Union Drilling (UDRL)

Process for Setting Compensation

The Committee has structured the Company’s compensation program for the named executive officers, utilizing the compensation philosophy and objectives described above.

Generally speaking, it is the intent of the Committee that the named executive officers’ base salary be competitive with industry peers (adjusting for appropriate scale and scope differences) for their comparable positions, based on available published market survey data, including the data that was obtained previously from FWC. The Committee also seeks to provide the Company’s named executive officers with an annual incentive award, which is comprised of a cash bonus component, as well as a long-term equity component. The Committee sets the target amount of the annual incentive award as a specified percentage of the base salary for the named executive officer using a range of percentages that is intended to be competitive with industry benchmarks based on the FWC market survey data.

While the Committee uses this market survey data as a general guide for determining compensation elements of the Company’s named executive officers, individual factors may cause the actual amount of compensation to vary from these targets. For example, in the case of new executive-level hires, the compensation may be set as a result of negotiations between the Company and the named executive officer. In the case of existing named executive officers, the actual compensation may vary as a result of the officers’ responsibilities, experience level and prior performance, individually as well as the Company as a whole.

The Committee seeks to provide a significant portion of total compensation in the form of annual and long-term incentives, in light of the objectives set forth above. In 2008, the Committee targeted an allocation of the

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annual incentive award to be split two-thirds in cash and one-third in an equity award. The equity award was split as equally as possible between a grant of stock options and restricted stock units. It is the Committee’s present intention to maintain the 2:1 cash/equity split and the equity mix described above when making future compensation determinations. Nonetheless, when allocating among long-term equity incentives (such as between stock option grants and restricted stock or RSU awards), items such as the number of options or shares of restricted stock (or RSUs) available to grant, level of employment and job performance may also be considered, thus modifying the intended approach. Ultimately, personal income from incentive compensation is realized as a result of the Company’s performance compared to goals established by the Committee.

Throughout the year, the Committee monitors the effectiveness of the components of the compensation program, including performance measures for the cash bonus and long-term equity incentives, and may change the components should the Committee determine that the enhancement of stockholder value warrants it. This change could include additional stock option or restricted stock/RSU grants, as deemed appropriate by the Committee. The Committee also reviews the compensation of the named executive officers with that of the peer group described above to monitor the overall competitiveness of the Company’s compensation package.

Process for Setting Compensation

The Committee has structured the Company’s compensation program for the named executive officers, utilizing the compensation philosophy and objectives described above.

Generally speaking, it is the intent of the Committee that the named executive officers’ base salary be competitive with industry peers (adjusting for appropriate scale and scope differences) for their comparable positions, based on available published market survey data, including the data that was obtained in 2007 from FWC. The Committee also seeks to provide the Company’s named executive officers with an annual incentive award, which is comprised of a cash bonus component, as well as a long-term equity component. The Committee sets the target amount of the annual incentive award as a specified percentage of the base salary for the named executive officer using a range of percentages that is intended to be competitive with industry benchmarks based on the FWC market survey data.

While the Committee uses this market survey data as a general guide for determining compensation elements of the Company’s named executive officers, individual factors may cause the actual amount of compensation to vary from these targets. For example, in the case of new executive-level hires, the compensation may be set as a result of negotiations between the Company and the named executive officer. In the case of existing named executive officers, the actual compensation may vary as a result of the officers’ responsibilities, experience level and prior performance.

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The Committee seeks to provide a significant portion of total compensation in the form of annual and long-term incentives, in light of the objectives set forth above. In 2007, the Committee targeted an allocation of the annual incentive award to be split two-thirds in cash and one-third in an equity award (which was in the form of a stock option grant, but in the future could be some other form of equity grant). To the extent restricted stock becomes an available alternative, the Committee proposes that the future mix of each equity award would be one-half stock options and one-half restricted stock. It is the Committee’s present intention to maintain the 2:1 cash/equity split and the equity mix described above when making future compensation determinations. Nonetheless, when allocating among long-term equity incentives (such as between stock option grants and restricted stock awards, if they become available), items such as the number of options or shares of restricted stock available to grant, level of employment and job performance may also be considered, thus modifying the intended approach. Ultimately, income from incentive compensation is realized as a result of the Company’s performance compared to goals established by the Committee.

Throughout the year, the Committee monitors the effectiveness of the components of the compensation program, including performance measures for the cash bonus and long-term equity incentives, and may change the components should the Committee determine that the enhancement of stockholder value warrants it. This change could include additional stock option or restricted stock grants (if available), as deemed appropriate by the Committee.

After the end of the year, the Committee reviews the compensation of the named executive officers with that of the peer group described above to monitor the overall competitiveness of the Company’s compensation package.