Item 5.02 Departure of Directors
or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On June 1, 2018,
Baker Hughes, a GE company (the “Company”) granted a one-time equity-based performance and retention award to Lorenzo
Simonelli, the Company’s Chairman, President & Chief Executive Officer. The award is intended to incentivize Mr. Simonelli
to deliver significant value to shareholders over the next five years.
The award consists
of 60% outperformance share units (“OPSUs”) and 40% restricted stock units (“RSUs”). The initial value
of the award, based on the closing price of a share of the Company’s Class A Common Stock on the grant date and assuming
that the OPSUs are earned at the target amount, is $3,000,000. The ultimate value of the award will depend on the extent to which
the OPSUs are earned based on actual performance and the share prices on the dates that the award vests and the shares are delivered.
The OPSUs and
RSUs are both subject to a five year vesting schedule, with 50% vesting on June 1, 2021 and 50% vesting on June 1, 2023. This backloaded
vesting schedule is intended to encourage Mr. Simonelli to remain with the Company for the entire five years.
The OPSUs are
also subject to a total shareholder return (“TSR”) performance goal that is measured on both an absolute and a relative
basis over the three-year performance period ending May 31, 2021:
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If the Company’s TSR per year is 10%, the OPSUs are earned at the target amount.
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If the Company’s TSR per year is at least 20% and is at or above the median TSR per year of a peer group consisting of
the companies in the PHLX Oil Service Sector index plus TechnipFMC plc, the OPSUs are earned at 300% of target.
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No OPSUs are earned unless the Company’s TSR per year is at least 5%.
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These design features,
whereby the OPSUs may pay out at up to 300% of target but with no payout if the threshold 5% absolute TSR per year goal is not
attained, are intended to encourage exceptional performance while generally being less dilutive to shareholders than traditional
stock appreciation awards such as stock options.
The payout of
the OPSUs is also subject to the following modifications:
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If the Company’s TSR per year is below the median TSR per year of the peer group:
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If the payout otherwise would be at 300% of target, the payout is reduced to 150% of target.
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If the payout otherwise would be between 100% and 300% of target, the payout is reduced proportionately (e.g., a payout that
otherwise would be at 200% of target is reduced to 125% of target).
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If the value of the shares that are otherwise deliverable based on performance exceeds a specified multiple of the value of
the shares as of the grant date, the number of shares delivered is reduced to the number of shares with a value equal to that multiple,
as follows:
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If the Company’s TSR per year is at or above the median TSR per year of the peer group, the multiple is 6 times.
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If the Company’s TSR per year is below the median TSR per year of the peer group, the multiple is 4 times.
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The OPSUs are
not eligible for dividend equivalents.
Mr. Simonelli
generally must remain employed through the vesting dates to be eligible to earn the OPSUs, with the service requirement deemed
fully or partially attained on specified terminations of employment. On a change in control (as defined in the award agreements)
that occurs prior to the end of the three-year performance period, the performance goal is deemed attained based on TSR per year
measured over the portion of the performance period ending on the day prior to the change in control, and the OPSUs remain subject
to the service requirement.
The description
of the performance and retention award contained herein does not purport to be complete and is qualified in its entirety by reference
to the complete text of the award agreements, which are filed as Exhibits 10.1 and 10.2 hereto and are incorporated herein by reference.