairman committee members
of the Audit Committee and of all other committees (other than the Executive Committee) receive additional retainers of $20,000
and $10,000, respectively. No additional amounts are paid for attendance at Board and committee meetings.
In
light of recent market conditions and in line with management-driven initiatives to reduce costs, the Board unanimously voted
to reduce all cash retainer amounts by 10%, effective January 1, 2015, and further extended that reduction through to December
31, 2016. Accordingly, in 2016, each non-employee director received an annual cash retainer of $90,000, with an additional $45,000
for the Lead Director, $90,000 for the chairman of the Audit Committee, $45,000 for the chairman of each other committee, $18,000
for each non-chairman member of the Audit Committee and $9,000 for each non-chairman of the other committees.
All
cash retainers are paid on a pro rata basis at the end of each quarter. Any director may elect to receive immediately vested stock
options, in lieu of any cash compensation, valued at the amount of the payment.
In
addition to the cash compensation described above, nonemployee directors also receive an annual equity incentive award. Previously,
directors were awarded a predetermined number of shares, rather than a nonfluctuating dollar value. Consequently, the value of
director compensation varied from year to year and overall director compensation relative to our peer group (as defined under
“Compensation Discussion & Analysis—How We Determine Annual Base Salary”) would also fluctuate to the extent
other directors in that peer group received equity of a predetermined value.
Beginning
in 2015, we rescheduled the annual grant of restricted share awards to nonemployee directors, which historically had occurred
in the first quarter of each fiscal year, to be made shortly after the annual general meeting of shareholders. This ensures that
the awards are granted only to shareholder-elected members for the current year and not to directors who are retiring or otherwise
not continuing as directors. In addition, directors who retire from the Board may maintain previously issued equity awards outstanding
upon approval by the Governance and Nominating Committee.
During
2016, the Board reviewed this practice for nonemployee director compensation in light of current market, industry and peer group
practices in consultation with Pearl Meyer & Partners, its independent compensation consultant. Following this review, the
Board modified its practice. First, the Board eliminated its historical practice of issuing restricted shares to nonemployee directors
upon initial appointment or election to the Board. Second, the Board changed its practice to award directors a predetermined value
of shares instead of a predetermined number of shares. In 2016, each nonemployee director was awarded restricted shares under
our equity incentive plans having a “Fair Market Value” of $300,000. For purposes of the director awards, the term
“Fair Market Value” means the average daily closing price of the Company’s shares on the NYSE on each of the
twenty (20) trading days prior to any date of measurement, including the grant date. Based on this formula, the Fair Market Value
of our shares on June 7, 2016, the grant date of the 2016 director awards, was $8.59 per share, and therefore each director received
an award of 34,924 shares. Because the Fair Market Value is measured over a period of twenty (20) trading days, rather than on
the date of grant, it may be higher or lower than the “fair value” of the grant as calculated in accordance with FASB
ASC Topic 718, which is the value used for accounting purposes and set forth in the Compensation Tables below. The per share grant
date fair value of the 2016 director awards as calculated in accordance with FASB ASC Topic 718 was $10.85.
|
|
2017 Proxy Statement 19
|
Each
director award is scheduled to vest ratably over three years, although, beginning with the grant on June 7, 2016, the second and
third installments are subject to accelerated vesting under certain conditions. For example, the second installment would accelerate
in the event that the Fair Market Value (calculated as set forth above) on any date of measurement between the first and second
anniversaries of the date of grant equals or exceeds $10.39, which would represent the equivalent of a ten percent (10%) annual
compound return from the grant date Fair Market Value for the two (2) year period up to and including the second anniversary of
the grant date. The third installment would accelerate in the event that the Fair Market Value (calculated as set forth above)
on any date of measurement between the first and third anniversaries of the date of grant equals or exceeds $11.43, which would
represent the equivalent of a ten percent (10%) annual compound return from the grant date Fair Market Value for the three (3)
year period up to an including the third anniversary of the date of grant. On December 31, 2016, the Fair Market Value (calculated
as set forth above) of our common shares was $16.47 per share, and had the first anniversary of the grant already passed as of
that date, the vesting of the second and third installments would have accelerated. We expect to continue issuing restricted shares
to our Board members with these vesting terms for 2017.
The
following table sets forth information concerning total director compensation in 2016 for each nonemployee director.
2016
Director Compensation Table
NAME
(1)
|
FEES
EARNED
OR
PAID IN
CASH ($)
|
STOCK
AWARDS
($)
(2)(3)
|
OPTION
AWARDS
($)
(4)
|
NON-EQUITY
INCENTIVE PLAN
COMPENSATION
($)
|
CHANGE
IN
PENSION
VALUE AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS ($)
|
ALL
OTHER
COMPENSATION
($)
|
TOTAL
($)
|
James
R. Crane
|
153,000
|
378,925
|
0
|
0
|
0
|
0
|
531,925
|
John
P. Kotts
|
0
|
378,925
|
198,000
|
0
|
0
|
0
|
576,925
|
Michael
C. Linn
|
153,000
|
378,925
|
0
|
0
|
0
|
0
|
531,925
|
Dag
Skattum
|
0
|
378,925
|
153,000
|
0
|
0
|
0
|
531,925
|
Howard
Wolf
|
117,000
|
378,925
|
0
|
0
|
0
|
0
|
495,925
|
John
Yearwood
|
216,000
|
378,925
|
0
|
0
|
0
|
0
|
594,925
|
|
(1)
|
Mr.
Petrello, who was an employee of the Company throughout 2016, is not included in this
table. His compensation is reflected in the Summary Compensation Table under “Executive
Compensation Tables” below.
|
|
(2)
|
The
amounts shown in the “Stock Awards” column reflect the grant-date fair value
of restricted share awards, in accordance with FASB ASC Topic 718. Dividends on stock
awards are not shown in the table because those amounts are factored into the grant date
fair value. On June 7, 2016, upon re-election, each nonemployee director then on the
Board received an award of 34,924 restricted shares as part of his annual compensation.
The number of restricted shares was determined by dividing the approved award dollar
amount of $300,000 by the “Fair Market Value” as that term is defined in
the director awards. For purposes of the awards, Fair Market Value means, as of any date
of measurement, the average daily closing price in the NYSE for the twenty (20) trading
days prior to the date of measurement. The Fair Market Value for the 2016 director awards,
measured as set forth above, was $8.59. Because the Fair Market Value is measured over
a period of time, rather than on the date of grant, it may be higher or lower than the
fair value of the grant as calculated in accordance with FASB ASC Topic 718, which is
the value used in this table. The per share grant date value of the 2016 director awards
as calculated in accordance with FASB ASC Topic 718 was $10.85, which is the amount reflected
in the table above.
|
|
(3)
|
As
of December 31, 2016, the aggregate numbers of outstanding unvested restricted share
awards held by nonemployee directors were: Mr. Crane—49,924 shares; Mr. Kotts—49,924
shares; Mr. Linn—49,924 shares; Mr. Skattum—53,924 shares; Mr. Wolf—49,924
shares; and Mr. Yearwood—49,924 shares.
|
|
(4)
|
The
amounts shown in the “Option Awards” column reflect the grant-date fair value of stock option awards. The only stock
option awards granted to nonemployee directors during 2016 were to Mr. Kotts and Mr. Skattum, who received them in lieu of their
quarterly cash retainers. As of December 31, 2016, the aggregate numbers of stock options outstanding
were: Mr. Crane—58,463; Mr. Kotts—136,100; and Mr. Skattum—91,662,
all of which are fully vested.
|
20
|
|
2017 Proxy Statement
|
SHARE
OWNERSHIP
Share
Ownership of Directors and Executive Officers
We
encourage our directors and executive officers to own our common shares in order to align their interests with those of other
shareholders. Ownership of the Company’s common shares ties a portion of their net worth to the Company’s share price
and provides a continuing incentive for them to work toward superior long-term stock performance. Our policy is for directors
to own common shares valued at three times the annual cash retainer paid to nonemployee directors, in line with our peers.
As
of April 7, 2017, Nabors had 335,567,404 common shares outstanding and entitled to vote. For purposes of the following table,
“beneficial ownership” is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) pursuant to which a person or group of persons is deemed to have “beneficial ownership”
of any common shares that such person has the right to acquire within 60 days. The following table sets forth the beneficial ownership
of common shares, as of April 7, 2017, by each of our current directors and executive officers, both individually and as a group.
Except as otherwise indicated below, each person has sole voting and investment power for the common shares shown below.
|
COMMON
SHARES BENEFICIALLY OWNED
|
BENEFICIAL
OWNER
(1)
|
NUMBER
OF SHARES
|
PERCENT
OF TOTAL OUTSTANDING
(2)
|
James
R. Crane
(3)
|
162,387
|
*
|
John
P. Kotts
(3)
|
360,938
|
*
|
Michael
C. Linn
|
103,924
|
*
|
Anthony
G. Petrello
(3)(4)
|
11,846,837
|
3.50%
|
Dag
Skattum
(3)
|
178,565
|
*
|
Howard
Wolf
|
124,924
|
*
|
John
Yearwood
|
127,924
|
*
|
Mark
D. Andrews
(3)
|
41,619
|
*
|
William
J. Restrepo
|
925,405
|
*
|
All
directors and executive officers as a group
(3)
|
13,872,523
|
4.10%
|
*
Less than 1%
|
(1)
|
The
address of each of the directors and named executive officers listed above is in care
of the Company at the address shown on the notice of meeting at the beginning of this
Proxy Statement.
|
|
(2)
|
Based
on the Company’s total common shares outstanding as of April 7, 2017, the record
date for this year’s meeting.
|
|
(3)
|
We
have included in the table common shares underlying stock options that are vested or
scheduled to vest within 60 days of April 7, 2017. For purposes of computing the percentage
of shares held by the persons named above, such option shares are not deemed to be outstanding
for purposes of computing the ownership of any person other than the relevant option
holder. The number of common shares underlying fully vested stock options, or those vesting
within 60 days of April 7, 2017, included in the table are as follows: Mr. Andrews—6,143;
Mr. Crane—58,463; Mr. Kotts—149,014; Mr. Petrello—2,450,153; Mr. Skattum—101,641;
and all directors/executive officers as a group—2,765,414. Restricted share awards
are considered outstanding shares and therefore are included in the table above regardless
of vesting schedule.
|
|
(4)
|
The
shares listed for Mr. Petrello include 410,236 shares owned by a charitable foundation
over which Mr. Petrello has shared voting and dispositive power. Mr. Petrello disclaims
beneficial ownership of those shares.
|
|
2017 Proxy
Statement
|
21
|
Share
Ownership of Certain Beneficial Owners
The
following table contains information regarding each person known to us to beneficially own more than 5% of our outstanding common
shares as of April 7, 2017, based on Schedule 13G filings made by such persons with the SEC.
BENEFICIAL
OWNER
NAME
AND ADDRESS
|
NUMBER
OF SHARES
|
PERCENT
OF TOTAL OUTSTANDING SHARES
(1)
|
BlackRock,
Inc.
(2)
55 East 52
nd
Street
New York, NY 10055
|
23,531,483
|
7.01%
|
Dimensional
Fund Advisors LP
(3)
Building
One
6300
Bee Cave Road
Austin,
TX 78746
|
18,670,384
|
5.56%
|
Morgan
Stanley
(4)
1585 Broadway
New York, NY 10036
|
19,120,949
|
5.70%
|
The
Vanguard Group
(5)
100 Vanguard Blvd.
Malvern, PA 19355
|
21,529,295
|
6.42%
|
|
(1)
|
Based
upon the Company’s total common shares outstanding as of April 7, 2017.
|
|
(2)
|
Based
on a Schedule 13G/A filed on January 25, 2017, BlackRock, Inc. and certain of its affiliates
have sole voting power with respect to 22,044,508 shares and sole dispositive power with
respect to 23,531,483 shares as of December 31, 2016.
|
|
(3)
|
Based
on a Schedule 13G filed on February 9, 2017, Dimensional Fund Advisors LP and certain
of its affiliates have sole voting power with respect to 18,257,682 shares and sole dispositive
power with respect to 18,670,384 shares as of December 31, 2016. Dimensional Fund Advisors
LP serves as investment adviser, sub-adviser and/or manager to certain investment companies,
comingled funds, group trusts and separate accounts that own all of the reported shares.
According to its Schedule 13G, Dimensional Fund Advisors LP disclaims beneficial ownership
of such shares.
|
|
(4)
|
Based
on a Schedule 13G filed on February 13, 2017, Morgan Stanley and certain of its affiliates
have sole voting power with respect to 1,325,902 shares, shared voting power with respect
to 909,716 shares and shared dispositive power with respect to 18,774,155 shares. With
respect to 17,795,047 of those same shares, or 5.30% of total outstanding shares, and
based on the same Schedule 13G, Morgan Stanley Smith Barney LLC has shared voting power
with respect to 909,716 shares and shared dispositive power with respect to 17,448,253
shares as of December 31, 2016.
|
|
(5)
|
Based
on a Schedule 13G filed on February 10, 2017, The Vanguard Group and certain of its affiliates
have sole voting power with respect to 167,722 shares, shared voting power with respect
to 32,505 shares, sole dispositive power with respect to 21,342,668 shares and shared
dispositive power with respect to 186,627 shares as of December 31, 2016.
|
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
All
of our directors and executive officers are required to file reports of share ownership and reports of changes in ownership with
the SEC pursuant to Section 16(a) of the Exchange Act. To our knowledge, and based solely on our review of the copies of Forms
3, 4 and 5 and amendments thereto furnished to us during 2016, and written representations from our directors and executive officers,
we believe that all Section 16(a) filing requirements were met for such director and executive officers in 2016 in a timely manner.
22
|
|
2017 Proxy Statement
|
CERTAIN
RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
The
Board has adopted a written policy regarding the review, approval and ratification of “related-party transactions”.
A “related person” is defined under applicable SEC rules and includes our directors, executive officers, beneficial
owners of 5% or more of our common shares and each of their immediate family members. Under the written policy, our Governance
and Nominating Committee, which is comprised entirely of independent directors, is responsible for reviewing and approving in
advance all transactions involving any related party of the Company. In making its determination, the Committee must consider
the fairness of the transaction to the Company and the potential impact of the transaction on the director’s independence.
Mr.
Crane, an independent director of our Board, is the nonemployee Chairman and CEO of Crane Capital Group Inc. (“CCG”),
an investment management company that indirectly owns a majority interest in several operating companies, some of which have provided
services to the Company in the ordinary course of business, including transportation and international logistics. In 2016, the
Company’s payments to the CCG companies totaled $22.4 million excluding contract carrier charges, a significant decrease
from $33.7 million in 2015 and $89.1 million in 2014, which the Governance and Nominating Committee determined were immaterial
to both CCG and the Company. In its determination, the Governance and Nominating Committee considered that:
|
(1)
|
the
Company’s aggregate payment for services to the CCG companies, excluding disbursements
passed through at cost of $936,207, constituted less than 2.0% of the consolidated revenue
of the CCG companies;
|
|
(2)
|
Mr.
Crane was not and is not involved in the commercial decisions of either the Company or
CCG related to the provision of transportation and logistics to the Company; and
|
|
(3)
|
all
commercial transactions between the Company and CCG were and are conducted at arm’s
length and in the ordinary course of business and involve charges determined by competitive
bids.
|
The
Governance and Nominating Committee and the Board considered the totality of the information and concluded that Mr. Crane met
both the objective and subjective standards of director independence established by the NYSE, as well as the Board’s Governance
Guidelines. The Governance and Nominating Committee and the Board also approved ongoing ordinary-course business transactions
between the Company and the CCG companies.
|
2017 Proxy
Statement
|
23
|
AUDIT
COMMITTEE REPORT
The
Audit Committee operates under a written charter adopted by the Board. The charter is available on the Company’s website
at
www.nabors.com
.
The Audit Committee is responsible for (i) oversight of the
quality and integrity of the Company’s consolidated financial statements, the Company’s system of internal controls
over financial reporting, and financial risk management, (ii) the qualifications and independence of the Company’s independent
registered public accounting firm (independent auditor), (iii) the performance of the Company’s internal auditors and independent
auditor and (iv) the Company’s compliance with legal and regulatory requirements with respect to the foregoing. Subject
to approval by the shareholders, the Audit Committee has the sole authority and responsibility to select, determine the compensation
of, oversee, evaluate and, when appropriate, replace the Company’s independent auditor.
The
Audit Committee serves in an oversight capacity and is not part of the Company’s managerial or operational decision-making
process. Management is responsible for the financial reporting process, including the Company’s system of internal controls,
for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United
States and for the assessment of and the report on the Company’s internal control over financial reporting included in the
Annual Report. The Company’s independent auditor is responsible for auditing those financial statements and expressing an
opinion as to (i) their conformity with such accounting principles and (ii) the effectiveness of the Company’s internal
controls over financial reporting. PricewaterhouseCoopers LLP was the Company’s independent auditor in 2016. The Audit Committee’s
responsibility is to oversee the financial reporting process and to review and discuss management’s report on the Company’s
internal controls over financial reporting. The Audit Committee relies, without independent verification, on the information provided
to it and on the representations made by management, the internal auditors and the independent auditor.
During
2016, the Audit Committee, among other things:
|
•
|
Reviewed
and discussed the Company’s quarterly earnings releases, quarterly reports on Form
10-Q, and the annual report on Form 10-K, including the consolidated financial statements
and the report on internal controls;
|
|
•
|
Reviewed
and discussed the Company’s policies and procedures for financial risk assessment
and financial risk management and the major financial risk exposures of the company and
its business units, as appropriate;
|
|
•
|
Reviewed
and discussed the annual plan and the scope of work of the internal auditors for 2016
and summaries of the significant reports to management by the internal auditors;
|
|
•
|
Provided
input to the Compensation Committee regarding performance of key finance, internal control
and risk management personnel;
|
|
•
|
Reviewed
and discussed with management their reports on the Company’s policies regarding
applicable legal and regulatory requirements;
|
|
•
|
Reviewed,
updated and approved the Audit Committee’s charter; and
|
|
•
|
Met
with the independent auditor and the internal auditors in executive sessions and was
involved in the selection of the independent auditor’s lead engagement partner.
|
The
Audit Committee reviewed and discussed with management, the internal auditors and the independent auditor the audited consolidated
financial statements for the year end December 31, 2016, the critical accounting policies that are set forth in the Company’s
annual report on Form 10-K for the year then ended, management’s annual report on the Company’s internal controls
over financial reporting and PricewaterhouseCoopers LLP’s opinion on the effectiveness of the internal controls over financial
reporting.
The
Audit Committee discussed with the independent auditor matters that independent registered public accounting firms must discuss
with Audit Committees under generally accepted auditing standards and standards of the Public Company Accounting Oversight Board
(“PCAOB”), including, among other things, matters related to the conduct of the audit of the Company’s consolidated
financial statements and the matters required to be discussed by PCAOB Accounting Standards No. 1301 (Communications with Audit
Committees). This review included a discussion with
24
|
|
2017 Proxy Statement
|
management and the independent auditor of the quality (not merely the acceptability)
of the Company’s accounting principles, the reasonableness of significant estimates and judgments, and the disclosures in
the Company’s consolidated financial statements, including the disclosures related to critical accounting policies.
The
independent auditor also provided to the Audit Committee the written disclosures and the letter required by applicable requirements
of the PCAOB and represented that it is independent from the Company. The Audit Committee discussed with the independent auditor
its independence from the Company, and considered whether services it provided to the Company beyond those rendered in connection
with its audit of the Company’s annual consolidated financial statements included in its annual report on Form 10-K, reviews
of the Company’s interim condensed consolidated financial statements included in its quarterly reports on form 10-Q, and
its opinion on the effectiveness of the Company’s internal controls over financial reporting were compatible with maintaining
its independence.
The
Audit Committee also reviewed and preapproved, among other things, the audit, audit-related, tax and other services performed
by, and related fees of, the independent auditor. The Audit Committee received regular updates on the amount of fees and scope
of audit, audit-related, tax and other services provided.
Based
on the Audit Committee review and these meetings, discussions and reports discussed above, and subject to the limitations on its
role and responsibilities referred to above and in the Audit Committee charter, the Audit Committee recommended to the Board that
the Company’s audited consolidated financial statements for the year ended December 31, 2016, be included in the Company’s
annual report on Form 10-K. The Audit Committee also selected PricewaterhouseCoopers LLP as the Company’s independent auditor
for the year ending December 31, 2017, which it believes is in the best interest of the Company and/or shareholders, and is presenting
that selection to shareholders for approval at the meeting.
|
Respectfully
submitted,
|
|
|
|
THE
AUDIT COMMITTEE
John P. Kotts, Chairman
Dag Skattum
John Yearwood
|
|
2017 Proxy
Statement
|
25
|
ITEM
2: APPROVAL AND APPOINTMENT OF INDEPENDENT AUDITOR AND AUTHORIZATION FOR THE AUDIT COMMITTEE TO SET THE INDEPENDENT AUDITOR’S
REMUNERATION
PricewaterhouseCoopers
LLP served as independent auditors for the Company for the year ended December 31, 2016. PricewaterhouseCoopers LLP or its predecessor
has been our independent auditor since May 1987.
Under
Bermuda law, our shareholders have the responsibility to appoint the independent auditor of the Company to hold office until the
close of the next annual general meeting and to authorize the Audit Committee of the Board to set the independent auditor’s
remuneration. At the meeting, the shareholders will be asked to approve the appointment of PricewaterhouseCoopers LLP as our independent
auditor for the year ending December 31, 2017, and to authorize the Audit Committee to set the independent auditor’s remuneration.
The selection of PricewaterhouseCoopers LLP as our independent auditor for the year ending 2017 was approved by the Audit Committee
in February 2017.
Representatives
of PricewaterhouseCoopers LLP will be present at the meeting with the opportunity to make a statement if they desire to do so
and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE
FOR
ITEM 2, THE APPOINTMENT OF PRICEWATERHOUSECOOPERS
LLP AS INDEPENDENT AUDITOR OF THE COMPANY AND AUTHORIZATION OF THE AUDIT COMMITTEE TO SET THE INDEPENDENT AUDITOR’S REMUNERATION
|
AUDIT
COMMITTEE PREAPPROVAL POLICY
The
Audit Committee has established a pre-approval policy for all audit and permitted nonaudit services (including the fees and terms
thereof) to be performed for the Company by the independent auditor. The Chairman of the Audit Committee may preapprove permissible
proposed nonaudit services that arise between committee meetings, provided that the decision to preapprove the service is reported
to the full Audit Committee at the next regularly scheduled meeting. During 2016, all audit and nonaudit services performed by
the independent auditor were subject to the pre-approval policy.
INDEPENDENT
AUDITOR FEES
The
following table summarizes the aggregate fees for professional services rendered by PricewaterhouseCoopers LLP. The Audit Committee
preapproved all fees for 2016 and 2015 services.
|
2016
|
2015
|
Audit
Fees
|
$4,897,263
|
$4,570,143
|
Audit-Related
Fees
|
1,800
|
1,800
|
Tax
Fees
|
1,053,844
|
892,487
|
All
Other Fees
|
0
|
6,000
|
Total
|
$5,952,907
|
$5,470,430
|
Audit
Fees
for the years ended December 31, 2016 and 2015, respectively, include fees for professional services rendered for the
audits of the consolidated financial statements of the Company, the audits of the Company’s internal control over financial
reporting and fees for audit services related to the transaction with C&J Energy Services Ltd. in 2015, in each case as required
by Section 404 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules, statutory audits, consents and accounting consultation
attendant to the audit. The increase in audit fees year-over-year was primarily related to comfort letter procedures for a debt
offering conducted in December 2016 and the review of and related consents for C&J Energy Services Ltd.’s Forms S-8
and S-3 filings.
26
|
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2017 Proxy Statement
|
Audit-Related
Fees
for the years ended December 31, 2016 and 2015, respectively, include consultations concerning financial accounting and
reporting standards.
Tax
Fees
for the years ended December 31, 2016 and 2015, respectively, include services related to tax compliance, including the
preparation of tax returns and claims for refund, and tax planning and tax advice. The increase in tax fees year-over-year was
primarily related to transfer pricing services.
All
Other Fees
for the years ended December 31, 2016 and 2015 respectively, include nonrecurring advisory services with respect
to corporate process improvements, as well as market data research.
|
2017 Proxy
Statement
|
27
|
COMPENSATION DISCUSSION AND ANALYSIS
This compensation discussion and analysis (“CD&A”)
is intended to help you understand our executive compensation practices and decisions we made in 2016 relating to the named executive
officers listed below (the “executive officers”). This CD&A supplements and should be read in conjunction with
the tables and related narratives of this Proxy Statement.
NAMED EXECUTIVE OFFICERS
|
|
|
|
•
Anthony
G. Petrello,
Chairman of the Board, President and CEO
•
William
J. Restrepo,
CFO
•
Mark
D. Andrews,
Corporate Secretary
|
EXECUTIVE SUMMARY
COMPENSATION PROGRAM ACTIONS & BEST PRACTICES
The Compensation Committee strongly believes that executive
compensation should be set at levels appropriate to attract and retain talented leaders and should be closely aligned to Company
performance. Over the years we have taken significant actions to address shareholder concerns regarding executive compensation.
Specifically, since 2014 we have:
2014
|
• Adopted a
policy limiting severance payments to 2.99 times the sum of our CEO and CFO’s average base salary and bonus for the 3 years
prior to termination.
• Eliminated
the CEO’s automobile allowance and reduced perquisites generally across the Company.
|
2015
|
• Reduced by
10% the annual base salaries of our executive officers, effective January 1, 2015 through June 30, 2016 in response to the decline
in industry conditions.
•
Rescheduled
the annual grant of restricted share awards to nonemployee directors to occur shortly after the annual general meeting of shareholders,
ensuring that such awards are granted only to directors for the current year and not any directors who are retiring or otherwise
not continuing in service.
|
2016
|
• Extended
the salary reduction a further 6 months through December 31, 2016.
• Refreshed
the composition of our peer group in light of changes in our business and the industry.
|
In 2016, we continued to adhere to compensation practices
that we believe align with our continuous efforts to improve the relationship between the compensation of our executive officers
and the performance of our business:
|
What
We Do
|
|
|
|
What
We Don’t Do
|
✓
|
Independent Compensation Committee –
We have oversight by a Compensation Committee comprised of only independent directors
|
|
|
✘
|
No excessive perquisites without a specific business
rationale
|
|
|
|
|
|
|
|
|
|
|
|
|
✓
|
Independent Compensation Consultant
–
Our Compensation Committee engages an independent compensation consultant
|
|
|
✘
|
No repricing of underwater stock options without
shareholder approval
|
|
|
|
|
|
|
|
|
|
|
|
|
✓
|
Pay for Performance
– Tie a majority
of executive compensation to performance with specific, measurable financial and operational objectives
|
|
|
✘
|
No excise tax gross-ups in connection with a
change-of-control, and it is our policy not to include any such tax gross-ups in any future executive officer agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
✓
|
Time-based Awards
– Subject some
earned performance-based equity awards to further time-based vesting requirements
|
|
|
✘
|
No cash severance payments in the event of death,
disability or termination for cause
|
|
|
|
|
|
|
28
|
|
2017 Proxy Statement
|
✓
|
Share Ownership Policy
–
Require our CEO and CFO to hold shares equal in value to five times and three times base salary, respectively
|
|
|
✘
|
No discretionary bonuses except
in the case of extraordinary specific developments that materially enhance the value of the Company
|
|
|
|
|
|
|
✓
|
Capped Severance –
Adopted a policy
limiting severance payments in our executive agreements to 2.99x the sum of average base salary and bonus for 3 years prior
to termination
|
|
|
|
|
|
|
|
|
|
|
✓
|
Annual Say-on-Pay Vote –
Conduct
annual say-on-pay non-binding advisory votes
|
|
|
|
|
2016 PERFORMANCE HIGHLIGHTS
The Compensation Committee continued to implement our
compensation philosophy and goals by seeking to closely align the overall compensation of our executive officers to the Company’s
short- and long-term business objectives which, for 2016, were specifically designed to strengthen our market presence and penetration
and augment shareholder value. As a result, despite the challenging industry conditions, our executives capitalized on value-add
opportunities and delivered on a number of strategic initiatives in 2016, including:
|
*
|
Announced
the signing of a joint venture agreement with Saudi Arabian Development Company, a wholly-owned
subsidiary of Saudi Arabian Oil Company (“Saudi Aramco”), to form a 50:50
joint venture company which is expected to become the largest onshore drilling contractor
in Saudi Arabia;
|
|
*
|
Enhanced
our competitive position by introducing our fleet of SmartRig
™
drilling
systems incorporating MPD-ready
®
technologies, and upgrading our U.S.
rig fleet;
|
|
*
|
Implemented
a program to measure customer satisfaction to drive growth;
|
|
*
|
Capitalized
on the Company’s technology portfolio by augmenting the provision of complementary
services to our traditional rig offering and growing our non-rig drilling services revenues
on a per-rig year basis; and
|
|
*
|
Delivered
a trackable reduction in operating expenses.
|
Furthermore,
our relatively strong 2016 results translated into 96.8% Total Shareholder Return (“TSR”), achieving the highest TSR
when measured against each individual member of our Performance Peer Group (defined below) individually.
The
below graph illustrates our 2016 TSR relative to the TSR of our Performance Peer Group for 2016:
Source: Bloomberg.
|
|
2017 Proxy Statement 29
|
The graph on the left below illustrates, for 2016, our TSR relative to
the average TSR for our 2016 Performance Peer Group as a whole. The graph on the right below illustrates, for the three-year
period from 2014 to 2016, our TSR relative to the average TSR for our 2014 Performance Peer Group.
1
Source: Bloomberg.
We believe these performance results reflect a measurable
basis for our executives’ performance.
PAY FOR PERFORMANCE
Our goal is to increase shareholder value by providing
executives with appropriate incentives to achieve our business objectives. We achieve this by providing a mix of performance-based
cash and equity awards designed to reward superior performance and achieve specific short- and long-term business objectives.
In 2016, over 80% of our CEO’s target compensation,
over 75% of our CFO’s target compensation, and 40% of our other executive officer’s target compensation was performance-based.
The target allocation of 2016 compensation for our CEO, CFO and other executive officer is shown in the charts below.
1
The Performance Peer Group for 2014, as originally identified in the 2015 proxy statement, consists of Diamond Offshore
Drilling, Inc., Helmerich & Payne, Inc., Patterson-UTI Energy, Inc., Transocean Ltd., Noble Corporation plc, Unit Corporation,
Rowan Companies plc, National Oilwell Varco, Inc., Halliburton Company, Baker Hughes Incorporated, Weatherford International plc,
ENSCO International Inc., Key Energy Services, Inc., Superior Energy Services, Inc., and RPC Inc. Key Energy Services, Inc. was
dropped from the group in connection with its bankruptcy.
30
|
2017 Proxy Statement
|
|
CEO COMPARISON OF REALIZED PAY & REALIZABLE PAY
TO REPORTED PAY
The calculation of total compensation for inclusion
in the Summary Compensation Table is based upon the SEC’s rules and regulations. Subsequently it includes, among other components,
the grant-date fair value of compensation in the form of long-term equity incentives subject to a vesting period and/or future
performance, which is calculated in accordance with GAAP. In reality, there may be a discrepancy between what is reported as compensation
and what may be realizable, or ultimately realized, for an executive officer. See “—Comparison of 2016 Realized Pay
& Realizable Pay to Reported Pay” below for a more complete discussion of this discrepancy.
OUR COMPENSATION PHILOSOPHY
Our executive compensation structure
is designed to attract and retain exceptional talent and incentivize achievement of our strategic business goals, including maximizing
long-term shareholder value.
Core Objectives
We have designed a compensation program for our executives
that embodies these core objectives:
|
•
|
Increase shareholder value by aligning management’s interests with the long-term interests
of shareholders;
|
|
•
|
Attract, motivate and retain experienced leaders who are critical to the success of our business;
|
|
•
|
Provide compensation that rewards performance and drives achievement of key financial and strategic
business objectives;
|
|
•
|
Maintain an appropriate balance between short- and long-term business goals; and
|
|
•
|
Limit perquisites and other non-performance based elements of compensation.
|
Critical
Leadership Retention
To ensure the delivery of long-term shareholder value
and the sustainable growth of a business of our size and scope, we believe it is critical to employ leaders who can deliver results.
To this end, we:
|
•
|
Provide our executive officers with appropriate and competitive individual pay opportunities and
actual pay outcomes that reward superior corporate and individual performance;
|
|
•
|
Use a mix of cash and performance-based equity awards, measured by both financial and nonfinancial
factors, to reward annual and longer-term business performance; and
|
|
•
|
Encourage retention through the use of various forms of deferred compensation, including in some
cases time-vesting compensation awards.
|
|
|
2017 Proxy Statement 31
|
SETTING EXECUTIVE COMPENSATION
Our Compensation Committee, independent
consultant and other resources each play an important role in determining our executive compensation structure.
Role of the
Compensation Committee
The Compensation Committee, which consists of three
independent directors, performs the following compensation-related functions:
|
•
|
Oversees the compensation of our executive officers and other key management comprising our senior
leadership team;
|
|
•
|
Evaluates the performance of our CEO and reviews the performance of our other executive officers,
drawing on its own judgment and observations and those of our CEO in evaluating the performance of such officers;
|
|
•
|
Administers our equity-based programs for executive officers and reviews and approves all forms
of compensation (including equity grants);
|
|
•
|
Sets financial and business measures and goals that are tied to the Company’s performance
for long-term equity incentive awards;
|
|
•
|
Oversees employment agreements, including severance and change-in-control agreements, between the
Company and the executive officers, including modifications and amendments thereto; and
|
|
•
|
Considers input from the Risk Oversight Committee and Audit Committee with respect to risk management
considerations in evaluating performance objectives and incentives.
|
The Compensation Committee has discretion to decrease
formula-driven awards or provide additional incentive compensation based on executive retention considerations. It also has discretion
to provide additional incentive compensation (i.e., special bonuses) in recognition of extraordinary specific developments that
materially enhance the value of the Company. To a lesser extent, the Compensation Committee exercises subjective judgment in making
compensation decisions with respect to executive officers, primarily as to equity awards, when such officer’s compensation
is not determined pursuant to an employment agreement.
Role of the
Independent Compensation Consultant
The Compensation Committee engaged Pearl Meyer &
Partners (“Pearl Meyer”) as its independent consultant to advise and assist the committee with its responsibilities.
For 2016, the scope of Pearl Meyer’s engagement included:
|
•
|
Providing advice and analysis on executive compensation trends and norms;
|
|
•
|
Advising on potential peer group members to evaluate our CEO and CFO’s compensation;
|
|
•
|
Reviewing and analyzing peer group information to assist with setting of executive compensation;
|
|
•
|
Updating the Compensation Committee periodically on legislative and regulatory developments impacting
executive compensation; and
|
|
•
|
Participating in Compensation Committee meetings and providing additional assistance, as requested
by such committee.
|
The Compensation Committee evaluated Pearl Meyer’s
independence by considering, among other things, the following six factors identified by the SEC and the NYSE:
|
•
|
The provision of other services to the Company by Pearl Meyer;
|
|
•
|
The amount of fees received from the Company by Pearl Meyer as a percentage of total revenue;
|
|
•
|
Pearl Meyer’s policies and procedures designed to prevent conflicts of interest;
|
|
•
|
The existence and nature of business and personal relationships of Pearl Meyer with a member of
the Compensation Committee;
|
|
•
|
Any Company stock owned by Pearl Meyer; and
|
|
•
|
The existence and nature of business or personal relationship of Pearl Meyer with an executive
officer of the Company.
|
32
|
2017 Proxy Statement
|
|
Based on its evaluation, the Compensation Committee
concluded there were no independence or conflict-of-interest concerns related to Pearl Meyer’s engagement.
Role of Management
Certain of our executive officers and senior management
provide input on business strategy and short- and long-term business objectives, which assists the Compensation Committee in establishing
performance goals in connection with long-term components of our executive compensation program. In addition, the Compensation
Committee consults with the CEO in setting the compensation of other executive officers upon their hiring with the Company and
periodically thereafter as deemed appropriate by the Compensation Committee. The CEO also provides a subjective performance assessment
of other executive officers, which is reviewed and considered by the Compensation Committee in determining each executive officer’s
performance and resulting compensation.
Market Referencing
We regularly consider market data for similarly situated
executive officers in making compensation decisions for this group of executives.
|
WHAT
WE DO:
|
|
|
|
WHAT
WE DON’T DO:
|
✓
|
Review
executive compensation disclosures of peer group companies and/or published compensation survey sources of industrial and
finance companies generally
|
|
|
✘
|
Target
individual elements of compensation or total compensation at a certain percentile within a peer group
|
✓
|
Review
market information and/or survey data to understand how our aggregate executive compensation compares to competitive norms
for attracting and retaining talented leaders and determining certain compensation elements
|
|
|
✘
|
Employ
a peer group analysis in determining the compensation of our executive officer other than the
CEO and CFO
|
COMPONENTS OF EXECUTIVE COMPENSATION
Key Elements
of Executive Compensation Structure
Our executive compensation program consists of three
main components: annual base salary, a cash award under our Incentive Plan (as defined below) (“annual performance bonus”)
and long-term equity incentives.
An appropriate mix of these key components, which are
discussed in more detail below, enables us to remain competitive within our industry while ensuring that our executive officers
are appropriately incentivized to deliver shareholder value.
Our CEO and CFO’s compensation mix is reflected
in, and governed by the terms of, their respective employment agreements, which were negotiated by the Compensation Committee and
became effective in January 2013 and March 2014, respectively. The Compensation Committee has determined that each element of our
compensation formula contributes to our overall compensation objectives and in the aggregate provides a reasonable and competitive
compensation opportunity for each executive officer.
The remainder of our executive compensation program
includes other forms of compensation, which aim to encourage retention and provide a market-competitive suite of benefits:
|
|
2017 Proxy Statement 33
|
|
•
|
Retirement Benefits
—encourages retention and provides market-competitive accruals;
and
|
|
•
|
Other Benefits & Limited Perquisites
—includes standard health and welfare benefit
plans, capped severance protection, life insurance and other limited perquisites, determined based on a specific business rationale,
to address executive-level expectations and challenges.
|
HOW WE DETERMINE ANNUAL BASE SALARY
The Compensation Committee determines an appropriate
level of base salary for our CEO and CFO by taking into account a series of competitive and other factors and conducting a compensation
comparison against a pre-selected peer group (the “Peer Group”). The Compensation Committee makes this initial determination
of base salary upon the executive’s initial appointment by the Company and periodically reviews its determination, as it
deems appropriate, taking into account various factors, including the Company’s performance, market data, industry conditions
and shareholder feedback.
To determine an appropriate level of base salary, the
Compensation Committee takes into account certain competitive factors, which sometimes include:
|
•
|
Compensation levels of similarly-situated executives of other drilling contractors and in the oilfield
services sector at companies in our Peer Group;
|
|
•
|
Necessary levels of compensation to attract and retain highly talented executives from outside
the industry; and
|
|
•
|
A newly hired executive’s salary at his or her most recent place of employment.
|
The initial annual base salaries of our CEO and CFO
were set by the Compensation Committee in each of their individual employment agreements, effective in January 2013 and March 2014,
respectively. Accordingly, their annual base salaries are governed by their employment agreements and were determined by the Compensation
Committee based on certain competitive factors considered by the committee at such time.
Pursuant to the employment agreements, the Compensation
Committee reviews at least annually the base salary of our CEO and CFO for increase in its and the Board’s discretion. For
purposes of that review, the Compensation Committee conducts a compensation comparison against the Peer Group. The committee re-evaluates
the Peer Group on a periodic basis, most recently in late 2015, as discussed below.
|
►
|
DETERMINATION
OF PEER GROUP
|
For purposes of the Peer Group, the Compensation Committee,
in consultation with its independent compensation consultant, considers peer companies for inclusion based on the following criteria:
|
•
|
Significant competitor in the Company’s lines of business;
|
|
•
|
Comparable size, scope and/or complexity;
|
|
•
|
Competition for executive talent; and/or
|
|
•
|
Similar operations in the industry and market.
|
In late 2015, in light of changes in our business and
the industry, as well as shareholder concerns, the Compensation Committee, in consultation with Pearl Meyer, reevaluated the composition
of the Peer Group. The Compensation Committee considered the complexities of running a company of our size and scope, recognizing
that no other company combined all of the Company’s business lines—drilling, directional services and equipment manufacturing—with
the diverse geographic and multi-faceted corporate structure that distinguishes Nabors from its competitors. As a result, the Compensation
Committee looked to a number of sectors in our industry to identify companies that provide comparable management challenges, and
with whom we compete for executive talent. The result was a revamped Peer Group comprised of companies that the Compensation Committee
believes, as a whole, appropriately represent the various aspects of our business and the level of significant skills and expertise
required of executive management for purposes of the compensation comparison.
Accordingly, the Compensation Committee determined that,
effective January 1, 2016, the following companies comprise the Peer Group for purposes of compensation comparison in 2016:
34
|
2017 Proxy Statement
|
|
Atwood Oceanic’s, Inc.
Baker Hughes Incorporated
Diamond Offshore Drilling, Inc.
Ensco plc
TechnipFMC plc (f/k/a FMC Technologies, Inc.)
Halliburton Company
Helmerich & Payne, Inc.
|
Noble Corporation plc
Patterson–UTI Energy, Inc.
Rowan Companies plc
Schlumberger Limited
Superior Energy Services, Inc.
Transocean Ltd.
Weatherford International plc
|
National-Oilwell Varco, Inc.
|
|
|
►
|
2016
ANNUAL BASE SALARY
|
As discussed, our CEO’s and CFO’s initial
annual base salaries are reflected in each of their respective employment agreements as $1.70 million and $650,000, respectively.
In 2014, Mr. Petrello received a 3% increase in his annual base salary to $1.75 million.
In light of the decline in industry conditions commencing
during the latter part of 2014, the Company reduced salaries for its executives by 10% for an interim period, commencing January
1, 2015. In conjunction with that initiative, the Board, in consultation with the Compensation Committee, and our CEO and CFO agreed
to reduce their salaries by 10% for an interim period ending on June 30, 2015, pursuant to an amendment to their respective employment
agreements, and subsequently continued that reduction through December 31, 2016. Accordingly, Messrs. Petrello’s and Restrepo’s
annual base salaries were reduced to $1.575 million and $585,000, respectively.
This reduction did not affect the calculation or payment
of any other components of executive compensation or ancillary benefits. Corresponding reductions were also made to the annual
base salaries of our other named executive officer (Mr. Andrews) and senior management through December 31, 2016.
HOW WE DETERMINE ANNUAL PERFORMANCE BONUS
Our annual performance-based cash bonus opportunity
is directly tied to objective performance goals for the Company. Our Annual Incentive Bonus Plan (the “Incentive Plan”),
approved by shareholders at the 2013 annual general meeting, governs this component of executive compensation and is designed to
focus our executive officers on achieving specific performance measures and to reward successful outcomes.
|
►
|
ANNUAL
INCENTIVE BONUS PLAN
|
The Incentive Plan advances our pay-for-performance
philosophy by providing participants under the Incentive Plan with annual bonus incentive opportunities linked to the achievement
of specific performance measures. The Incentive Plan is designed to:
|
•
|
Reinforce the Company’s goal-setting and strategic planning process;
|
|
•
|
Recognize the efforts of its management in achievement objectives; and
|
|
•
|
Aid in attracting and retaining competent management, thus ensuring the long-range success of the
Company.
|
At the beginning of each year, the Compensation Committee
sets objective performance measures for the Company as a whole and establishes corresponding performance goals for each participant
under the Incentive Plan, including our named executive officers. In structuring the performance measures and goals, the Compensation
Committee sets targets for achieving those goals:
|
•
|
Minimum threshold
before any annual performance bonus can be earned;
|
|
•
|
Target award
dollar amount to incentivize a specific desired performance level; and
|
|
•
|
Maximum goal
which sets an appropriate limit on the potential annual performance bonus that
can be earned.
|
After the end of the fiscal year, the Compensation Committee
determines whether the performance goals have been attained and approves any cash payment amount based upon the level of achievement
of the set annual performance goals.
|
|
2017 Proxy Statement 35
|
Pursuant to their respective employment agreements,
each of our CFO and CEO are assigned one or more financial or nonfinancial metrics by which their performance is measured for purposes
of calculating their annual performance bonus for a given year. At the end of that year, the Compensation Committee evaluates each
executive’s performance against the applicable metric or metrics and determines their cash performance bonus based on the
assigned threshold, target and maximum benchmark for that year. Any results between benchmarks are prorated in calculating the
performance bonus.
►
2016
ANNUAL PERFORMANCE BONUS
CEO
Pursuant to his employment agreement, Mr. Petrello’s
annual performance bonus is targeted at base salary prior to the 10% reduction ($1.75 million for 2016) and capped at twice base
salary ($3.5 million for 2016), subject to the achievement of one or more financial or nonfinancial performance goals, as determined
by the Compensation Committee at the beginning of the applicable performance year.
For 2016, Mr. Petrello’s annual performance bonus
was based on the Company’s targets for (1) adjusted EBITDA
2
(weighted at 70%, such that the target bonus for
the adjusted EBITDA portion was $1,225,000) and (2) SG&A
3
(weighted at 30%, such that the target bonus for the
SG&A portion was $525,000). These performance measures were selected by the Compensation Committee to ensure focus on efficient
and profitable operations, preservation of shareholder value through a challenging industry environment, and improvement in our
competitive position, and to help ensure that we remain properly positioned to capitalize on opportunities for growth. In particular,
adjusted EBITDA is a significant consideration used by analysts in evaluating the Company and is therefore a key driver of the
Company’s share price.
The Compensation Committee established the following
targets for Mr. Petrello’s annual performance bonus for 2016:
For adjusted EBITDA:
|
•
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A minimum threshold of 70% of target adjusted EBITDA, or $490 million, with a payout of 70% of
the adjusted EBITDA portion of the bonus, or $857,500, at that level;
|
|
•
|
A target award of 100% of target adjusted EBITDA, or $700 million, with a payout of 100% of the
adjusted EBITDA portion of the bonus, or $1,225,000, at that level; and
|
|
•
|
A maximum goal of 120% of target adjusted EBITDA, or $840 million with a payout of 200% of the
adjusted EBITDA portion of the bonus, or $2,450,000, at that level.
|
For SG&A:
|
•
|
A minimum threshold of $270 million of SG&A, with a payout of 50% of the SG&A portion of
the bonus, or $262,500, at that level;
|
|
•
|
A target award of $250 million of SG&A, with a payout of 100% of the SG&A portion of the
bonus, or $525,000, at that level; and
|
|
•
|
A maximum goal of $240 million of SG&A, with a payout of 200% of the SG&A portion of the
bonus, or $1,050,000, at that level.
|
2
Throughout this Proxy Statement, the term “adjusted EBITDA” is computed by subtracting the sum of direct costs,
general and administrative expenses and research and engineering expenses from operating revenues. Adjusted EBITDA is a non-GAAP
measure and should not be used in isolation or as a substitute for the amounts reported in accordance with GAAP. However, management
evaluates the performance of our operating segments and the consolidated company based on several criteria, including adjusted
EBITDA and adjusted operating income (loss), because we believe that these financial measures accurately reflect our ongoing profitability
and performance. Please refer to Annex A to this Proxy Statement for a reconciliation of this non-GAAP measure to income (loss)
from continuing operations before income taxes, which is a GAAP measure.
3
As used in this Proxy Statement, SG&A refers to sales, general and administrative expenses (inclusive of research &
engineering expenses).
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2017 Proxy Statement
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In the event actual performance falls between payout
levels, the annual performance bonus is prorated. In addition, adjustments to targets are permitted as deemed appropriate by the
Board to account for significant events that warrant an adjustment. No adjustments to the CEO’s targets were made for 2016.
The Company’s adjusted EBITDA for 2016 was $622.3
million, or 88.9% of target adjusted EBITDA. SG&A was $259.2 million, thus landing between the threshold and target levels
for SG&A. Accordingly, Mr. Petrello earned an annual performance bonus of $1,492,982 for 2016, comprised of $1,089,060 representing
the adjusted EBITDA portion and $403,922 representing the SG&A portion.
CFO
Pursuant to his employment agreement, Mr. Restrepo’s
annual performance bonus is targeted at base salary prior to the 10% reduction ($650,000 for 2016) and capped at twice base salary
($1.3 million for 2016), payable in cash and based upon the achievement of one or more financial or nonfinancial performance goals
as determined by the Compensation Committee around the beginning of the applicable performance year.
For 2016, Mr. Restrepo’s annual performance bonus
was based on the Company’s targets for (1) adjusted EBITDA (weighted at 70%, such that the target bonus for the EBITDA portion
was $455,000) and (2) SG&A (weighted at 30%, such that the target bonus for the SG&A portion was $195,000). These performance
measures were selected by the Compensation Committee to mirror the CEO’s goals.
The Compensation Committee established the following
targets for Mr. Restrepo’s annual performance bonus for 2016:
For adjusted EBITDA:
|
•
|
A minimum threshold of 70% of target adjusted EBITDA, or $490 million, with a payout of 70% of
the adjusted EBITDA portion of the bonus, or $318,500, at that level;
|
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•
|
A target award of 100% of target adjusted EBITDA, or $700 million, with a payout of 100% of the
adjusted EBITDA portion of the bonus, or $455,000, at that level; and
|
|
•
|
A maximum goal of 120% of target adjusted EBITDA, or $840 million, with a payout of 200% of the
adjusted EBITDA portion of the bonus, or $910,000, at that level.
|
For SG&A:
|
•
|
A minimum threshold of $270 million of SG&A, with a payout of 50% of the SG&A portion of
the bonus, or $97,500, at that level;
|
|
•
|
A target award of $250 million of SG&A, with a payout of 100% of the SG&A portion of the
bonus, or $195,000, at that level; and
|
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•
|
A maximum goal of $240 million of SG&A, with a payout of 200% of the SG&A portion of the
bonus, or $390,000, at that level.
|
In each case, if actual performance falls between target
levels, the annual performance bonus is prorated. In addition, adjustments are permitted as deemed appropriate by the Board to
account for significant events that warrant an adjustment.
As noted above, the Company’s adjusted EBITDA
for 2016 was $622.3 million, or 88.9% of target adjusted EBITDA. SG&A was $259.2 million, thus falling between the threshold
and target levels for SG&A. Accordingly, Mr. Restrepo earned an annual performance bonus of $554,536 for 2016, comprised of
$404,508 representing the adjusted EBITDA portion and $150,028 representing the SG&A portion.
For a detailed description of Mr. Andrews’ 2016
annual cash bonus award, see page 45.
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2017 Proxy Statement 37
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LONG-TERM EQUITY INCENTIVES
Our
long-term equity incentives are a critical expression of long-term shareholders’ interests. Such incentives are designed
to reward achievement of corporate objectives and incentivize our executive officers to deliver strong long-term shareholder returns.
The Compensation Committee supports a practice of providing long-term equity incentives that deliver above-average compensation
if financial results and/or shareholder returns exceed expectations.
WHY
LONG-TERM EQUITY INCENTIVES ARE SO IMPORTANT TO OUR COMPENSATION STRUCTURE
Share
ownership is the simplest, most direct way to align our executive officers’ interests with those of our other shareholders.
The vesting and other design features of equity awards encourage both performance and long-term share ownership by our executive
officers to further motivate them to create long-term shareholder value.
FOR
EXAMPLE: Mr. Petrello has sold the Company’s common shares only four times since 1993 and has exercised stock options infrequently.
His most recent exercises consisted only of expiring stock options. He holds an equity interest in the Company of approximately
3.50. In other words, for every dollar change in the Company’s share price, the value of Mr. Petrello’s shares increases
or decreases by nearly $9 million (or over $11 million when the share price is above the exercise price of the stock options he
holds).
|
Our long-term equity incentives are designed to focus
our executive officers on achieving and sustaining longer-term shareholder returns. Our TSR Share awards vest at the end of the
relevant three-year measurement period based on the Company’s share performance relative to its Performance Peer Group (described
below) during that period. Our Performance Shares are awarded in any given year based on the individual’s achievement of
performance goals established for the previous year, then vest over a three-year period. The following is a summary of the features
of long-term equity incentives for our CEO and CFO:
TSR SHARES
|
|
PERFORMANCE SHARES
|
• Restricted common share awards
• Vesting based upon the Company’s
performance relative to the Performance Peer Group over a three-year period
• Minimum performance criteria apply
before any TSR Shares vest
• Subject to a maximum award amount
|
|
• Restricted common share awards
• Award amounts based upon the achievement
of certain financial or operational objectives, as pre-determined by the Compensation Committee and measured over a one-year performance
period
• Once earned and granted, awards
are subject to an additional three-year vesting period
• Minimum threshold applies before
any amount can be earned
• Subject to a maximum award amount
|
|
►
|
HOW
WE DETERMINE OUR TSR SHARES
|
For purposes of our TSR Share awards, the Compensation
Committee, in consultation with Pearl Meyer, determined the Performance Peer Group for 2016-2018 by:
|
•
|
Eliminating from the Peer Group companies whose operations, although requiring similar management
skills, were nevertheless not comparable to the Company’s business lines and therefore did not provide a meaningful basis
for measuring relative share performance; and
|
|
•
|
Adding other significant competitors in each of the Company’s business lines to provide a
comprehensive means for evaluating TSR.
|
The Compensation Committee has discretion to adjust
the composition of the Performance Peer Group and to set the threshold, target and maximum performance criteria to reflect current
circumstances. As of January 1, 2016, the Performance Peer Group was adjusted to be the same as the Peer Group (as discussed earlier
in this CD&A). The Compensation Committee made this decision in response to shareholder concerns and following the peer group
review conducted by Pearl Meyer.
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2017 Proxy Statement
|
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For TSR Shares granted in 2016, the target will be achieved
if the Company ranks at the median of the Performance Peer Group for TSR during the period 2016 through 2018. If the Company ranks
in the first quintile, TSR Shares will vest at the maximum level, and the Company must
rank at least in the fourth quintile for any TSR Shares to vest (at 25% of maximum). Other rankings yield proportionate
results. The percentage of maximum shares earned based on three-year TSR rank is shown in the table below:
TSR RANK
|
PERCENTAGE OF MAXIMUM SHARES EARNED
|
1, 2 or 3
|
100%
|
4 or 5
|
75%
|
6 or 7
|
60%
|
8 or 9
|
50%
|
10 or 11
|
40%
|
12 or 13
|
25%
|
14,15 or 16
|
0%
|
CEO
Pursuant to Mr. Petrello’s employment agreement,
the target number of TSR Shares that may vest is valued at 150% of base salary on the first day of the measurement period. If the
performance goals are achieved at maximum levels, then the maximum number of TSR Shares that may vest will be valued at twice that
amount. The number of common shares granted is determined using the average daily closing price of our common shares on each of
the 20 business days prior to the commencement of the measurement period. For the 2016 award, the maximum number of shares that
may vest is 600,686, calculated by multiplying Mr. Petrello’s unadjusted base salary on that date of $1.75 million by three,
then dividing by the 20-day average closing price of $8.74. Because it is based on a 20-day average, the contractually determined
value may be higher or lower than the amount set forth in the Summary Compensation Table and other tables in this proxy statement,
which for TSR Shares is determined using the Monte Carlo model based on the assumptions detailed in the footnotes of our audited
financial statements.
Based on the Company’s share performance through
2016, the Company’s ranking for TSR Shares granted in 2014 was 6, which exceeds the median of the Performance Peer Group.
Accordingly, the number of TSR Shares granted in 2014 that vested, as determined by the Compensation Committee in February 2017,
was 189,123, which was better than target, or 60% of maximum shares. The remaining 126,081 of those shares granted for the performance
cycle beginning January 1, 2014 were forfeited. The industry downturn that began in 2014 resulted in relatively flat TSR for the
three-year period for the Company, while most of our peer group sustained a negative TSR over that period. Although the Company’s
TSR for the performance period was above the median of our peer group, it was significantly higher than the oil and gas drilling
composite index. As of December 31, 2016, the Company’s ranking for TSR shares granted in 2015 and 2016, is 4 and 1, respectively.
Although vesting percentages are determined solely based upon the Company’s relative TSR ranking at the end of the applicable
three-year measurement period, if those measurement periods ended on December 31, 2016, the number of TSR Shares that would vest
are 327,579 from the 2015 grant, at 150% of target level (or 75% of maximum shares), and 600,686 shares from the 2016 grant, 200%
of target (or 100% of maximum shares).
CFO
Pursuant to Mr. Restrepo’s employment agreement,
the target number of TSR Shares that may vest is valued at base salary on the first day of the measurement period. If the performance
goals are achieved at maximum levels, then the maximum number of TSR Shares that may vest will be valued at twice that amount.
The number of common shares granted is determined using the average daily closing price of our common shares on each of the 20
business days prior to the commencement of the measurement period. For the 2016 award, the maximum number of shares that may vest
is 148,741, calculated by multiplying Mr. Restrepo’s salary of $650,000 by two, then dividing by the 20-day average closing
price of $8.74. Because it is based on a 20-day average, the contractually determined value may be higher or lower than the amount
set forth in the Summary Compensation Table and other tables in this proxy statement, which for TSR Shares is determined using
the Monte Carlo model based on the assumptions detailed in the footnotes of our audited financial statements.
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2017 Proxy Statement 39
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Based on the Company’s
share performance in 2016,
the Company’s ranking for TSR Shares granted in 2014 was 6, which exceeds the median of
the Performance Peer Group. Accordingly, the number of TSR Shares granted in 2014 that vested, as determined by the Compensation
Committee in February 2017, was 48,208, which was better than target, or 60% of maximum shares. The remaining 32,137 of those shares
granted for the performance cycle beginning January 1, 2014 were forfeited. As of December 31, 2016, the Company’s ranking
for TSR Shares granted in 2015 and 2016 is 4 and 1, respectively. Although vesting percentages are determined solely based upon
the Company’s relative TSR ranking at the end of the applicable three-year measurement period, if those measurement periods
ended on December 31, 2016, the number of TSR Shares that would vest is 81,115 shares from the 2015 grant, at 150% of target level
(or 75% of maximum shares), and 148,741 shares from the 2016 grant, or 200% of target (or 100% of maximum shares).
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►
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HOW
WE DETERMINE OUR PERFORMANCE SHARES
|
The Compensation Committee pre-determines at the beginning
of each one-year performance cycle the specific financial and operational performance metrics for Performance Shares applicable
to each executive officer in order to tailor long-term incentives to the specific goals and needs of the Company at such time.
No awards are granted at the time the performance metrics are determined; rather, the award is granted, and the restricted shares
are issued, only after the end of the one-year performance cycle. For example, the Compensation Committee determined the applicable
performance metrics for the 2015 performance cycle at the beginning of 2015. The number of Performance Shares earned by our executive
officers for their performance in the 2015 performance cycle was not determined until February 19, 2016, with the actual grant
of such Performance Shares being made as of June 7, 2016, following shareholder approval of the 2016 Stock Plan. Accordingly, these
awards are disclosed as compensation for 2016, as set forth under “Executive Compensation Tables—2016 Summary Compensation
Table”.
The financial and operational objectives may include
one or more of the following:
|
•
|
Earnings before interest expense, provision for income taxes, and depreciation and amortization
expense;
|
|
•
|
Sales, general and administrative expenses;
|
|
•
|
Health, safety and environmental performance; and
|
|
•
|
Other identifiable strategic or operational targets
|
By design, the strategic or operational targets contain
both objective and subjective components. The Compensation Committee specifically designs the goals to strategically position the
Company for long-term success. These objectives may be the same or different than the objectives upon which the annual performance
bonus under the Incentive Plan is based. In many cases, the goals can be met and evaluated on a subjective basis, but their success
is incapable of objective measurement during the performance cycle. For example, development of an industry-changing technology
may be a goal capable of achievement during the performance cycle, but may not generate significant revenue or returns until some
future period. The Compensation Committee retains flexibility to determine the specific performance metric(s) for Performance Shares
so that it may tailor these long-term incentives to the specific strategies of the Company as they evolve in our dynamic industry.
The Performance Shares awards are earned pro rata, such
that if all the performance goals set at the beginning of the performance cycle are achieved, the executive officer shall earn
the maximum number of performance shares, as determined by the Compensation Committee. For purposes of such determination, a goal
may be considered partially achieved and thus the number of goals achieved may be expressed other than in a whole number. At least
one performance goal must be achieved in order for any Performance Shares to be earned.
|
►
|
2016
PERFORMANCE SHARES
|
CEO
Pursuant to his employment
agreement, Mr. Petrello has the opportunity to receive an award of Performance Shares for each fiscal year targeted at 200% of
base salary, with a maximum award of twice that amount (400%), and subject to a minimum threshold before any award can be earned
and granted. As noted above, Mr. Petrello’s Performance Share award was determined in February 2016 based on achievement
of performance goals established for the 2015 performance cycle, and was granted in June 2016. Mr. Petrello’s performance
goals for the 2015 performance cycle were set by the Compensation Committee at the beginning of 2015 and are detailed in the
40
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2017 Proxy Statement
|
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Company’s
2016 proxy statement.
Mr. Petrello achieved all of his 2015 performance criteria, and as a result the Compensation Committee
agreed to grant him a Performance Share award for 2016 valued at 2x target, or $7,000,000, calculated in accordance with the terms
of his employment agreement. Accordingly, on February 19, 2016, the date of determination, the Compensation Committee agreed to
grant a Performance Share award of 1,083,591 shares to Mr. Petrello, based upon the average daily closing price of our shares on
each of the preceding 20 business days prior to that date. Based on the closing price of our common stock on February 19, 2016,
the value of the Performance Share award was $7,455,107, which is the amount reflected in the Summary Compensation Table. However,
the shares were not issued until June 7, 2016, following shareholder approval of the 2016 Stock Plan, and as a result the grant
date fair value of the Performance Shares for purposes of ASC 718 was $11,756,963. The date of determination, calculation methodology
for the stock price, and number of shares of the then-pending award were disclosed in our 2016 proxy statement, under “Item
3 – Approval of Company’s 2016 Stock Plan” and that item was approved by our shareholders. Therefore, our shareholders
have already approved this element of Mr. Petrello’s compensation. The “Executive Compensation Tables—2016 Summary
Compensation Table” lists the value on the date the Compensation Committee actually made its determination of the award in
accordance with Mr. Petrello’s employment agreement and our 2016 proxy statement.
For the 2016 performance cycle, Mr. Petrello’s
performance criteria for purposes of determining the number of Performance Shares that may be earned were tied to initiatives related
to streamlining our business operations and enhancing our strategic position. The Compensation Committee chose criteria designed
to leverage our existing global infrastructure and operating reputation to capitalize on growth opportunities, achiever superior
operational and health, safety and environmental performance, continue to develop our existing portfolio of value–add services
to our customers and enhance our technology position and advance drilling technology both on the rig and downhole.
For the 2016 performance cycle, Mr. Petrello had the
following five performance goals:
|
•
|
Secure a joint venture with Saudi Aramco;
|
|
•
|
Implement a program to measure customer satisfaction and drive growth;
|
|
•
|
Develop a plan to maximize the Company’s investment in C&J Energy Services Ltd.;
|
|
•
|
Grow non-rig drilling services revenue on a per-rig basis; and
|
|
•
|
Commercialize the iRacker
®
technology.
|
Performance Shares are earned on a pro-rated basis based
on the number of goals (or overall percentage of all goals) achieved. Thus, for the 2016 performance cycle, threshold performance
required the achievement of two goals (or 40 percent of all goals), while target performance required the achievement of three
goals (or 60% of all goals), and maximum performance required achievement of all five goals.
Of his five goals listed above, Mr. Petrello achieved
the first three goals at 100%, the fourth goal at 50%, and the fifth goal at 90%, resulting in an overall achievement rate of 88%
for all five goals. As a result, the Compensation Committee approved a Performance Share award that vests ratably over a three-year
period, valued at 88% of his maximum number of shares, or $6.16 million. Pursuant to Mr. Petrello’s employment agreement,
the Compensation Committee agreed to grant him a Performance Share award of 381,424 shares, determined on February 17, 2017, based
upon the average daily closing price of our shares on each of the preceding 20 business days. While this award was determined based
on the 2016 performance cycle, the award was not granted until 2017 and, accordingly, will appear as 2017 compensation for Mr.
Petrello in the Company’s 2018 proxy statement.
The performance criteria associated with Performance
Shares that can be earned by Mr. Petrello during the 2017 performance cycle are tied to initiatives related to streamlining and
strengthening our business operations and organization, as well as enhancing our competitive market position.
CFO
Pursuant to his employment
agreement, Mr. Restrepo has the opportunity to receive an award of Performance Shares for each fiscal year targeted at 100% of
base salary, with a maximum award of twice that amount (200%), and subject to a minimum threshold before any award can be earned
and granted. As noted above, Mr. Restrepo’s Performance Share award was determined in February 2016 based on achievement
of performance goals established for the 2015 performance cycle, and was granted in June 2016. Mr. Restrepo’s performance
goals for the 2015 performance cycle were set by the Compensation Committee at the beginning of 2015 and are detailed in the Company’s
2016 proxy statement.
Mr. Restrepo achieved all of his 2015 performance criteria, and as a result
|
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2017 Proxy Statement 41
|
the Compensation Committee
agreed to grant him a Performance Share award for 2016 valued at 2x target, or $1,300,000, calculated in accordance with the terms
of his employment agreement. Accordingly, on February 19, 2016, the date of determination, the Compensation Committee agreed to
grant a Performance Share award of 201,238 shares to Mr. Restrepo based upon the average daily closing price of our shares on each
of the preceding 20 business days prior to that date. Based on the closing price of our common stock on February 19, 2016, the
value of the Performance Share award was $1,384,517, which is the amount reflected in the Summary Compensation Table. However,
the shares were not issued until June 7, 2016, following shareholder approval of the 2016 Stock Plan, and as a result the grant
date fair value of the Performance Shares for purposes of ASC 718 was $2,183,432. The date of determination, calculation methodology
for the stock price, and number of shares of the then-pending award were disclosed in our 2016 proxy statement, under “Item
3 – Approval of Company’s 2016 Stock Plan” and that item was approved by our shareholders. Therefore, our shareholders
have already approved this element of Mr. Restrepo’s compensation. The “Executive Compensation Tables—2016 Summary
Compensation Table” lists the value on the date the Compensation Committee actually made its determination of the award in
accordance with Mr. Restrepo’s employment agreement and our 2016 proxy statement.
For the 2016 performance cycle, the Compensation Committee
chose criteria with both objective and subjective criteria designed to incentivize continued focus on core businesses, capitalize
on opportunities to deliver savings and improvements in our financial, tax and accounting functions and achieve capital and cost
reductions in line with challenging industry conditions. Specifically, Mr. Restrepo’s performance goals were designed to
maintain the strength and flexibility of the Company’s balance sheet, as well as liquidity in the continuing market downturn.
For 2016, Mr. Restrepo had five performance goals, as
follows:
|
•
|
Secure a joint venture with Saudi Aramco;
|
|
•
|
Develop a plan to maximize the Company’s investment in C&J Energy Services Ltd.;
|
|
•
|
Achieve certain tax initiatives;
|
|
•
|
Deliver a trackable reduction in operating expenses; and
|
|
•
|
Upgrade certain financial reporting measures and eliminating certain recurring audit exceptions.
|
Performance Shares are earned a pro-rated basis based
on the number of goals (or overall percentage of all goals) achieved. Thus, for the 2016 performance cycle, threshold performance
required the achievement of two goals (or 40 percent of all goals), while target performance required the achievement of three
goals (or 60% of all goals), and maximum performance required achievement of all five goals. Mr. Restrepo achieved 100% of his
2016 performance goals for the 2016 performance cycle. As a result, the Compensation Committee approved a Performance Share award
for Mr. Restrepo that vests ratably over a three-year period, valued at 2x target, or $1.3 million. Pursuant to Mr. Restrepo’s
employment agreement, the Compensation Committee agreed to grant him a Performance Share award of 80,495 shares, determined on
February 17, 2017, based upon the average daily closing price of our shares on each of the preceding 20 business days. While this
award was determined based on the 2016 performance cycle, the award was not granted until 2017 and, accordingly, will appear as
2017 compensation for Mr. Restrepo in the Company’s 2018 proxy statement.
The performance criteria associated with Performance
Shares that can be earned by Mr. Restrepo during 2017 are tied to initiatives related to streamlining our business operations and
strengthening our financial position.
For a detailed discussion of Mr. Andrews’ long-term equity incentive
awards, see page 46.
COMPARISON OF 2016 REALIZED PAY &
REALIZABLE PAY TO REPORTED PAY
The calculation of total compensation as reported below in the 2016 Summary
Compensation Table (“SCT”) is based upon the SEC’s rules and regulations and includes, among other components,
compensation in the form of long-term equity incentives subject to a vesting period and/or future performance. In reality, such
compensation may not be realized at all or for many years, and the value of such compensation, if or when realized, may differ
significantly from the amounts shown in the SCT. For example, total compensation reported in the SCT (“reported pay”)
includes the value of restricted share awards, which are subject to a three-year vesting period and are based on the grant-date
value of our common shares. These values are included in the calculation of total compensation in the SCT even though such awards
do not vest until the end of a three-year period utilizing various methodologies and, in the case of TSR Shares, minimum performance
criteria based upon the Company’s performance relative to the Performance Peer Group must be met before any shares can vest.
As an example, in 2013 Mr. Petrello was
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2017 Proxy Statement
|
|
granted restricted stock having a grant-date fair value of $15,000,000, and TSR Shares
having a grant-date fair-value of $3,686,961. Both grants vested over a three-year period, with the number of TSR Shares vesting
based on the Company relative TSR as compared to the 2013 Performance Peer Group. As of the respective vesting dates, the restricted
stock had an aggregate value of $13,330,317 ($6,984,286 for the 302,481 shares that vested in 2014; $3,838,471 for the 302,480
shares that vested in 2015; and $2,507,559 for the 302,480 shares that vested in 2016), and the TSR Shares had a value of $1,217,533.
See “Executive Compensation Tables—2016
Summary Compensation Table” below and the accompanying footnotes for more information on how reported pay is calculated under
the SEC’s rules and regulations.
In 2014, 2015 and 2016, approximately 70%, 61% and 77%,
respectively, of the CEO’s compensation granted by the Compensation Committee and included as reported pay was in the form
of long-term equity incentives. These incentives take two forms: (1) those with a grant-date value determined based on the prior
year’s performance goals and which vest over three years (Performance Shares) and (2) those which do not vest until the expiration
of a three-year period and, until such time, remain at risk of forfeiture depending on the Company’s total shareholder return
relative to its Performance Peer Group measured at the end of the applicable three-year period (TSR Shares). The following tables
set forth the “realized pay” and “realizable pay” of our CEO in the last three fiscal years.
Realized
Pay
We calculate “realized pay” to include the
following elements of compensation attributable to each year presented:
|
•
|
base salary, cash bonus and cash awards under the Incentive Plan (each as reported in the SCT);
|
|
•
|
the value of restricted share awards vested in the applicable year;
|
|
•
|
the value realized upon exercise of stock options; and
|
|
•
|
the value of all perquisites and other personal benefits, to the extent they were includible in
the named executive officer’s gross income or otherwise resulted in imputed income for tax purposes.
|
We calculate the realized pay value of our restricted
share awards by multiplying (i) the total number of shares vested, including any shares withheld for tax purposes, by (ii) the
closing share price of our common stock on the NYSE on the day preceding the vesting date.
The following table reflects the realized pay of our
CEO for 2016, 2015 and 2014 compared to reported pay for the corresponding years.
YEAR
|
SALARY
|
SPECIAL
BONUS
|
TSR SHARE AWARD
(1)
|
VESTED
RESTRICTED
SHARE
AWARDS
(2)
|
NON-EQUITY
INCENTIVE
COMPENSATION
PLAN
|
CHANGE
IN
PENSION
VALUE AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS
|
ALL OTHER
COMPENSATION
|
TOTAL
REALIZED
PAY
|
TOTAL
REPORTED
PAY
(3)
|
%
DIFFERENCE
|
2016
|
1,575,000
|
0
|
1,217,533
|
5,759,788
|
1,492,982
|
169,740
|
1,325,938
|
11,540,981
|
15,372,429
|
(24.9)
|
2015
|
1,580,077
|
6,125,000
|
0
|
7,551,861
|
1,602,000
|
150,663
|
1,342,206
|
18,351,807
|
27,663,602
|
(33.7)
|
2014
|
1,750,000
|
0
|
0
|
6,984,286
|
1,664,250
|
131,975
|
1,431,652
|
11,962,163
|
16,305,545
|
(26.6)
|
|
(1)
|
TSR Share Awards earned using the closing share price on February 19, 2016 of $6.88, which vested
at target level.
|
|
(2)
|
Vested Restricted Share Awards are calculated using the value upon vesting in the applicable year.
|
|
(3)
|
Total Reported Pay reflects total compensation reported in the SCT pursuant to SEC rules.
|
Realizable
Pay
We calculate “realizable pay” to include
the following elements of compensation attributable to each year presented:
|
•
|
base salary, cash bonus and cash awards under the Incentive Plan (each as reported in the SCT);
|
|
|
2017 Proxy Statement 43
|
|
•
|
the value of long-term equity incentive awards granted in the applicable year that have vested
or are expected to vest in the future (valued as of December 31, 2016; for 2016 and 2015, this includes TSR Awards expected to
vest in 2018 and 2019 at target);
|
|
•
|
if stock options were granted in the applicable year, the intrinsic value of those options as of
the end of the most recently completed fiscal year; and
|
|
•
|
the value of all perquisites and other personal benefits, to the extent they were includible in
the named executive officer’s gross income or otherwise resulted in imputed income for tax purposes.
|
We calculate realizable pay value with respect to our
restricted share awards by multiplying (i) the total number of shares vested or expected to vest, including any shares withheld
for tax purposes, by (ii) the closing price of our common shares on the NYSE on the date of valuation. No option awards were granted
for the years 2014-2016.
The following table reflects the realizable pay of our
CEO for 2016, 2015 and 2014 compared to reported pay for the corresponding years.
YEAR
|
SALARY
|
BONUS
|
TSR SHARE
AWARDS
(1)
|
PERF. SHARE
AWARDS OR
OTHER
EQUITY
(2)
|
NON-EQUITY
INCENTIVE
COMPENSATION
PLAN
|
CHANGE IN
PENSION
VALUE AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS
|
ALL OTHER
COMPENSATION
|
TOTAL
REALIZABLE
PAY
|
TOTAL
REPORTED
PAY
|
% DIFFERENCE
|
2016
|
1,575,000
|
0
|
4,925,625
|
17,770,892
|
1,492,982
|
169,740
|
1,325,938
|
27,260,177
|
15,372,429
|
77.3
|
2015
|
1,580,077
|
6,125,000
|
3,581,530
|
14,896,530
|
1,602,000
|
150,663
|
1,342,206
|
29,278,006
|
27,663,602
|
5.8
|
2014
|
1,750,000
|
0
|
3,101,617
|
5,941,900
|
1,664,250
|
131,975
|
1,431,652
|
14,021,394
|
16,305,545
|
(14.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
TSR Share Awards are calculated using the closing share price on December 30, 2016, of $16.40,
assuming vesting at target level, except for 2014 TSR Share Award which is at 120% of target level.
|
|
(2)
|
Performance Share Awards or Other Equity are calculated based on the closing share price on December
30, 2016. For 2015, amounts in this column include $8,587,106, representing the value of restricted shares granted as part of the
special bonus in connection with the transaction with C&J Energy Services Ltd. All other amounts in this column represent the
value of Performance Shares awarded during the relevant year.
|
CEO Comparison of Realized Pay
& Realizable Pay to Reported Pay
The above tables reflect the disparity between reported
pay and realized/realizable pay for the years indicated. In addition, our CEO’s practice of holding stock options until maturity
and selling shares infrequently has resulted in realized pay substantially different than reported pay for many years. Particularly
in light of the recent significant industry downturn, this practice has resulted in significant losses to our CEO and strengthened
even further the tie between executive pay and the Company’s performance. For example, as reflected above in “Proxy
Summary—Management Ownership”, our CEO holds 11,436,601 shares (including vested options) with an acquisition date
value of $231.4 million, granted over the past 25 years. Based on the closing price of our shares on the record date those shares
are currently valued at $129.3 million, a greater than 44.1% loss in value.
44
|
2017 Proxy Statement
|
|
In addition, our CEO held a total of 6,033,487 of stock
options during the reporting period, 3,583,334 of which expired by December 31, 2016, as reflected in the table below. These expired
stock options represent a total forfeited value of $80,300,259 based on the maximum share price attained during the applicable
period post-vesting. Similarly, our CEO continues to hold 2,450,153 stock options, whose exercise prices and current values are
shown in the table below. At the closing price of our shares on the record date, these stock options are worth only 6,454,023.
Had our CEO exercised them at the maximum share price attained post-vesting, their value would have been $47,967,358. Our CEO may
or may not exercise these stock options prior to expiration depending on a variety of factors. This table demonstrates the direct
impact our CEO’s practice of holding shares for long periods of time has on pay alignment to Company performance.
CEO Total
Vested & Expired Stock Options
GRANT DATE
|
NUMBER OF
OPTIONS
|
EXERCISE
PRICE
|
EXPIRY
DATE
|
VALUE AT
MAXIMUM
|
VALUE AT
RECORD DATE
|
2/20/2003
|
950,000
|
$19.38
|
2/20/2013
|
$28,875,250
|
$0*
|
2/20/2004
|
950,000
|
$22.96
|
2/20/2014
|
$25,474,250
|
$0*
|
2/24/2005
|
350,000
|
$28.83
|
2/24/2015
|
$7,330,750
|
$0*
|
12/5/2005
|
1,333,334
|
$35.81
|
12/5/2015
|
$18,620,010
|
$0*
|
2/25/2009
|
1,698,427
|
$9.87
|
2/25/2019
|
$37,688,095
|
$6,454,023
|
9/30/2009
|
1,726
|
$20.90
|
9/30/2019
|
$19,262
|
$0
|
8/22/2011
|
750,000
|
$16.36
|
8/22/2021
|
$10,260,000
|
$0
|
|
|
6,033,487
|
|
|
$128,267,617
|
$6,454,023
|
|
|
|
|
|
|
|
*Forfeited
upon expiration
OTHER EXECUTIVE OFFICERS
We provide incentives to our other executive officers
in two categories:
The Compensation Committee balances the goals of rewarding
past performance and incentivizing future performance and retention in determining the amount and form of these incentives. Through
our annual performance bonus and long-term equity incentives, we link individual awards to both Company and individual performance.
Annual Performance
Bonus
Annual performance bonuses are not guaranteed. As previously
discussed, the annual performance bonus is paid out of our Incentive Plan. Generally, the Compensation Committee determines the
amount available for annual performance bonuses based upon the achievement of financial and operational objectives of the Company
as a
|
|
2017 Proxy Statement 45
|
whole and the individual business unit or corporate department. Bonuses are then allocated based upon individual performance.
As with awards to our CEO and CFO, the annual performance bonus is subject to a minimum threshold, target and maximum payout based
upon:
Other targets are selected based upon the specific goals
and needs of the Company at any given point in time. Our other executive officers’ annual performance bonuses earned for
2014-2016 are reported in the Summary Compensation Table below under the “Bonus” and “Non-Equity Incentive Plan
Compensation” columns, as applicable.
Long-Term
Equity Incentives
The Compensation Committee determines long-term incentive
equity awards for the other executive officers and senior leadership team as a multiple (generally 1x to 2x) of the annual performance
bonus, based upon a subjective evaluation of the executive’s performance. This subjective evaluation allows for consideration
of the executive officer’s contributions to the Company’s performance, whether or not encompassed in financial and
operational criteria. Because the future value of those awards is inherently subject to the risk of future share performance, the
Compensation Committee typically provides for time-vesting of those awards to encourage retention. The grant-date values of long-term
equity incentives granted to our other executive officers in 2016 are reported in the Summary Compensation Table below under the
“Stock Awards” column.
For 2016, long-term equity incentives were determined
by multiplying the value of the annual performance bonus amount by a multiple determined for the applicable executive based upon
his or her position and performance. Our other executive officers received an equity award based on the resulting value.
For example, Mr. Andrews earned an annual performance
bonus of $75,495 for 2016 based upon the Company’s overall performance and his performance against specific goals. He also
received a long-term equity incentive award in the form of restricted shares on February 19, 2016, the number of which was determined
by applying a multiplier of 1.25 to his annual performance bonus for 2015, which was $60,000, and dividing the product by $6.88,
which was the value of our shares on the grant date. Based on this calculation, he was granted 10,901 shares of restricted shares,
with restrictions lapsing ratably over four years.
46
|
2017 Proxy Statement
|
|
Equity-BASED
Award Policy
The Company has established an Equity-Based Award
Policy that applies to the grant of long-term equity incentive awards to all employees, including our executive officers. Here
is how this policy works in practice:
|
•
|
The policy does not restrict the timing of awards, although the Compensation Committee typically
makes awards to our executive officers and senior leadership at its first meeting each year, which usually occurs in February following
publication of our annual results.
|
|
•
|
The Compensation Committee delegated authority to the CEO, subject to predetermined caps, to approve
equity awards to employees at other times during the year, such as in connection with new hires and promotions, or in connection
with the appraisal review and compensation adjustment process for employees.
|
|
•
|
All awards granted by the CEO are required to be reported to the Compensation Committee at its
next regularly scheduled meeting. In connection with the appraisal review and compensation adjustment process for 2016, the CEO
was delegated authority to grant up to an aggregate of 700,000 restricted shares to employees.
|
RETIREMENT BENEFITS
Retirement
Plans
Our executive officers are eligible to participate in
the following retirement plans:
|
•
|
401(k) Plan
—a tax-qualified defined contribution plan, which covers substantially
all our employees; and
|
|
•
|
Deferred Compensation Plan
—a nonqualified deferred compensation plan, which allows
certain employees to defer an unlimited portion of their cash compensation and receive Company-matching contributions.
|
Collectively, these plans facilitate retention and provide
our executive officers an opportunity to accumulate assets for retirement.
Executive
Plan
Messrs. Petrello and Restrepo also are eligible to participate
in the Executive Deferred Compensation Plan (the “Executive Plan”).
Pursuant to Mr. Petrello’s employment agreement,
and at the end of each calendar quarter through the first quarter of 2019, the Company credits $300,000 to an account for Mr. Petrello
under this plan. These deferred amounts, together with earnings thereon, will be distributed to Mr. Petrello when (1) he reaches
age 65 or (2) earlier (a) when he reaches age 62, to the extent of any quarterly contributions in excess of $250,000, together
with accumulated deemed earnings thereon or (b) upon termination of employment for any reason other than cause, but will be forfeited
upon his earlier termination of employment for cause. Mr. Petrello will forfeit his account balance under this plan upon termination
of employment for cause. During 2016, in order to comply with certain tax code provisions, Mr. Petrello received certain of these
distributions as a result of his turning age 62.
Mr. Restrepo is also eligible to participate in the
Executive Plan on the same basis as other senior leaders. The Compensation Committee elected to credit $400,000 to Mr. Restrepo’s
account under the Executive Plan in 2016.
Information regarding our Deferred Compensation Plan
and Executive Plan, as well as the terms of their participation, can be found under “2016 Nonqualified Deferred Compensation”
below.
|
|
2017 Proxy Statement 47
|
OTHER BENEFITS AND PERQUISITES
All of our employees, including our executive officers,
may participate in health, pension and welfare benefit, and other plans on the same basis as other employees Board. Our executive
officers and certain other employees may also receive company-sponsored club memberships as part of their overall compensation
package. In addition, Messrs. Petrello and Restrepo receive additional benefits under the terms of their respective agreements,
as described below. In 2014, we eliminated the CEO’s automobile allowance in line with perquisite reductions across the Company.
Severance
Protection
Severance protection, particularly in the context of
a change in control transaction, can play a valuable role in attracting and retaining key executive officers. Accordingly, we have
provide such protection for Messrs. Petrello and Restrepo.
Mr. Petrello’s and Mr. Restrepo’s employment
agreements each provide for severance payments in the event the agreement is terminated (i) by the Company prior to the expiration
date of the agreement for any reason other than for cause, including in connection with a change in control, or (ii) by the executive
for constructive termination without cause, including in connection with a change in control, each as defined in their respective
employment agreement.
Under Mr. Petrello’s agreement, termination within
twelve months of a change in control (as defined in the agreement), including by voluntary resignation, is considered a constructive
termination without cause. Under Mr. Restrepo’s agreement, termination within twelve months of a change in control (as defined
in the agreement) qualifies as a constructive termination only under circumstances that otherwise qualify as constructive termination
(not including voluntary resignation) under the agreement. The executive officer would have the right to receive within 30 days
of a termination without cause or constructive termination without cause, including in connection with a change in control, 2.99
times the average sum of his base salary and annual performance bonus during the three fiscal years preceding the termination.
The cap on the annual performance bonus opportunity beginning in 2013 serves to reduce the potential severance benefit in the future.
Mr. Petrello’s and Mr. Restrepo’s employment
agreements also provide that, in the event of a termination without cause or constructive termination without cause, including
in connection with a change in control, (a) TSR Shares previously granted would be deemed earned at target; (b) earned Performance
Shares would immediately vest; and (c) for Mr. Petrello, Performance Shares for the year of termination would be deemed earned
at maximum levels.
Additional information regarding severance benefits
is included in the table under “Executive Compensation Tables—2016 Potential Payments Upon Termination or Change in
Control” below.
Death, Disability
and Certain Terminations unrelated to a Change of Control
Mr. Petrello’s and Mr. Restrepo’s employment
agreements also provide that, upon death, disability, termination without cause, or constructive termination without cause, he
would receive (a) any unvested stock options and restricted shares outstanding (except for TSR Shares), which will immediately
and fully vest; (b) any amounts earned, accrued or owing to him but not yet paid (including executive benefits, life insurance,
disability benefits and reimbursement of expenses and perquisites); (c) continued participation in medical, dental and life insurance
coverage; and (d) certain perquisites and other or additional benefits in accordance with our applicable plans and programs, including
distribution of account balances under the Company’s Executive Plan. Certain of these benefits are conditioned on the executive’s
continued compliance with certain non-competition and non-solicitation restrictions.
In addition, under the agreements, (a) any unvested
TSR Shares at the time of termination for these reasons will vest at target levels; and (b) for Mr. Petrello, any unearned Performance
Shares will be deemed earned at the maximum level (in the case of death or disability, on a pro rata basis). The Compensation Committee
provided for the vesting of outstanding restricted shares, including Performance Shares, and outstanding stock options because
in each instance those awards have already been earned based upon performance at the time of grant.
48
|
2017 Proxy Statement
|
|
Life Insurance
and Other Perquisites
In addition to salary and bonus, Mr. Petrello receives
group life insurance, various split-dollar life insurance policies, reimbursement of expenses, and various perquisites (including
personal use of company aircraft). Premium payments under the split-dollar life insurance policies were suspended in 2002. Under
Mr. Petrello’s employment agreement, the Company is obligated to make contributions during the term of his employment in
the amounts necessary to maintain the face value of the insurance coverage. If the Company is not legally permitted to make such
contributions to the policies, it will pay an additional bonus to Mr. Petrello equal to the amount required to permit him to lend
sufficient funds to the insurance trusts that own the policies to keep them in force. Mr. Restrepo also receives group life insurance,
reimbursement of expenses and various perquisites available to other senior leaders.
TERM OF EMPLOYMENT
Mr. Petrello’s current employment agreement provides
for an initial term of five years, through December 31, 2017, with automatic one-year extensions at the end of each term, unless
either party provides notice of termination 90 days prior to such anniversary. If the Company provides notice of termination to
Mr. Petrello, then provided that he remains employed with the Company for a period of up to six months as specified by the Company
to assist with the transition of management, the termination will be treated as a constructive termination without cause. Neither
Mr. Petrello nor the Company has provided notice of termination.
Mr. Restrepo’s employment agreement provides for
an initial term through December 31, 2017, with automatic one-year extensions at the end of each term, unless either party provides
notice of termination one year prior to such anniversary. Such notice by the Company does not constitute a constructive termination
under Mr. Restrepo’s agreement. Neither Mr. Restrepo nor the Company has provided notice of termination.
SHARE OWNERSHIP POLICY
We encourage our executive officers
to own the Company’s shares to further align their interests with those of other shareholders.
Mr. Petrello’s employment agreement requires that
he own Company common shares with a minimum acquisition value of five times his base salary. As noted in the table under “Corporate
Governance—Beneficial Ownership of Company Common Shares”, Mr. Petrello owns 11,846,837 common shares (inclusive of
vested but unexercised stock options) as of the record date, which represent over 3.50% of our outstanding common shares and over
26 times the required minimum ownership.
Mr. Restrepo’s employment agreement requires that
he own Company common shares with a minimum acquisition value of three times his base salary. As noted in the table under “Corporate
Governance—Beneficial Ownership of Company Common Shares”, Mr. Restrepo currently owns 925,405 common shares and nearly
seven times the required minimum ownership.
In 2016, Mr. Andrews was not subject to a minimum share
ownership requirement during that year.
“Acquisition value” for purposes of our
share ownership requirement means, for shares, the market closing price on the date of grant or purchase. For stock options, it
means the Black Scholes value on the date of grant. Acquisition value was chosen by our Compensation Committee as an appropriate
measure because of the volatility of stock prices in our industry and the complications that may arise from the use of a fluctuating
valuation method.
RISK ASSESSMENT
The Compensation Committee continues to review with
management the design and operation of our incentive compensation arrangements, including the performance objectives and the mix
of short- and long-term performance horizons used in connection with incentive awards, to ensure that these arrangements do not
encourage our executives to engage in business activities or other behavior that would impose unnecessary or excessive risk to
the value of our Company or the investments of our shareholders.
|
|
2017 Proxy Statement 49
|
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code of 1986
(as amended, the “Code”) limits to $1 million the amount of compensation that we may deduct in any year with respect
to any of our executive officers, other than the chief financial officer. Certain performance-based compensation approved by shareholders
is not subject to the limit. At our 2013 annual general meeting, shareholders approved the Incentive Plan, the purpose of which
was to provide us the flexibility to grant annual cash incentive bonuses to our executive officers that could qualify as performance-based
compensation under Section 162(m) of the Code. At our 2016 annual general meeting, shareholders approved the 2016 Stock Plan, one
of the purpose of which was to provide us the ability to grant equity-based incentive awards that could qualify as performance-based
compensation under Section 162(m) of the Code. Although we intend to take reasonable steps to obtain deductibility of compensation,
we reserve the right not to do so in our judgment, particularly with respect to retaining the service of our executive officers.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board has reviewed
and discussed with management the CD&A provided above. Based on that review and discussion, the Compensation Committee has
recommended to the Board that the CD&A be included in this Proxy Statement and incorporated by reference into the Company’s
annual report on Form 10-K for the year ended December 31, 2016.
|
Respectfully submitted,
|
|
|
|
THE COMPENSATION COMMITTEE
Michael C. Linn, Chairman
James R. Crane
John P. Kotts
|
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee for 2016 was comprised of
Messrs. Linn (Chairman), Crane and Kotts, all independent directors. None of these directors has ever served as an officer or employee
of the Company or participated in any transaction during the last fiscal year required to be disclosed pursuant to the SEC’s
proxy rules, except as to Mr. Crane, as described above under “Certain Relationships and Related-Party Transactions”.
No executive officer of the Company serves as a member of the compensation committee of the board of directors of any entity that
has one or more of its executive officers serving as a member of our Compensation Committee or as a director. In addition, none
of our executive officers serves as a member of the compensation committee of the board of directors of any entity that has one
or more of its executive officers serving as a member of our Board.
50
|
2017 Proxy Statement
|
|
EXECUTIVE COMPENSATION TABLES
2016 SUMMARY COMPENSATION TABLE
The table below summarizes the total compensation paid
to or earned by each of our named executive officers for the fiscal years ended December 31, 2016, 2015 and 2014.
NAME AND
PRINCIPAL
POSITION
|
YEAR
|
SALARY ($)
(1)
|
BONUS
($)
(2)
|
STOCK
AWARDS
($)
(3)
|
OPTION
AWARDS
($)
|
NON-EQUITY
INCENTIVE
PLAN
COMPENSATION
($)
(4)
|
CHANGE IN
PENSION
VALUE AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS
($)
(5)
|
ALL OTHER
COMPENSATION
($)
(6)
|
TOTAL ($)
|
Anthony G. Petrello
Chairman of
the Board, President
and CEO
|
2016
|
1,575,000
|
0
|
10,808,769
|
0
|
1,492,982
|
169,740
|
1,325,938
|
15,372,429
|
2015
|
1,580,077
|
6,125,000
|
16,863,656
|
0
|
1,602,000
|
150,663
|
1,342,206
|
27,663,602
|
2014
|
1,750,000
|
0
|
11,327,668
|
0
|
1,664,250
|
131,975
|
1,431,652
|
16,305,545
|
William J. Restrepo
CFO
|
2016
|
585,000
|
0
|
2,214,946
|
0
|
554,536
|
15,075
|
417,426
|
3,786,983
|
2015
|
587,000
|
1,042,500
|
2,537,236
|
0
|
806,000
|
6,182
|
422,418
|
5,401,336
|
2014
|
525,000
|
0
|
6,053,128
|
0
|
618,250
|
0
|
1,131
|
7,197,509
|
Mark D. Andrews
Corporate Secretary
|
2016
|
189,000
|
0
|
75,000
|
0
|
75,495
|
0
|
87,659
|
427,154
|
2015
|
197,320
|
0
|
75,000
|
0
|
60,000
|
0
|
88,042
|
420,362
|
2014
|
210,000
|
65,000
|
75,000
|
0
|
0
|
0
|
86,674
|
436,674
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
A portion of Mr. Petrello’s contractual salary is deemed to include payment for his service
as a director of the Company. In 2015, Messrs. Andrews, Petrello and Restrepo agreed to a reduction in their salaries by 10% in
light of the difficult market conditions. For 2014, the amount in this column for Mr. Restrepo pertains to salary earned from March
3, 2014, the date on which Mr. Restrepo commenced employment with the Company, through December 31, 2014.
|
|
(2)
|
In 2015, each of Mr. Petrello and Mr. Restrepo received a special cash bonus in recognition of
their leadership and role in the transaction with C&J Energy Services Ltd. as discussed in our 2016 proxy statement.
|
|
(3)
|
Except as otherwise described below, the amounts shown in this column reflect the value of restricted
share awards based on the grant-date closing price of our common shares. Dividends on stock awards are not shown in the table because
those amounts are factored into the grant date fair value.
|
In accordance with their
respective employment agreements, the number of TSR Shares and Performance Shares to be granted to each of Messrs. Petrello and
Restrepo is calculated using a per share value equal to the average daily closing price of the Company’s shares on the NYSE
on each of the twenty (20) trading days prior to the date of calculation. As a result, the contractually determined value may be
higher or lower than the amount set forth in the Summary Compensation Table and other tables in this proxy statement, which for
TSR Shares is determined using the Monte Carlo model using the assumptions detailed in the footnotes of our audited financial statements,
and which for Performance Shares is determined using the closing price on the date of grant approval.
Mr. Petrello’s amount
for 2016 includes the grant of maximum TSR Shares eligible to vest in 2019 and the grant of Performance Shares based on 2015 performance.
The TSR Shares were granted on January 4, 2016. The grant-date fair value of the TSR Share award using the Monte Carlo model, and
which is reflected in the table, was $3,353,662. Had the grant been valued based on the average closing price of our shares on
each of the 20 calendar days preceding the calculation date, as determined in accordance with his employment contract, the TSR
Share award would have been valued at $5,250,000. Mr. Petrello achieved all of his 2015 performance criteria, and as a result the
Compensation Committee agreed to grant him a Performance Share award for 2016
|
|
2017 Proxy Statement 51
|
valued at 2x target, or $7,000,000, calculated in
accordance with the terms of his employment agreement. Accordingly, on February 19, 2016, the date of determination, the Compensation
Committee agreed to grant a Performance Share award of 1,083,591 shares to Mr. Petrello, based upon the average daily closing price
of our shares on each of the preceding 20 business days prior to that date. Based on the closing price of our common stock on February
19, 2016, the value of the Performance Share award was $7,455,107, which is the amount reflected in the table. However, the shares
were not issued until June 7, 2016, following shareholder approval of the 2016 Stock Plan, and as a result the grant date fair
value of the Performance Shares for purposes of ASC 718 was $11,756,963. The date of determination, calculation methodology for
the stock price, and number of shares of the then-pending award were disclosed in our 2016 proxy statement, under “Item 3
– Approval of Company’s 2016 Stock Plan” and that item was approved by our shareholders. Therefore, our shareholders
have already approved this element of Mr. Petrello’s compensation.
Mr. Petrello’s amount
for 2015 includes the grant of maximum TSR Shares eligible to vest in 2018, the grant of Performance Shares based on 2014 performance,
and the equity portion of the special bonus received in connection with the completion of the merger of our Completion & Production
Services business with C&J Energy Services, Inc. (the “Merger”). The TSR Shares were granted on January 1, 2015.
The grant-date fair value of the TSR Share award using the Monte Carlo model, and which is reflected in the table, was $3,787,224.
Had the grant been valued based on the average closing price of our shares on each of the 20 calendar days preceding the calculation
date, as determined in accordance with his employment contract, the TSR Share award would have been valued at $5,250,000. For Mr.
Petrello’s 2015 Performance Share award, the grant was approved on February 20, 2015, and thus reflects a grant-date fair
value of $5,201,428 based on the closing price of our shares on that date. Had the grant been valued based on the closing price
of our shares on each of the 20 calendar days preceding the date of grant approval, the Performance Share award would have been
valued at $4,666,666. The remaining amount of $7,875,004 represents the grant-date fair value of the shares Mr. Petrello received
as a special equity bonus in connection with the Merger.
Mr. Petrello’s amount
for 2014 includes the grant of maximum TSR Shares eligible to vest in 2017, and the grant of Performance Shares based on 2013 performance.
The TSR Shares were granted on January 1, 2014. The grant-date fair value of the TSR Share award using the Monte Carlo model, and
which is reflected in the table, was $3,356,826. Had the grant been valued based on the average closing price of our shares on
each of the 20 calendar days preceding the calculation date, as determined in accordance with his employment contract, the TSR
Share award would have been valued at $5,250,000. For Mr. Petrello’s 2014 Performance Share award, the grant was approved
on February 21, 2014, and thus reflects a grant-date fair value of $7,970,842 based on the closing price of our shares on that
date. Had the grant been valued based on the closing price of our shares on each of the 20 calendar days preceding the date of
grant approval, the Performance Share award would have been valued at $6,460,000.
Mr. Restrepo’s amount
for 2016 includes the grant of maximum TSR Shares eligible to vest in 2019 and the grant of Performance Shares based on 2015 performance.
The TSR Shares were granted on January 4, 2016. The grant-date fair value of the TSR Share award using the Monte Carlo model, and
which is reflected in the table, was $830,429. Had the grant been valued based on the average closing price of our shares on each
of the 20 calendar days preceding the calculation date, as calculated in accordance with his employment contract, the TSR Share
award would have been valued at $1,300,000. Mr. Restrepo achieved all of his 2015 performance criteria, and as a result the Compensation
Committee agreed to grant him a Performance Share award for 2016 valued at 2x target, or $1,300,000, calculated in accordance with
the terms of his employment agreement. Accordingly, on February 19, 2016, the date of determination, the Compensation Committee
agreed to grant a Performance Share award of 201,238 shares to Mr. Restrepo based upon the average daily closing price of our shares
on each of the preceding 20 business days prior to that date. Based on the closing price of our common stock on February 19, 2016,
the value of the Performance Share award was $1,384,517, which is the amount reflected in the table. However, the shares were not
issued until June 7, 2016, following shareholder approval of the 2016 Stock Plan, and as a result the grant date fair value of
the Performance Shares for purposes of ASC 718 was $2,183,432. The date of determination, calculation methodology for the stock
price, and number of shares of the then-pending award were disclosed in our 2016 proxy statement, under “Item 3 – Approval
of Company’s 2016 Stock Plan” and that item was approved by our shareholders. Therefore, our shareholders have already
approved this element of Mr. Restrepo’s compensation.
52
|
2017 Proxy Statement
|
|
Mr. Restrepo’s amount
for 2015 includes the grant of maximum TSR Shares eligible to vest in 2018, the grant of Performance Shares based on 2014 performance,
and the equity portion of the special bonus received in connection with the completion of the Merger. The TSR Shares were granted
on January 1, 2015. The grant-date fair value of the TSR Share award using the Monte Carlo model, and which is reflected in the
table, was $937,756. Had the grant been valued based on the average closing price of our shares on each of the 20 calendar days
preceding the calculation date, as determined in accordance with his employment contract, the TSR Share award would have been valued
at $1,300,000. For Mr. Restrepo’s 2015 Performance Share award, the grant was approved on February 20, 2015, and thus reflects
a grant-date fair value of $724,483 based on the closing price of our shares on that date. Had the grant been valued based on the
closing price of our shares on each of the 20 calendar days preceding the date of grant approval, the Performance Share award would
have been valued at $650,000. The remaining amount of $874,997 represents the grant-date fair value of the shares Mr. Restrepo
received as a special equity bonus in connection with the Merger.
Mr. Restrepo’s amount
for 2014 includes the grant of maximum TSR Shares eligible to vest in 2017, and a one-time grant of restricted shares having a
grant date value of $4,900,000 in connection with his initial hiring, which was necessary to incentivize Mr. Restrepo to leave
his previous employer. The TSR Shares were granted on March 3, 2014. The grant-date fair value of the TSR Share award using the
Monte Carlo model, and which is reflected in the table, was $1,153,128. Had the grant been valued based on the average closing
price of our shares on each of the 20 calendar days preceding the calculation date, as determined in accordance with his employment
contract, the TSR Share award would have been valued at $1,300,000.
|
(4)
|
The annual performance bonuses of our named executive officers are governed by our Incentive Plan,
as described above under “Compensation Discussion and Analysis—Components of Executive Compensation—How We Determine
the Annual Performance Bonus” and “Compensation Discussion and Analysis—Other Executive Officers—Annual
Performance Bonus.”
|
|
(5)
|
The amounts in this column are attributable to above-market earnings in the Executive Plan. For
2016, above-market earnings represent the difference between the 6% interest rate earned under this plan and 3.99%, which is 120%
of the Internal Revenue Service Long-Term Applicable Federal Rate as of December 31, 2013. Nonqualified deferred compensation activity
for 2016 is detailed in the table under “2016 Nonqualified Deferred Compensation” below.
|
|
(6)
|
The amounts in the “All Other Compensation” column of this table consist of the following:
|
NAME
|
YEARS
|
INSURANCE
BENEFITS
(A)
|
CLUB
MEMBERSHIP
|
IMPUTED
LIFE
INSURANCE
(B)
|
AUTOMOBILE
ALLOWANCE
(C)
|
OTHER
(D)
|
NQP
COMPANY
MATCH
|
401(K)
COMPANY
MATCH
|
TOTAL
|
Anthony G. Petrello
Chairman of the
Board, President and CEO
|
2016
|
0
|
26,044
|
10,209
|
0
|
1,283,060
|
0
|
6,625
|
1,325,938
|
2015
|
0
|
25,046
|
10,208
|
0
|
1,293,736
|
0
|
13,216
|
1,342,206
|
2014
|
0
|
20,215
|
7,420
|
0
|
1,393,617
|
0
|
10,400
|
1,431,652
|
William J. Restrepo
CFO
|
2016
|
0
|
8,489
|
2,312
|
0
|
400,000
|
0
|
6,625
|
417,426
|
2015
|
0
|
5,431
|
2,312
|
0
|
400,000
|
0
|
14,675
|
422,418
|
2014
|
0
|
0
|
1,131
|
0
|
0
|
0
|
0
|
1,131
|
Mark D. Andrews
Corporate Secretary
|
2016
|
0
|
0
|
0
|
0
|
87,659
|
0
|
0
|
87,659
|
2015
|
0
|
0
|
0
|
0
|
88,042
|
0
|
0
|
88,042
|
2014
|
0
|
0
|
0
|
0
|
86,674
|
0
|
0
|
86,674
|
|
(a)
|
The economic benefit related to a split-dollar life insurance arrangement was $35,961 for Mr. Petrello
for 2016. These amounts were reimbursed to the Company during 2016. The benefit as projected on an actuarial basis was $814,953
before taking into account any reimbursements to the Company. We have used the economic-benefit method for purposes of disclosure
in the Summary Compensation Table. Nabors suspended premium payments under these policies in 2002.
|
|
|
2017 Proxy Statement 53
|
|
(b)
|
Represents value of life insurance premiums for coverage in excess of $50,000 for Messrs. Petrello
and Restrepo.
|
|
(c)
|
In 2014, we eliminated Mr. Petrello’s automobile allowance in line with perquisite reductions
across the Company.
|
|
(d)
|
For 2016, the amount in this column for Mr. Petrello includes contributions to the Executive Plan
of $1,200,000 and unreimbursed incremental variable operating costs to the Company attributable to his personal use of corporate
aircraft of $80,560. For 2015, the amount in this column for Mr. Petrello includes contributions to the Executive Plan of $1,200,000
and unreimbursed incremental variable operating costs to the Company attributable to his personal use of corporate aircraft of
$93,736. For 2014, the amount in this column for Mr. Petrello includes contributions to the Executive Plan of $1,200,000 and unreimbursed
incremental variable operating costs to the Company attributable to his personal use of corporate aircraft of $193,617.
|
The amount in this column
for Mr. Restrepo in 2016 and 2015 includes contributions to the Executive Plan of $400,000, respectively. The amount in this column
for Mr. Andrews for each of 2016, 2015 and 2014 includes a housing allowance of $48,000, $49,846 and $48,000, respectively, as
well as reimbursement of Bermuda payroll taxes, company matching contributions to a Bermuda pension plan, and reimbursement of
Bermuda health and social insurance premiums, none of which individually exceeds the greater of $25,000 or 10% of the total amount
of these benefits for Mr. Andrews.
2016 GRANTS OF PLAN-BASED AWARDS
The table below shows information about plan-based awards,
including possible payouts for performance bonuses under the Incentive Plan, TSR Shares, and Performance Shares, in each case as
granted during the year ended December 31, 2016.
NAME
|
GRANT
DATE
|
APPROVAL
DATE
(1)
|
ESTIMATED POSSIBLE PAYOUTS
UNDER NON-EQUITY INCENTIVE
PLAN AWARDS
(2)
|
ESTIMATED FUTURE PAYOUTS
UNDER EQUITY INCENTIVE
PLAN AWARDS
(3)
|
ESTIMATED POSSIBLE PAYOUTS
UNDER EQUITY INCENTIVE
PLAN AWARDS
(4)
|
ALL OTHER
STOCK
AWARDS
NUMBER
OF
SHARES OF
STOCK
(5)
(#)
|
GRANT-DATE
FAIR VALUE
OF STOCK
AND
OPTION
AWARDS
($)
|
THRESHOLD
($)
|
TARGET
($)
|
MAXIMUM
($)
|
THRESHOLD
(#)
|
TARGET
(#)
|
MAXIMUM
(#)
|
THRESHOLD
(#)
|
TARGET
(#)
|
MAXIMUM
(#)
|
Anthony G. Petrello
|
|
|
262,500
|
1,750,000
|
3,500,000
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
1/4/2016
|
|
N/A
|
N/A
|
N/A
|
150,172
|
300,343
|
600,686
|
N/A
|
N/A
|
N/A
|
N/A
|
3,353,662
|
6/7/2016
|
2/19/2017
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
270,898
|
541,796
|
1,083,591
|
N/A
|
7,455,107
|
William J. Restrepo
|
|
|
97,500
|
650,000
|
1,300,000
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
1/4/2016
|
|
N/A
|
N/A
|
N/A
|
37,186
|
74,371
|
148,741
|
N/A
|
N/A
|
N/A
|
N/A
|
830,429
|
6/7/2016
|
2/19/2017
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
50,310
|
100,619
|
201,238
|
N/A
|
1,384,517
|
Mark D. Andrews
|
|
|
21,000
|
52,500
|
75,495
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
2/19/2016
|
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
10,901
|
75,000
|
|
(1)
|
Mr. Petrello and Mr. Restrepo each achieved all of his 2015 performance criteria, and as a result
the Compensation Committee agreed to grant each of them a Performance Share award for 2016 valued at 2x target, or $7,000,000 for
Mr. Petrello and $1,300,000 for Mr. Restrepo, calculated in accordance with the terms of their respective employment agreement.
Thus, on February 19, 2016, the date of determination, the Compensation Committee agreed to grant Performance Share awards of 1,083,591
shares and 201,238 shares to Mr. Petrello and Mr. Restrepo, respectively, based upon the average daily closing price of our shares
on each of the preceding 20 business days prior to that date. The shares were not formally granted until June 7, 2016, following
shareholder approval of the 2016 Stock Plan.
|
|
(2)
|
Amounts
represent a range of possible payouts for performance bonuses under the Incentive Plan. As described under “Compensation
Discussion and Analysis” above, the Compensation Committee sets target
|
54
|
2017 Proxy Statement
|
|
|
|
performance bonus amounts at the beginning of the fiscal year under our Incentive Plan. Possible performance bonus
payouts under the Incentive Plan are based on targets set by the Compensation Committee with respect to adjusted EBITDA and SG&A,
with the former being weighted at 70% and the latter at 30%. If the threshold performance level for both adjusted EBITDA and SG&A
is not achieved, no payout would be made. If the threshold amount for either adjusted EBITDA or SG&A, but not the other, is
achieved, a payout would be made only with respect to the element achieved. The amount set forth in the “Threshold”
column above represents the amount payable if the executive achieved the threshold performance level for SG&A, but not for
adjusted EBITDA. If the threshold performance for both SG&A and adjusted EBITDA also were achieved, and amounts payable to
Messrs. Petrello and Restrepo would be $1,120,000 and $416,000, respectively. The amount set forth in the “Target”
column above represents the amount payable if the executive achieved the target performance for both SG&A and adjusted EBITDA.
The amount set forth in the “Maximum” column above represents the amount payable if the executive achieved the maximum
performance for both SG&A and adjusted EBITDA. If actual performance falls between target levels for either SG&A or adjusted
EBITDA, the annual performance bonus is prorated. In addition, adjustments are permitted as deemed appropriate by the Board to
account for significant events that warrant an adjustment. The actual amounts paid for fiscal year 2016 are set forth above
in the “2016 Summary Compensation Table” in the “Non-Equity Incentive Plan Compensation” column.
|
|
(3)
|
Pursuant to Messrs. Petrello and Restrepo’s employment agreements, these TSR Shares are eligible
to vest in 2019 based upon the Company’s relative share performance measured over 2016-2018.
|
|
(4)
|
Amounts represent the threshold, target and maximum payouts for Performance Shares granted to each
of Messrs. Petrello and Restrepo. The Performance Shares earned by Messrs. Petrello and Restrepo in February 2016 pursuant to their
respective employment agreements were based upon the achievement of certain objectives for the 2015 year and were granted in June
2016. Mr. Petrello received 1,083,591 restricted shares scheduled to vest in three (3) equal annual installments beginning on the
first anniversary of the date of the award. Mr. Restrepo received 201,238 restricted shares scheduled to vest ratably over a three-year
period.
|
|
(5)
|
In February 2016, Mr. Andrews received 10,901 restricted shares relating to 2015 performance, which
are scheduled to vest ratably over a four-year period.
|
2016 OPTION EXERCISES AND SHARES VESTED
The following table shows stock options exercised by
the named executive officers and restricted share awards vested during 2016.
NAME
|
OPTION
AWARDS
|
SHARE
AWARDS
|
NUMBER OF SHARES
ACQUIRED ON EXERCISE
|
VALUE REALIZED
ON EXERCISE ($)
|
NUMBER OF SHARES
ACQUIRED ON VESTING (#)
(2)
|
VALUE REALIZED
ON VESTING ($)
|
Anthony G.
Petrello
(1)
|
0
|
0
|
851,695
|
6,977,321
|
William J.
Restrepo
|
0
|
0
|
90,772
|
1,210,780
|
Mark D.
Andrews
|
0
|
0
|
3,792
|
26,089
|
|
(1)
|
Mr. Petrello’s share awards include TSR Shares earned for the three-year performance cycle
that ended on December 31, 2015. The Company’s TSR performance relative to our Performance Peer Group for Performance Shares
granted in 2013 ranked at 8, or at Target, and resulted in a multiplier of 100% being applied to the target grant of TSR Shares.
In February 2016, 176,967 shares of the TSR Shares granted in 2013 vested following a determination by the Compensation Committee.
The remaining 176,966 shares were forfeited.
|
|
(2)
|
Messrs. Petrello and Restrepo tendered shares to satisfy tax withholding obligations upon vesting
of these share awards, and, accordingly, each officer received fewer shares than shown in the table.
|
|
|
2017 Proxy Statement 55
|
2016 OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR END
The table below shows unexercised options, restricted
share awards that have not vested, and equity incentive plan awards for each named executive officer outstanding as of December
31, 2016. The amounts reflected as market value are based on the closing price of our common shares of $16.40 on December 30, 2016
as reported on the NYSE.
|
OPTION
AWARDS
|
STOCK
AWARDS
|
NAME
|
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS (#)
EXERCISABLE
|
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS(#)
UNEXERCISABLE
|
OPTION
EXERCISE
PRICE
($)
|
OPTION
EXPIRATION
DATE
|
NUMBER OF
SHARES
THAT HAVE
NOT VESTED
(#)
|
MARKET
VALUE OF
SHARES
THAT HAVE
NOT VESTED
($)
|
EQUITY INCENTIVE
PLAN AWARDS
NUMBER OF UNEARNED SHARES THAT HAVE NOT VESTED
(#)
|
EQUITY INCENTIVE
PLAN AWARDS
MARKET OR PAYOUT
VALUE OF UNEARNED
SHARES THAT HAVE
NOT VESTED
($)
|
Anthony G.Petrello
(1)
|
1,698,427
|
0
|
$9.87
|
2/25/2019
|
|
|
|
|
1,726
|
0
|
$20.90
|
9/30/2019
|
|
|
|
|
750,000
|
0
|
$16.36
|
8/22/2021
|
|
|
|
|
|
|
|
|
153,890
|
2,523,796
|
N/A
|
N/A
|
|
|
|
|
120,771
|
1,980,644
|
N/A
|
N/A
|
|
|
|
|
349,068
|
5,724,715
|
N/A
|
N/A
|
|
|
|
|
1,083,591
|
17,770,892
|
N/A
|
N/A
|
|
|
|
|
N/A
|
N/A
|
189,123
|
3,101,607
|
|
|
|
|
N/A
|
N/A
|
327,579
|
5,372,296
|
|
|
|
|
N/A
|
N/A
|
600,686
|
9,851,250
|
William J.
Restrepo
(2)
|
|
|
|
|
35,723
|
585,857
|
N/A
|
N/A
|
|
|
|
|
38,785
|
636,074
|
N/A
|
N/A
|
|
|
|
|
201,238
|
3,300,303
|
N/A
|
N/A
|
|
|
|
|
53,518
|
877,695
|
N/A
|
N/A
|
|
|
|
|
N/A
|
N/A
|
48,208
|
790,611
|
|
|
|
|
N/A
|
N/A
|
81,115
|
1,330,286
|
|
|
|
|
N/A
|
N/A
|
148,741
|
2,439,352
|
Mark D.
Andrews
(3)
|
3,397
|
0
|
$9.87
|
2/25/2019
|
|
|
|
|
2,746
|
0
|
$9.18
|
3/10/2019
|
|
|
|
|
|
|
|
|
10,901
|
178,776
|
N/A
|
N/A
|
|
|
|
|
4,161
|
68,240
|
N/A
|
N/A
|
|
|
|
|
994
|
16,302
|
N/A
|
N/A
|
|
|
|
|
1,705
|
27,962
|
N/A
|
N/A
|
|
(1)
|
Mr. Petrello’s restricted shares are scheduled to vest as follows: 76,945 shares vested on
2/20/17; 120,771 shares vested on 2/21/17; 174,534 shares vested on 4/24/17; 361,197 shares vest on 6/7/17; 76,945 shares vest
on 2/20/18; 174,534 shares vest on 4/24/18; 361,197 shares vest on 6/7/18; and 361,197 shares vest on 6/7/19. Based upon the Company’s
TSR performance relative to our Performance Peer Group for Performance Shares granted in 2015, the number of shares that would
vest exceeds target, but is less than maximum, and for Performance Shares granted in 2016, the number of shares that would vest
is at maximum. These shares are not scheduled to vest until after the performance cycle ending 12/31/17 and 12/31/18, respectively.
On 2/17/17, 189,123 of the 315,204 TSR Shares granted in 2014 for the performance cycle beginning January 1, 2014 vested following
a determination by the Compensation Committee. The remaining 126,081 shares were forfeited.
|
|
(2)
|
Mr. Restrepo’s restricted shares are scheduled to vest as follows: 17,861 shares vested on
2/20/17; 19,392 shares vested on 4/24/17; 67,079 shares vest on 6/7/17; 53,518 shares vest on 12/31/17; 17,862 shares vest on 2/20/18;
19,393 shares vest on 4/24/18; 67,080 vest on 6/7/18; and 67,079 vest on 6/7/19. Based upon the Company’s TSR performance
relative to our Performance Peer Group for Performance Shares granted in 2015, the number of shares that would vest exceeds target,
but is less than maximum, and for Performance Shares granted in 2016, the number of shares that would vest is at maximum. These
shares are not scheduled to vest until after the performance cycle ending 12/31/17 and 12/31/18, respectively. On 2/17/17, 48,209
shares of the TSR Shares granted in 2014 vested following a determination by the Compensation Committee. The remaining 32,137 shares
were forfeited.
|
|
(3)
|
Mr. Andrews’ restricted shares are scheduled to vest as follows: 2,725 shares vested on 2/19/17;
1,387 shares vested on 2/20/17; 1,846 shares vested on 2/21/17; 2,725 shares vest on 2/19/18; 1,387 shares vest on 2/20/18; 853
shares vest on 2/21/18; 2,725 shares vest on 2/19/19; 1,387 shares vest on 2/20/19; and 2,726 shares vest on 2/19/20.
|
56
|
2017 Proxy Statement
|
|
2016 NONQUALIFIED DEFERRED COMPENSATION
Deferred
Compensation Plan
Our Deferred Compensation Plan allows certain employees,
including some of our named executive officers, to defer an unlimited portion of their base salary and annual performance bonus
and, through 2016, to receive Company matching contributions in excess of contributions allowed under our 401(k) Plan because of
IRS qualified plan limits. Individual account balances in the Deferred Compensation Plan are adjusted in accordance with deemed
investment elections made by the participant using investment vehicles made available from time to time. Distributions from the
Deferred Compensation Plan are generally made in the form of a lump-sum payment upon separation of service from the Company.
Executive
Plan
Under our Executive Plan, we make deferred bonus contributions
to accounts established for certain employees, including some of our named executive officers and other senior leaders, based upon
their employment agreements, as applicable, or their performance during the year. Individual account balances in the Executive
Plan are adjusted in accordance with deemed investment elections made by the participant either using investment vehicles made
available from time to time or in a deemed investment fund that provides an annual interest rate on such amounts as established
by the Compensation Committee from time to time. The interest rate for the deemed investment fund is currently set at 6%. Messrs.
Petrello and Restrepo have elected to participate in this fund, as have some of our other senior management. Distributions from
the Executive Plan are made in the form of lump-sum payments upon death, disability, termination without cause (as defined in the
employment agreement), upon vesting or upon departure from the Company after vesting, which generally occurs three to five years
after a contribution to the participant’s account.
Both the Deferred Compensation Plan and Executive Plan
are unfunded deferred-compensation arrangements. The table below shows aggregate earnings and balances for each of the named executive
officers under these plans as of December 31, 2016.
NAME
|
EXECUTIVE
CONTRIBUTIONS IN LAST FISCAL YEAR ($)
(1)
|
COMPANY
CONTRIBUTIONS IN
LAST FISCAL YEAR ($)
(2)
|
AGGREGATE
EARNINGS IN LAST
FISCAL YEAR ($)
(3)
|
AGGREGATE
WITHDRAWAL/
DISTRIBUTION ($)
|
AGGREGATE BALANCE AT LAST FISCAL YEAR END ($)
(4)
|
Anthony G. Petrello
|
0
|
1,200,000
|
712,713
|
118,102
|
10,480,206
|
William J. Restrepo
|
0
|
400,000
|
45,691
|
0
|
863,911
|
Mark D. Andrews
|
0
|
0
|
0
|
0
|
0
|
|
(1)
|
The amounts shown reflect contributions to the Deferred Compensation Plan.
|
|
(2)
|
The amounts shown reflect contributions to the Executive Plan. These amounts are included in the
“All Other Compensation” column of the “2016 Summary Compensation Table” above.
|
|
(3)
|
The amount shown reflects earnings in the Executive Plan. The portion of these amounts representing
above-market earnings is reflected in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings”
column of the “2016 Summary Compensation Table” above.
|
|
(4)
|
All amounts reflect balances in the Executive Plan. Mr. Andrews did not participate in either of
our nonqualified deferred compensation plans in 2016.
|
|
|
2017 Proxy Statement 57
|
2016 POTENTIAL PAYMENTS UPON TERMINATION
OR CHANGE IN CONTROL
The following table reflects potential payments to executive
officers on December 31, 2016 for termination upon a change in control, termination without cause or constructive termination without
cause (as defined in the respective employment agreement). The amounts shown assume the termination was effective on December 31,
2016, and the stock award amounts reflected are based on the closing price of our common shares of $16.40 on December 30, 2016
as reported on the NYSE. In addition to the amounts set forth below, in the event of death, disability or termination without cause,
Messrs. Petrello and Restrepo would each have the right to a distribution of his account balance under the Executive Plan, as described
above under “Compensation Discussion and Analysis—Retirement Benefits”.
NAME
|
CASH
SEVERANCE
(1)
|
OPTION
AWARDS
(2)
|
STOCK
AWARDS
(3)
|
RETIREMENT AND
SAVINGS PLAN
CONTRIBUTIONS
|
WELFARE
BENEFITS
(4)
|
TAX GROSS-UPS
|
OTHER
(5)
|
TOTAL
|
Anthony G.
Petrello
|
9,975,868
|
0
|
46,091,876
|
0
|
228,586
|
0
|
200,770
|
56,497,100
|
William J.
Restrepo
|
3,728,566
|
0
|
8,165,298
|
0
|
26,516
|
0
|
0
|
11,920,380
|
Mark D.
Andrews
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Pursuant to their employment agreements, Messrs. Petrello and Restrepo would each have the right
to receive within 30 days of a termination without cause or constructive termination without cause, including in connection with
a change of control, 2.99x the average sum of his base salary and annual performance bonus during the three fiscal years preceding
the termination.
|
|
(2)
|
Mr. Petrello would be entitled to exercise options following termination for the remaining life
of the respective awards. The value of Mr. Petrello’s option awards, all of which are vested, are set forth above in the
“2016 Outstanding Equity Awards at Fiscal Year End” table.
|
|
(3)
|
Pursuant to their employment agreements, in the event of a termination without cause or constructive
termination without cause, including in connection with a change of control, any of their then outstanding unvested stock options,
unvested restricted stock and any other equity compensation awards shall become vested, TSR Shares previously granted would be
deemed earned at target, and, for Mr. Petrello only, Performance Shares for the year of termination would be deemed earned at maximum
levels. In addition, earned Performance Shares would immediately vest.
|
|
(4)
|
Amount for Mr. Petrello represents the present value
of providing medical, vision, dental and life insurance benefits following termination until the later of his death or the death
of his wife, assuming an inflation rate equal to the risk-free rate for U.S. Treasury securities, discounted back to the present
value based on an assumed mortality of 23 years as of December 31, 2016. Amount for Mr. Restrepo represents the cost of continuing
medical, vision, dental and life insurance benefits for three years following his termination, at 2016 costs.
|
|
(5)
|
Represents (i) an estimated value of $122,638 for Mr. Petrello’s personal use of Company
aircraft for one-year following his termination, assuming usage equal to the average of the three years immediately prior to termination,
and (ii) $78,132 for continuation of Mr. Petrello’s club memberships for three years following termination, assuming continuation
of 2016 cost.
|
58
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2017 Proxy Statement
|
|
COMPANY PROPOSALS (ITEMS 3-4)
ITEM 3: ADVISORY VOTE ON COMPENSATION
OF NAMED EXECUTIVE OFFICERS
As described above in detail under “Compensation
Discussion and Analysis,” we seek to attract, retain and motivate leaders who understand the complexities of our business
and can deliver positive business results for the benefit of our shareholders. We have structured our compensation program to accomplish
this purpose. Our executive compensation philosophy is to provide our executives with appropriate and competitive individual pay
opportunities with actual pay outcomes that reward superior corporate and individual performance. The ultimate goal of our program
is to increase shareholder value by providing executives with appropriate incentives to achieve our long-term business objectives.
We are aware of the concerns that have been expressed
by our shareholders in the past with respect to certain elements of our executive compensation programs. We have, over the years,
taken diligent steps to understand and address those concerns. To that end, we continue to provide a program of cash and equity-based
awards designed to reward executives for superior performance, as measured by both financial and nonfinancial factors and use equity-based
awards to align executives’ interests with those of other shareholders.
Since 2011, we have significantly updated our compensation
practices, including restructuring executive compensation to better align with business performance, including the following actions
over the last three years:
2014
|
• Adopted a policy limiting severance
payments to 2.99 times the sum of our CEO and CFO’s average base salary and bonus for the 3 years prior to termination.
• Eliminated the CEO’s automobile
allowance and reduced perquisites generally across the Company.
|
2015
|
• Reduced
by 10% the annual base salaries of our executive officers, effective January 1, 2015 through June 30, 2016 in
response to the decline in industry conditions.
•
Rescheduled
the annual grant of restricted share awards to nonemployee directors to occur shortly after the annual general meeting of
shareholders, ensuring that such awards are granted only to directors for the current year and not any directors who
are retiring or otherwise not continuing in service.
|
2016
|
• Extended the salary reduction
a further 6 months through to December 31, 2016.
• Reevaluated the composition of
our peer group in light of changes in our business and the industry.
|
Shareholders are asked
to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this Proxy
Statement in accordance with the SEC’s compensation disclosure rules. We note that the 2015 Performance Share Awards
were
disclosed in our 2016 proxy statement, under “Item 3 – Approval of Company’s 2016 Stock Plan” and that
item was approved by our shareholders. Because Say-on-Pay votes do not reveal shareholders’ specific concerns, following
last year’s vote, our Lead Director, other directors and certain members of management engaged in dialogue with several of
our significant shareholders regarding the reasons for their vote. The principal concerns communicated to the Board and our responses
were as follows:
|
|
2017 Proxy Statement 59
|
SHAREHOLDER CONCERN
|
COMPANY RESPONSE
|
Composition of Peer Group
|
• Engaged in comprehensive
review of peer groups with our independent compensation consultant.
• Eliminated exploration
and production companies from our peer group.
• Added more competitors
to our peer group, as well large oilfield services companies with whom we compete for talent.
• Decreased median size
(based on enterprise value) and CEO compensation of the companies in our peer groups.
|
Rationale for Dual Peer Group Unclear
|
• Reverted to single peer group beginning in 2016.
|
Limited Transparency Regarding Performance Metrics For Prior Year
|
• Provided more detailed
disclosure on executive performance goals, together with greater visibility to targets and thresholds.
• Clarified link between
performance goals and Company’s long-term strategy in this Proxy Statement.
|
The vote on this resolution is not intended to address
any specific element of compensation, but to advise the Board (including the Compensation Committee) on shareholders’ views
of our overall executive compensation as described herein. While the vote on executive compensation is nonbinding, the Board and
the Compensation Committee will review the voting results and give consideration to the outcome. We ask our shareholders to vote
on the following resolution at the meeting:
“RESOLVED, that the Company’s shareholders
approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement
for the 2017 Annual General Meeting of Shareholders pursuant to the SEC’s compensation disclosure rules, including the Compensation
Discussion and Analysis, the 2016 Summary Compensation Table and the other related tables and narrative disclosure.”
Because the vote on this proposal is advisory in nature,
it will not affect any compensation already paid or awarded to any named executive officer and will not be binding on or overrule
any decisions of the Company, the Board or the Compensation Committee; nor will it change the fiduciary duties of the Company,
the Board or the Compensation Committee.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE
FOR
ITEM 3, THE APPROVAL OF
THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS
PROXY STATEMENT
|
ITEM 4: ADVISORY VOTE ON THE FREQUENCY OF SHAREHOLDER “SAY-ON-PAY”
VOTES (“SAY-WHEN-ON-PAY”)
As required by Section 14A of the Exchange Act, shareholders
are also invited to vote, on a nonbinding, advisory basis, for their preference as to how frequently we should seek the Say-on-Pay
vote described in Item 3 above. Shareholders may indicate whether they would prefer that we conduct future Say-on-Pay votes once
every one, two or three years. Shareholders may also abstain from casting a vote on this proposal.
Our last Say-When-on-Pay vote was conducted at the 2011
Annual General Meeting, at which time our shareholders recommended that we conduct future Say-on-Pay votes every year. Our Board
approved this recommendation. Though we currently hold our Say-on-Pay votes every year, we continue to believe there are valid
arguments regarding the relative benefits of both annual and less frequent Say-on Pay-votes. However, after considering input from
shareholders, the preference evident from voting results at other companies similar in size to ours, and practical commentary that
has become widely available with respect to the Say-When-on-Pay vote since its implementation, the Board determined that it was
appropriate to recommend that the Say-on-Pay vote continue to be held each year.
As noted, this vote is advisory only, but the Board
and the Compensation Committee will take into account the outcome of the vote in considering the frequency of future advisory votes
on executive compensation. The Board
60
|
2017 Proxy Statement
|
|
may decide that it is in the best interests of shareholders and the Company to hold an advisory
vote on executive compensation more or less frequently than the frequency receiving the most votes cast by our shareholders.
The
proxy card provides shareholders with the opportunity to choose among four options (holding the vote every one, two or three years,
or abstaining) and, therefore, shareholders will not be voting to approve or disapprove the recommendation of the Board.
THE BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR
THE OPTION
OF “ONE YEAR” AS THE PREFERRED FREQUENCY FOR ADVISORY
VOTES ON EXECUTIVE COMPENSATION
|
SHAREHOLDER PROPOSAL (ITEM 5)
ITEM 5: SHAREHOLDER PROPOSAL TO ADOPT
A PROXY ACCESS BYE-LAW
The following shareholder proposal has been submitted
to the Company for action by the New York City Employees’ Retirement System, The New York City Fire Department Pension Fund,
The New York City Teachers’ Retirement System, the New York City Police Pension Fund and the New York City Board of Education
Retirement System, along with additional co-sponsors, the beneficial owners of more than $2,000 in market value of the Company’s
stock, One Centre Street, 8th Floor North, New York, NY 10007-2341. Further information about the sponsors of this proposal will
be provided upon request. The vote on this proposal is advisory and non-binding.
Our Board recommends that you vote “
Against
”
this Proposal.
The text of the proposal follows:
RESOLVED:
Shareholders of Nabors Industries Ltd. (the “Company”) ask the board of directors (the “Board”) to take
the steps necessary to adopt a “proxy access” bylaw. Such a bylaw shall require the Company to include in proxy materials
prepared for a shareholder meeting at which directors are to be elected the name, Disclosure and Statement (as defined herein)
of any person nominated for election to the board by a shareholder or group (the “Nominator”) that meets the criteria
established below. The Company shall allow shareholders to vote on such nominee on the Company’s proxy card.
The number of shareholder-nominated candidates appearing
in proxy materials shall not exceed one quarter of the directors then serving. This bylaw, which shall supplement existing rights
under Company bylaws, should provide that a Nominator must:
a) have beneficially owned 3% or more of the Company’s
outstanding common stock continuously for at least three years before submitting the nomination;
b) give the Company, within the time period identified
in its bylaws, written notice of the information required by the bylaws and any Securities and Exchange Commission rules about
(i) the nominee, including consent to being named in the proxy materials and to serving as director if elected; and (ii) the Nominator,
including proof it owns the required shares (the “Disclosure”); and
c) certify that (i) it will assume liability stemming
from any legal or regulatory violation arising out of the Nominator’s communications with the Company shareholders, including
the Disclosure and Statement; (ii) it will comply with all applicable laws and regulations if it uses soliciting material other
than the Company’s proxy materials; and (iii) to the best of its knowledge, the required shares were acquired in the ordinary
course of business and not to change or influence control at the Company.
The Nominator may submit with the Disclosure a statement
not exceeding 500 words in support of each nominee (the “Statement”). The Board shall adopt procedures for promptly
resolving disputes over whether notice of a nomination was timely, whether the Disclosure and Statement satisfy the bylaw and applicable
federal regulations, and the priority to be given to multiple nominations exceeding the one-quarter limit.
|
|
2017 Proxy Statement 61
|
SUPPORTING
STATEMENT
We
believe proxy access will make directors more accountable and enhance shareholder value. A 2014 CFA Institute study concluded
that proxy access could raise overall US market capitalization by up to $140.3 billion if adopted market-wide, “with little
cost or disruption.” (http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2014.n9.1)
The
proposed terms mirror those in vacated SEC Rule 14a-11 (https://www.sec.gov/rules/final/2010/33-9136.pdf). The SEC, following
extensive analysis and input from companies and investors, determined that those terms struck the proper balance of providing
shareholders with viable proxy access while containing appropriate safeguards.
This
proposal received the majority of votes cast at Nabors’ five previous annual meetings. Rather than enact the requested bylaw,
the Board instead adopted a far more limited proxy access “policy” requiring 5% ownership, among other restrictions.
In
contrast, more than 300 companies have enacted bylaws with similar terms since 2014.
BOARD’S
STATEMENT AGAINST SHAREHOLDER PROPOSAL IN ITEM 5
OUR
BOARD RECOMMENDS THAT YOU VOTE “AGAINST” THIS PROPOSAL.
Nabors
already provides proxy access to its shareholders. Indeed, we were one of the first public companies to adopt proxy access in
2014 when the Governance and Nominating Committee adopted a revised “Policy Regarding Director Candidates Recommended by
Shareholders” (our “Proxy Access Policy”).
Our
Proxy Access Policy provides that a single shareholder may nominate a single director candidate for inclusion in the Company’s
proxy materials if the shareholder has continuously owned five percent or more of the Company’s outstanding common shares
for at least three years commencing on or after June 3, 2014 and meets certain procedural requirements. Our policy tracks the
proposal in all respects, except for the threshold of continuous five percent share ownership required to obtain proxy access
and the unlimited aggregation of shares permitted to reach such threshold.
In
mid-2015, the Company became a member of the Russell 3000
®
index, where the overwhelming majority of companies
do not have a proxy access policy. As of December 31, 2016, only 1 company in the Company’s Peer Group had adopted a proxy
access policy akin to the proposed policy, and it was adopted only in September 2016, well after the adoption of our Proxy Access
Policy.
PEER
GROUP MEMBERS WHO HAVE ADOPTED PROXY ACCESS POLICIES AS OF DECEMBER 31, 2016
|
PEER
GROUP MEMBER
|
NO
|
|
YES
|
|
ADOPTION
DATE
|
NABORS
INDUSTRIES LTD.
|
|
✓
|
June
3, 2014
|
ATWOOD
OCEANIC’S, INC.
|
X
|
|
|
BAKER
HUGHES INCORPORATED
|
X
|
|
|
DIAMOND
OFFSHORE DRILLING, INC.
|
X
|
|
|
ENSCO
PLC
|
X
|
|
|
TECHNIPFMC
PLC
|
X
|
|
|
HALLIBURTON
COMPANY
|
|
✓
|
Sept.
14, 2016
|
HELMERICH
& PAYNE, INC.
|
X
|
|
|
NATIONAL-OILWELL
VARCO, INC.
|
X
|
|
|
NOBLE
CORPORATION PLC
|
X
|
|
|
PATTERSON-UTI
ENERGY, INC.
|
X
|
|
|
ROWAN
COMPANIES PLC
|
X
|
|
|
SCHLUMBERGER
LIMITED
|
X
|
|
|
SUPERIOR
ENERGY SERVICES, INC.
|
X
|
|
|
TRANSOCEAN
LTD.
|
X
|
|
|
WEATHERFORD
INTERNATIONAL PLC
|
X
|
|
|
|
|
|
|
|
|
|
|
62
|
2017 Proxy Statement
|
|
In
late 2015 and late 2016, the Governance and Nominating Committee considered lowering the ownership threshold for our Proxy Access
Policy and allowing multiple shareholders to aggregate shares. On both occasions, upon the recommendation of the Governance and
Nominating Committee, the Board determined that the Company’s existing Proxy Access Policy is appropriate.
While
S&P 500
®
companies tend to have lower ownership thresholds for proxy access than Russell 3000
®
companies who are not also in the S&P 500
®
, the reason for these differences seems clear—market capitalization.
At the time of the Board’s initial review in late 2015, the 46 companies in the S&P 500
®
who had adopted
proxy access had an average market capitalization of $65.2 billion, with the two lowest at $8 billion and $4.6 billion. At a three-percent
threshold, the average investment required for proxy access would be nearly $2 billion, with the two lowest at $240 million and
$138 million, respectively.
At
the time of the Board’s second review in late 2016, the 246 companies in the S&P 500
®
who had adopted
proxy access had an average market capitalization of $57.7 billion, with the two lowest at $3.90 billion and $2.69 billion. At
a three-percent threshold, the average investment required for proxy access would be over $1.73 billion, with the two lowest at
$117.7 million and $91.8 million, respectively.
By
definition, the market capitalization of Russell 3000
®
companies is significantly lower. Only 3.1% of Russell 3000
®
companies had adopted proxy access as of December 31, 2016, with an average market capitalization of $4.17 billion and the
lowest at $231 million. Comparing three-percent and five-percent thresholds, the average investment required for proxy access
at these Russell 3000
®
companies would be just over $125 million and $208 million, respectively, both below all
but the lowest in the S&P 500
®
. At the Company’s market capitalization on the record date of $3.91 billion,
a three-percent threshold would require ownership of only $117.25 million to allow proxy access, whereas a five-percent threshold
requires ownership of $195.41 million. The Company’s current threshold of five percent still provides proxy access at a
level approximating even the lowest in the S&P 500
®
.
It
is worth noting that, in adopting the Proxy Access Policy with a 5% ownership threshold in 2014, the Board balanced strong shareholder
interest in proxy access with the transparency and accountability that comes from setting the threshold equivalent to the SEC’s
threshold for public disclosure of ownership. This threshold still provides to long-term shareholders the meaningful voice in
director elections that the proponent advocates. The U.S. Chamber of Commerce supports this very company-specific approach saying,
“we believe any company that chooses to formulate a proxy access bylaw should do so only after giving due regard to the
individual composition and unique needs of its own shareholder base, and to tailor such a bylaw accordingly. We reject the ‘one-size-fits-all’
approach to corporate governance that the proponents’ proposal embodies.”
To
protect the interests of all shareholders and not grant a small group of investors special consideration, we believe a 5% threshold
is most appropriate. Relative to the overall size of the Company’s market capitalization and the current shareholder base,
the Board believes a 3% share ownership threshold would create potential for investors with special interests to have outsized
influence. The Board believes it is not in the best interest of all the shareholders to provide a proxy access threshold that
would allow special-interest shareholders to advance their
|
2017 Proxy
Statement
|
63
|
own specific agenda without regard to the best interests of the Company
or its shareholders, including using the Company’s proxy materials to publicize and campaign for positions that might not
be shared by holders of a majority, or even a significant portion, of the Company’s shares.
The
Board also considered the fact that shareholders have other effective means of influencing the director nomination process. In
fact, one of the seven director nominees for election at the meeting, Mr. Skattum, was originally appointed in 2014 at the suggestion
of our then-largest shareholder. The Governance and Nominating Committee, which is comprised entirely of independent directors
and has the responsibility to identify and nominate qualified director candidates to serve on our Board, has in place a procedure
for individuals to recommend director candidates, which is described above under “Corporate Governance—Overview of
Key Governance Topics—Shareholder Nominations and Proxy Access Policy.”
This
procedure gives shareholders an opportunity to recommend director candidates to the Board and have their qualifications properly
reviewed by the Governance and Nominating Committee without any minimum share ownership requirement. Notably, the proponents do
not allege that any director candidate proposed by any shareholder has ever failed to receive due consideration. Rather, the Company
has demonstrated its willingness to engage with shareholders regarding proposed director nominees.
The
proponents of the shareholder proposal erroneously state that it received a majority of votes cast at the Company’s five
previous annual meetings, but in fact the same shareholder proposal failed twice in the past five years. The proposal failed at
the 2013 annual general meeting of shareholders, but our Proxy Access Policy was adopted in response, following extensive dialogue
with one of the prior proponents of the proxy access proposal.
Notwithstanding
our existing policies on proxy access and shareholder nominations, the proponents continue to allege that the Board has been unresponsive
to shareholder concerns. The arguments they make are stale, having already been addressed by the Board through the adoption and
review of the Company’s Proxy Access Policy. Far from being unresponsive, the Board has made significant progress to strengthen
its corporate governance as well as compensation practices in direct response to shareholder concerns. Additionally, the Board
has refreshed so that the average tenure for our independent director nominees is 4 years. Also in response to our shareholders,
the Board has nominated a new director, Ms. Tanya S. Beder, to bring a fresh perspective and greater diversity to the Board, as
well as a wealth of relevant experience and expertise.
The
Board and management have not only engaged in extensive dialogue with several of our significant shareholders, but have taken
a number of steps, including overhauling the Company’s executive compensation structure and eliminating the staggered board,
to directly respond to shareholder concerns. In response to shareholder concerns raised previously and in discussions with the
Lead Director and others, the Board has adopted the following changes to our corporate governance practices effective in 2016:
|
●
|
Extended
until December 31, 2016, the 10% reduction in the annual base salaries of our CEO, CFO
and senior management and all cash retainers for Board members;
|
|
●
|
Reviewed
and revised our peer group against which our Compensation Committee evaluates certain
components of our executive compensation to better align with changes in our business
and industry;
|
|
●
|
Published
the Company’s 2015 Corporate Sustainability Report, a practice initiated in 2015
in direct response to shareholder proposals, demonstrating our commitment to enhanced
disclosure on environmental, social and governance practices;
|
|
●
|
Performed
a review of the Company’s Proxy Access Policy in proactive response to the results
of last year’s annual general meeting of shareholders and ongoing dialogue with
certain shareholders; and
|
|
●
|
Continued
comprehensive development and succession planning to ensure long-term stability in the
Company’s key management positions.
|
The
Board believes that the proponents’ concerns about shareholder nomination of directors are more than adequately addressed
by the Company’s current policies and that the Company’s Proxy Access Policy is already in line with those of other
companies with proxy access on the Russell 3000
®
index.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE
AGAINST
ITEM 5
|
64
|
|
2017 Proxy Statement
|
ADDITIONAL
INFORMATION
SHAREHOLDER
MATTERS
Bermuda
has exchange controls applicable to residents in respect of the Bermuda dollar. As an exempted company, the Company is considered
to be non-resident for such exchange control purposes; consequently, there are no Bermuda governmental restrictions on the Company’s
ability to make transfers and carry out transactions in all other currencies, including currency of the United States.
There
is no reciprocal tax treaty between Bermuda and the United States regarding withholding taxes. Under existing Bermuda law, no
Bermuda withholding tax on dividends or other distributions, or any Bermuda tax computed on profits or income or on any capital
asset, gain or appreciation will be payable by the Company or its operations, and there is no Bermuda tax in the nature of estate
duty or inheritance tax applicable to shares, debentures or other obligations of the Company held by non-residents of Bermuda.
2017
SHAREHOLDER PROPOSALS
Shareholders
who, in accordance with the SEC’s Rule 14a-8, wish to present proposals for inclusion in the proxy materials to be distributed
by us in connection with our 2018 annual general meeting of shareholders must submit their proposals, and their proposals must
be received at our principal executive offices, no later than December 28, 2017. As the rules of the SEC make clear, simply submitting
a proposal does not guarantee its inclusion.
In
accordance with our Bye-laws, in order to be properly brought before the 2018 annual general meeting, a shareholder notice of
the matter the shareholder wishes to present must be delivered to the Corporate Secretary in person or by courier at the address
shown on notice of meeting at the beginning of this Proxy Statement or by mail at P.O. Box HM3349, Hamilton, HMPX Bermuda, not
less than sixty (60) nor more than ninety (90) days prior to the first anniversary of this year’s meeting (provided, however,
that if the 2017 annual general meeting is called for a date that is not within thirty (30) days before or after such anniversary
date, notice must be received not later than the close of business on the tenth (10th) day following the day on which notice of
the date of the annual general meeting is mailed or public disclosure of the date of the annual general meeting is made, whichever
first occurs). As a result, any notice given by or on behalf of a shareholder pursuant to these provisions of our Bye-laws (and
not pursuant to the SEC’s Rule 14a-8) must be received no earlier than March 8, 2018 and no later than April 7, 2018.
OTHER
MATTERS
Other
than the presentation of the annual audited financial statements for the Company’s 2016 fiscal year, the Board knows of
no other business to come before the meeting. However, if any other matters are properly brought before the meeting, the persons
named in the accompanying form of proxy, or their substitutes, will vote in their discretion on such matters.
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NABORS
INDUSTRIES LTD.
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Mark
D. Andrews
Corporate Secretary
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Dated:
April 27, 2017
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2017 Proxy
Statement
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65
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ANNEX
A
RECONCILIATION
OF NON-GAAP MEASURES
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2016
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(in thousands
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)
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Operating revenues:
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Drilling & Rig Services:
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U.S.
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$
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554,072
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Canada
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51,472
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International
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1,508,890
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Rig Services
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215,710
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Subtotal Drilling & Rig Services
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2,330,144
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Completion & Production Services:
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Completion Services
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—
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Production Services
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—
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Subtotal Completion & Production Services
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—
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Other reconciling items
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(102,305
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)
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Total operating revenues
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2,227,839
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Adjusted EBITDA:
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Drilling & Rig Services:
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U.S.
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$
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190,657
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Canada
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5,325
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International
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576,049
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Rig Services
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(15,334
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)
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Subtotal Drilling & Rig Services
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756,697
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Completion & Production Services:
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Completion Services
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—
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Production Services
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—
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Subtotal Completion & Production Services
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—
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Other reconciling items
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(134,377
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)
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Total adjusted EBITDA
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$
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622,320
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Reconciliation of non-GAAP measures to GAAP:
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Adjusted EBITDA
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$
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622,320
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Depreciation and amortization
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(871,631
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)
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Operating income (loss)
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(249,311
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)
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Earnings (losses) from unconsolidated affiliates
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(221,914
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)
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Interest expense
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(185,360
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)
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Investment income (loss)
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1,183
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Impairments and other charges
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(505,164
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)
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Other, net
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(37,509
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)
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Income (loss) from continuing operations before income taxes
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$
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(1,198,075
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)
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Income tax expense (benefit)
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(186,831
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)
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Income (loss) from continuing operations, net of tax
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(1,011,244
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)
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Income (loss) from discontinued operations, net of tax
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(18,363
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)
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Net income (loss)
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(1,029,607
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)
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Less: Net (income) loss attributable to noncontrolling interest
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(135
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)
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Net income (loss) attributable to Nabors
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$
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(1,029,742
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)
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2017 Proxy
Statement
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A-1
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Crown House
Second Floor
4 Par-la-Ville Road
Hamilton, Bermuda HM 08
W W W . N A B O R S . C O M
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NABORS INDUSTRIES LTD.
C/O PROXY SERVICES
P.O. BOX 9142
FARMINGDALE, NY 11735
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VOTE
BY INTERNET -
www.proxyvote.com
or scan the QR Barcode above
Use the Internet to transmit your voting instructions and for electronic delivery
of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Follow the instructions to obtain
your records and to create an electronic voting instruction form.
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.
VOTE
BY PHONE - 1-800-690-6903
Use
any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off
date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE
BY MAIL
Mark,
sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing,
c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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E22586-P87059
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KEEP
THIS PORTION FOR YOUR RECORDS
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THIS PROXY
CARD IS VALID ONLY WHEN SIGNED AND DATED.
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DETACH AND RETURN
THIS PORTION ONLY
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NABORS INDUSTRIES LTD.
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For
All
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Withhold
All
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For All
Except
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To withhold authority to vote
for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
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The Board
of Directors recommends you vote FOR the following:
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☐
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☐
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☐
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1.
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ELECTION OF DIRECTORS
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Nominees:
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01) Tanya S. Beder
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05) Anthony G. Petrello
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02) James R. Crane
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06) Dag Skattum
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03) John P. Kotts
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07) John Yearwood
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04) Michael C. Linn
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The Board of Directors recommends you vote FOR proposals
2 and 3 and ONE YEAR for proposal 4.
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For
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Against
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Abstain
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The Board of Directors recommends you vote AGAINST the following proposal:
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For
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Against
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Abstain
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2.
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Proposal to appoint PricewaterhouseCoopers
LLP as independent auditor and to authorize the Audit Committee of the Board of Directors to set the independent auditor’s
remuneration.
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☐
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☐
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☐
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5. Nonbinding
shareholder proposal regarding adopting a proxy access bylaw, if properly presented by the shareholder proponents.
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☐
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☐
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☐
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3.
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Nonbinding advisory Say-on-Pay vote regarding the compensation
paid by the Company to its named executive officers as disclosed in the Proxy Statement.
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☐
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☐
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☐
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NOTE:
The
proxies are authorized to vote, in their discretion, upon any other matters that may properly come before the meeting or any
adjournments thereof. The shares represented by this proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder(s).
If no direction is made, this proxy will be voted FOR the election of the nominees for
the Board of Directors listed under proposal 1, FOR proposals 2 and 3, ONE YEAR for proposal 4 and AGAINST proposal 5.
If any other matters properly come before the meeting the person named in this proxy will vote in their discretion.
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1 Year
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2 Years
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3 Years
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Abstain
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4.
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Nonbinding advisory vote to recommend
the frequency of shareholder advisory votes on the compensation paid to the Company’s named executive officers.
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☐
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☐
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☐
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☐
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For address changes and/or comments, please check this box and write them on the back where indicated.
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☐
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Please indicate if you plan to attend this meeting.
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☐
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☐
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Yes
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No
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Please sign exactly as your name exactly as it appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please add your title as such. When signing as joint tenants, all parties in the joint tenancy must sign. If a signer is a corporation, please sign in fill corporate name by duly authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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V.1.1
Important Notice Regarding the Availability of Proxy Materials for the Annual
General Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
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NABORS INDUSTRIES LTD.
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ANNUAL GENERAL MEETING OF SHAREHOLDERS
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THIS PROXY IS SOLICITED BY THE BOARD
OF DIRECTORS
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The shareholder(s) hereby appoint(s) Anthony G. Petrello, Mark D. Andrews,
and William J. Restrepo, or any of them, as proxies, each with the full power to appoint his substitute, and hereby authorize(s)
them to represent and to vote, as designated on the reverse side of this ballot, all of the Common Shares of Nabors Industries
Ltd. that the shareholder(s) is/are entitled to vote at the Annual General Meeting of Shareholders to be held at 10:00 AM, Central
Time on June 6, 2017, at Nabors Corporate Services, Inc., 515 W. Greens Rd., Houston, TX 77067, and any adjournment or postponement
thereof.
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THIS
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S). IF NO
SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR
THE BOARD OF DIRECTORS LISTED ON THE REVERSE SIDE UNDER PROPOSAL 1, FOR PROPOSALS 2 AND
3, ONE YEAR FOR PROPOSAL 4 AND AGAINST PROPOSAL 5.
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Address
Changes/Comments:
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(If
you noted any Address Changes/Comments above, please mark corresponding box on the reverse
side.)
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CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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V.1.1
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