SCHLUMBERGER LIMITED DEF 14A 2016
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Amendment No. )
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Schlumberger N.V. (Schlumberger Limited)
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February 19, 2016
NOTICE OF 2016 ANNUAL GENERAL MEETING OF STOCKHOLDERS
By order of the Board of Directors,
ALEXANDER C. JUDEN
Important Notice Regarding the Availability of Proxy Materials for the annual general meeting of Stockholders to Be Held on April 6, 2016:
This proxy statement, along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and our 2015 Annual Report to Stockholders, are available free of charge on our website at http://investorcenter.slb.com.
TABLE OF CONTENTS
February 19, 2016
This proxy statement is furnished in connection with the solicitation by the Board of Directors of Schlumberger Limited (Schlumberger N.V.) (Schlumberger or the Company) of proxies to be voted at its 2016 annual general meeting of stockholders, which will be held at the Avila Beach Hotel, Penstraat 130, Willemstad, Curaçao, on Wednesday, April 6, 2016 beginning at 10:00 a.m., Curaçao time. To gain admittance to the meeting, stockholders of record and beneficial owners as of the close of business on the record date for the meeting, February 17, 2016, must present a passport or other government-issued identification bearing a photograph and, for beneficial owners, proof of ownership as of the record date, such as the top half of the proxy card or voting instruction card that was sent to you with this proxy statement.
The approximate mailing date of this proxy statement is February 22, 2016. Business at the meeting is conducted in accordance with the procedures determined by the Chairman of the meeting and is generally limited to matters properly brought before the meeting by or at the direction of the Board of Directors or by a stockholder in accordance with specified requirements requiring advance notice and disclosure of relevant information.
The Schlumberger 2015 Annual Report to Stockholders is provided concurrently with this proxy statement, and stockholders should refer to its contents in considering agenda Item 3.
Items to be Voted on at the Annual General Meeting
The agenda for the 2016 annual general meeting includes the following items:
Record Date; Proxies
Each stockholder of record at the close of business on the record date, February 17, 2016, is entitled to one vote for each director nominee and one vote for each of the other proposals to be voted on with respect to each share registered in the stockholders name. A stockholder of record is a person or entity who held shares on that date registered in its name on the records of Computershare Trust Company, N.A. (Computershare), Schlumbergers stock transfer agent. Persons who held shares on the record date through a broker, bank or other nominee are referred to as beneficial owners.
Shares cannot be voted at the meeting unless the owner of record is present in person or is represented by proxy. Schlumberger is incorporated in Curaçao and, as required by Curaçao law, meetings of stockholders are held in Curaçao. Because many stockholders cannot personally attend the meeting, it is necessary that a large number be represented by proxy.
On February 17, 2016, there were 1,253,227,301 shares of Schlumberger common stock outstanding and entitled to vote.
Holders of at least one-half of the outstanding shares entitling the holders thereof to vote at the meeting must be present in person or by proxy to constitute a quorum for the taking of any action at the meeting.
Votes Required to Adopt Proposals
To be elected, director nominees must receive a majority of votes cast (the number of votes cast for a director nominee must exceed the number of votes cast against that nominee). Approval of each of the other matters on the agenda also requires the affirmative vote of the majority of votes cast with the exception of Item 5 (approval of amendments to Articles of Incorporation), which must receive the support of a majority of the Companys shares outstanding and entitled to vote at the annual general meeting to be approved.
Effect of Abstentions and Broker Non-Votes
Abstentions and proxies submitted by brokers that do not indicate a vote because they do not have discretionary voting authority and have not received instructions from the beneficial owner of the shares as to how to vote on a proposal (so-called broker non-votes) will be considered as present for quorum purposes. If a quorum is not present at the meeting, the Board may call a second general meeting of stockholders, at which the quorum requirement will not apply.
Brokers holding shares must vote according to specific instructions they receive from the beneficial owners of those shares. If brokers do not receive specific instructions, brokers may in some cases vote the shares in their discretion. However, the New York Stock Exchange (the NYSE) precludes brokers from exercising voting discretion on other proposals without specific instructions from the beneficial owner, as follows:
Discretionary Items. Under NYSE rules, brokers will have discretion to vote on Items 3 (approval of financial statements and dividends), 4 (appointment of independent registered public accounting firm) 5 (approval of amendments to Articles of Incorporation) or 6 (approval of the number of directors) without instructions from the beneficial owners.
Nondiscretionary Items. Brokers cannot vote on Items 1 (election of directors), 2 (advisory vote to approve executive compensation), or 7 (approval of French Sub Plan) without instructions from the beneficial owners. Therefore, if your shares are held in street name by a broker and you do not instruct your broker how to vote on the election of directors or the advisory vote to approve executive compensation, your broker will not be able to vote for you on those matters.
Abstentions and broker non-votes do not affect the outcome of the vote on the election of directors or on the other proposals, other than on Item 5 (approval of amendments to Articles of Incorporation), where they have the effect of a vote against the proposal.
Stockholders with shares registered in their names with Computershare and participants who hold shares in the Schlumberger Discounted Stock Purchase Plan may authorize a proxy:
The internet and telephone voting facilities for stockholders of record will close at 11:59 p.m. Eastern time on Tuesday, April 12, 2016. The internet and telephone voting procedures have been designed to authenticate stockholders and to allow you to vote your shares and to confirm that your instructions have been properly recorded.
A number of banks and brokerage firms participate in programs that also permit beneficial stockholders to direct their vote by the internet or telephone. If you are a beneficial owner whose shares are held in an account at a bank or brokerage firm that participates in such a program, you may direct the vote of those shares by the internet or telephone by following the instructions on the voting form.
By providing your voting instructions promptly, you may save the Company the expense of a second mailing.
All shares entitled to vote and represented by properly executed proxies received prior to the meeting and not revoked will be voted at the meeting in accordance with your instructions. If you are a stockholder with shares registered in your name with Computershare and you submit a properly executed proxy card but do not direct how to vote on each item, the persons named as proxies will vote as the Board recommends on each proposal.
Changing Your Vote or Revoking Your Proxy
If you are a stockholder of record, you can change your vote or revoke your proxy at any time by timely delivery of a properly executed, later-dated proxy (including an internet or telephone vote) or by voting by ballot at the meeting. If you hold shares through a broker, bank or other nominee, you must follow the instructions of your broker, bank or other nominee to change or revoke your voting instructions.
ITEM 1. ELECTION OF DIRECTORS
All of our directors are elected annually at our annual general meeting of stockholders. Our stockholders are requested to elect 10 nominees to the Board of Directors, each to hold office until the next annual general meeting of stockholders and until a directors successor is elected and qualified or until a directors death, resignation or removal. Each of the nominees is now a director and was previously elected by the stockholders at the 2015 annual general meeting. All of the nominees for election have consented to being named in this proxy statement and to serve if elected. If any nominee is unable or unwilling to serve, the Board of Directors may designate a substitute nominee. If the Board designates a substitute nominee, proxies may be voted for that substitute nominee. The Board knows of no reason why any nominee will be unable or unwilling to serve if elected.
Having exceeded the normal retirement age of 70 under our Corporate Governance Guidelines, Tony Isaac, our former chairman of the Board, retired at our 2015 annual general meeting.
Shares represented by properly executed proxies will be voted, if authority to do so is not withheld, for the election of each of the 10 nominees named below.
Each director nominee must receive a majority of the votes cast to be elected. If you hold your shares in street name, please be aware that brokers do not have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker will deliver a non-vote on this proposal.
Recommendation of the Board
The Board of Directors Recommends a Vote FOR All Nominees.
The Board believes that each director nominee possesses the qualities and experience that the Nominating and Governance Committee believes that nominees should possess, as described in detail below in the section entitled Corporate GovernanceDirector Nominations. The Board seeks out, and the Board is comprised of, individuals whose background and experience complement those of other Board members. The nominees for election to the Board, together with biographical information furnished by each of them and information regarding each nominees director qualifications, are set forth below. There are no family relationships among executive officers and directors of the Company.
PETER L.S. CURRIE, 59, has been a director of the Company since 2010 and is the Boards Lead Independent Director. Since April 2004, he has been President of Currie Capital LLC, a private investment firm. Mr. Currie is the lead independent director at Twitter, Inc., where he chairs both the audit committee and the nominating and governance committee, having served on its board since November 2010. He also serves on the board of directors of New Relic, Inc. (since March 2013), where he chairs its audit committee and is a member of its compensation committee. Mr. Currie previously served on the boards of directors of Clearwire Corporation, CNET Networks, Inc., Safeco Corporation, and Sun Microsystems, Inc., and is a director at several privately-held companies. He is also President of the board of trustees of Phillips Academy. Mr. Currie brings to the Board strong financial and operational expertise as a result of his extensive board and committee experience at both public and privately-held companies; experience as chief financial officer of two public companies (McCaw Cellular Communications Inc. and Netscape Communications Corp.); and experience in senior operating positions in investment banking, venture capital and private equity.
V. MAUREEN KEMPSTON DARKES, 67, retired, has been a director of the Company since 2014. She was Group Vice President and President Latin America, Africa and Middle East, of General Motors Corporation (GM), an automotive manufacturer, from January 2002 until her retirement in December 2009, and was a member of its Automotive Strategy Board until her retirement from GM. Ms. Kempston Darkes has been a director of Enbridge Inc., a leading energy transportation and distribution company, since November 2010, and is a member of its corporate social responsibility committee, its safety and reliability committee and its human resources and compensation committee. She also is a member of the board of directors of Brookfield Asset Management Inc., a global asset management company (since April 2008), where she chairs the risk management committee and is a member of the management resources and compensation committee; Balfour Beatty plc, an infrastructure services company (since July 2012), where she chairs the safety and sustainability committee and is a member of both the nomination and the remuneration committees; and Canadian National Railway Company (since 1995), where she chairs the environment, safety and security committee, and is a member of the corporate governance and nominating committee, finance committee, audit committee and the strategic planning committee. Ms. Kempston Darkes brings to the Board extensive automotive industry experience, as the Company continues to focus on product reliability and execution, as well as proven leadership abilities and experience in Latin America, Africa and the Middle East. The Board also benefits greatly from Ms. Kempston Darkes audit committee experience and financial expertise.
PAAL KIBSGAARD, 48, has been a director of the Company since 2011, Chairman of the board of directors since April 2015 and has served as Chief Executive Officer of the Company since August 2011. He was the Companys Chief Operating Officer from February 2010 to July 2011, and President of the Reservoir Characterization Group from May 2009 to February 2010. Prior to that, Mr. Kibsgaard served as Vice President, Engineering, Manufacturing and Sustaining, from November 2007 to May 2009, and as Vice President of Personnel from April 2006 to November 2007. Mr. Kibsgaard has been with the Company since 1997, and began his career as a reservoir engineer. He has held numerous operational and administrative management positions within the Company in the Middle East, Europe and the U.S. As a result of his service in various global leadership positions in the Company, he brings to the Board a unique operational perspective and thorough knowledge of the Companys operational activities worldwide. The Board believes that Mr. Kibsgaards service as Chairman and Chief Executive Officer is an important link between management and the Board, enabling the Board to perform its oversight function with the benefit of his perspectives on the Companys business.
NIKOLAY KUDRYAVTSEV, 65, has been a director of the Company since 2007. Since June 1997, he has been the Rector of the Moscow Institute of Physics and Technology. Mr. Kudryavtsev has been chairman of the Board of Rectors of the City of Moscow and Moscow Region since 2012, and was elected Vice President of the Russian Rectors Union in 2014. Mr. Kudryavtsev brings to the Board valuable management and finance experience, as well as deep scientific and technological expertise. This provides the Board with valuable insight regarding the Company, its products and current technology, as well as the future technological needs of the Company and the industry. Mr. Kudryavtsev also provides the Board with a particularly valuable Russian vantage point, which is useful for both the development of the Companys business and understanding of the needs of the Companys population of Russian employees. The Board is aided immensely by Mr. Kudryavtsevs sensitivity to Russian culture and risk at the field level.
MICHAEL E. MARKS, 65, has been a director of the Company since 2005. He has been a Managing Partner of Riverwood Capital, LLC, a private equity firm, since March 2007. Mr. Marks has been a director of SanDisk, a memory products company, since 2003 and became its Chairman in 2011. He also chairs its nominating and governance committee. Mr. Marks is the lead independent director at GoPro, Inc., a consumer camera company, and is a member of its nominating and governance and its compensation and leadership committees. From 1991 to 2008, Mr. Marks served as a director at Flextronics, Inc., a leading producer of advanced electronic manufacturing services, and was its Chief Executive Officer from January 1994 to January 2006. From 2006 to 2008, he was Chairman of the Board of Flextronics Mr. Marks previously served on the boards of directors of Sun Microsystems and Calix, and is a director at several privately-held companies. Mr. Marks brings to the Board his familiarity with world-class manufacturing from the field level to the
boardroom based on his experience at Flextronics, a large, diversified global corporation with many of the same issues that Schlumberger faces. As a former chief executive and as a public company director at various other companies, Mr. Marks has been involved in succession planning, compensation, employee management and the evaluation of acquisition opportunities. Mr. Marks significant experience as a director at various technology-driven companies, as well as his finance and mergers and acquisitions experience, are especially relevant to Schlumbergers technology-oriented business and growth strategy.
INDRA K. NOOYI, 60, has been a director of the Company since April 2015. She is the Chairman and Chief Executive Officer of PepsiCo, a global food and beverage company. She was named President and CEO in 2006, and assumed the additional role of Chairman of PepsiCos Board of Directors in 2007. She was elected to PepsiCos Board of Directors and became President and Chief Financial Officer in 2001, after serving as Senior Vice President and Chief Financial Officer since 2000. Mrs. Nooyi also served as PepsiCos Senior Vice President, Corporate Strategy and Development from 1996 until 2000, and as PepsiCos Senior Vice President, Strategic Planning from 1994 until 1996. The Board believes that it benefits greatly from Mrs. Nooyis proven leadership as Chairman and CEO of a global public company. The Board also believes that her expertise in developing and directing corporate strategy and finance, mergers and acquisitions, and organizational and talent management enables her to make valuable contributions to the Board.
LUBNA S. OLAYAN, 60, has been a director of the Company since 2011. She is the Chief Executive Officer and deputy chairperson of Riyadh-based Olayan Financing Company, the holding entity for The Olayan Groups operations in the Kingdom of Saudi Arabia and the Middle East. Ms. Olayan is a Principal and a Board member of Olayan Investments Company Establishment, the parent company of The Olayan Group, a private multinational enterprise with diverse commercial and industrial operations in the Middle East and an actively managed portfolio of international investments. Since December 2004, she has been a director of Saudi Hollandi Bank, becoming the first woman to join the board of a Saudi publicly-listed company. She was elected Vice Chairman in January 2014 and is a member of its executive committee and its nomination and remuneration committee. Ms. Olayan is a non-executive director and member of numerous international advisory boards, such as Rolls Royce Group plc and Akbank. Ms. Olayan also serves on the boards of various non-governmental organizations, as well as of various educational institutions, including King Abdullah University of Science and Technology. Ms. Olayan served as a non-executive director of WPP plc, a multinational communication services company, from March 2005 to June 2012, and was a member of its nomination committee. Ms. Olayan brings to the Board extensive business experience in Saudi Arabia and the Middle East and a deep understanding of those areas, which are critical to the Company and enable her to make valuable contributions to the Board. The Board benefits from her proven leadership abilities, extensive CEO experience and expertise in corporate finance, international banking, distribution and manufacturing. Ms. Olayan also brings a critical international perspective on business and global best practices. Ms. Olayans service on the boards of trustees of Cornell University and of King Abdullah University of Science and Technology, and her connections to the scientific community and experience in university relations, also are of great value to Schlumberger and its efforts in technology leadership and employee recruiting and retention.
LEO RAFAEL REIF, 65, has been a director of the Company since 2007. Since July 2012, Mr. Reif has been President of the Massachusetts Institute of Technology (MIT), having been MITs Provost, Chief Academic Officer and Chief Budget Officer from August 2005 to July 2012. Mr. Reif was head of the Electrical Engineering and Computer Science Department at MIT from September 2004 to July 2005, and an Associate Department Head for Electrical Engineering in the Department of Electrical Engineering and Computer Science at MIT from January 1999 to August 2004. Mr. Reif brings to the Board valuable management and finance expertise. As a scientist, he has deep scientific and technological expertise about the Companys products and current technology, as well as about anticipated future technological needs of the Company and the industry. The Board values Mr. Reifs connections to the U.S. scientific community, as well as his expertise in university relations and collaborations, which are of high importance to Schlumberger and its efforts in technology leadership and employee retention. Mr. Reif provides the Board with a critical U.S. scientific perspective, which is of immense value in the oversight of the Companys strategy.
TORE I. SANDVOLD, 68, has been a director of the Company since 2004. He has been executive Chairman of Sandvold Energy AS, an advisory company in the oil and energy industry, since September 2002. Mr. Sandvold is a director of Rowan Companies plc (since 2013), a provider of international and domestic contract drilling services, where he serves on its audit committee and its health, safety and environment committee. He has also been a member, since 2003, of the board of directors of Teekay Corporation, a leading provider of international crude oil and petroleum product transportation services, where he serves on its nominating and governance committee. From 1990 to 2001, Mr. Sandvold served as Director General of the Norwegian Ministry of Oil & Energy, with overall responsibility for Norways national and international oil and gas policy. From 2001 to 2002, he was executive Chairman of Petoro AS, the Norwegian state-owned oil company. He also served as Chairman of Misen Energy AB, a Swedish upstream oil and gas company from December 2011 to November 2014, and was its acting Chief Executive Officer from September 2012 to May 2014. Mr. Sandvold is also a member of the boards of directors of Lambert Energy Advisory Ltd; Njord Gas Infrastructure, and Energy Policy Foundation of Norway. Mr. Sandvold brings to the Board experience working in the area of energy policy for approximately 40 years, and he has broad experience in developing domestic and international energy policies for Norway as a career civil servant. He also has extensive experience dealing with global energy institutions such as the Organization of the Petroleum Exporting Countries and the International Energy Agency, and in negotiating with global energy companies. Mr. Sandvold has finance experience and a solid understanding of business opportunities, both as concerns acquisition targets and the industry in general.
HENRI SEYDOUX, 55, has been a director of the Company since 2009. Since 1994, he has been Chairman and Chief Executive Officer of Parrot S.A., a global wireless products manufacturer. Mr. Seydoux is an entrepreneur with great initiative. He founded Parrot S.A. in 1994 as a private company and took it public in 2007. As the chief executive of a dynamic and innovative technology company, Mr. Seydoux brings to the Board entrepreneurial drive and management skills. He also has family ties to the founding Schlumberger brothers, and having grown up in the Schlumberger family culture, is well placed to see that the Company continues its historical commitment to Schlumbergers core values. His service on the Board addresses the Companys need to preserve the Companys unique culture and history while fostering innovation.
The following are some highlights of our corporate governance practices and policies:
Board Independence; Committees Structure
Majority Voting; Stockholder Authority
Executive Stock Ownership Guidelines
Hedging and Pledging Policies
Corporate Governance Guidelines
Schlumberger is committed to adhering to sound principles of corporate governance and has adopted corporate governance guidelines that the Board believes are consistent with Schlumbergers values, and that promote the effective functioning of the Board, its committees and the Company. Our Board periodically, and at least annually, reviews and revises, as appropriate, our Corporate Governance Guidelines to ensure that they reflect the Boards corporate governance objectives and commitments. Our Corporate Governance Guidelines are on our website at http://www.slb.com/about/guiding_principles/corpgovernance/corpgov_guidelines.aspx.
Schlumbergers Corporate Governance Guidelines provide that at least a majority of the Board will consist of independent directors. This standard reflects the NYSE corporate governance listing standards.
Our Board has adopted director independence standards, which can be found in Attachment A to our Corporate Governance Guidelines, and which meet or exceed the independence requirements in the NYSE listing standards. Based on the review and recommendation by the Nominating and Governance Committee, the Board of Directors has determined that each current director and director nominee listed above under Election of Directors is independent under the listing standards of the NYSE and our director independence standards, except Mr. Kibsgaard, who is our CEO and therefore does not qualify as independent. The Board also previously determined that Tony Isaac, who served as director until the 2015 annual general meeting and did not stand for re-election, and K. Vaman Kamath, who served as a director through July 2015, were independent.
In addition to the Board-level standards for director independence, each member of the Audit Committee meets the heightened independence standards required for audit committee members under the NYSEs listing standards, and each member of the Compensation Committee meets the heightened independence standards for compensation committee members under NYSE listing standards adopted in 2013, which Schlumberger implemented in advance of the required compliance date.
Transactions Considered in Independence Determinations. The Boards independence determinations included a review of transactions that occurred since the beginning of 2013 with entities associated with the independent directors or members of their immediate family. In making its independence determinations, the Board considered that Mr. Currie, Mr. Isaac, Mr. Kamath, Ms. Kempston Darkes, Mr. Kudryavtsev, Mr. Marks, Ms. Nooyi, Ms. Olayan, Mr. Reif and Mr. Sandvold each have served as directors, executive officers, trustees, outside consultants or advisory board members at companies and universities that have had commercial business relationships with the Company, all of which were ordinary course commercial transactions involving significantly less than 1% of either entitys annual revenues. The Board also considered that the Company made charitable contributions in 2015 to The Massachusetts Institute of Technology, of which Mr. Reif is the President, of approximately $330,000, relating to educational grants and sponsored fellowships, for which Mr. Reif received no personal benefit. This amount was significantly less than the greater of $1 million or 2% of the universitys consolidated gross revenues for any of the past three years.
The Nominating and Governance Committee believes that nominees should, in the judgment of the Board, be persons of integrity and honesty, be able to exercise sound, mature and independent business judgment in the best interests of our stockholders as a whole, be recognized leaders in business or professional activity, have background and experience that will complement those of other Board members, be able to actively participate in Board and Committee meetings and related activities, be able to work professionally and effectively with other Board members and Schlumberger management, be available to remain on the Board long enough to make an effective contribution and have no material relationship with competitors, customers or other third parties that could present realistic possibilities of conflict of interest or legal issues.
The Nominating and Governance Committee also believes that the Board should include appropriate expertise and reflect gender, cultural and geographical diversity, in light of the entire Boards current composition and range of diversity. Schlumberger has approximately 95,000 employees worldwide, representing more than 140 nationalities, and values gender, cultural and geographical diversity in its directors as well. Three of the Companys 10 director nominees are women. Of the 10 director nominees, four are citizens of the United States of America; two are citizens of Norway; and one director nominee is a citizen of each of Canada, France, Russia, and Saudi Arabia.
The Companys very diverse Board also evidences the Boards commitment to have directors who represent countries where Schlumberger operates. In addition, the exceptionally broad and diverse experience of Board members is in keeping with the goal of having directors whose background and experience complement those of other directors. The Nominating and Governance Committees evaluation of director nominees takes into account their ability to contribute to the Boards diversity, and the Nominating and Governance Committee annually reviews its effectiveness in balancing these considerations in the context of its consideration of director nominees.
Applying the criteria above, the Nominating and Governance Committee recommends to the Board the number and names of persons to be proposed by the Board for election as directors at the annual general meeting of stockholders. In obtaining the names of possible nominees, the Nominating and Governance Committee makes its own inquiries and will receive suggestions from other directors, management, stockholders and other sources, and its process for evaluating nominees identified in unsolicited recommendations from security holders is the same as its process for recommendations from other sources. From time to time, the Committee retains executive search and board advisory consulting firms to assist in identifying and evaluating potential nominees. During 2015, the Committee retained New York-based Russel Reynolds Associates, a third-party executive search firm, for this purpose. Consideration of new Board candidates typically involves a series of internal discussions, review of information concerning candidates, and interviews with selected candidates. Board members typically suggest candidates for nomination to the Board.
The Nominating and Governance Committee must first consider all potential director nominees before they are contacted by other Company directors or officers as possible nominees and before they are formally considered by the full Board. The Nominating and Governance Committee will consider nominees recommended by stockholders who meet the eligibility requirements for submitting stockholder proposals for inclusion in the next proxy statement and submit their recommendations in writing to:
Chair, Nominating and Governance Committee
c/o Secretary, Schlumberger Limited
5599 San Felipe, 17th Floor
Houston, Texas 77056
by the deadline for such stockholder proposals referred to at the end of this proxy statement. Unsolicited recommendations must contain all of the information that would be required in a proxy statement soliciting proxies for the election of the candidate as a director, a description of all direct or indirect arrangements or understandings between the recommending security holder and the candidate, all other companies to which the candidate is being recommended as a nominee for director, and a signed consent of the candidate to cooperate with reasonable background checks and personal interviews, and to serve as a director of the Company, if elected.
Board Leadership Structure
The Board recognizes that one of its key responsibilities is to evaluate and determine an appropriate board leadership structure so as to ensure independent oversight of management. The Board believes that there is no single, generally accepted board leadership structure that is appropriate for all companies, and that the right
structure may vary for a single company as circumstances change. As such, our independent directors consider the Boards leadership structure at least annually, and may modify this structure from time to time to best address the Companys unique circumstances and advance the best interests of all stockholders, as and when appropriate.
In 2011, the independent members of the Board determined, based on its annual consideration of the Boards leadership structure, that the separation of the roles of Chairman of the Board and CEO and appointment of an independent, non-executive Chairman of the Board was an appropriate board leadership structure at that time. Accordingly, the independent members of the Board appointed Tony Isaac as the independent, non-executive Chairman of the Board in April 2012, and Mr. Isaac served in this capacity until the 2015 annual general meeting.
In connection with Mr. Isaacs planned retirement from the Board in 2015, the independent members of the Board gave thoughtful consideration to the Boards leadership structure and determined that recombining the Chairman and CEO positions under the leadership of Mr. Kibsgaard upon Mr. Isaacs retirement was in the best interests of the Company and the stockholders. This determination was based on the Boards strong belief that, as the individual with primary responsibility for managing the Companys day-to-day operations and with extensive knowledge and understanding of the Company, Mr. Kibsgaard is best positioned to chair regular Board meetings as the directors discuss key business and strategic issues and to focus the Boards attention on the issues of greatest importance to the Company and its stockholders. Furthermore, combining the roles of Chairman and CEO in Mr. Kibsgaard creates a clear line of authority that promotes decisive and effective leadership, both within and outside the Company. In making this judgment, the Board took into account its evaluation of Mr. Kibsgaards performance as CEO and as a current member of the Board, his positive relationships with the other directors, and the strategic perspective he would bring to the role of Chairman.
In connection with its decision to recombine the roles of Chairman and CEO under Mr. Kibsgaard, the Board recognized the importance of having a board structure that would continue to promote the appropriate exercise of independent judgment by the Board. Thus, the Board appointed Peter Currie lead independent director, who was selected by and from the independent directors, and who has the following leadership authority and responsibilities:
In considering its leadership structure, the Board also took into account that Schlumbergers current governance practices provide for strong independent leadership, active participation by independent directors and
independent evaluation of, and communication with, many members of senior management. These governance practices are reflected in our Corporate Governance Guidelines and our various committee charters, which are available on our website. The Board believes that its risk oversight programs, discussed immediately below, are effective under a variety of board leadership frameworks and therefore do not materially affect the Boards choice of leadership structure.
The Boards Role in Risk Oversight
The role that the Board fulfills in risk oversight is set out in our Corporate Governance Guidelines. The Board assesses major risks facing the Company and options for their mitigation, in order to promote the Companys stockholders and other stakeholders interests in the long-term health and the overall success of the Company and its financial strength.
The full Board is actively involved in overseeing risk management for the Company. It does so in part through its oversight of the Companys Executive Risk Committee (the ERC) comprised of more than half a dozen top executives of the Company from various functions, each of whom supervises day-to-day risk management throughout the Company. The ERC is not a committee of the Board. The ERC ensures that the Company identifies all potential material risks facing the Company and implements appropriate mitigation measures. The Companys risk identification is performed at two levels: the ERC performs a corporate-level risk mapping exercise, which involves the CEO and several other members of senior management, and while maintaining oversight, delegates operational (field-level) risk assessment and management to the Companys various Areas, Technologies and Functions and to its Research, Engineering, Manufacturing and Sustaining organization. To the extent that the ERC identifies recurring themes from the operational risk mapping exercises, they are acted on at the corporate level. Members of the ERC meet formally at least once a year, and more frequently on an ad hoc basis, to define and improve the risk mapping process, and to review and monitor the results of those exercises and those that have been delegated. The ERC reports directly to the CEO and to the full Board, and annually presents to the full Board a comprehensive report as to its risk mapping efforts for that year.
In addition, each of our Board committees considers the risks within its areas of responsibility. For example, the Finance Committee considers finance-related risks on a quarterly basis and recommends guidelines to control cash, pension investments, banking relationships and currency exposures. The Compensation Committee reviews and assesses the Companys overall compensation program and its effectiveness at linking executive pay to performance, aligning the interests of our executives and our stockholders and providing for appropriate incentives. The Nominating and Governance Committee oversees governance- and compliance-related risks and reviews and discusses the Companys Ethics and Compliance Programs quarterly statistical report and the various allegations, disciplinary actions and training statistics brought to its attention. The Audit Committee reviews and assesses risks related to financial reporting. The Audit Committee also discusses all significant finance-related violations of Company policies brought to its attention from time to time, and once per year reviews a summary of all finance-related violations. Additionally, the outcome of the Companys Audit Risk assessment is presented to the Audit Committee annually; this assessment identifies internal controls risks and drives the internal audit plan for the coming year. All significant violations of the Companys Code of Conduct and related corporate policies are reported to the Nominating and Governance Committee and (if finance-related) to the Audit Committee, and, when appropriate, are reported to the full Board. Once a year, the Deputy General Counsel, Compliance delivers to the full Board a comprehensive Annual Compliance Report. The risks identified within the Ethics and Compliance Program are incorporated into the ERCs enterprise risk management program described above.
Meetings of the Board of Directors and its Committees
During 2015, the Board of Directors held five meetings. Schlumberger has an Audit, a Compensation, a Nominating and Governance, a Finance, and a Science and Technology Committee. During 2015, the Audit Committee met four times; the Compensation Committee met four times; the Finance Committee met four times; the Nominating and Governance Committee met four times; and the Science and Technology Committee met two times.
Each of our current directors attended 100% of the meetings of the Board and the committees on which he or she served in 2015 (held during the period he or she served).
From time to time between meetings, Board and committee members confer with each other and with management and independent consultants regarding relevant issues, and representatives of management may meet with such consultants on behalf of the relevant committee.
Members of the Committees of the Board of Directors as of February 1, 2016
* Lead independent director.
The Audit Committee consists of three directors, each of whom meets the independence and other requirements of the NYSEs listing standards. The Audit Committee assists the Board in its oversight of the integrity of the Companys financial statements, legal and regulatory compliance, the independent registered public accounting firms qualifications, independence, performance and related matters, and the performance of Schlumbergers internal audit function. The authority and responsibilities of the Audit Committee include the following:
The Companys independent registered public accounting firm is accountable to the Audit Committee. The Audit Committee pre-approves all engagements, including the fees and terms for the integrated audit of the Companys consolidated financial statements.
The Board of Directors has determined that each Committee member has sufficient knowledge in financial and auditing matters to serve on the Committee. In addition, the Board of Directors has determined that Mr. Kamath, who was a director in 2015, qualified and Mrs. Nooyi currently qualifies as an audit committee financial expert under applicable SEC rules. The Audit Committee operates pursuant to a written charter, which is available on the Companys website at http://www.slb.com/about/guiding_principles/corpgovernance/audit_committee.aspx.
The Compensation Committee consists of four directors, each of whom meets the independence requirements of the NYSEs listing standards. The purposes of the Compensation Committee are to assist Schlumbergers Board of Directors in discharging its responsibilities with regard to executive compensation; periodically review non-executive directors compensation; oversee Schlumbergers general compensation philosophy; serve as the administrative committee under Schlumbergers stock plans; and prepare the annual Compensation Committee Report required by the rules of the SEC. The authority and responsibilities of the Compensation Committee include the following:
The Compensation Committee may delegate specific responsibilities to one or more individual committee members to the extent permitted by law, regulation, NYSE listing standards and Schlumbergers governing documents. The design and day-to-day administration of all compensation and benefits plans and related policies, as applicable to executive officers and other salaried employees, are handled by teams of the Companys human resources, finance and legal department employees.
Role of the Independent Consultant. The Compensation Committee has retained Pay Governance LLC (Pay Governance) as its independent consultant with respect to executive compensation matters. Pay Governance reports only to, and acts solely at the direction of, the Compensation Committee. Schlumbergers management does not direct or oversee the activities of Pay Governance with respect to the Companys executive compensation program. Pay Governance prepares compensation surveys for review by the Compensation Committee at its October meeting. One of the purposes of the October meeting is to assess compensation decisions made in January of that year in light of comparative data to date; another purpose of the October meeting is to prepare for the annual executive officer compensation review the following January. Pay Governance works with the Companys executive compensation department to compare compensation paid to the Companys executive officers with compensation paid for comparable positions at companies included in the compensation surveys conducted by Pay Governance at the direction of the Compensation Committee. Pay Governance and the Companys executive compensation department also compile annual compensation data for each executive officer. The Compensation Committee has also instructed Pay Governance to prepare an analysis of each named executive officers compensation. The Compensation Committee has also retained Pay Governance as an independent consulting firm with respect to non-employee director compensation matters. Pay Governance prepares an analysis of competitive non-employee director compensation levels and market trends using the same peer groups as those used in the executive compensation review.
The Compensation Committee has assessed the independence of Pay Governance pursuant to SEC rules and has concluded that its work did not raise any conflict of interest that would prevent Pay Governance from independently representing the Compensation Committee.
Procedure for Determining Executive Compensation; Role of Management. The Compensation Committee evaluates all elements of executive officer compensation each January, after a review of achievement of financial and personal objectives with respect to the prior years results. The purpose is to determine whether any changes in the officers compensation are appropriate. The CEO does not participate in the Compensation Committees deliberations with regard to his own compensation. At the Compensation Committees request, the CEO reviews with the Compensation Committee the performance of the other executive officers, but no other executive officer has any input in executive compensation decisions. The Compensation Committee gives substantial weight to the CEOs evaluations and recommendations because he is particularly able to assess the other executive officers performance and contributions to the Company. The Compensation Committee
independently determines each executive officers mix of total direct compensation based on the factors described in Compensation Discussion and AnalysisFramework for Setting Executive Compensation in 2015Relative Size of Direct Compensation Elements. Early in the calendar year, financial and personal objectives for each executive officer are determined for that year. The Compensation Committee may, however, review and adjust compensation at other times as the result of new appointments or promotions during the year.
The following table summarizes the approximate timing of significant compensation events:
The Compensation Committee operates pursuant to a written charter, which is available on the Companys website at http://www.slb.com/about/guiding_principles/corpgovernance/compensation_committee.aspx.
Nominating and Governance Committee
The Nominating and Governance Committee consists of four directors, each of whom meets the independence requirements of the NYSEs listing standards. The authority and responsibilities of the Nominating and Governance Committee include the following:
The Nominating and Governance Committee operates pursuant to a written charter, which is available on the Companys website at http://www.slb.com/about/guiding_principles/corpgovernance/nomgov_committee.aspx.
The Finance Committee advises the Board and management on various matters, including dividends, financial policies and the investment of funds. The authority and responsibilities of the Finance Committee include the following:
The Finance Committee operates pursuant to a written charter, which is available on the Companys website at http://www.slb.com/about/guiding_principles/corpgovernance/finance_committee.aspx.
Science and Technology Committee
The Science and Technology Committee advises the Board and management on matters involving the Companys research and development programs. The authority and responsibilities of the Science and Technology Committee include the following:
The Science and Technology Committee operates pursuant to a written charter, which is available on the Companys website at http://www.slb.com/about/guiding_principles/corpgovernance/tech_committee.aspx.
Communication with the Board
The Board has established a process for all interested parties, including stockholders and other security holders, to send communications, other than sales-related communications, to one or more of its members, including to the independent or non-management directors as a group. Interested parties may contact the Board or any Schlumberger director (including the Chairman of the Board) by writing to them at the following address:
c/o the Secretary
5599 San Felipe, 17th Floor
Houston, Texas 77056
All such communications will be forwarded to the Board member or members specified.
Director Attendance at Annual General Meeting
The Boards policy regarding director attendance at the annual general meeting of stockholders is that directors are welcome, but not required, to attend, and that the Company will make all appropriate arrangements for directors who choose to attend. Tony Isaac attended the annual general meeting of stockholders in 2015.
Policies and Procedures for Approval of Related Person Transactions
In January 2007, the Board formally adopted a written policy with respect to related person transactions to document procedures pursuant to which such transactions are reviewed, approved or ratified. Under SEC rules, related persons include any director, executive officer, director nominee, or greater than 5% stockholder of the Company since the beginning of the previous fiscal year, and their immediate family members. The policy applies to any transaction in which:
The Nominating and Governance Committee, with assistance from the Companys Secretary and General Counsel, is responsible for reviewing and, where appropriate, approving or ratifying any related person transaction involving Schlumberger or its subsidiaries and related persons. The Nominating and Governance Committee approves only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders.
Since the beginning of 2015, there were no related person transactions under the relevant standards.
Code of Conduct
Schlumberger has adopted a Code of Conduct that applies to all of its directors, officers (including its chief executive officer, chief financial officer, chief accounting officer, controller and any person performing similar functions) and employees. Our Code of Conduct is located at www.slb.com/about/codeofconduct.aspx.
ITEM 2. ADVISORY RESOLUTION TO APPROVE EXECUTIVE COMPENSATION
We are asking stockholders to approve, on an advisory basis, the Companys executive compensation as reported in this proxy statement. As described below in the Compensation Discussion and Analysis section of this proxy statement, the Compensation Committee has structured our executive compensation program to achieve the following key objectives:
We urge stockholders to read the Compensation Discussion and Analysis beginning on page 20 of this proxy statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related compensation tables and narrative, appearing on pages 46 through 62, which provide detailed information on the compensation of our named executive officers. The Compensation Committee and the Board of Directors believe that the policies and procedures articulated in the Compensation Discussion and Analysis are effective in achieving our goals and that the compensation of our named executive officers reported in this proxy statement has contributed to the Companys recent and long-term success.
In accordance with Section 14A of the Exchange Act, and as a matter of good corporate governance, we are asking stockholders to approve the following advisory resolution at the 2016 annual general meeting of stockholders:
RESOLVED, that the stockholders of Schlumberger Limited (the Company) approve, on an advisory basis, the compensation of the Companys named executive officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in the Proxy Statement for the Companys 2016 annual general meeting of stockholders.
This advisory resolution, commonly referred to as a say-on-pay resolution, is non-binding on the Board of Directors. Although non-binding, the Board and the Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation program.
The Board of Directors has adopted a policy providing for an annual say-on-pay advisory vote. Unless the Board of Directors modifies its policy on the frequency of holding say-on-pay advisory votes, the next say-on-pay advisory vote will occur in 2017.
A majority of the votes cast is required to approve this Item 2. If you hold your shares in street name, please note that brokers do not have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker will deliver a non-vote on this proposal.
Recommendation of the Board
The Board of Directors Recommends a Vote FOR Item 2.
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis (CD&A) describes Schlumbergers compensation policies and practices as they relate to our executive officers identified in the Summary Compensation Table below (the named executive officers or the NEOs). The purpose of the CD&A is to explain what the elements of compensation are; why our Compensation Committee selects these elements; and how the Compensation Committee determines the relative size of each element of compensation. Included in this CD&A are decisions made in 2015 affecting 2015 base salaries and long-term equity incentives (LTIs), as well as annual cash incentive awards earned in 2015 but paid in early 2016.
2015 Executive Summary
Schlumberger delivered strong financial results despite the difficult operating environment throughout the oil and gas industry in 2015. Highlights of our 2015 performance include:
Schlumberger management also took several other key operational, strategic, and economic measures in 2015 to continue to better position the Company for the long-term. Schlumberger achieved the following goals, among others, many of which were aligned with our executives personal objectives:
Relative Stock Price Results
As of the end of 2015, despite the intense decline in customer capital expenditures and the sharpest decline in land activity since 1986, our management team has positioned Schlumberger very strongly over the past three years relative to market conditions and other participants in our industry. The graph below shows the significant percentage change in the market price of our common stock relative to the WTI price of crude oil and the Philadelphia Oil Service Sector (OSX) over the last three years.
Schlumbergers stock price increased by 70% between December 31, 2012 and June 30, 2014, compared to an increase of 14% for the WTI price of crude oil and an increase of 41% for the OSX over the same period. We then maintained our gains relative to these two market indicators, as our stock price declined only 40% between June 30, 2014 and December 31, 2015, compared to a decrease of 64% for the WTI price of crude oil and a decrease of 49% for the OSX over the same period. Oil prices ultimately reached a 12-year low in December 2015.
Executive Compensation Program Overview
Schlumberger is the worlds largest oilfield services company and the only such company included in the S&P 100 Index. The Companys success in delivering strong long-term stockholder returns and financial and operational results is a result of attracting, developing and retaining the best talent globally. A highly competitive compensation package is critical to this objective and, to this end, the Compensation Committee seeks to target total direct compensation (i.e., base salary plus annual cash incentives plus LTI awards) for our NEOs and other executive officers at or very close to the 75th percentile of the Companys two main executive compensation comparator groups. In the view of the Compensation Committee, the 75th percentile is the proper level to target because of Schlumbergers leading position in the oilfield services industry; because the market for executive talent in the oil and gas industry is exceptionally competitive; and because our executives are very highly sought after, not only by our direct oilfield service competitors but also by other leading companies.
The Compensation Committee retains the flexibility to set elements of target compensation at higher percentiles based on strong business performance, for retention, for key skills in critical demand, and for positions that are of high internal value. Elements of our executives total direct compensation and actual payments may also be below our main comparator groups median as a result of our pay-for-performance philosophy, as discussed below.
Our Executive Compensation Best Practices
The following is a summary of some of our executive compensation practices and policies that demonstrate important aspects of our culture and values.
Summary of Executive Compensation Practices We Do Not Engage in
The following is a summary of some of the executive compensation practices we do not engage in.
Overview of Compensation Decisions for 2015
The Compensation Committee continued to focus on strengthening the link between pay and performance to retain and motivate our top executives through a year that was marked by upstream capital expenditure spending cuts that resulted in significantly lower E&P investment levels. As a result, and as more fully discussed elsewhere in this CD&A, the Compensation Committee took the following actions in 2015:
Executive Compensation Philosophy
In keeping with the Companys pay-for-performance culture, Schlumbergers long-standing compensation philosophy is to pay senior executives and other professional-level employees for performance that is evaluated against personal and Company financial goals as described below in the section entitled Annual Cash Incentive Decisions for 2015. Schlumbergers compensation program is driven by the need to recruit, develop, motivate and retain top talent, both in the short-term and long-term, by establishing compensation that is competitive and by promoting the Companys values of people, technology and profitability. Promotion from within the Company is a key principle at Schlumberger, and all executive officers, including the named executive officers, have reached their current positions through career development with the Company. Schlumberger sees diversity of its workforce as both a very important part of its cultural philosophy and a business imperative, as it enables the Company to serve clients anywhere in the world. Schlumberger believes its use of a consistent approach to compensation at all levels irrespective of nationality is a strong factor in achieving a diverse workforce comprising top global talent.
Schlumbergers compensation program is designed so that the higher an executives position in the Company, the larger the proportion of compensation that is contingent on strong long-term stock price performance, the Companys financial performance and/or individual performance, described as at-risk compensation. The Company believes that having a significant portion of executive compensation at-risk more closely aligns the interests of its executives with the long-term interests of Schlumberger and its stockholders. Accordingly, our named executive officers receive a greater percentage of their compensation through at-risk pay tied to Company performance than our other executives.
Schlumbergers executive compensation program consists of three primary elements, comprising our executives total direct compensation:
These elements allow the Company to remain competitive and attract, retain and motivate top executive talent with current and potential future financial rewards. At the same time, this relatively simple compensation program is applied and communicated consistently to our exempt employees of more than 140 nationalities operating in approximately 85 countries.
Framework for Setting Executive Compensation in 2015
Executive Compensation Goals
In establishing executive compensation, Schlumberger believes that:
Management of Executive Compensation
The Compensation Committee reviews and recommends our chief executive officers compensation to the independent members of the Board of Directors and reviews and approves the compensation of our other executive officers. The specific duties and responsibilities of the Compensation Committee are described in the section of this proxy statement entitled Corporate GovernanceBoard CommitteesCompensation Committee above.
Role of Compensation Consultant
The Compensation Committee has engaged the independent executive compensation consulting firm of Pay Governance LLC with respect to executive compensation matters. For more information on this engagement, see the section of this proxy statement entitled Corporate GovernanceBoard CommitteesCompensation Committee above.
Relative Size of Direct Compensation Elements
The Compensation Committee reviews the elements of total direct compensation for the NEOs throughout the year, to evaluate whether each element of direct compensation remains at levels that are competitive with companies in Schlumbergers two main peer groups described below. The Compensation Committee relies on its own judgment in making these compensation decisions after its review of external market practices of companies comprising the two peer groups, including the size and mix of direct compensation for executives in those companies. The Compensation Committee seeks to achieve an appropriate balance between annual cash rewards that encourage achievement of annual financial and non-financial objectives, and LTI awards that encourage positive long-term stock price performance, with a greater emphasis on LTI awards for more senior executives. However, the Compensation Committee does not aim to achieve a specific target of cash versus equity-based compensation.
While external market data provide important guidance in making decisions on executive compensation, the Compensation Committee does not set compensation based on market data alone. When determining the size and mix of each element of an NEOs total direct compensation, the Compensation Committee also considers the following factors:
Based on market data provided by Pay Governance, the charts below show the average percentage of 2015 base salary, target cash incentive and 2015 LTI compensation established by the Compensation Committee in January 2015 for the NEOs who served throughout 2015, in comparison to the Companys two main comparator groups. The charts demonstrate that Schlumbergers pay mix generally aligns with that of both peer groups, though Schlumberger provides a slightly higher proportion of at-risk LTI compensation. This data is based on target opportunity levels and will differ from the total compensation figures shown in the Summary Compensation Table.
The Compensation Committee may, at its discretion, modify an NEOs mix of base pay, annual cash incentive and LTIs, or otherwise adjust an NEOs total compensation, to best fit his or her specific circumstances. For example, the Committee may award more cash and not award an LTI grant to an executive officer that is approaching retirement. This provides more flexibility to the Committee to compensate executive officers appropriately as they near retirement, when they may only be able to partially fulfill the five-year vesting required for stock options or retire prior to the end of a three-year performance period for PSUs. The Committee may also increase the size of stock option grants to an executive officer if the total number of career stock options granted does not adequately reflect the executives current position and level of responsibility within the Company, after a review of external market practice and the other factors described above.
Pay-for-Performance Relative to Oil Industry Peer Group
As part of the Compensation Committees annual review of our executive compensation program, the Committee in July 2015 directed Pay Governance to prepare a comparative pay-for-performance assessment against companies in our oil industry peer group as identified in the Peer Group Companies and Benchmarking section below. The comparative assessment examined the degree of alignment between our NEOs compensation and our performance relative to these companies as measured by total shareholder return (TSR) and EPS, each on a one-year (2014) and a three-year (2012-2014) basis, and in both cases ending on December 31, 2014. TSR reflects share price appreciation, adjusted for dividends and stock splits. EPS represents diluted earnings per share from continuing operations, excluding charges and credits.
For its one-year analysis, the Compensation Committee reviewed the actual cash incentive paid in 2014 to our CEO against actual cash incentive paid in 2014 to other CEOs in companies comprising the oil industry peer group. It then separately reviewed cash incentive paid to Schlumbergers other named executive officers for 2014 against cash incentive paid over the same period to non-CEO named executive officers in companies comprising the oil industry peer group. The Committee deemed it appropriate to restrict its review to the cash incentive component of total direct compensation for purposes of the one-year analysis, given the relatively short period under review.
For its three-year analysis, the Compensation Committee reviewed the 2012-2014 total realizable compensation of Schlumbergers CEO against other CEOs in companies comprising the oil industry peer group.
It then separately reviewed Schlumbergers other executive officers against other executive officers in companies comprising the oil industry peer group; however, information regarding total realizable compensation of the second- through fifth-highest paid officers at the non-United States companies that are included in the oil industry peer group (e.g., BG Group, BP plc, Eni SpA, Royal Dutch Shell and Total) was not available. As a result, our NEOs total realizable compensation (other than that of our CEO) was compared only against total realizable compensation of named executive officers at US-incorporated companies in the oil industry peer group (for which data was available).
Total realizable compensation for the three-year period consisted of the following:
Because the one- and two-year PSUs that were granted in January 2013 were special (one-time) transition awards granted only in the year of transition to PSUs, the three-year analysis was conducted both with and without these one-time awards taken into account.
Pay Governances analysis demonstrated the following:
Based on the foregoing, the Compensation Committee concluded that pay and performance were appropriately aligned as follows:
Pay Mix and Internal Pay Equity Review
In January 2015, the Compensation Committee carried out an analysis of pay mix and internal pay equity. In carrying out its analysis, the Committee considered the relative size of direct compensation elements of companies in Schlumbergers two main comparator groups, as well as internal factors. With regard to pay mix, the Committee also reviewed the elements of compensation for the Companys NEOs, both in relation to each other and in comparison with the average pay mix of the Companys executive officers. Based on its review, the Committee concluded that the mix of base salary, incentive cash bonus and LTI was appropriate for each of Schlumbergers NEOs.
The Compensation Committee also reviewed internal pay equity in October 2015. The Committee reviewed the CEO position in relation to the other executive officer positions, and the executive officer positions both in relation to one another and in comparison with the average of the other executive officer positions. The Committee noted that the ratio of total direct compensation between the CEO and the second-highest paid executive officer (Mr. Ayat) was similar to that in the three prior years. The Committee also noted that the levels of total direct compensation for the third to the fifth-highest paid officers were very closely clustered together, consistent with their relative positions within the Company. As a result of the foregoing, the Committee concluded that internal pay equity was appropriate.
Peer Group Companies and Benchmarking
The Compensation Committee considers the formal executive compensation survey data prepared by Pay Governance when it reviews and determines executive compensation. The Committee also uses information on the executive compensation practices at various peer group companies when considering design changes to the Companys executive compensation program. To prepare for its executive compensation analysis, the Companys executive compensation department works with Pay Governance to match Company positions and responsibilities against survey positions and responsibilities and to compile the annual compensation data for each executive officer.
The Company has two main executive compensation peer groups, the oil industry and general industry peer groups (our main comparator groups). Beginning in October 2013, the Compensation Committee approved the addition, as described below, of two new peer groups, which remained effective for 2015 compensation decisions as to a very small number of executive officers, only one of which our EVP Technology is an NEO. The 2015 compensation of our EVP of Technology was not determined by reference to our two main comparator groups, but to these two new comparator groups.
The survey data prepared by Pay Governance summarize the compensation levels and practices of our two main comparator groups and the two additional peer groups. These four comparator groups are made up of:
A different comparator peer group is used for the 2015 relative performance component of the annual cash incentive, and is described below in Annual Cash Incentive Decisions for 20152015 Relative Performance Incentive (RPI).
The Compensation Committees selection criteria for companies comprising the four peer groups include:
The Committee, with the assistance of Pay Governance, annually reviews specific criteria and recommendations regarding companies to add to or remove from the comparator groups. As a general matter, the Company selects suitable comparator companies such that companies in each of our two main comparator groups, at the median, approximate Schlumbergers estimated revenue in the then-current year and its then-current market capitalization. The Compensation Committee modifies the peer group criteria as appropriate while seeking a satisfactory degree of stability, to provide a consistent basis for comparison. A challenge facing the Company in determining the companies appropriate for inclusion in our two main comparator groups for 2015 executive compensation decisions was the Companys relatively high market capitalization, rendering it difficult to position Schlumberger at the median of each peer group.
Oil Industry Peer Group
The higher-revenue oil industry peer group comprises companies in the oilfield services, oil and gas E&P, refining and pipeline industries with annual revenues greater than $15 billion. Because of Schlumbergers significant international operations, this peer group includes non-U.S. energy and energy-related companies that also meet the criteria set forth above.
The Compensation Committee includes E&P companies in this peer group based on a number of factors. First, because Schlumberger is significantly larger than all of its direct competitors in the oilfield services industry in terms of revenue and market capitalization, the Compensation Committee believes that the addition of E&P companies provides a more appropriate and complete comparator group. In addition, the Committee believes that the inclusion of E&P companies is appropriate because market consolidation has reduced the number of direct competitors in the oilfield services industry, thus increasing the prominence of E&P companies as competitors for executive talent.
In July 2014, the Compensation Committee reviewed the companies constituting our two main comparator groups based on the criteria set forth above. At the time of its review, Schlumbergers 2014 revenue was forecast to be approximately $49 billion. Applying the selection criteria set forth above, the Compensation Committee approved the removal of Murphy Oil Corporation from the oil industry peer group due to its
significant asset divestitures resulting in annual revenues less than $15 billion, effective for 2015 compensation decisions. No other companies were added to or removed from this peer group. As a result of the foregoing:
The following companies were included in the oil industry peer group effective for relevant 2015 compensation decisions:
Higher-Revenue Oil Industry Peer Group
Oil services, E&P, refining and pipeline companies with annual revenue of more than $15B
General Industry Peer Group
The general industry peer group provides data from large companies with significant international operations, and supplements the compensation data from the oil industry peer group, whose companies are closer to Schlumberger in industry type but have widely varying revenue sizes. The general industry peer group:
The Compensation Committee considers data from the second peer group as it deems necessary or advisable to the extent that data from the first peer group may not exist, or may be insufficient, for some executive officer positions. The second group is also particularly relevant for non-operations positions, where the skills and experience may be easily transferable to other industries outside the oil and gas industry.
In July 2014, the Compensation Committee, applying the selection criteria set forth, approved the removal of four companies Dell Inc., Xstrata, Abbott Laboratories and Nokia from the general industry peer group, effective for 2015 compensation decisions. The removal of each of these companies was due to their ceasing to be a public reporting company or being no longer in a sufficiently relevant industry. Additionally, in light of the removal of these companies and applying the criteria set forth above, Fluor Corporation was added to the general industry peer group. No other companies were added to or removed from this peer group. As a result of the foregoing:
The following companies comprised the general industry peer group effective for relevant 2015 compensation decisions:
General Industry Peer Group
Annual revenue of $25B to $90B with technical and global focus
Additional Peer Groups for Select Positions
As stated above, in October 2013, the Compensation Committee approved the addition of two new peer groups for 2014, which remained effective for certain 2015 compensation decisions. These peer groups were added to address select executive officer positions for which the Committee believed executive compensation data was no longer available or insufficient among the two main comparator groups.
The two additional peer groups serve as an additional point of reference for the Committee, given the scope and level of responsibility of executive positions as to which the Committee requires additional compensation data. Prior to the introduction of these two peer groups, the Committee had determined that select executives who held very senior positions within the Company (including our EVP Technology) could, by virtue of their leadership experience and professional background at Schlumberger, become chief executives of other, smaller companies in the oil and gas industry.
As a result, the Committee believed that it was appropriate, when reviewing and setting the compensation of our EVP Technology and other select executives for 2015, also to compare their total direct compensation against those of chief executive officer positions at smaller oil and gas companies with then-current annual revenues between $2.5 billion and $10 billion.
In addition, the Committee determined that it was appropriate to compare the compensation of our EVP Technology against that of the top R&D executives at other companies in the S&P 500 with R&D expenditures, at the median, very close to Schlumbergers R&D expenditures. As a result, the 2015 compensation of our EVP Technology was not determined by reference to our two main comparator groups, but to these two comparator groups.
Lower-Revenue Oil Industry Peer Group
The lower-revenue oil industry peer group, introduced in October 2013, comprises smaller companies in the oilfield services, oil and gas E&P, refining and pipeline industries, with annual revenues between $2.5 billion and $10.0 billion. Among our NEOs, this peer group is relevant only for the compensation of our EVP Technology.
In October 2014, the Compensation Committee, upon review of the criteria for the lower-revenue oil industry peer group, decided not to add to, or remove any companies from, this peer group, with the result that the following 18 companies formed this peer group effective for relevant 2015 compensation decisions:
Smaller Oil Industry Companies
Oil services, E&P, refining and pipeline companies with annual revenue between $2.5B and $10.0B
R&D Focused Peer Group Similar R&D Expenditures
The R&D-focused peer group, also introduced in October 2013, comprises large companies with significant international operations, some of which also are in our general industry peer group. While the 2013 consolidated revenue of these companies ranged from approximately $2.4 billion to $86.6 billion, their R&D expenditures, at the median, approximated Schlumbergers R&D expenditures in that year. As with the lower-revenue oil industry peer group, this peer group is relevant only for the compensation of our EVP Technology.
In October 2014, the Compensation Committee, upon its review of the criteria for the R&D-focused peer group, determined not to add to, or remove any companies from, to this peer group. The following 40 companies formed the R&D-focused peer group effective for relevant 2015 compensation decisions:
General Industry Peer Group Companies with R&D Focus
Median R&D expenses similar to Schlumbergers R&D expenses
The table below summarizes the executive compensation peer groups that are referred to when reviewing and establishing the compensation of our various NEOs for 2015.
Elements of Compensation
Base salary is the fixed portion of an executives annual cash compensation, which provides some stability of income since the other compensation elements are variable and not guaranteed. On appointment to an executive officer position, base salary is set at a level that is competitive with base salaries in the applicable comparator groups for that position and takes into account other factors described below. Generally, the Compensation Committee targets base salaries for executive officers at or near the 75th percentile of each of the peer groups.
Base salaries for each executive officer position are compared annually with similar positions in the applicable peer groups. Base salary changes for executive officers, except the CEO, are recommended by the CEO and subject to approval by the Compensation Committee, taking into account:
The base salary of the CEO is reviewed by the Compensation Committee in executive session and recommended by the Compensation Committee to the independent members of the Board of Directors for approval, based on the same criteria as above. In addition to periodic reviews based on the factors described above, the Compensation Committee may adjust an executive officers base salary during the year if the executive officer is promoted or if there is a significant change in his or her responsibilities. In this situation, the CEO (in the case of executive officers other than himself) and the Compensation Committee carefully consider these new responsibilities, external pay practices, retention considerations and internal pay equity, as well as past performance and experience. Base salary may also be reduced, such as when an executive officer moves to a position of lesser responsibility in the Company. Alternatively, base salary can be frozen for a number of years until it falls in line with comparable positions in the applicable compensation peer groups.
Base Salary Decisions in 2015
The Compensation Committee carried out a review of the compensation of each of the executive officers in January 2015. Upon review of comparative market data for the applicable comparator groups, and taking into consideration that most of our NEOs were already positioned competitively from a market perspective, the Committee determined to increase the base salary of only one NEO in January 2015. Mr. Al Moaharbels salary was increased from $700,000 to $770,000 so that his salary was no longer below the median for his position in both comparator groups. In April 2015, our CEO assumed the role of Chairman of the Board. In that month, the Compensation Committee again considered his base salary and approved an increase in his salary from $1.7 million to $2.0 million in light of his new, additional role as Chairman of the Board.
Annual Cash Incentive
The Company pays annual performance-based cash incentives to its executives to foster a results-driven, pay for performance culture and to align their interests with those of Schlumbergers stockholders. The Compensation Committee selects performance-based measures that it believes will strike the balance between motivating an executive to increase operating results in the near-term and driving profitable long-term Company growth and value for stockholders. Incentive cash payments are made each February according to the achievement of both personal and Company financial objectives established as described below in the section entitled Annual Cash Incentive Decisions for 2015.
The 2015 target annual cash incentive for our CEO was 150% of his base salary, and 75% or 100% of base salary for the other NEOs, depending on their position. One half of Schlumbergers potential cash incentive is based on the achievement of personal objectives, while the other half is based on Company financial performance against criteria, as described below in the section entitled Annual Cash Incentive Decisions for 2015.
The financial half of the incentive cash payment for NEOs has an incremental financial element, which means that the maximum incentive opportunity can be up to 300% of target with respect to the financial part, based on achievement of superior financial results. This enhanced incentive applies to the CEO and our other executive officers. The personal half of the incentive cash payment has no positive incremental element, meaning the maximum payout with respect to this half of the target annual cash incentive is 100% of target. Under this approach, the maximum incentive opportunity based on both financial and personal objectives combined cannot exceed 200% of target.
The Compensation Committee reviews and recommends to the independent directors of the Board the financial objectives for the CEO and reviews and approves the financial objectives for the other executive officers. The Committee believes that, with regard to financial targets or financial performance goals, it is important to establish criteria that, while very difficult to achieve in an uncertain global economy, are realistic. When considering the Companys operating results for purposes of the financial portion of the annual cash incentive, the Compensation Committee has the discretion to decide whether to take into account unusual or
infrequent charges or gains, depending on the nature of the item. The Compensation Committee exercises its discretion when it believes that executives and other employees would be inappropriately penalized by, or would inappropriately benefit from, these items.
The Committee approves the personal objectives for the CEO and assesses his performance against those objectives in determining his annual cash incentive award, subject to final approval by the independent directors of the Board. The CEO approves the personal objectives for the other executive officers, including the other NEOs, and assesses each such officers performance against their pre-determined objectives, subject to final approval of the Committee.
Annual Cash Incentive Decisions for 2015
Annual Cash Incentive Targets
In April 2015, the Compensation Committee approved an increase to Mr. Schorns annual cash incentive range from 75% to 100% (expressed as a percentage of base salary), effective January 1, 2015, as a result of the increased level of responsibility in Mr. Schorns position. There were no other changes in the target annual cash incentive ranges for any of the other NEOs in 2015.
The financial half of the annual cash incentive opportunity for all executive officers had, prior to 2013, been based solely on EPS. In July 2013, the Compensation Committee approved the inclusion of a relative performance incentive (RPI) component to the financial half of the annual cash incentive, and the Compensation Committee maintained this approach for 2015. As a result, the financial half of the NEOs 2015 annual cash incentive was based equally on achievement of (i) EPS targets and (ii) relative financial performance criteria.
2015 EPS Targets
The Compensation Committee selected EPS as an absolute measure upon which to base half of the financial portion of the annual cash incentive because it is the primary absolute basis on which we set our performance expectations for the year. We believe that consistent EPS growth leads to long-term stockholder value; and EPS is the metric most widely used by investors and analysts to evaluate the performance of Schlumberger.
The process used to set annual EPS targets starts with a review of plans and projections following bottom-up planning from the field, which considers factors such as:
In light of severely reduced industry visibility the Compensation Committee determined at its January 2015 meeting to divide the EPS component of the financial performance goals of our annual cash incentive program into two six-month periods for 2015. As a result, the Compensation Committee determined EPS targets for the six-month period from January 1 through June 30 at its January 2015 meeting, and approved the EPS targets for the six-month period from July 1 through December 31 at its July meeting. The Compensation Committee approved the following EPS performance targets and corresponding payouts for the first six-month period of 2015 at its January 2015 meeting, for purposes of the 2015 annual cash incentive:
Reflecting the continued challenges in the industry, the Companys expectation that the challenging conditions would continue, and the limited visibility for business conditions, the Compensation Committee approved the following EPS performance targets and corresponding payouts for the second half of 2015 at its July 2015 meeting, for purposes of the 2015 annual cash incentive:
For EPS results between any two targets, the payout is prorated. No cash incentive is paid if the minimum EPS target is not met for the applicable six-month period.
2015 Relative Performance Incentive (RPI)
The RPI component of the annual cash incentive is based on our one-year performance in each of our four geographic areas as compared against the performance of Halliburton and Baker Hughes in their corresponding geographic areas, measured by:
The Committee believes that the RPI cash incentive component:
Halliburton and Baker Hughes were selected as our RPI comparator companies for 2015 because we believe they are the only oilfield service companies that have a resemblance to us in terms of scale, scope and nature of business operations, and because we and our investors believe these two companies constitute our main
global business competitors. The Compensation Committee decided to exclude the results of our WesternGeco business for purposes of assessing our relative performance because Halliburton and Baker Hughes have no seismic operations. The performance of our RPI comparator companies for purposes of calculating relative performance is derived from their reported company results.
The RPI payout, if any, to our NEOs is based on the sum of our overall rankings achieved in each of our four geographic areas worldwide, comparing year-over-year revenue growth and margin improvement in each geographic area against that of our two RPI comparator companies. References to geographic areas are to our geographic areas as to which financial results are publicly reported (e.g., North America, Latin America, Middle East & Asia and Europe/CIS/Africa), and for the RPI comparator companies, the same or their nearest equivalent reported geographic area.
The best performance achievable by us in each geographic area is an overall ranking of 1, meaning that we achieved the highest revenue and margin growth performance overall in a geographic area as compared against our two comparator companies; conversely, the worst performance achievable by us in a given geographic area is an overall ranking of 3. Thus, our maximum overall possible achievement in all geographic areas combined for a given year is 4 being the sum of overall 1 rankings in each geographic area which would require that our performance equal or exceed that of our two RPI comparator companies in both financial performance criteria for all four geographic areas. Conversely, our worst overall possible achievement in all geographic areas would be 12, which would require that our two RPI comparator companies outperform us in all four geographic areas as described above.
The following table illustrates how a hypothetical overall ranking would be determined for three companies in a geographic area, taking into account their year-over-year relative performance in both revenue and margin growth:
In this example, Company B ranked highest in revenue in the area, and second-highest in margin growth, for a raw score of 3 (sum of 1 and 2 scores). Company C, meanwhile, ranked second-highest in revenue growth and highest in margin growth, for a raw score of 3 (sum of 2 and 1 scores). Company A, meanwhile, performed behind both Company B and C in both categories, for a raw score of 6 (sum of 3 scores in both categories). Thus, Company B and C tied for the best overall area rank 1 because each achieved the lowest total raw score of 3.
The Compensation Committee approved the following performance payout matrix in early 2015:
RPI Performance Payout Matrix
The Compensation Committee retains the discretion to increase the total RPI payout to a maximum of 300% upon an RPI achievement of 4, being the highest achievement level attainable, as the Committee deems appropriate. The Committee also retains the discretion to increase or decrease the total RPI payout to take into account such factors as overall Company performance, extraordinary items affecting financial results or such other factors as the Committee deems appropriate.
EPS Results. Schlumbergers EPS, excluding charges and credits, was $1.94 for the six-month period from January 1, 2015 to June 30, 2015, while EPS on a GAAP basis was $1.64 for the same period, reflecting $0.30 of charges attributable to currency devaluation loss in Venezuela and workforce reductions. Schlumbergers EPS, excluding charges and credits, was $1.43 for the six-month period from July 1, 2015 to December 31, 2015, while EPS on a GAAP basis was a loss of $0.02, reflecting $1.45 of charges primarily attributable to workforce reductions and an incentivized leave of absence program, fixed asset impairments, inventory write-downs, impairment of an SPM project, facility closures, geopolitical events in the Middle East, contract termination costs and other items associated with the current market conditions. Please see the reconciliation of these non-GAAP measures to the comparable GAAP measures on Appendix A. As in prior years, the Compensation Committee evaluated performance based on EPS excluding charges and credits, consistent with the manner in which the Company presents EPS in its earnings announcements and presentations to investors. Furthermore, the Committee believed that the $0.30 of charges in the first half of 2015 and the $1.43 of charges in the second half of 2015 resulted in EPS on a GAAP basis that did not reflect Schlumbergers operating trends and arose largely from actions that management took in order to proactively address the industry downturn and other events outside of management control. Based on these results, the Compensation Committee approved a payout of 74% of target for the first half of 2015 and 88% of target for the second of 2015, resulting in a combined percentage of 81% of target for the EPS component of the annual cash incentive.
RPI Results. According to the RPI Performance Payout Matrix above, we achieved an RPI result in 2015 of 6, corresponding to a total RPI payout of 175% of target. Accordingly, the Committee approved an RPI payout of 175% out of a possible 250%.
Fifty percent of an executives annual cash incentive opportunity is tied to achievement of personal objectives that are specific to each executive officer position and may relate to:
The award for the personal half of the annual cash incentive opportunity was based on the specific results each named executive officer achieved, as approved by the Compensation Committee. Personal objectives are set at the start of the fiscal year. At the end of the fiscal year, the CEO uses his judgment to evaluate the performance of the other NEOs against their personal objectives, taking into account performance for the just-completed fiscal year versus predefined commitments for the fiscal year; unforeseen financial, operational and strategic issues of the Company; and any other information deemed relevant by the CEO. The Compensation Committee evaluates the performance of the CEO in a similar way, subject to approval by independent directors of the Board.
Mr. Kibsgaards 2015 objectives related to personnel, recruiting and training; research development and manufacturing improvements; improvements in service quality; and implementation of the transformation program, each of which he achieved, and (b) specific business projects including the transaction with Cameron International Corporation, which he mainly achieved.
Mr. Ayats 2015 objectives related to (a) completion of certain mergers and acquisitions; improving free cash flow as a percentage of earnings; the response rate to ethics inquiries; and implementing our transformation program plan for our segments, all of which he achieved, and (b) growth compared to our largest competitor, which he mainly achieved.
Mr. Belanis 2015 objectives related to (a) new technology revenue; improving free cash flow as a percentage of earnings; improvements in service quality; health, safety and environmental (HSE) improvements; and implementation of the transformation program, each of which he achieved, and (b) growth compared to our largest competitor, which he mainly achieved.
Mr. Schorns 2015 objectives related to (a) improving free cash flow as a percentage of earnings; improvements in service quality; HSE improvements; and implementation of the transformation program, each of which he achieved, and (b) growth compared to our largest competitor, which he mainly achieved.
Mr. Al Mogharbels 2015 objectives related to (a) improving free cash flow as a percentage of earnings; operation team performance; and implementation of the transformation program, each of which he achieved, and (b) improvements in service quality, and growth compared to our largest competitor, both of which he mainly achieved.
2015 Annual Cash Incentive as a Percentage of Base Salary
Long-Term Equity Compensation
Long-term equity incentives make up the largest portion of the compensation of our NEOs. They are designed to give NEOs and other high-value employees a longer-term stake in the Company, provide incentives for the creation of sustained stockholder value, act as long-term retention and motivation tools, and directly tie employee and stockholder interests over the longer term.
Our LTI awards for our NEOs and other senior executives are delivered through and equal mix of three-year PSUs and stock options, consistent with market practices at many companies in our main comparator groups. In January 2015 (as in 2014) our NEOs and other senior executive officers received 50% of their target LTI compensation in the form of three-year PSUs and 50% in the form of stock options. For the 2015 PSU grants, the Committee established performance goals using Return on Capital Employed (ROCE) as its performance measure to determine payouts, as more fully discussed below under 2015 PSU Performance Measure and Goals. This performance measure was also used for the 2013 and 2014 PSU grants.
We believe that the inclusion of PSUs in our LTI compensation program:
While PSUs further align our executives compensation with the stock price returns experienced by our stockholders and encourage our executives to achieve strategic and financial goals that support our long-term performance, the Compensation Committee believes that stock options are also a form of performance-based compensation. Because of this, stock options remain a significant component of our senior executives LTI compensation. This reflects the Compensation Committees strong belief that our senior executives long-term equity incentive compensation should remain directly linked to the performance of our stock, since the value of stock options is solely tied to the Companys stock price, and any decline in the Companys stock price should also have a negative impact on our executives pay.
Value of Long-Term Equity Awards
The Compensation Committee determines the value of LTI awards to executive officers at its first meeting as described above in the section entitled Annual Cash Incentive Decisions for 2015. The value of an LTI grant increases with the level of an executives responsibility at the Company, and for the CEO and our other NEOs is the largest element of their total direct compensation package. In determining the value of LTI awards granted to executive officers, the Compensation Committee (in approving the CEOs grant) and the CEO (in recommending grants for the other NEOs) first considers market data on the LTI value for the most comparable positions in the Companys two main comparator groups, as well as several other factors, which may include:
Once the Compensation Committee has determined, based on the relevant factors above in its discretion, the target dollar value of LTI awards for an NEO, the Committee grants 50% of this value in PSUs and 50% in stock options. The Committee believes that this mix of PSUs and stock options strikes an appropriate balance between rewarding increases in the market value of our common stock (stock options) and tying long-term compensation to achievement of specific performance goals that are not based on the stock market (PSUs). The target number of PSUs awarded to an executive is determined by dividing 50% of the total target LTI value by the estimated grant date fair value of a PSU; the number of options awarded is determined by dividing 50% of the total target LTI value by the estimated grant date fair value using the Black-Scholes formula.
The actual grant date fair value of each grant, computed in accordance with applicable accounting standards, is disclosed in the Grants of Plan-Based Awards for Fiscal Year 2015 table below. The tables below detail the estimated grant date fair value and number of PSUs and stock options granted in 2015 to the NEOs. Because of differences in how the grant date fair values of PSU and option awards must be calculated for accounting purposes, the amounts reported in the Summary Compensation Table may not reflect the same proportion of PSUs and stock options. These grant date values are approximate grant date accounting values only, and the actual value that an NEO may realize depends on factors such as the NEOs continued service, Schlumbergers future stock price performance and the achievement of certain pre-established performance goals.
Annual Long-Term Equity Grants for 2015
The Compensation Committee approved (and in the case of Mr. Kibsgaard, our Chairman and CEO, the independent members of the Board of Directors approved) the following awards for the NEOs in January 2015. The Compensation Committee, based on its review of comparator peer group data presented to the Committee, determined to hold LTI grant values flat in 2015 for all of our NEOs. The following table shows the grant values of the NEOs 2014 annual LTI awards and the year-over-year percentage change between the two amounts.
The 2015 PSUs will vest and convert to shares of our common stock at the end of the three-year performance period ending December 31, 2017, contingent on continued employment and achievement of a pre-determined performance target. No shares will be issued under the PSUs if we do not achieve a pre- established threshold performance level. No dividends will accrue or be paid on any PSUs during the performance period. Stock options vest ratably in equal installments over five years.
2015 PSU Performance Measure and Goals
The Compensation Committee set goals for the 2015 PSUs based on Return on Capital Employed (ROCE) goals for the Company over the applicable performance period. ROCE is a measure of the efficiency of our capital employed. We calculate ROCE as a ratio, the numerator of which is (a) income from continuing operations, excluding charges and credits plus (b) after-tax net interest expense, and the denominator of which is (x) stockholders equity, including non-controlling interests (average of beginning and end of each quarter in the year), plus (y) net debt (average of beginning and end of each quarter in the year). The Compensation Committee has the discretion to adjust the Companys income from continuing operations to take into account the effect of
significant impacts or activities that are not representative of underlying business operations, such as acquisitions, divestitures, asset impairments and restructurings. Furthermore, the Committee evaluates, and may adjust for, the effect of acquisitions or divestments on a case-by-case basis for purposes of the ROCE calculation.
We selected ROCE because we believe that it is a comprehensive indicator of long-term Company and management performance, as it measures both profitability as well as the efficiency with which we deploy and utilize our capital. Our selection of ROCE as the performance measure for the 2015 PSUs is also consistent with our strategic direction and transformation initiatives. Furthermore, ROCE measures performance in a way that is tracked and understood by investors. The Compensation Committee believes that tying a part of our senior executives LTI pay to achievement of challenging ROCE targets will help to increase revenue and improve margins through pricing and continued focus on cost control. We chose an absolute measure rather than a relative one such as total shareholder return and EPS growth due to greater ability of our executives and key employees to directly impact our performance results. Furthermore, the Committee considered the difficulty of finding suitable comparators, insofar as oil and gas E&P companies have a different business model than we do, and because we are much larger than all of our direct oilfield service competitors.
The performance period for the 2015 PSUs began on January 1, 2015 and ends on December 31, 2017. Vesting is conditioned upon the Companys achievement of annual pre-determined threshold ROCE of at least 12.5% for the performance period, subject to continued employment. In calculating such achievement, the Companys average annual ROCE will be used, calculated as the average ROCE for each calendar year contained in the performance period. See Potential Payments Upon Termination or Change in Control for Fiscal Year 2015Termination of EmploymentPSUs and Potential Payments Upon Termination or Change in Control for Fiscal Year 2015Change of ControlPSUs, beginning on page 57 for more information.
The Compensation Committee approved the PSU goals as described above in the section entitled Annual Cash Incentive Decisions for 2015 after of the Companys historical ROCE. The Committee also considered our internal forecasts at the time of grant, which indicated that achieving the target level of performance would be difficult but attainable. Our ROCE for 2012, 2013 and 2014 was 15.1%, 16.3% and 16.9%, respectively.
The number of PSUs that will vest and convert to shares as of the vesting date can range from 0% to 250% of the number of PSUs awarded, depending on our performance during the performance period as illustrated in the following table. At the end of the measurement period, the Compensation Committee will certify the ROCE achieved and will determine the percentage of target shares earned based on the table below. In no event will payout exceed 250%. If the ROCE achieved is less than or equal to 12.5%, no shares will be issued.
(1) Fractional shares rounded up to the next whole share. Number of shares determined by linear interpolation between performance levels.
2013 Three-Year PSU Achievement
In January 2016, the Compensation Committee determined the results of the three-year performance period for the three-year PSUs issued in January 2013, relative to the performance criteria established as described below in the section entitled Annual Cash Incentive Decisions for 2015. Average Annual ROCE
achieved for the period 2013-2015 was 14.53%, representing achievement of 81.2% of target according to the table above. However, the Compensation Committee exercised its discretion and awarded our NEOs 100% of the target shares under the three-year PSUs. The Compensation Committee exercised this discretion in light of the excellent performance of the management team in mitigating effects of the downturn and the resulting strong performance as measured by ROCE, margins and free cash flow relative to our competitors and others in the industry.
Long-Term Equity Awards Granting Process
The Compensation Committee is responsible for granting long-term equity-based compensation under our stock option and omnibus incentive plans. The Committee approves a preliminary budget for equity-based grants for the following year at each October Compensation Committee meeting. Management determines the allocation for groups within the Company and individual recommendations are made by the heads of the Groups and approved by the CEO. The Compensation Committee approves and grants all equity-based awards, including executive officer awards, which are recommended by the CEO, except for his own. Awards for executive officers other than the CEO are granted by the Compensation Committee and discussed with the Board of Directors. Awards for the CEO are granted by the Committee following approval by the full Board.
The regular Board of Directors and Compensation Committee meeting schedule is set at least a year in advance with Board meetings held quarterly, generally on the third Thursday of January, April, July and October, and the committee meetings held the day before each Board meeting. The timing of these committee meetings is not determined by any of the Companys executive officers and is usually two days in advance of the Companys announcement of earnings. The Compensation Committee sets the equity award grant date as the day of the Board meeting. The Company does not time the release of material non-public information for the purpose of affecting the values of executive compensation. At the time equity grant decisions are made, the Compensation Committee is aware of the earnings results and takes them into account, but it does not adjust the size or the mix of grants to reflect possible market reaction.
Typically, annual grants of equity-based awards to the NEOs and other senior executive officers are made at the January meeting of the Compensation Committee, while such annual grants for the rest of the Companys eligible employees are made at the April meeting of the Committee. However, specific grants may be made at other regular meetings, to recognize the promotion of an employee, a change in responsibility or a specific achievement. The exercise price for all stock options granted to executive officers and other employees is the average of the high and low trading price of the Schlumberger common stock on the NYSE on the date of grant, which has been Schlumbergers practice for many years. The Board and the Compensation Committee have the discretion to grant equity awards with different vesting schedules as they deem necessary.
Important Factors in Understanding Schlumbergers Use of Stock Options
The Companys equity incentive plans do not permit the following:
Executive Stock Ownership Guidelines
The Compensation Committee and management believe strongly in linking executive long-term rewards to stockholder value. The Board of Directors, upon recommendation of the Nominating and Governance Committee and the Compensation Committee, adopted revised executive stock ownership guidelines in 2011 applicable to executive officers and other key position holders. Senior executives are required to hold the numbers of shares equal to the multiple of base salary set forth below.
All executives subject to the revised guidelines must retain 50% of net shares acquired upon the exercise of stock options and the vesting of PSUs and restricted stock units (RSUs), after payment of applicable taxes, until they achieve the required ownership level. The guidelines provide that executives have five years to satisfy the ownership requirements. After the five-year period, executives who have not met their minimum stock ownership requirement must retain 100% of the net shares acquired upon stock option exercises and any PSU and RSU vesting until they achieve their required ownership level. Stock ownership for the purpose of these guidelines does not include shares underlying vested or unvested stock options, unvested RSUs or unvested PSUs.
Prohibition on Speculation in Schlumberger Stock
Schlumbergers insider trading policy prohibits executives from speculating in the Companys stock, which includes, but is not limited to, short selling; buying or selling publicly-traded options, including writing covered calls, pledging, and hedging or any other type of derivative arrangement on the Companys stock that has a similar economic effect.
In line with Schlumbergers aim to encourage long-term careers with the Company and to promote retention, retirement plans are provided, where possible, for all employees, including named executive officers, according to local market practice. Schlumberger considers longer-term benefit plans to be an important element of the total compensation package. The pension plans provide for lifetime benefits upon retirement after a specified number of years of service and take into account local practice with respect to retirement ages. They are designed to complement but not be a substitute for local government plans, which may vary considerably in terms of the replacement income they provide, and other Company sponsored savings plans. Employees may participate in multiple retirement plans in the course of their career with the Company or its subsidiaries, in which case they become entitled to a benefit from each plan based upon the benefits earned during the years of service related to each plan. The qualified plans are funded through cash contributions made by the Company and its subsidiaries based on actuarial valuations and/or regulatory requirements.
Some of the Schlumberger U.S. retirement plans are non-qualified plans that provide an eligible employee with additional retirement savings opportunities that cannot be achieved with tax-qualified plans due to limits on annual compensation that can be taken into account or annual benefits that can be provided under qualified plans.
Officers and other employees in the United States whose compensation exceeds the qualified plan limits are eligible to participate in non-qualified excess benefit programs for 401(k), profit-sharing and pension, whereby they receive correspondingly higher benefits. Employees and executive officers assigned outside the United States are entitled to participate in the applicable plans of the country where they are assigned, including supplemental plans where available.
The Company has a practice of phased retirement, which, at the discretion of the Company, may be offered to executive officers (other than the CEO) that are approaching retirement. This practice involves a transition into retirement whereby the individual ceases being an executive officer and relinquishes primary responsibilities. He or she remains an employee and generally receives lesser salary over time for reduced responsibilities and reduced working time. The arrangements are typically in place for an average of two to three years, as agreed at the start of the term. The purpose is to allow the outgoing executive officer to support the incoming executive officer for a period of time to provide for a smooth succession and to provide resources to the Company in particular areas of expertise while refraining from joining a competitor. In these circumstances, the Company maintains pension contributions and other benefits such as medical and insurance, and the executive officer continues to vest in previously granted stock options. The executive officer, however, is no longer eligible for additional equity incentive compensation or, once his or her work time is reduced, for an annual cash incentive.
Schlumberger seeks to provide benefit plans, such as medical coverage and life and disability insurance, on a country-by-country basis in line with market conditions. Where the local practice is considered to be less than the Schlumberger minimum standard, the Company generally offers this Schlumberger standard. Executive officers are eligible for the same benefit plans provided to other employees, including medical coverage and life and disability insurance as well as supplemental plans chosen and paid for by employees who wish additional coverage. There are no special insurance plans for our named executive officers.
Schlumberger provides only minimum perquisites to its executive officers, which (as to the NEOs) have been identified in the narrative notes to the Summary Compensation Table. The same perquisites are generally available to all professional-level employees. For example, relocation assistance is provided to all employees on a Company-wide basis.
No Employment Agreements
Our executive officers do not have employment, severance or change-in-control agreements, except for agreements entered into in connection with phased retirement as described above. The Companys executive officers serve at the will of the Board of Directors, which enables the Company to terminate their employment using judgment as to the terms of any severance arrangement and based on specific circumstances at the time they cease being executive officers.
Recoupment of Performance-Based Cash Awards
On the recommendation of the Compensation Committee in July 2006, the Board of Directors adopted a policy on recouping performance-based cash awards in the event of specified restatements of financial results. Under the policy, if financial results are significantly restated due to fraud or intentional misconduct, the Board will review any performance-based cash awards paid to executive officers who are found to be personally responsible for the fraud or intentional misconduct that caused the need for the restatement and will, to the extent permitted by applicable law, require recoupment of any amounts paid in excess of the amounts that would have been paid based on the restated financial results.
2015 Say-on-Pay Advisory Vote to Approve Executive Compensation
Schlumberger provided stockholders a say-on-pay advisory vote to approve its executive compensation in April 2015. At Schlumbergers 2015 annual general meeting of stockholders, stockholders expressed substantial support for the compensation of its NEOs, with approximately 96.6% of the votes cast for approval of the say-on-pay advisory vote. The Compensation Committee carefully evaluated the results of the 2015 annual advisory say-on-pay vote at its April meeting. The Compensation Committee also considers numerous other factors in evaluating Schlumbergers executive compensation program as discussed in this CD&A. While each of these factors informed the Committees decisions regarding the NEOs compensation, the Compensation Committee did not implement changes to our executive compensation program as a result of the stockholder advisory vote.
Impact of Tax Treatment
Schlumberger grants both incentive stock options and non-qualified stock options according to U.S. tax regulations.
Section 162(m) of the Internal Revenue Code limits the deductibility of certain compensation expenses in excess of $1,000,000 per individual covered employee. The Companys equity incentive plans are intended to provide stock options that qualify as performance-based compensation for purposes of Section 162(m) so that stock options are not expected to be subject to the $1 million limitation. PSUs are also intended to meet the requirements for qualified performance-based compensation exempt from the deduction limitations of Section 162(m). The Compensation Committee believes that the lost deduction on cash compensation payable in excess of the $1 million limitation for the named executive officers is not material relative to the benefit of being able to adjust incentives as determined appropriate under a plan that is not subject to the conditions of Section 162(m). Accordingly, the Compensation Committee retains the discretion to pay compensation that is subject to the $1,000,000 deductibility limit.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with the Companys management the Compensation Discussion and Analysis included in this proxy statement. Based on that review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE SCHLUMBERGER BOARD OF DIRECTORS
2015 Summary Compensation Table
The following table sets forth the compensation paid by the Company and its subsidiaries for the fiscal year ended December 31, 2015 to the Chief Executive Officer, the Chief Financial Officer, the next three most highly compensated executive officers who were serving as executive officers as of December 31, 2015 (each an NEO or a named executive officer).
The value of the 2015 PSUs at the grant date, assuming achievement of the maximum performance level of 250%, would be: Mr. Kibsgaard $15,056,756; Mr. Ayat $5,012,932; Mr. Belani $4,509,843; Mr. Schorn $4,024,720; and Mr. Al Mogharbel $4,024,720.
The NEOs may never realize any value from the PSUs and, to the extent that they do, the amounts realized may have no correlation to the amounts reported above.
The NEOs may never realize any value from these stock options and, to the extent that they do, the amounts realized may have no correlation to the amounts reported above.
Grants of Plan-Based Awards for Fiscal Year 2015
The following Grants of Plan-Based Awards table provides additional information about stock and option awards and equity incentive plan awards granted to our named executive officers during the year ended December 31, 2015.
Actual cash incentive amounts earned for 2015 are reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. For information regarding the annual cash incentive paid to Schlumbergers NEOs with respect to 2015 performance, see Compensation Discussion and AnalysisElements of CompensationAnnual Cash Incentive Decisions for 2015.
Outstanding Equity Awards at Fiscal Year-End 2015
The following table provides information regarding unexercised stock options outstanding and outstanding PSU awards for each of our NEOs as of December 31, 2015.
Option Exercises and Stock Vested for Fiscal Year 2015
The following table sets forth certain information with respect to stock options exercised, restricted stock units and PSUs that vested during 2015 for our NEOs.
Stock Awards (Columns (d) and (e))
The following table provides details of the stock awards vested and value realized in 2015.
Pension Benefits for Fiscal Year 2015
Schlumberger maintains the following pension plans for its named executive officers and other employees, which provide for lifetime pensions upon retirement, based on years of service:
The following table and narrative disclosure set forth certain information with respect to pension benefits payable to the named executive officers.
Tax-Qualified Pension Plans
The SLB Pension Plan, the STC Pension Plan and the SLB USAB Pension Plan are all U.S. tax-qualified pension plans. The SLB Pension Plan and the STC Pension Plan have substantially identical terms. The SLB USAB Pension Plan, the material terms of which are described below, has similar, but not identical, terms. Employees may participate in any one of these plans in the course of their careers with Schlumberger, in which case they become entitled to a pension from each such plan based upon the benefits accrued during the years of service related to such plan. These plans are funded through cash contributions made by the Company and its subsidiaries based on actuarial valuations and regulatory requirements. Benefits under these plans are based on an employees admissible compensation (generally base salary and cash incentive) for each year in which an employee participates in the plan, and the employees length of service with Schlumberger.
Since January 1, 1989, the benefit earned under the SLB Pension Plan and the STC Pension Plan has been 1.5% of admissible compensation for service prior to the employees completion of 15 years of active service and 2% of admissible compensation for service after completion of 15 years of active service. Since 2009, the benefit earned under the SLB USAB Pension Plan has been 3.5% of admissible compensation for all service. Normal retirement under these plans is at age 65; however, early retirement with a reduced benefit is possible at age 55 or as early as age 50 with 20 years of service. Additionally, under the rule of 85, an employee or executive officer who terminates employment after age 55 and whose combined age and service is 85 or more, is eligible for retirement with an unreduced pension. Messrs. Ayat and Belani are eligible for retirement with an unreduced pension under the rule of 85. The benefits are usually paid as a lifetime annuity.
In 2004, the SLB Pension Plan and the STC Pension Plan were amended to generally provide that employees hired on or after October 1, 2004 would not be eligible to participate. Newly-hired employees are eligible to participate in an enhanced defined contribution plan, which provides a Company contribution, depending on an employees 401(k) contribution and the profitability of the Company in a given year.
Schlumberger Supplementary Benefit PlansNonqualified Pension
The SLB Supplementary Plan and the STC Supplementary Plan each provide non-tax-qualified pension benefits. Each of these plans, which have substantially identical terms, provides an eligible employee with benefits equal to the benefits that the employee is unable to receive under the applicable qualified pension plan due to the U.S. Internal Revenue Code of 1986, as amended (the Code), limits on (i) annual compensation that can be taken into account under qualified plans and (ii) annual benefits that can be provided under qualified plans.
The retirement age under nonqualified pension plans is the same as under the tax-qualified pension plans. These benefits are subject to forfeiture if the employee leaves the Company or its subsidiaries before the age of 50 with five years of service, engages in certain dishonest acts or has violated a confidentiality arrangement involving the Company or its affiliates. Messrs. Ayat and Belani are eligible for retirement with an unreduced pension under the rule of 85, described above. Nonqualified plan benefits are paid to an employee upon separation from service, provided the employee has attained the age of 55, or if earlier, the age of 50 with 20 years of service. Payment is made as a joint and survivor annuity, if married; otherwise, payment is made as a life-only annuity. Payment to key employees is delayed six months following separation from service. These nonqualified plan benefits are payable in cash from the Companys general assets and are intended to qualify as excess benefit plans exempt from certain requirements of Title I of the Employee Retirement Income Security Act of 1974 (ERISA).
French Supplementary Pension Plan
Effective January 2006, the Company adopted the SLB French Supplementary Plan for exempt employees in France. The plan complements existing national plans and provides a pension beginning after age 60 when an employee retires from Schlumberger and is eligible for a French state pension under the current rules
at the time of retirement. The benefit is equivalent to 1.5% of admissible compensation (generally base salary and cash incentive) above the earnings cap for fewer than 15 years of service and 2% of admissible compensation for more than 15 years of service. No employee contributions are required or permitted. The benefit is paid as a lifetime annuity. If an eligible employee were to leave the Company before the minimum age of 60 to receive his or her French pension, then the employee would not receive a benefit under the plan. If the eligible employee is terminated after age 55, is not subsequently employed and is otherwise entitled to a French pension, then the employee would receive a benefit under the plan. The Company does not grant and does not expect to grant extra years of credited service under the supplementary pension plans to named executive officers.
International Staff Pension Plan
Recognizing the need to maintain a high degree of mobility for certain of the Companys employees who otherwise would be unable to accumulate any meaningful pension because they are required to work in many different countries, the Company maintains the SLB International Staff Pension Plan for such employees. All of the Companys named executive officers have either been in the SLB International Staff Plan at some time during their career prior to becoming an executive officer or are in the plan because of their current assignment. This plan provides for a lifetime annuity upon retirement based on a specified number of years of service. The plan is funded through cash contributions made by the Company or its subsidiaries, along with mandatory contributions by employees.
Prior to January 2010, benefits under this plan were based on a participants admissible compensation (base salary, geographical or rotational coefficient, as applicable, and cash incentive) for each year in which the employee participated in the plan and the employees length of service. The benefit earned up to December 31, 2009 is 2.4% of admissible compensation prior to completion of 15 years of service, and 3.2% of admissible compensation for each year of service after 15 years. Following the completion of 20 years of service, the benefit earned with respect to the first 15 years of service is increased to 3.2%. Benefits are payable upon normal retirement age, at or after age 55, or upon early retirement with a reduction, at or after age 50 with 20 years of service. Messrs. Ayat and Belani are eligible for normal retirement with no reduction.
Since January 1, 2010, the benefit earned has been equal to 3.5% of admissible compensation regardless of an employees years of service. Benefits earned on or after this date are payable upon normal retirement age, at or after age 60, or upon early retirement with a reduction, at or after age 55.
Nonqualified Deferred Compensation for Fiscal Year 2015
The following table and narrative disclosure set forth certain information with respect to nonqualified deferred compensation payable to the NEOs.
SLB Supplementary Benefit PlanNon-Qualified Profit Sharing
The SLB Supplementary Plan provides certain non-tax-qualified defined contribution benefits for eligible employees, including named executive officers. Schlumberger Technology Corporation maintains the STC Supplementary Plan with substantially identical terms.
The SLB Supplementary Plan and the STC Supplementary Plan provide an eligible employee with discretionary Company profit sharing contributions that are not permissible under the applicable tax-qualified plan due to Code limits on (1) annual compensation that can be taken into account under the qualified plan and (2) annual benefits that can be provided under the qualified plan. These nonqualified plan benefits are credited with earnings and losses as if they were invested in the qualified plan, with the same employee investment elections as the qualified plan. An employee forfeits all rights under the non-qualified plans if the employee terminates employment before completing four years of service, engages in certain dishonest acts or has violated a confidentiality arrangement involving the Company or its affiliates. These nonqualified plan benefits are paid in a lump-sum payment following the end of the year in which the employee terminates active service, or the employee can elect to receive payment in installments of five or ten years following the termination of service. If the employee dies before full payment of these benefits, the unpaid benefits are paid in a lump sum to the beneficiaries designated under the applicable qualified plan. Payment to key employees is delayed six months following separation from service.
SLB Restoration Savings Plan
The SLB Restoration Savings Plan, a non-qualified deferred compensation plan, provides certain defined contribution benefits for the named executive officers and other eligible employees. The SLB Restoration Savings Plan allows an eligible employee to defer compensation (and receive an associated employer match) that the employee cannot defer under the applicable tax-qualified plan because of Code limits on the amount of compensation that can be taken into account.
An eligible employee may elect in advance to defer a percentage (from 1% to 50%) of his or her compensation (generally base salary and cash incentive) over the Code annual compensation limits. The election cannot be changed during the year. The Company makes an annual matching contribution with respect to each employees deferrals for a year, if the employee is still employed by the Company or an affiliate on the last day of the year. For employees who participate in a Schlumberger pension plan, the amount of the matching contribution is equal to one-half of the first 6% deferred by the employee in profitable years. For employees who do not participate in a Schlumberger pension plan, the matching contribution is 100% of the first 6% deferred by the employee. The match is made each payroll period and is not contingent on profitability of the Company. Employees accounts are credited with earnings, calculated to mirror the earnings of the relevant funds under the Schlumberger Master Profit Sharing Trust as chosen by the employee. If the employee is eligible for the SLB Savings and Profit Sharing Plan, matching contributions and related earnings vest based on the employees years of service, as follows:
If the employee is eligible for the SLB Savings and Profit Sharing Plan for U.S. Taxpayers Employed Abroad, matching contributions and related earnings vest based on the employees years of service, as follows:
An employees account fully vests on his or her death, his or her 60th birthday or plan termination. An employees vested account balance is paid in a single lump sum (subject to tax withholding) following the participants death, qualifying disability, retirement or other qualifying termination of employment or the employee can elect to receive payment in installments of five or ten years for contributions made after June 30, 2015, following the termination of employment. However, an employee forfeits all benefits under the plan if a determination is made that the employee has engaged in certain dishonest acts or violated a confidentiality arrangement involving Schlumberger or its affiliates. Payment to key employees is delayed six months following separation from service.
SLB International Staff Profit-Sharing Plan
Schlumberger maintains the SLB International Staff Profit-Sharing Plan, which provides for an annual employer contribution based on admissible compensation (base salary, geographical or rotational coefficient, as applicable, and cash incentive). Amounts allocated to the participants accounts share in investment gains and/or losses of the trust fund and are generally distributed in a lump sum upon the satisfaction of certain conditions on termination of employment. Benefits earned under the SLB International Staff Profit-Sharing Plan will be forfeited upon a determination by the SLB International Staff Profit-Sharing Plans administrator that the employees separation from service was due to or in circumstances of fraud or misconduct detrimental to the Company, an affiliate or any customer.
Potential Payments Upon Termination or Change in Control for Fiscal Year 2015
No Additional Payments Upon Termination or Change in Control
Our named executive officers generally receive the same benefits as other employees. As is the case with other compensation arrangements, any differences are generally due to local (country-specific) requirements. In line with this practice, executive officers do not have employment agreements, golden parachutes or change in control agreements, except for agreements entered into in connection with phased retirement as described above. The Companys executive officers serve at the will of the Board of Directors, which enables the Company to terminate their employment using judgment as to the terms of any severance arrangement and based on specific circumstances at the time they cease being executive officers.
All salaried employees who receive stock options, and all senior executives who receive PSUs, are subject to the same terms and conditions in the event of a termination or change in control.
Schlumberger has a practice of phased retirement, which may be offered to executive officers (other than the CEO) approaching retirement, at the discretion of the Company. See Compensation Discussion and AnalysisBenefitsRetirement Practices.
Termination of Employment
Stock Options. This section summarizes the consequences for NEOs and other employees under our stock option plans and standard form of stock option award agreement in the event an option holders employment terminates.
Notwithstanding the vesting and exercisability provisions described above, an option holder may forfeit his or her right to exercise stock options, and may have certain prior option exercises rescinded, if such holder engages in detrimental activity within one year after termination of employment (or five years after termination of employment in the event of retirement or disability).
If an optionee dies following termination of employment, but during the period in which the optionee would otherwise be able to exercise the option, then the person entitled under the option holders will or by the applicable laws of descent and distribution will be entitled to exercise the option until the earlier of (i) 60 months following the date of the optionees termination of employment or (ii) the expiration of the original term. Death following termination of employment will not result in any additional vesting, so that the option will be exercisable to the extent provided in the matrix above based on the circumstances of the optionees termination of employment.
PSUs. This section summarizes the consequences for NEOs holding PSUs granted under the Companys 2010 Omnibus Stock Incentive Plan and 2013 Omnibus Stock Incentive Plan and subject to the Companys standard form of three-year PSU award, in the event the PSU holders employment terminates.
PSUs are treated as follows upon the holders termination of employment with the Company and its subsidiaries prior to the vesting date (i.e., the three-year anniversary of the grant date).
For these purposes retirement is defined as termination of employment with the Company and all subsidiaries either at or after (i) age 60 and completion of at least 25 years of service with the Company and all subsidiaries or (ii) age of 55 and completion of at least 20 years of service with the Company and all subsidiaries subject to the approval of the compensation committee; special retirement is defined as termination of employment with the Company and all subsidiaries either at or after (i) age 55 or (ii) age 50 and completion of at least 10 years of service with the Company and all subsidiaries; and disability is defined as a disability (whether physical or mental impairment) which totally and permanently incapacitates the holder from any gainful employment in any field which the holder is suited by education, training, or experience, as determined by the Compensation Committee.
Change in Control
Stock Options. Pursuant to Schlumbergers stock option plans and standard form of stock option award agreement (other than awards issued under the 2010 Omnibus Stock Incentive Plan and the 2013 Omnibus Stock
Incentive Plan), in the event of any reorganization, merger or consolidation wherein Schlumberger is not the surviving corporation, or upon the liquidation or dissolution of Schlumberger, all outstanding stock option awards will, unless alternate provisions are made by Schlumberger in connection with the reorganization, merger or consolidation for the assumption of such awards, become fully exercisable and vested, and all holders will be permitted to exercise their options for 30 days prior to the cancellation of the awards as of the effective date of such event. Under both the 2010 Omnibus Stock Incentive Plan and the 2013 Omnibus Stock Incentive Plan, the Compensation Committee retains the discretion to adjust outstanding awards in the event of corporation transactions and outstanding options may be, but are not required to be, accelerated upon such a transaction.
The following table sets forth the intrinsic value of the unvested stock options held by each named executive officer as of December 31, 2015 that would become vested upon the occurrence of death, disability or a change in control in which Schlumberger is not the surviving entity and alternative provisions are not made for the assumption of awards, as described in the preceding paragraphs. Due to the number of factors that affect the nature and amount of any benefits provided upon these events, any amounts actually paid or distributed may be different. Factors that could affect these amounts include the time during the year of any such event and the price of Schlumberger common stock.
If Schlumberger merges or consolidates with another entity and is the surviving entity, then a holder of stock options granted pursuant to Schlumbergers stock options plans will be entitled to receive, upon exercise or vesting, in lieu of the number of shares with respect to which the award is exercisable or vested, the number and class of shares of stock or other securities that the holder would have been entitled to receive under the terms of such merger or consolidation if, immediately prior to such event, such holder had been the holder of record of the number of shares of Schlumberger common stock equal to the number of shares as to which such award is then exercisable or vested.
PSUs. Under Schlumbergers 2010 Omnibus Stock Incentive Plan and the 2013 Omnibus Stock Incentive Plan, in the event of a merger, consolidation, acquisition of property or stock, separation, spinoff, reorganization or liquidation, the Board of Directors may, in its sole discretion, (1) provide for the acceleration of the vesting of any awards, including PSUs, or (2) decide to cancel any awards, including PSUs, and deliver cash to the holders in an amount that the Board of Directors determines in its sole discretion is equal to the fair market value of such awards on the date of such event. However, no current agreement with respect to the PSUs currently provides for any definitive special treatment upon such a merger, consolidation, acquisition of property or stock, separation, spinoff, reorganization or liquidation.
The following table sets forth the value of the unvested PSUs at target held by each NEO as of December 31, 2015 that would become vested upon the occurrence of a merger, consolidation, acquisition of property or stock, separation, spinoff, reorganization or liquidation assuming that the Board of Directors elects to accelerate the vesting of PSUs as provided in the previous paragraph. Due to the number of factors that affect the nature and amount of any benefits provided upon these events, any amounts actually paid or distributed may be different. Factors that could affect these amounts include the price of Schlumberger common stock and achievement by the Company of the relevant performance metric.
Schlumbergers pension plans and non-qualified deferred compensation plans include the same terms and conditions for all participating employees in the event of a termination or change in control. Other than the Schlumberger Restoration Savings Plan, none of Schlumbergers non-qualified plans provide for the accelerated payment of benefits upon a change in control. For more information on these plans, see the Pension Benefits for Fiscal Year 2015 table and accompanying narrative above and the Nonqualified Deferred Compensation for Fiscal Year 2015 table and accompanying narrative above.
The following table sets forth the amounts as of December 31, 2015 of benefit payments that would be accelerated under the Schlumberger Restoration Savings Plan upon a change in control.
Subject to satisfying certain age, service and contribution requirements, most U.S. employees are eligible to participate in a retiree medical program. Generally, this program provides comprehensive medical, prescription drug and vision benefits for retirees and their dependents until attaining age 65. Historically, for Schlumberger employees who turned age 40 prior to 2014, and excluding those employees who became Schlumberger employees as a result of the Smith acquisition, retiree medical benefits continue beyond age 65, at which time Medicare becomes primary and the Schlumberger plan becomes secondary, paying eligible charges after Medicare has paid. However, effective April 1, 2015, participants who reach age 65 will no longer continue in Schlumberger medical coverage after reaching age 65, but instead will receive a monthly contribution to a health reimbursement arrangement that can be used to purchase Medicare supplemental coverage and pay other tax-deductible expenses.
DIRECTOR COMPENSATION IN FISCAL YEAR 2015
Following its annual review in July 2015 of comparative market data provided by Pay Governance, the Compensation Committee determined not to increase non-employee director compensation.
Non-employee directors receive an annual cash retainer of $100,000 plus an additional annual fee of $10,000 for membership on a committee. The chair of each committee receives an additional annual fee of $20,000 in lieu of the additional annual fee of $10,000 for committee membership. Directors who are employees of Schlumberger do not receive compensation for serving on the Board. Additionally, Schlumbergers current practice is to grant each newly-appointed or elected non-employee director (including non-employee directors re-elected at the AGM) shares of Schlumberger common stock each April. Effective April 30, 2015, Schlumberger granted each such non-employee director 2,250 shares of Schlumberger common stock.
Although Schlumbergers Directors Stock and Deferral Plan provides that annual stock awards to non-employee directors may be in the form of shares of common stock, shares of restricted common stock or restricted stock units, Schlumbergers practice has been to issue only shares of common stock. Schlumberger directors have never received restricted common stock or restricted stock units as director compensation.
During his services as our non-executive Chairman, Mr. Isaac, in consideration of the additional responsibilities required of an independent non-executive Chairman of the Board, received annual compensation of $400,000, in addition to amounts otherwise payable to Mr. Isaac as a director, as described above. Accordingly, the amount for Mr. Isaac in the Director Compensation table below (under the Fees Earned or Paid in Cash column) includes this increased compensation, prorated based on his retirement date of April 8, 2015. Mr. Isaac did not participate in any discussions or in the decision regarding his compensation prior to his retirement. Mr. Kamath retired from the Board after the July 16, 2015 meeting. Accordingly, the amount for Mr. Kamath in the Director Compensation table below (under the Fees Earned or Paid in Cash column) includes his prorated compensation based on his retirement date.
The following table provides information on Schlumbergers compensation for non-employee directors in 2015.
If an independent director joins our Board or becomes Chair of a committee of our Board after the start of any year, he or she will receive compensation prorated according to the number of months during which he or she served in that position during that year. As a result, the fees disclosed in this column are subject to adjustment in cases where, as with Ms. Indra K. Nooyi, a non-employee director has served less than one full year or has changed committee memberships or chairmanships during the year.
Director Stock Ownership Guidelines
The Board believes that ownership of Schlumberger stock by Board members aligns their interests with the interests of the Companys stockholders. Accordingly, the Board has established a guideline that each non-employee Board member must, within five years of joining the Board, own at least 10,000 Schlumberger common shares or restricted stock units. As of December 31, 2015, each of our current non-employee directors who have been Board members for at least five years is in compliance with these stock ownership guidelines.
EQUITY COMPENSATION PLAN INFORMATION
The table below sets forth the following information as of the end of December 31, 2015 for all equity compensation plans approved by our stockholders. Schlumberger currently has no equity compensation plans, other than 401(k) savings plans, that are not approved by our stockholders.
Equity compensation plans approved by Schlumberger stockholders include the 2013 Omnibus Stock Incentive Plan; the 2010 Schlumberger Omnibus Stock Incentive Plan; the Schlumberger Discounted Stock Purchase Plan, as amended; the Schlumberger 2004 Stock and Deferral Plan for Non-Employee Directors; the Schlumberger 2008 Stock Incentive Plan, as amended; and the Schlumberger 2005 Stock Incentive Plan, as amended; the Schlumberger 2001 Stock Option Plan, as amended; and the Schlumberger 1998 Stock Option Plan, as amended.
ITEM 3. APPROVAL OF FINANCIAL STATEMENTS AND DIVIDENDS
Following completion of the audit procedures performed by PricewaterhouseCoopers LLP, the Companys independent registered public accounting firm, the following are submitted to the Companys stockholders for approval pursuant to Schlumbergers Articles of Incorporation:
These items are included in the Schlumberger 2015 Annual Report to Stockholders, which is provided concurrently with this proxy statement. Stockholders should refer to these items in considering this agenda item.
A majority of the votes cast is required for the approval of the financial results as set forth in the financial statements and of the declaration of dividends by the Board of Directors as reflected in the Companys 2015 Annual Report to Stockholders. Brokers have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker may vote on this proposal in its discretion.
Recommendation of the Board
The Board of Directors Recommends a Vote FOR Item 3.
ITEM 4. APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP has been selected by the Audit Committee as the independent registered public accounting firm to audit the annual financial statements of the Company for the year ending December 31, 2016. Although ratification is not required by our By-Laws or otherwise, as a matter of good corporate governance, we are asking stockholders to approve the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm. If the selection is not approved, the Audit Committee will consider whether it is appropriate to select another independent registered public accounting firm.
A representative of PricewaterhouseCoopers LLP is expected to attend the 2016 annual general meeting of stockholders, and will be available to respond to appropriate questions.
Fees Paid to PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP has billed the Company and its subsidiaries the fees set forth in the table below for:
(1) Includes fees for statutory audits.
(2) Consists of fees for employee benefit plan audits and other audit-related items.
(3) Consists of fees for tax compliance, tax planning and other permitted tax services.
(4) Consists of fees for permitted advisory services.
The Audit Committee considers the provision of services by PricewaterhouseCoopers LLP not related to the audit of the Companys annual financial statements and the review of the Companys interim financial statements when evaluating PricewaterhouseCoopers LLPs independence.
Audit Committees Pre-Approval Policy and Procedures
The Audit Committee pre-approves all services provided to the Company and its subsidiaries by Schlumbergers independent registered public accounting firm. The Audit Committee has adopted a schedule for annual approval of the audit and related audit plan, as well as approval of other anticipated audit related services; anticipated tax compliance, tax planning and tax advisory services; and other anticipated services. In addition, the Audit Committee (or an authorized committee member acting under delegated authority of the committee) will consider any proposed services not approved as part of this annual process. During 2015 and 2014, all audit and non-audit services were pre-approved by the Audit Committee.
A majority of the votes cast is required to approve this Item 4. Brokers have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker will vote on this proposal in its discretion.
Recommendation of the Board
The Board of Directors Recommends a Vote FOR Item 4.
ITEM 5. APPROVAL OF AMENDMENT TO THE COMPANYS ARTICLES OF INCORPORATION
The Board of Directors has proposed for stockholder approval an amendment to Schlumbergers Articles of Incorporation to (a) allow the Board of Directors to fix the authorized number of directors at an annual general meeting, subject to stockholder approval of that number, and (b) make other technical and conforming modifications to reflect changes to the Curaçao Civil Code regarding among, other things, the identification of parties having the right to attend and address general meetings of the Companys stockholders.
A copy of the text of these amendments has been deposited at the office of the Company in Curaçao for inspection by the stockholders of the Company, and will remain available for inspection until the conclusion of the 2016 annual general meeting.
The proposed amendment was adopted, subject to stockholder approval, by the unanimous vote of our Board of Directors on January 21, 2016. This summary of the Articles of Incorporation is a summary of the principal features proposed to be amended, and does not purport to be a complete description of all of the provisions of Schlumbergers Articles of Incorporation. This summary is qualified in its entirety by the full text of the Articles of Incorporation as proposed to be amended, which is set forth as Appendix B to this proxy statement.
Reasons for the Proposed Amendment to the Company Articles of Incorporation
Currently under the Companys Articles of Incorporation, the size of the Board of Directors may range from five (5) to 24, and is set based on the number of directors elected at each annual general meeting of stockholders. The Board of Directors believes that it is advisable and in the best interests of Schlumbergers stockholders to allow the Company stockholders to set the desired size of the Board of Directors at the annual general meeting, subject to stockholder approval, at a number that may exceed the number of directors to be elected at the annual general meeting. This will allow the Board of Directors to adjust the size of the Board between annual general meetings, but not above the stockholder-approved limit, so that the Board may conduct a search for, and add, additional directors not yet identified at the time of the annual general meeting.
Any director named by the Board will serve a term that lasts until the next annual general meeting of stockholders, and such new directors then will be subject to election by the vote of the stockholders during the next annual general meeting.
The other amendments to the Companys Articles of Incorporation reflect new requirements of the Curaçao Civil Code related to the parties having a right to attend and address general meetings of stockholders.
Resolutions Adopting the Proposed Amendment
The following resolutions, which will be presented to stockholders at the 2016 annual general meeting of Stockholders, will adopt the proposed amendment to Schlumbergers Articles of Incorporation as described above:
RESOLVED, Section 8.3 of Article 8 of Schlumbergers Articles of Incorporation is hereby amended and restated to read in its entirety as follows:
8.3. The number of persons constituting the whole Board of Directors shall be not fewer than five (5) nor more than twenty-four (24), as fixed from time to time by the Board of Directors, subject to approval by stockholders of the Company at a general meeting of stockholders. The authorized maximum number of persons constituting the whole Board of Directors shall, until changed at the occasion of any succeeding general meeting of stockholders, be the number so fixed. The directors shall be elected at a general meeting of stockholders by a majority of votes cast, in person or by proxy, by the
stockholders entitled to vote; provided, that directors shall be elected by a plurality of the votes cast if, as of a date that is five (5) business days in advance of the date the Company files its definitive proxy statement (regardless of whether thereafter revised or supplemented) with the United States Securities and Exchange Commission, the number of nominees exceeds the number of directors to be approved at such meeting, as fixed by the Board of Directors in accordance with these Articles of Incorporation. For purposes of this Article 8.3, a majority of the votes cast means that the number of votes cast for a director exceeds the number of votes cast against that director. If the number of directors elected at a general meeting of stockholders is smaller than the authorized number of directors as fixed in accordance with these Articles of Incorporation, the Board of Directors shall be authorized, but not obligated, to appoint additional directors such that the total number of directors does not exceed the authorized number of directors as fixed by the Board of Directors in accordance with these Articles of Incorporation, any such appointment to be effective until the next general meeting of stockholders. The Board of Directors shall also be authorized, but not obligated, to appoint directors at any time to fill any vacancy or vacancies on the Board of Directors, any such appointment to be effective until the next general meeting of stockholders. Directors may be suspended or dismissed at any general meeting of stockholders. A suspension as referred to in this Article automatically terminates if the person concerned has not been dismissed within two (2) months after the day of suspension. At any general meeting of stockholders at which action is taken to suspend or dismiss a director, or at any subsequent general meeting, the stockholders shall be authorized, but not obligated, to appoint directors at any time to fill any vacancy or vacancies on the Board of Directors created by (i) such action or (ii) any increase of the authorized maximum number of persons constituting the whole Board of Directors.
RESOLVED, that the amendments to the Articles of Incorporation of Schlumberger to reflect the persons allowed to attend a general meeting of stockholders under Curaçao law be, and they hereby are, adopted to read in their entirety as set forth in Appendix B to Schlumbergers Proxy Statement dated March [ ], 2016 and in the form presented to this meeting.
RESOLVED, that each lawyer of STvB Advocaten (Curaçao) N.V., Curaçao counsel to Schlumberger, is authorized to execute and file in Curaçao the notarial deed of amendment effecting such amendments.
A vote in favor of this proposal by a majority of the shares of the Company outstanding and entitled to vote is required to approve this Item 5. Brokers have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker may vote on this proposal in its discretion.
Effectiveness of Amendment
If stockholders approve the proposed amendment, it will become effective when the notarial deed is executed and filed which the Company anticipates having executed as soon as practicable following stockholder approval.
Recommendation of the Board
The Board of Directors Recommends a Vote FOR Item 5.
ITEM 6. RESOLUTION TO FIX THE SIZE OF THE BOARD OF DIRECTORS
As discussed in Item 5 above, the Board of Directors believes that it is advisable and in the best interests of Schlumbergers stockholders to allow the Companys stockholders to fix the size of the Board of Directors at the annual general meeting at a number that may exceed the number of directors to be elected at that meeting. Subject to stockholder approval of the amendments to the Companys Articles of Incorporation as set forth in Item 5, the Board of Directors has proposed to fix the number of directors constituting the Board of Directors at not more than 12 directors. If stockholders approve fixing the size of the Board of Directors at not more than 12 directors, the Board of Directors will be authorized to conduct a search for additional directors and to name up to an additional two directors to the Board of Directors prior to the next annual general meeting of stockholders.
Any director named by the Board will serve a term that lasts until the next annual general meeting of stockholders, and such new directors then will be subject to election by the vote of our stockholders at the next annual general meeting. The Board of Directors has not yet determined to name any additional individuals to the Board of Directors to fill the additional seats proposed to be authorized by this Item, and there is no assurance that the Board will identify two additional individuals to name to the Board of Directors before the next annual general meeting of stockholders.
A majority of the votes cast is required to approve this Item 6. Brokers have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker may vote on this proposal in its discretion.
Recommendation of the Board
The Board of Directors Recommends a Vote FOR Item 6.
ITEM 7. APPROVAL OF THE AMENDED AND RESTATED FRENCH SUB PLAN UNDER THE SCHLUMBERGER 2010 OMNIBUS STOCK INCENTIVE PLAN FOR PURPOSES OF QUALIFICATION UNDER THE MACRON LAW IN FRANCE
As required under applicable French law, we are asking our stockholders to approve amendments to our French Sub Plan for Restricted Units (as amended and restated, the French Sub Plan), which operates under the Schlumberger 2010 Omnibus Stock Incentive Plan (the Omnibus Plan). Stockholders approved the Omnibus Plan at our 2010 annual general meeting.
We are seeking to amend the French Sub Plan to qualify under the so-called Macron Law in France, so that restricted stock units and performance stock units that we grant under the French Sub Plan to individuals who are subject to taxation under French law (including certain grants previously approved by the Compensation Committee of our Board of Directors as described below) may qualify as Free Share Grants, which are subject to more favorable tax treatment.
Any such Free Share Grants will be satisfied from the existing share reserve of the Omnibus Plan and will have terms consistent with the existing terms of the Omnibus Plan.
This Item does not propose to make any changes to the Omnibus Plan itself, nor to increase the number of shares or awards authorized for issuance under the Omnibus Plan.
Effect of the Proposal
Schlumberger or its subsidiaries employ individuals who are subject to taxation under French law. Due to the recent enactment on July 10, 2015 of the Macron Law, certain equity compensation awards granted under the French Sub Plan will qualify as Free Share Grants, if so designated by our Compensation Committee, assuming that stockholders approve the amended and restated French Sub Plan. Such stockholder approval would allow these grants to qualify as Free Share Grants, which would result in lower taxation on the receipt of the grant by the individual and lower withholding taxes on the Company.
Consequently, pursuant to the Macron Law, the Company is soliciting its stockholders for approval of the amended and restated French Sub Plan for purposes of Macron Law qualification in France, so that equity grants that are made under the French Sub Plan to individuals who are subject to taxation under French law (including, but not limited to, certain grants previously approved by the Compensation Committee of our Board of Directors and described below) may qualify as Free Share Grants.
The Macron Law Proposal will not in any manner alter the Omnibus Plan and will not increase the number of shares of Company common stock reserved for grant pursuant to awards issued under the Omnibus Plan. In addition, in the event that the amended and restated French Sub Plan is not approved, the Company may still grant equity awards to employees of the Company or its subsidiaries who are subject to taxation under French law; however, in that event, it is possible that such grants would not benefit from the provisions of the Macron Law relating to Free Share Grants.
Summary of the Omnibus Plan
Under the terms of the Omnibus Plan, the Compensation Committee may, subject to applicable law, grant awards to persons outside the United States under such terms and conditions as may, in its judgment, be necessary or advisable to comply with the laws of the applicable foreign jurisdictions and, to that end, may establish sub-plans. Pursuant to this provision, the Compensation Committee previously adopted the French Sub Plan under the Omnibus Plan. The Compensation Committee adopted amendments to the French Sub Plan that
are intended to address the conditions for being able to grant Free Share Grants under the Macron Law, and is submitting for stockholder approval the French Sub Plan as so amended so that restricted stock units granted under the French Sub Plan may qualify as Free Share Grants.
This summary of the French Sub Plan is a summary of the principal features of the French Sub Plan, and does not purport to be a complete description of all of the provisions of the French Sub Plan. This summary is qualified in its entirety by the full text of the French Sub Plan, which is set forth as Appendix C to this proxy statement.
Purpose of the Plan
The purpose of the Omnibus Plan is to provide incentives to our employees in order to:
The Board of Directors recommends that our stockholders approve the amendments to the French Sub Plan to take advantage of the favorable tax provisions for both the Company and the recipient of restricted stock units and performance stock units when issued under an incentive plan qualified under the Macron Law to employees in France.
Types of Awards
The amendments to the French Sub Plan affect only restricted stock units and performance stock units available to our French employees, and do not affect the terms of the Omnibus Plan or awards granted pursuant to it.
A maximum of 1,381,595 shares remain available to be the subject of future awards of restricted stock units or performance stock units under the French Sub Plan, which number shall be adjusted in connection with stock splits, stock dividends, reorganizations and similar events as and to the extent permitted under the Omnibus Plan. The terms, conditions and limitations applicable to awards of restricted stock units and performance stock units will be determined by our Compensation Committee. Restricted stock units intended to qualify as Free Share Grants will be subject to a restriction period under which such shares will not be delivered earlier than three years from the grant date, except that the Compensation Committee may provide for earlier delivery upon termination of employment by reason of death. Performance stock units intended to qualify as Free Share Grants will be subject to a restriction period under which such shares will not be delivered earlier than three years from the grant date, except that the Compensation Committee may provide for earlier vesting upon termination of employment by reason of death. Awards of restricted stock units and performance stock units may not be transferred to any third party except in the event of the eligible employees death.
Awards may be granted under the Omnibus Plan on or before April 6, 2020. Awards may be granted under the French Sub Plan until the termination of the Omnibus Plan.
Stockholder approval of the amended French Sub Plan is a condition to approval of the following awards, which were granted in January 2016, subject to stockholder approval of this Item. Should our stockholders not approve this Item, such awards will be granted under the previous French Sub Plan and ineligible for favorable tax treatment.
Material Tax Consequences
If the French Sub Plan is approved by stockholders and restricted stock units and performance stock units otherwise qualify under the Macron Law, grants of Free Share Grants to French-resident employees subject to the French social security regime should be subject to 15.5% social security taxes on the value of such awards at the time of vesting, in contrast to currently being subject to a combined 18% social security tax rate. The vesting gain continues to be subject to progressive income tax rates that employees pay upon ultimate sale of shares received under such Free Share Grants but under the Macron Law such tax rates can be reduced by 50% or more if the shares are held for a specified number of years. In addition, under the Macron Law, the employing
company will be subject to a 20% social security tax upon vesting of qualifying RSUs, in contrast to the current 30% social security tax that is imposed upon grant of restricted stock units (and which currently is not refunded if restricted stock units are forfeited before vesting). The tax consequences of participating in the French Sub Plan may vary with respect to individual situations and it should be noted that income tax laws, regulations and interpretations thereof change frequently. Participants should rely upon their own tax advisors for advice concerning the specific tax consequences applicable to them, including the applicability and effect of state, local and foreign tax laws.
The Board of Directors believes that it is in the best interests of the Company and its stockholders to enable the Company to grant Free Share Grants under the French Sub Plan that would qualify for the income and social security tax and social treatment authorized under the Macron Law. If stockholders do not approve the French Sub Plan, the Company expects to continue to rely on its existing qualified French Sub-plan to grant restricted stock units to French employees, or may make alternative compensation arrangements. In addition, nothing in this proposal precludes the Company from making any payment or granting equity awards that do not qualify for such tax treatment, and submission of this proposal to the Companys stockholders should not be viewed as a guarantee that all grants to individuals subject to taxation under French law will qualify as Free Share Grants under the Macron Law.
A majority of the votes cast is required to approve this Item 7. Brokers do not have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker will deliver a non-vote on this proposal.
Recommendation of the Board
The Board of Directors Recommends a Vote FOR Item 7.
AUDIT COMMITTEE REPORT
During 2015, the Audit Committee periodically reviewed and discussed the Companys financial statements with Company management and PricewaterhouseCoopers LLP, the Companys independent registered public accounting firm, including matters raised by the independent registered public accounting firm pursuant to applicable Public Company Accounting Oversight Board (PCAOB) requirements. The Audit Committee also discussed with the Companys management and independent registered public accounting firm the evaluation of the Companys reporting and internal controls undertaken in connection with certifications by the Companys Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 in certain of the Companys filings with the SEC. The Audit Committee reviewed and discussed such other matters as it deemed appropriate, including the Companys compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and the other provisions of the Sarbanes-Oxley Act of 2002, and rules adopted or proposed to be adopted by the SEC and the NYSE. The Audit Committee also discussed with PricewaterhouseCoopers LLC the matters required to be discussed by the independent registered public accounting firm with the Audit Committee under applicable rules adopted by the PCAOB.
The Companys independent registered public accounting firm provided the Audit Committee with the written disclosures and the letter concerning independence required by applicable requirements of the PCAOB regarding the independent registered public accounting firms communications with the Audit Committee, and the Committee discussed PricewaterhouseCoopers LLPs independence with them.
Based on the foregoing reviews and discussions, the Audit Committee recommended that the Board include the audited financial statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on January 27, 2016.
Security Ownership by Certain Beneficial Owners
The following table sets forth information as of December 31, 2015 (except as otherwise noted) with respect to persons known by the Company to be the beneficial owners of more than 5% of the Companys common stock, based on the information reported by such persons in their Schedule 13D and 13G filings with the SEC. For each entity included in the table below, percentage ownership is calculated by dividing the number of shares reported as beneficially owned by such entity by the 1,254,842,578 shares of common stock outstanding on January 31, 2016.
Security Ownership by Management
The following table sets forth information known to Schlumberger with respect to beneficial ownership of the Companys common stock as of January 31, 2016 by (i) each director and director nominee, (ii) each of the named executive officers and (iii) all directors and executive officers as a group.
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Except as indicated in the footnotes to the table below and subject to applicable community property laws, to Schlumbergers knowledge the persons named in the table below have sole voting and investment power with respect to the securities listed. None of the shares are subject to any pledge.
The number of shares beneficially owned by each person or group as of January 31, 2016 includes shares of common stock that such person or group has the right to acquire within 60 days of January 31, 2016, including upon the exercise of options to purchase common stock or the vesting of restricted stock units or PSUs.
References to options in the footnotes to the table below include only options outstanding as of January 31, 2016 that are currently exercisable or that become exercisable within 60 days of January 31, 2016, and references to any restricted stock, restricted stock units or PSUs (collectively, restricted stock) in the footnotes to the table below include only restricted stock outstanding as of January 31, 2016 and that are currently vested or that vest within 60 days of January 31, 2016.
For each individual and group included in the table below, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the 1,254,842,578 shares of common stock outstanding on January 31, 2016, plus the number of shares of common stock that such person or group had the right to acquire on or within 60 days after January 31, 2016.
As of January 31, 2016, no director, director nominee or named executive officer owned more than 1% of the outstanding shares of Schlumbergers common stock. All directors and executive officers as a group owned less than 1% of the outstanding shares of our common stock at January 31, 2016.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), requires the Companys executive officers and directors, among others, to file an initial report of ownership of Schlumberger common stock on Form 3 and reports of changes in ownership on Form 4 or Form 5. Persons subject to Section 16 are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms that they file. The Company believes, based solely on a review of the copies of such forms in its possession and on written representations from reporting persons, that with respect to the fiscal year ended December 31, 2015, all
of its executive officers and directors filed on a timely basis the reports required to be filed under Section 16(a) of the Exchange Act.
Stockholder Proposals for 2017 Annual General Meeting
In order for a stockholder proposal to be considered for inclusion in the proxy statement for the 2017 annual general meeting of stockholders pursuant to Exchange Act Rule 14a-8, written proposals must be received by the Secretary of the Company, 5599 San Felipe, 17th Floor, Houston, Texas 77056, no later than October 25, 2016.
Pursuant to the rules under the Exchange Act, the Company may use discretionary authority to vote with respect to any proposal not included in the Companys proxy materials that is presented by a stockholder in person at the 2017 annual general meeting of stockholders if the stockholder making the proposal has not given notice to the Company by January 8, 2017.
Stockholders may obtain a copy of Schlumbergers most recent Form 10-K filed with the SEC, including financial statements and schedules thereto, without charge by writing to the Secretary of the Company at 5599 San Felipe, 17th Floor, Houston, Texas 77056.
The Company will pay the cost of furnishing proxy material to all stockholders and of soliciting proxies by mail and telephone. D. F. King & Co., Inc. has been retained by the Company to assist in the solicitation of proxies for a fee estimated at $15,500 plus reasonable expenses. Directors, officers and employees of the Company may also solicit proxies for no additional compensation. The Company will reimburse brokerage firms, fiduciaries and custodians for their reasonable expenses in forwarding the solicitation material to beneficial owners.
The Board of Directors knows of no other matter to be presented at the meeting. If any additional matter should be presented properly, it is intended that the enclosed proxy will be voted in accordance with the discretion of the persons named in the proxy.
Please sign, date, and return the accompanying proxy in the enclosed envelope at your earliest convenience.
By order of the Board of Directors,
Alexander C. Juden
February 19, 2016
Reconciliation of Non-GAAP Financial Measures