DEF 14A
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

Filed by the Registrant  ☒                             Filed by a Party Other than the Registrant  ☐

Check the Appropriate Box

 

  Preliminary Proxy Statement
  Confidential for Use of the Commission only (as permitted by Rule 14a-6(e)(2)).
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to § 240.14a-12.

National Oilwell Varco, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Persons(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14-a6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

 

     

  (2)  

Aggregate number of securities to which the transaction applies;

 

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined.)

 

 

     

  4)  

Proposed maximum aggregate value of transaction:

 

 

     

  5)   Total fee paid:
   

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  1)  

Amount Previously Paid:

 

 

     

  2)  

Form, Schedule or Registration Statement No.:

 

 

     

  3)  

Filing Party:

 

 

     

  4)  

Date Filed:

 

 

     


Table of Contents

LOGO

NATIONAL OILWELL VARCO, INC.

7909 Parkwood Circle Drive

Houston, Texas 77036

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held May 28, 2019

 

DATE:

  Tuesday, May 28, 2019  

TIME:

  10:00 a.m. (Houston time)  

PLACE:

  National Oilwell Varco  
  7909 Parkwood Circle Dr.  
  Houston, Texas 77036  

The 2019 annual meeting of stockholders (“Annual Meeting”) of National Oilwell Varco, Inc. will be held at the Company’s corporate headquarters located at 7909 Parkwood Circle Drive, Houston, Texas on Tuesday, May 28, 2019, at 10:00 a.m. Houston time, for the following purposes:

 

   

To elect nine directors to hold office for a one-year term;

 

   

To consider and act upon a proposal to ratify the appointment of Ernst & Young LLP as independent auditors of the Company for 2019;

 

   

To consider and act upon an advisory proposal to approve the compensation of our named executive officers;

 

   

To consider and act upon amendments to the National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan; and

 

   

To consider and act upon any other matters that may properly come before the annual meeting or any postponement or adjournment thereof.

The Board of Directors recommends that you vote “FOR” the election of the nine nominees for director (Proposal 1), “FOR” the proposal to ratify the appointment of Ernst & Young LLP as Independent Auditors of the Company for 2019 (Proposal 2), “FOR” the approval of the compensation of our named executive officers (Proposal 3), and “FOR” the proposal to approve the amendments to the National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan (Proposal 4).

Beginning on or about April 15, 2019, the Company is mailing a Notice Regarding the Availability of Proxy Materials (the “Notice”) to our stockholders of record as of the record date (but excluding those stockholders who have previously requested a printed copy of our proxy materials) containing instructions on how to access the proxy materials (including our 2018 annual report) via the Internet, as well as instructions on voting shares via the Internet. The Notice also contains instructions on how to request a printed copy of the proxy materials by mail or an electronic copy of the proxy materials by email.

The Board of Directors has set March 29, 2019 as the record date for the Annual Meeting. If you were a stockholder of record at the close of business on March 29, 2019, you are entitled to vote at the Annual Meeting. A complete list of these stockholders will be available for examination at the Annual Meeting and during ordinary business hours at our offices at 7909 Parkwood Circle Drive, Houston, Texas for a period of ten days prior to the Annual Meeting.


Table of Contents

You are cordially invited to join us at the Annual Meeting. However, to ensure your representation, we request that you vote via the Internet using the instructions in the Notice or, if you received a printed copy of the proxy materials, return your signed proxy card at your earliest convenience, whether or not you plan to attend the Annual Meeting. You may revoke your proxy at any time if you wish to attend and vote in person.

By Order of the Board of Directors

/s/ Craig L. Weinstock

Craig L. Weinstock

Senior Vice President, General Counsel and Secretary

Houston, Texas

April 15, 2019

 

 

- 2 -


Table of Contents

TABLE OF CONTENTS

 

     Page  

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

  

PROXY STATEMENT

     1  

Proposal No. 1 – Election of Directors

     5  

Committees and Meetings of the Board

     11  

Board of Directors

     13  

Audit Committee Report

     15  

Proposal No. 2 – Ratification of Independent Auditors

     17  

Proposal No.  3 – Approval of Compensation of our Named Executive Officers

     18  

Proposal No.  4 – Approval of Amendments to the National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan

     20  

Corporate Governance

     29  

Executive Officers

     33  

Stock Ownership

     36  

Compensation Discussion and Analysis

     39  

Compensation Committee Report on Executive Compensation

     53  

Executive Compensation

     54  

Certain Relationships and Related Transactions

     67  

Director Compensation

     68  

Section 16(a) Beneficial Ownership Reporting Compliance

     71  

Stockholder Proposals for the 2020 Annual Meeting

     71  

Annual Report and Other Matters

     71  

Appendix I – Amended and Restated National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan

     I-1  


Table of Contents

NATIONAL OILWELL VARCO, INC.

7909 Parkwood Circle Drive

Houston, Texas 77036

PROXY STATEMENT

Except as otherwise specifically noted in this Proxy Statement, the “Company,” “we,” “our,” “us,” and similar words in this Proxy Statement refer to National Oilwell Varco, Inc.

 

ANNUAL MEETING:

Date:     Tuesday, May 28, 2019

 

  Time:    10:00 a.m. (Houston time)

 

  Place:    National Oilwell Varco

 

                7909 Parkwood Circle Dr.

 

                Houston, Texas 77036

 

AGENDA:

Proposal 1: To elect nine nominees as directors of the Company for a term of one year.

 

  Proposal 2: To ratify the appointment of Ernst & Young LLP as independent auditors of the Company.

 

  Proposal 3: To approve, on an advisory basis, the compensation of our named executive officers.

 

  Proposal 4: To approve amendments to the National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan.

 

  The Board of Directors recommends that you vote “FOR” the election of the nine nominees for director (Proposal 1), “FOR” the proposal to ratify the appointment of Ernst & Young LLP as independent auditors of the Company for 2019 (Proposal 2), “FOR” the approval of the compensation of our named executive officers (Proposal 3), and “FOR” the proposal to approve the amendments to the National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan (Proposal 4).

 

RECORD DATE/WHO CAN VOTE:

All stockholders of record at the close of business on March 29, 2019 are entitled to vote (the “Record Date”). The only class of securities entitled to vote at the Annual Meeting is National Oilwell Varco common stock. Holders of National Oilwell Varco common stock are entitled to one vote per share at the Annual Meeting.

 

PROXIES SOLICITED BY:

Your vote and proxy is being solicited by the Board of Directors for use at the Annual Meeting. This Proxy Statement and enclosed proxy card is being sent on behalf of the Board of Directors to all stockholders beginning on or about April 15, 2019. By completing, signing and returning your proxy card, you will authorize the persons named on the proxy card to vote your shares according to your instructions.

 

- 1 -


Table of Contents

PROXIES:

If your properly executed proxy does not indicate how you wish to vote your common stock, the persons named on the proxy card will vote FOR election of the nine nominees for director (Proposal 1), FOR the ratification of the appointment of Ernst & Young LLP as independent auditors (Proposal 2), FOR the approval of the compensation of our named executive officers (Proposal 3), and FOR the approval of the amendments to the National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan (Proposal 4).

 

REVOKING YOUR PROXY:

You can revoke your proxy at any time prior to the time that the vote is taken at the meeting by: (i) filing a written notice revoking your proxy; (ii) filing another proxy bearing a later date; or (iii) casting your vote in person at the Annual Meeting. Your last vote will be the vote that is counted.

 

QUORUM:

As of March 29, 2019, there were 385,932,068 shares of National Oilwell Varco common stock issued and outstanding. The holders of these shares have the right to cast one vote for each share held by them. The presence, in person or by proxy, of stockholders entitled to cast at least 192,966,035 votes constitutes a quorum for adopting the proposals at the Annual Meeting. Abstentions will be included in determining the number of shares present at the meeting for the purpose of determining a quorum, as will broker non-votes. A broker non-vote occurs when a broker is not permitted to vote on a matter without instructions from the beneficial owner of the shares and no instruction is given. If you have properly signed and returned your proxy card by mail, you will be considered part of the quorum, and the persons named on the proxy card will vote your shares as you have instructed them.

 

VOTE REQUIRED FOR APPROVAL:

For the proposal to elect the nine director nominees (Proposal 1), our bylaws require that each director nominee be elected by the majority of votes cast with respect to such nominee (i.e., the number of shares voted “for” a director nominee must exceed the number of shares voted “against” that nominee). For additional information regarding our majority voting policy, see page 5 of the proxy statement. You cannot abstain in the election of directors and broker non-votes are not counted. Brokers are not permitted to vote your shares on the election of directors in the absence of your specific instructions as to how to vote. Please provide your broker with voting instructions so that your vote can be counted.

 

  Approval of the proposal to ratify the appointment of Ernst & Young LLP as independent auditors (Proposal 2), and the proposal to approve the compensation of our named executive officers (Proposal 3), will require the affirmative vote of a majority of the shares of our common stock entitled to vote and present in person or by proxy. An abstention will have the same effect as a vote “against” such proposal. With respect to Proposal 3, brokers are not permitted to vote your shares in the absence of your specific instructions as to how to vote. Please provide your broker with voting instructions so that your vote can be counted.

 

  Approval of the proposal to approve the amendments to the National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan (Proposal 4) will require the affirmative vote of the majority of the votes cast on the proposal. An abstention will have the same effect as a vote “against” such proposal. With respect to Proposal 4, brokers are not permitted to vote your shares in the absence of your specific instructions as to how to vote. Please provide your broker with voting instructions so that your vote can be counted.

 

- 2 -


Table of Contents

MULTIPLE PROXY CARDS:

If you receive multiple proxy cards, this indicates that your shares are held in more than one account, such as two brokerage accounts, and are registered in different names. You should vote each of the proxy cards to ensure that all of your shares are voted.

 

HOUSEHOLDING:

The U.S. Securities and Exchange Commission, or SEC, has adopted rules that permit companies and intermediaries, such as brokers, to satisfy the delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a copy of these materials, other than the Proxy Card, to those stockholders. This process, which is commonly referred to as “householding,” can mean extra convenience for stockholders, potential benefits to the environment, and cost savings for the Company. Beneficial stockholders can request information about householding from their banks, brokers, or other holders of record. Through householding, stockholders of record who have the same address and last name will receive only one copy of our Proxy Statement and Annual Report, unless one or more of these stockholders notifies us that they wish to continue receiving individual copies. This procedure will reduce printing costs and postage fees.

 

  Stockholders who participate in householding will continue to receive separate Proxy Cards. If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of Proxy Statements and Annual Reports, or if you hold stock in more than one account and wish to receive only a single copy of the Proxy Statement or Annual Report for your household, please contact Broadridge Householding Department, in writing, at 51 Mercedes Way, Edgewood, New York 11717, or by phone at (800) 542-1061. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate Proxy Statement and Annual Report, please notify your broker if you are a beneficial stockholder.

 

COST OF PROXY SOLICITATION:

We have retained InvestorCom, Inc. to solicit proxies from our stockholders at an estimated fee of $6,500, plus expenses. This fee does not include the costs of preparing, printing, assembling, delivering and mailing the Proxy Statement. The Company will pay for the cost of soliciting proxies. Some of our directors, officers and employees may also solicit proxies personally, without any additional compensation, by telephone or mail. Proxy materials also will be furnished without cost to brokers and other nominees to forward to the beneficial owners of shares held in their names.

 

- 3 -


Table of Contents

NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS:

This proxy statement, the accompanying notice of annual meeting of stockholders and form of proxy and our 2018 annual report are available via the Internet at:

 

  http://investors.nov.com/phoenix.zhtml?c=97690&p=irol-sec and at www.proxyvote.com.

 

  Pursuant to United States Securities and Exchange Commission (“SEC”) rules related to the Internet availability of proxy materials, we have elected to provide access to our proxy materials on the Internet instead of mailing a printed copy of the proxy materials to each stockholder of record. Accordingly, beginning on or about April 15, 2019, we are mailing a Notice Regarding the Availability of Proxy Materials (the “Notice”) to our stockholders of record as of the Record Date (but excluding those stockholders who have previously requested a printed copy of our proxy materials) in lieu of mailing the printed proxy materials. Instructions on how to access the proxy materials via the Internet, on voting shares via the Internet and on how to request a printed or electronic copy of the proxy materials may be found in the Notice. All stockholders will have the option to access our proxy materials on the websites referred to above. Stockholders will not receive printed copies of the proxy materials unless they request (or have previously requested) such form of delivery. Printed copies will be provided upon request at no charge. In addition, stockholders may request to receive future proxy materials in printed form by mail or electronically by email on an ongoing basis. A request to receive proxy materials in printed form by mail or electronically by email will remain in effect until the stockholder terminates such request. Stockholders who do not expect to attend the Annual Meeting are encouraged to vote via the Internet using the instructions on the Notice or, if you received a printed copy of the proxy materials (which includes the proxy card), by signing and returning the proxy card in the pre-paid envelope provided or by voting via the Internet or by phone using the instructions provided on the proxy card.

Important Notice Regarding the Availability of Proxy Materials for the

Stockholder Meeting to Be Held on Tuesday, May 28, 2019.

The Company’s 2019 Proxy Statement and the Annual Report to Stockholders for the year ended 2018 are also available at: http://www.proxyvote.com

For directions to the Annual Meeting, please contact investor relations at 713-346-7500.

PLEASE VOTE — YOUR VOTE IS IMPORTANT

 

- 4 -


Table of Contents

ELECTION OF DIRECTORS

PROPOSAL NO. 1 ON THE PROXY CARD

Clay C. Williams, Greg L. Armstrong, Marcela E. Donadio, Ben A. Guill, James T. Hackett, David D. Harrison, Eric L. Mattson, Melody B. Meyer and William R. Thomas are nominees for directors for a one-year term expiring at the Annual Meeting in 2020, or when their successors are elected and qualified. Each of the nominees was elected as a director at the 2018 Annual Meeting. We believe each of the nominees will be able to serve if elected. However, if any nominee is unable to serve, the remaining members of the Board have authority to nominate another person, elect a substitute, or reduce the size of the Board. Proxies cannot be voted for a greater number of persons than the number of nominees named.

Vote Required for Approval

National Oilwell Varco’s Bylaws require that each director be elected by the majority of votes cast with respect to such director in uncontested elections (i.e., the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee). In a contested election (i.e., a situation in which the number of nominees exceeds the number of directors to be elected), the standard for election of directors would be a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. Whether an election is contested or not is determined as of a date that is 14 days in advance of when we file our definitive proxy statement with the SEC. This year’s election was determined to be an uncontested election, and the majority vote standard will apply. If a nominee who is serving as a director is not elected at the annual meeting, Delaware law provides that the director would continue to serve on the Board as a “holdover director.” However, under our Bylaws and Corporate Governance Guidelines, each director must submit an advance, contingent, irrevocable resignation that the Board may accept if the director fails to be elected through a majority vote. In that situation, the Nominating/Corporate Governance Committee would make a recommendation to the Board about whether to accept or reject the resignation, or whether to take other action. The Board will act on the Nominating/Corporate Governance Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date the election results are certified. If a nominee who was not already serving as a director fails to receive a majority of votes cast at the annual meeting, Delaware law provides that the nominee does not serve on the Board as a “holdover director.” All director nominees are currently serving on the Board.

Brokers are not permitted to vote your shares on the election of directors in the absence of your specific instructions as to how to vote. Please provide your broker with voting instructions so that your vote can be counted.

Key Attributes, Experience and Qualifications

The Company believes that each member of its Board of Directors possesses the basic attributes of being a director of the Company, namely having a reputation for integrity, honesty, candor, fairness and discretion. Each director has also become knowledgeable in major aspects of the Company’s business and operations, which has allowed the Board to provide better oversight functions to the Company.

 

- 5 -


Table of Contents

The Company considered the following factors in determining that the board member should serve on the Board:

CLAY C. WILLIAMS, 56

 

LOGO   

Mr. Williams has been a Director of the Company since November 2013 and Chairman of the Board since May 2014. Mr. Williams has served as the Company’s Chief Executive Officer since February 2014 and as the Company’s President since December 2012. Mr. Williams served as the Company’s Chief Operating Officer from December 2012 until February 2014. Mr. Williams previously served as the Company’s Executive Vice President from February 2009 and as the Company’s Senior Vice President and Chief Financial Officer from March 2005, until December 2012. He served as Varco’s Vice President and Chief Financial Officer from January 2003 until its merger with the Company on March 11, 2005. From May 2002 until January 2003, Mr. Williams served as Varco’s Vice President Finance and Corporate Development. From February 2001 until May 2002, and from February 1997 until February 2000, he served as Varco’s Vice President—Corporate Development. Mr. Williams serves as a director of Benchmark Electronics, Inc., a company engaged in providing electronic manufacturing services in the United States and internationally.

 

Mr. Williams has been an officer of a publicly traded company since 1997, occupying positions of increasing importance from VP-Corporate Development, to Senior VP and CFO, to President and COO, to President and CEO. Mr. Williams has extensive experience with the Company and the oil service industry. Mr. Williams has an MBA degree from the University of Texas at Austin, as well as a Bachelor of Science degree in Civil/Geological Engineering from Princeton University. Mr. Williams has also gained valuable outside board experience from his tenure as a director of Benchmark Electronics, Inc.

GREG L. ARMSTRONG, 60

 

LOGO   

Mr. Armstrong has been a Director of the Company since March 2005. Mr. Armstrong served as a Director of Varco from May 20, 2004 until its merger with the Company on March 11, 2005. In October 2018, Mr. Armstrong retired from his position as Chief Executive Officer of Plains All American GP LLC, the general partner and controlling entity of Plains All American Pipeline, L.P., a publicly traded master limited partnership engaged in the business of marketing, gathering, transporting, terminalling and storing crude oil. Mr. Armstrong had been serving as the Chairman of the Board and Chief Executive Officer of Plains All American GP LLC since 1998 and is expected to continue serving as the Non-Executive Chairman of the Board of Directors of Plains All American GP LLC through 2019. From 2010 to 2013, he served as Chairman of the Board and Chief Executive Officer of PAA Natural Gas Storage, L.P., a publicly traded master limited partnership engaged in the natural gas storage business, the outstanding minority interest of which was acquired by Plains All American in 2013. Mr. Armstrong is Chairman of the National Petroleum Council and is a director and Chairman of the Federal Reserve Bank of Dallas and previously served as a director and Chairman of the Federal Reserve Bank of Dallas, Houston Branch.

 

Mr. Armstrong has over 30 years of experience being a certified public accountant (currently inactive) and eight years of experience serving as a chief financial officer. Mr. Armstrong has been an officer of a publicly traded energy company since 1981, occupying positions of increasing importance ranging from controller, to CFO, to COO and CEO. Through service in these roles, he gained extensive experience in assessing the risks associated with various energy industry cycles. He has also gained valuable outside board experience from his previous tenure as a director of BreitBurn Energy Partners.

 

- 6 -


Table of Contents

MARCELA E. DONADIO, 64

 

LOGO   

Ms. Donadio has been a Director of the Company since April 2014. She was Americas Oil & Gas Sector Leader of Ernst & Young LLP, from which she retired in March 2014. Ms. Donadio joined Ernst & Young in 1976, serving since 1989 as audit partner for multiple companies in the oil and gas industry. She held various energy industry leadership positions until being named Americas Oil & Gas Sector Leader in 2007. In that role, she was responsible for one of the firm’s most significant industry groups in the US and throughout the Americas. Ms. Donadio also served as spokesperson of the firm on business and industry issues affecting energy companies, including those relevant to accounting standards. Ms. Donadio also serves as a director of Marathon Oil Corporation, an energy company, and Norfolk Southern Corporation, a transportation company.

 

Ms. Donadio provides valuable service and experience to the Audit Committee, due to her 37 years of audit and public accounting experience with a specialization in domestic and international operations in all segments of the energy industry. Ms. Donadio has in-depth experience on numerous audit engagements of global energy companies conducted in compliance with the Sarbanes-Oxley Act and under the financial reporting requirements of the SEC. Ms. Donadio earned a Bachelor of Science degree in Accounting from Louisiana State University and is a licensed certified public accountant in the State of Texas.

BEN A. GUILL, 68

 

LOGO   

Mr. Guill has served as a Director of the Company since 1999. He is a Managing Partner of White Deer Energy, a middle market private equity fund focused on energy investments. Until April 2007, he was President of First Reserve Corporation, a corporate manager of private investments focusing on the energy and energy-related sectors, which he joined in September 1998. Prior to joining First Reserve, Mr. Guill was the Managing Director and Co-head of Investment Banking of Simmons & Company International, an investment-banking firm specializing in the oil service industry.

 

Mr. Guill has an MBA degree and 23 years of experience in investment banking and 17 years of experience in private equity. Mr. Guill also served as president of a private investment firm focused on the energy sector. Mr. Guill has over 36 years of experience in the energy industry as an investment banker and private equity investor. Mr. Guill has also gained valuable outside board experience from his previous tenures as a director of: Emerald Oil, Inc., Dresser, Inc., Quanta Services, Inc., T-3 Energy Services, Inc., Chart Industries, Inc. and the general partner of Cheniere Energy Partners, L.P.

 

- 7 -


Table of Contents

JAMES T. HACKETT, 65

 

LOGO   

Mr. Hackett has been a Director of the Company since April 2016. Mr. Hackett is currently serving as the Executive Chairman and Chief Executive Officer of Alta Mesa Resources, Inc., an exploration and production company. Mr. Hackett is also a Senior Advisor at Riverstone Holdings, LLC, an energy focused private investment firm, based in New York, which he joined in 2013. Prior to joining Riverstone Holdings, LLC in 2013, Mr. Hackett served as the Chairman of the Board from 2006 to 2013 and the Chief Executive Officer from 2003 to 2012 of Anadarko Petroleum Corporation. Before joining Anadarko, Mr. Hackett served as President and Chief Operating Officer of Devon Energy Corporation, following its merger with Ocean Energy, where he had served as Chairman, President, and Chief Executive Officer. Mr. Hackett has held senior positions at Seagull, Duke Energy, and Pan Energy. He also held positions in engineering, finance and marketing with NGC Corp., Burlington Resources, and Amoco Oil Corp. Mr. Hackett also serves as a director of Enterprise Products Holdings, LLC and Fluor Corporation.

 

Through the various leadership positions, he has held with several publicly traded energy companies, Mr. Hackett has gained valuable knowledge of the oil and gas industry and extensive experience in assessing the risks associated with various energy industry cycles. Mr. Hackett received a Bachelor of Science degree from the University of Illinois in 1975, a Master of Business Administration from Harvard Business School in 1979 and a Master of Theological Studies from Harvard Divinity School in 2016. Mr. Hackett has also gained valuable outside board experience from his previous tenures as a director of: Cameron International, Anadarko Petroleum Corporation, Bunge, Ltd., Halliburton Corporation, Federal Reserve Bank of Dallas and Temple-Inland, Inc, to name a few.

 

- 8 -


Table of Contents

DAVID D. HARRISON, 71

 

LOGO   

Mr. Harrison has been a Director of the Company since August 2003. He served as Executive Vice President and Chief Financial Officer of Pentair, Inc., a diversified manufacturer in water technologies and enclosures businesses, from February 2000 until his retirement in February 2007. He also served as Executive Vice President and Chief Financial Officer of Pentair, Inc. from 1994 to 1996. From 1972 through 1994, Mr. Harrison held various domestic and international finance positions with a combination of General Electric and Borg-Warner Chemicals. Mr. Harrison served as a director of Navistar International Corporation until his retirement from the Board in October 2012. Navistar is a holding company whose wholly owned subsidiaries produce International® brand commercial trucks. Mr. Harrison also serves as a director of James Hardie Industries, a leading fiber cement technology company.

 

Mr. Harrison provides valuable service and experience to the Audit Committee, due to his 29 years of being a certified management accountant and 15 years of experience serving as a chief financial officer and chief accounting officer of publicly traded companies. Mr. Harrison has 45 years of continuous experience in major domestic and foreign companies in a variety of different industries. Mr. Harrison’s experience outside the energy industry helps provide a different perspective for the Company. He has a bachelor’s degree in accounting and an MBA degree. He has also gained valuable outside board experience from his tenure as a director of Navistar International Corporation and James Hardie Industries, where he currently serves as the Chairman of Nominating and Governance Committee.

ERIC L. MATTSON, 67

 

LOGO   

Mr. Mattson has been a Director of the Company since March 2005. Mr. Mattson served as a Director of Varco (and its predecessor, Tuboscope Inc.) from January 1994 until its merger with the Company on March 11, 2005. Mr. Mattson served as the EVP-Finance of Select Energy Services, Inc., a public oil service company located in Houston until his retirement in March 2018. Mr. Mattson also served as Senior Vice President and Chief Financial Officer of VeriCenter, Inc., a private provider of managed hosting services, from 2003 until its acquisition in August 2007. From November 2002 until October 2003, Mr. Mattson worked as an independent consultant. Mr. Mattson was the Chief Financial Officer of Netrail, Inc., a private Internet backbone and broadband service provider, from September 1999 until November 2002. From July 1993 until May 1999, Mr. Mattson served as Senior Vice President and Chief Financial Officer of Baker Hughes Incorporated, a provider of products and services to the oil, gas and process industries. Mr. Mattson also serves as a director of Holly Energy Partners L.P. Mr. Mattson served as a director of Rex Energy Corporation until November 2018.

 

Mr. Mattson has an MBA degree and 44 years of financial experience, including 25 years as a chief financial officer of four different companies. Mr. Mattson has extensive experience in the oil service business, having worked in that industry for over 35 years. He also has extensive mergers and acquisitions experience of over 35 years on a global basis. Mr. Mattson has dealt with all facets of potential risk areas for a global energy service company, as a former chief financial officer of Baker Hughes, and brings that experience and perspective to the Company.

 

- 9 -


Table of Contents

MELODY B. MEYER, 61

 

LOGO   

Ms. Meyer has been a Director of the Company since September 2017. Ms. Meyer was with Chevron for over 37 years and held various positions of increasing responsibility, including managing domestic and international operations, managing strategy and planning and leading new technology development for the organization. Ms. Meyer was the President of Chevron Asia Pacific Exploration and Production from 2011 until her retirement in 2016. Prior to that, Ms. Meyer served as the President of the Chevron Energy Technology Company from 2008 to 2011 and the Vice President of Chevron’s Gulf of Mexico business unit from 2004 to 2008. Ms. Meyer also serves as a director of BP p.l.c. and AbbVie Inc.

 

Ms. Meyer provides valuable service and experience to the Audit Committee, due to her experience as a former long serving executive at Chevron. Ms. Meyer has extensive experience in the upstream oil and gas industry, having worked in that industry for over 37 years. During her lengthy career at Chevron, Ms. Meyer had P&L responsibility for major segments of upstream exploration and production portfolios and was responsible for strategy and planning, global portfolio, large capital projects, as well as actively supervising financial managers in line management roles.

WILLIAM R. THOMAS, 66

 

LOGO   

Mr. Thomas has been a Director of the Company since November 2015. Mr. Thomas has been serving as the Chairman and CEO of EOG Resources, Inc. since January 2014. Prior to that, he served as President and Chief Executive Officer from July 2013 through December 2013 and as President from September 2011 to July 2013. Mr. Thomas previously held other leadership positions at EOG Resources, Inc., including Senior Executive Vice President, Exploitation and Senior Executive Vice President, Exploration. Mr. Thomas has been with EOG Resources, Inc. and its predecessor companies since 1979.

 

Mr. Thomas provides valuable service and experience to the Audit Committee, due to his over four years of experience serving as a director of, and as the Chief Executive Officer of, EOG Resources, Inc. (EOG). Mr. Thomas has been with EOG and its predecessor companies for over 40 years. Through his service at EOG and various leadership positions held with EOG, he has gained valuable knowledge of the oil and gas industry and extensive experience in assessing the risks associated with various energy industry cycles. Mr. Thomas received a Bachelor of Science degree in Geology from Texas A&M University in 1975.

Your Board of Directors recommends that you vote “FOR” the election of the nine nominees for director.

 

- 10 -


Table of Contents

COMMITTEES AND MEETINGS OF THE BOARD

Committees

The Board of Directors appoints committees to help carry out its duties. The Board of Directors has the following standing committees: Audit, Compensation, and Nominating/Corporate Governance. Last year, the Board of Directors met four times and the committees met a total of 13 times. As an employee of the Company, Mr. Williams does not serve on any committees. The following table sets forth the committees of the Board of Directors and their members during 2018, as well as the number of meetings each committee held during 2018:

 

Director           Audit               Compensation       Nominating/Corporate
Governance

Clay C. Williams

           

Greg L. Armstrong

           

Marcela E. Donadio

  M       M

Ben A. Guill

      C    

James T. Hackett

          M

David D. Harrison

  C        

Eric L. Mattson

      M   C

Melody B. Meyer

  M       M

William R. Thomas

  M   M    

Number of Meetings Held in 2018

  9   2   2

 

C:

Chair    M: Member

Attendance at Meetings

Each incumbent director attended at least 75% of the meetings of the Board and committees of which that director was a serving member.

Audit Committee

Mr. Harrison (Chair), Ms. Donadio, Ms. Meyer and Mr. Thomas are the current members of the Audit Committee. All members of this committee are “independent” within the meaning of the rules governing audit committees by the New York Stock Exchange, or NYSE.

The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities. The Committee’s primary duties and responsibilities are to:

 

   

monitor the integrity of the Company’s financial statements, financial reporting processes, systems of internal controls regarding finance, and disclosure controls and procedures;

 

   

select and appoint the Company’s independent auditors, pre-approve all audit and non-audit services to be provided, consistent with all applicable laws, to the Company by the Company’s independent auditors, and establish the fees and other compensation to be paid to the independent auditors;

 

   

monitor the independence and performance of the Company’s independent auditors and internal audit function;

 

   

establish procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls, disclosure or auditing matters, and provide an avenue of communication among the independent auditors, management, the internal audit function and the Board of Directors;

 

- 11 -


Table of Contents
   

prepare an audit committee report as required by the Securities and Exchange Commission (the “SEC”) to be included in the Company’s annual proxy statement; and

 

   

monitor the Company’s compliance with legal and regulatory requirements.

A copy of the Audit Committee Charter is available on the Company’s website, www.nov.com, under the Investor Relations/Corporate Governance section.

Audit Committee Financial Expert

The Board of Directors has determined that all members of the Audit Committee meet the NYSE standard of having accounting or related financial management expertise and meet the SEC’s criteria of an Audit Committee Financial Expert.

Compensation Committee

Mr. Guill (Chair), Mr. Mattson and Mr. Thomas are the current members of the Compensation Committee. All members of the Compensation Committee are independent as defined by the applicable NYSE listing standards.

The Compensation Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities. The Committee’s primary duties and responsibilities are to:

 

   

discharge the Board’s responsibilities relating to compensation of the Company’s directors and executive officers;

 

   

approve and evaluate all compensation of directors and executive officers, including salaries, bonuses, and compensation plans, policies and programs of the Company; and

 

   

administer all plans of the Company under which shares of common stock may be acquired by directors or executive officers of the Company.

A copy of the Compensation Committee Charter is available on the Company’s website, www.nov.com, under the Investor Relations/Corporate Governance section.

Compensation Committee Interlocks and Insider Participation. Mr. Guill, Mr. Mattson and Mr. Thomas served on the Compensation Committee during 2018. None of these members is a former or current officer or employee of the Company or any of its subsidiaries, is involved in a relationship requiring disclosure as an interlocking executive officer/director, or had any relationship requiring disclosure under Item 404 of Regulation S-K.

Nominating/Corporate Governance Committee

Mr. Mattson (Chair), Ms. Donadio, Mr. Hackett and Ms. Meyer are the current members of the Nominating/Corporate Governance Committee. All members of the Nominating/Corporate Governance Committee are independent as defined by the applicable NYSE listing standards.

The Nominating/Corporate Governance Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities. The Committee’s primary duties and responsibilities are to:

 

   

ensure that the Board and its committees are appropriately constituted so that the Board and directors may effectively meet their fiduciary obligations to stockholders and the Company;

 

   

identify individuals qualified to become Board members and recommend to the Board director nominees for each annual meeting of stockholders and candidates to fill vacancies in the Board;

 

   

recommend to the Board annually the directors to be appointed to Board committees;

 

   

monitor, review, and recommend, when necessary, any changes to the Corporate Governance Guidelines; and

 

   

monitor and evaluate annually the effectiveness of the Board and management of the Company, including their effectiveness in implementing the policies and principles of the Corporate Governance Guidelines.

A copy of the Nominating/Corporate Governance Committee Charter is available on the Company’s website, www.nov.com, under the Investor Relations/Corporate Governance section.

 

- 12 -


Table of Contents

BOARD OF DIRECTORS

Director Nomination Process and Diversity Considerations

The Nominating/Corporate Governance Committee has the responsibility of identifying candidates for election as directors, reviewing background information relating to candidates for director, and recommending to the Board of Directors nominees for directors to be submitted to stockholders for election. It is the policy of the Committee to consider director candidates recommended by stockholders. Nominees to be evaluated by the Nominating/Corporate Governance Committee are selected by the Committee from candidates recommended by multiple sources, including other directors, management, stockholders, and candidates identified by independent search firms (which firms may be paid by the Company for their services), all of whom will be evaluated based on the same criteria. As of March 29, 2019, we had not received any recommendations from stockholders for potential director candidates. All of the current nominees for director are standing members of the Board that are proposed by the entire Board for re-election. Written suggestions for nominees should be sent to the Secretary of the Company at the address listed below.

The Board of Directors believes that nominees should reflect the following characteristics:

 

   

have a reputation for integrity, honesty, candor, fairness and discretion;

 

   

be knowledgeable, or willing to become so quickly, in the critical aspects of the Company’s businesses and operations;

 

   

be experienced and skillful in serving as a competent overseer of, and trusted advisor to, the senior management of at least one substantial enterprise; and

 

   

have a range of talent, skill and expertise sufficient to provide sound and prudent guidance with respect to the full scope of the Company’s operations and interests.

The Board values diversity and seeks to achieve a mix of directors that represents a diversity of viewpoints, backgrounds and experiences. The Board considers diversity in a variety of different ways and in a fairly expansive manner when identifying nominees for director. In evaluating the overall qualifications of a prospective nominee, the Nominating/Corporate Governance Committee and Board will take into account the individual’s professional experience, experience in the oil and gas industry, education, skills, gender, race and other qualities and attributes that contribute to board heterogeneity.

The Nominating/Corporate Governance Committee reviews Board composition annually to ensure that the Board reflects the knowledge, experience, skills, expertise, and diversity required for the Board to fulfill its duties. If and when the need arises for the Company to add a new director to the Board, the Nominating/Corporate Governance Committee will take every reasonable step to ensure that diverse candidates (including, without limitation, women and minority candidates) are in the pool from which nominees are chosen and strive to obtain diverse candidates by searching in traditional corporate environments, as well as government, academia, and non-profit organizations.

 

- 13 -


Table of Contents

The following are some of the key qualifications and skills of our Board.

 

     Armstrong    Donadio    Guill    Hackett     Harrison     Mattson     Meyer     Thomas     Williams 

Skills & Experience

                                        

Operations

                            

International business

                          

Risk Management

                      

Financial expertise/literacy

                      

Strategic planning

                      

Oil & gas industry

                      

Engineering/technology

                            

Sales/marketing

                              
                                          

Background

                                        

Age

  60   64   68   65    71    67    61    66    56

Year joined Board

  2005   2014   1999   2016    2003    2005    2017    2015    2013

Independent

                        

Nominations of persons for election to the Board of Directors may be made at an annual or special meeting of stockholders by any stockholder entitled to vote for the election of directors at the meeting, who complies with the notice procedures set forth in Article II, Section 9 of our Amended and Restated Bylaws dated as of August 11, 2017 (the “Bylaws”), and who is a stockholder of record both at the time of the giving of notice provided for in Article II, Section 9 of the Bylaws and at the time of the meeting. Such nominations shall be made pursuant to timely notice in writing to our Secretary. To be timely under Article II, Section 9 of the Bylaws, a stockholder’s notice must be delivered to and received by our Secretary at our principal executive offices by hand or by certified or registered mail, return receipt requested: (i) with respect to an election to be held at an annual meeting of stockholders, not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the first anniversary of the date on which we released our proxy materials for the preceding year’s annual meeting; provided, however, that in the event the annual meeting of stockholders is to be held more than thirty (30) days before or more than thirty (30) days after the first anniversary of the date of the preceding year’s annual meeting, not less than one hundred twenty (120) days prior to the date of such annual meeting or the tenth (10th) day following the public announcement of the date of such annual meeting; and (ii) with respect to an election to be held at a special meeting of stockholders, other than a request of a stockholder or stockholders pursuant to Article II, Section 4 of the Bylaws requesting that a special meeting be called to elect Directors pursuant to the requirements of that section, not later than the close of business on the tenth (10th) day following the first public announcement of the date of such special meeting. In no event shall any adjournment, rescheduling or postponement of a meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice. Article II, Section 9 of the Bylaws prescribes specific information that must be included in a stockholder’s notice, eligibility requirements for the proposed nominee and other requirements for a valid nomination. With respect to our annual meeting of stockholders for 2020, a stockholder’s notice to nominate a person for election as director must be received no earlier than November 17, 2019 and no later than December 17, 2019. Article II, Section 10 of the Bylaws prescribes the procedures and requirements for inclusion of a stockholder nominee in our proxy materials.

 

- 14 -


Table of Contents

AUDIT COMMITTEE REPORT

The responsibilities of the Audit Committee, which are set forth in the Audit Committee Charter adopted by the Board of Directors, include providing oversight to the Company’s financial reporting process through periodic combined and separate meetings with the Company’s independent auditors and management to review accounting, auditing, internal controls and financial reporting matters. The management of the Company is responsible for the preparation and integrity of the financial reporting information and related systems of internal controls. The Audit Committee, in carrying out its role, relies on the Company’s senior management, including senior financial management, and its independent auditors.

The Board of Directors has determined that all of the members of the Audit Committee are independent based on the guidelines set forth by the NYSE and SEC rules for the independence of Audit Committee members. The Audit Committee held nine (9) meetings in 2018. During the quarterly in-person meetings of the committee, the Audit Committee met separately in executive session with the internal audit vice president, the chief compliance officer, the vice president and general counsel, the vice president and chief financial officer and the independent audit partner, without management being present.

The Audit Committee reviewed and discussed with senior management the audited financial statements included in the Company’s Annual Report on Form 10-K. Management has confirmed to the Audit Committee that such financial statements have been prepared with integrity and objectivity and in conformity with generally accepted accounting principles.

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent external audit firm retained to audit the Company’s financial statements. The Audit Committee has appointed Ernst & Young LLP as the Company’s independent external auditor for fiscal year 2019. The Audit Committee is responsible for audit fee negotiations associated with the Company’s retention of Ernst & Young LLP.

The Audit Committee discussed with Ernst & Young LLP, the Company’s independent auditors, the matters required to be discussed under the applicable rules of the Public Company Accounting Oversight Board (“PCAOB”), which require independent auditors to communicate certain matters related to the conduct of an audit to those who have responsibility for oversight of the financial reporting process. Among the matters to be communicated to the audit committee are: (1) methods used to account for significant unusual transactions; (2) the effect of critical and significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus; (3) the process used by management in formulating particularly sensitive accounting estimates and the basis for the auditor’s conclusions regarding the reasonableness of those estimates; and (4) disagreements with management over the application of accounting principles, the basis for management’s accounting estimates, and the disclosures in the financial statements. In addition, the Audit Committee reviewed with Ernst & Young their judgment as to the quality, not just the acceptability, of the Company’s accounting principles.

The Audit Committee has received the written disclosures and the letter from Ernst & Young required by applicable requirements of the PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, regarding Ernst & Young’s communication with the Audit Committee concerning independence, and has discussed Ernst & Young’s independence with Ernst & Young.

 

- 15 -


Table of Contents

Based on the foregoing, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s 2018 Annual Report on Form 10-K.

Notwithstanding the foregoing, the Audit Committee’s charter clarifies that it is not the Audit Committee’s duty to conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles (“GAAP”). Management is responsible for the Company’s financial reporting process, including its system of internal controls, and for the preparation of financial statements in accordance with GAAP. Management is also responsible for assuring compliance with laws and regulations and the Company’s corporate policies, subject to the Audit Committee’s oversight in the areas covered by the Audit Committee’s charter. The independent auditors are responsible for expressing opinions on those financial statements and on the effectiveness of the Company’s internal control over financial reporting.

Members of the Audit Committee

David D. Harrison, Committee Chair

Marcela E. Donadio

Melody B. Meyer

William R. Thomas

 

- 16 -


Table of Contents

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

PROPOSAL NO. 2 ON THE PROXY CARD

Information Regarding our Independent Auditors

The Audit Committee of the Board of Directors has reappointed Ernst & Young LLP as independent auditors for 2019. Stockholders are being asked to vote upon the ratification of the appointment. Representatives of Ernst & Young will attend the Annual Meeting, where they will be available to respond to appropriate questions and have the opportunity to make a statement if they desire.

Vote Required for Approval

The proposal to ratify the appointment of Ernst & Young LLP as independent auditors will require approval of a majority of the shares of our common stock entitled to vote and present in person or by proxy. In accordance with NYSE rules, a proposal to ratify independent auditors is considered to be a “discretionary” item. This means that brokerage firms may vote in their discretion on this matter on behalf of beneficial owners who have not furnished voting instructions within the time period specified in the voting instructions submitted by such brokerage firms. Abstentions, which will be counted as votes present for the purpose of determining a quorum, will have the effect of a vote against the proposal. Your shares will be voted as you specify on your proxy. If your properly executed proxy does not specify how you want your shares voted, we will vote them for the ratification of the appointment of Ernst & Young LLP as independent auditors.

Audit Fees

The Audit Committee pre-approves all services provided by the Company’s independent auditors to the Company and its subsidiaries. Consideration and approval of such services generally occurs in the regularly scheduled quarterly meetings of the Audit Committee. The Audit Committee has delegated the Audit Committee Chair to pre-approve allowed non-audit services, subject to review by the full committee at the next regularly scheduled meeting. The Audit Committee has considered whether the provision of all services other than those rendered for the audit of the Company’s financial statements is compatible with maintaining Ernst & Young’s independence and has concluded that their independence is not compromised.

The following table sets forth Ernst & Young LLP’s fees for services rendered during 2018 and 2017. All services provided by Ernst & Young LLP were pre-approved by the Audit Committee.

 

     2018      2017  
     (in thousands)  

Audit Fees

   $ 8,620      $ 8,841  

Audit Related Fees

   $ 24      $ 13  

Tax Fees(1)

   $ 2,300      $ 2,612  

All Other Fees

             

Total

   $ 10,944      $ 11,466  

 

(1)

Consists primarily of fees for compliance, planning and advice with respect to various domestic and foreign corporate tax matters.

Your Board of Directors recommends that you vote “FOR” the proposal to ratify the appointment of Ernst & Young LLP.

 

- 17 -


Table of Contents

APPROVAL OF COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

PROPOSAL NO. 3 ON THE PROXY CARD

A proposal will be presented at the meeting asking stockholders to approve on an advisory basis the compensation of the Company’s named executive officers as described in this proxy statement.

Why You Should Approve our Executive Compensation Program

The Company’s compensation philosophy is designed to attract and retain executive talent and emphasize pay for performance, including the creation of stockholder value. The Company encourages its stockholders to read the Executive Compensation section of this proxy statement, including the compensation tables, as well as the Compensation Discussion and Analysis (CD&A) section of this proxy statement, for a more detailed discussion of our compensation programs and policies. The Company believes its compensation programs and policies are appropriate and effective in implementing its compensation philosophy and in achieving its goals, and that they are aligned with stockholder interests and worthy of continued stockholder support.

In the past, our stockholders have overwhelmingly approved the compensation of our named executive officers. In May 2018, our stockholders approved, on an advisory basis, the compensation of our named executive officers with approximately 96% of stockholder votes cast in favor of our say-on-pay resolution. We believe this strong result indicates general approval from our stockholders of the Company’s existing approach to its compensation programs and policies.

We believe that stockholders should consider the following in determining whether to approve this proposal:

Strong Pay-for-Performance Orientation

 

   

Annual Incentive Plan awards are aligned with our performance: For 2018, the Company’s Adjusted EBITDA performance as calculated under the terms of our annual incentive plan was $896 million, an increase of $270 million relative to 2017 or 43% over 2017. The Company’s performance was just below the “target” $904 million Adjusted EBITDA objective set under the 2018 annual incentive plan and the named executive officers received an incentive compensation bonus payout for 2018 as further discussed in the CD&A.

 

   

Long-term incentives linked to shareholder value: The Company’s long-term incentive awards consist of: stock options, restricted stock and performance share awards (as used herein, the terms “performance awards” and “performance share awards” shall have the same meaning), which rewards the named executive officers for absolute stock price appreciation and relative shareholder return performance.

Compensation Program Has Appropriate Long-term Orientation

 

   

Minimum three-year vesting for equity awards: One material concern of our Board has been retention of strong management, as the Company has navigated a challenging market environment. The Company’s compensation program is designed to enhance retention of key management through a three-year vesting of equity awards.

 

- 18 -


Table of Contents

Summary of Good Governance and Risk Mitigating Factors

 

   

Limited Bonus Payouts: Bonus awards cannot exceed 200% of target, thus capping payouts for short-term performance. With the exception of Joseph Rovig for 2015, none of the executive officers received an incentive compensation bonus payout for 2015 or 2016, reflecting the severe downturn in the oilfield supply market sector.

 

   

Balanced Pay Mix: The mix of pay is balanced between annual and long-term compensation.

 

   

Multiple Year Vesting of Long-Term Incentives: Long-term incentive awards do not vest in their entirety until three years after the grant.

 

   

CEO Pay: Our CEO voluntarily reduced his base compensation in 2015, which was held at the reduced number through 2016 and 2017, and as noted above he did not receive any incentive compensation bonus for 2015 and 2016. CEO base salary level has generally been below the competitive peer median. Moreover, CEO compensation does not include any discretionary bonus award. Instead, CEO bonus is entirely formulaic, based on the Company’s financial performance against a budget target approved by the Board.

 

   

Adoption of Executive Stock Ownership Guidelines: The Company has stock ownership guidelines for executive officers that help align the interests of the Company’s executive officers and the Company’s stockholders by requiring executives to accumulate and retain a meaningful level of the Company’s stock.

 

   

Clawback Policy: Awards of long-term equity compensation and compensation under the Company’s annual cash incentive plan can be recouped by the Compensation Committee if it determines that the recipient of such award has engaged in material misconduct that requires the Company to make a restatement of its reported financial statements.

 

   

Returns Focused Incentives: The performance measures for the Company’s Annual Incentive Plan (i.e., Adjusted EBITDA with a working capital modifier and National Oilwell Varco Value Added or NVA) encourage the prudent deployment of capital, the reduction of costs and inventory levels and the improvement of cash flow and working capital. In 2018, working capital (excluding cash and debt) was reduced from 44% of fourth quarter annualized revenue at year end 2017 to 37% of fourth quarter annualized revenue at year end 2018.

The Company’s compensation program for its named executive officers has been thoughtfully designed to support the Company’s long-term business strategies and drive creation of stockholder value. The program does not encourage excessive risk-taking by management. It is aligned with the competitive market for talent, and highly sensitive to Company performance. The Company believes its program delivers reasonable pay that is strongly linked to Company performance over time.

The following resolution will be submitted for a stockholder vote at the 2019 annual meeting:

“RESOLVED, that the stockholders of the Company approve, on an advisory basis, the compensation of the Company’s named executive officers listed in the 2018 Summary Compensation Table included in the proxy statement for this meeting, as such compensation is disclosed pursuant to Item 402 of Regulation S-K in this proxy statement under the section entitled “Executive Compensation”, including the compensation tables and other narrative executive compensation disclosures set forth under that section, as well as the section in the proxy statement entitled “Compensation Discussion and Analysis”.”

This advisory vote on the compensation of the Company’s named executive officers gives stockholders another mechanism to convey their views about the Company’s compensation programs and policies. Although your vote on executive compensation is not binding on the Company, the Board values the views of stockholders. The Board and Compensation Committee will review the results of the vote and take them into consideration in addressing future compensation policies and decisions.

Your Board of Directors recommends that you vote “FOR” the proposal to approve the

compensation of our named executive officers.

 

- 19 -


Table of Contents

APPROVAL OF AMENDMENTS TO THE NATIONAL OILWELL VARCO, INC.

2018 LONG-TERM INCENTIVE PLAN

PROPOSAL NO. 4 ON THE PROXY CARD

In 2018, the stockholders approved the National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan (the “2018 Equity Plan”) and authorized 17,800,000 shares for issuance.

As of March 29, 2019, of the 17,800,000 shares authorized for issuance under the 2018 Equity Plan, there were 8,213,235 shares remaining available for future grants under the 2018 Equity Plan. The 2018 Equity Plan is the only Company equity plan from which shares remain available for future grants. The Compensation Committee of the Board of Directors and the Board itself considers this number to be inadequate to achieve the stated purpose of the 2018 Equity Plan in the future; namely, to promote the long-term financial interests of the Company by: (i) encouraging directors, officers and employees of the Company to acquire an ownership position in the Company; (ii) enhancing the ability of the Company to attract and retain directors, officers and key employees of outstanding ability; and (iii) providing directors, officers and key employees with an interest in the Company aligned with that of the Company’s stockholders.

The Board has approved, and stockholders are being asked to approve, two amendments to the 2018 Equity Plan, each of which will be documented through a restatement of the 2018 Equity Plan (the “Restatement”). The proposed amended and restated 2018 Equity Plan, highlighting the proposed changes, is provided as Appendix I to this Proxy Statement. You should read Appendix I in its entirety, as the following summary of the proposed changes and the 2018 Equity Plan is not exhaustive.

First, the Company’s proposal would increase by 2,400,000 the number of authorized shares available for issuance under the 2018 Equity Plan – resulting in a total of 20,200,000 shares authorized under the 2018 Equity Plan. This increase would result in 10,613,235 shares being available for future grants, including the number of shares remaining available on March 29, 2019.

Second, the Company’s proposal would amend the 2018 Equity Plan’s various provisions regarding dividends payable on awards to provide that no dividends will be payable on unvested awards. Dividends and other distributions will be accumulated and subject to the same restrictions and risk of forfeiture as the underlying award.

As of March 29, 2019, there were 385,932,068 shares of National Oilwell Varco common stock issued and outstanding. If the additional 2,400,000 of authorized shares is approved by the stockholders, then the 20,200,000 shares of our common stock that could be issued under the 2018 Equity Plan, as of March 29, 2019, would represent approximately less than 1% of the total number of shares of our common stock outstanding on a fully diluted basis as of such date. In determining this percentage, we divided the new shares requested by the common shares outstanding plus the new shares added plus the shares reserved for outstanding stock options and unvested full value awards. However, we expect in the future, to continue to grant full value awards, such as restricted stock, which count against available shares under the 2018 Equity Plan on a 2.5-to-1 basis and would reduce this dilution percentage.

Reasons for Seeking Shareholder Approval

The 2018 Equity Plan provides for long-term compensation and incentive opportunities for directors, executives and key employees of the Company and its subsidiaries. The Board believes that the future success of the Company is dependent upon the quality and continuity of management, and that compensation programs such as stock options and restricted stock grants are important in attracting and retaining individuals of superior ability and in motivating their efforts on behalf of the Company.

 

- 20 -


Table of Contents

Shareholder approval of the Restatement is required under the rules of the New York Stock Exchange applicable to the Company. If the Restatement is not approved, the Restatement will not go into effect. If that occurs, awards may continue to be made under the 2018 Equity Plan in accordance with its terms until the shares remaining for Awards under the 2018 Equity Plan are exhausted. The Company is also asking the stockholders to approve the Restatement for purposes of Section 421 of the Internal Revenue Code of 1986, as amended (the “Code”).

Securities Authorized for Issuance under Equity Compensation Plans

As of March 29, 2019, there were 6,778,132 full-value awards outstanding (i.e., performance awards/restricted stock grants) and 22,213,457 options outstanding under all Company equity plans (including the 2018 Equity Plan and all discontinued Company equity plans).

As of March 29, 2019, the weighted-average exercise price and the weighted-average remaining term for the Company’s outstanding stock options under all Company equity plans were $47.81 and 6.08, respectively.

As of March 29, 2019, there were 385,932,068 shares of National Oilwell Varco common stock issued and outstanding.

The following table sets forth information as of March 29, 2019, with respect to compensation plans under which our common stock may be issued:

 

Plan Category

   Number of securities
to be issued upon
exercise of warrants
and rights (a)
     Weighted-average
exercise price of
outstanding
rights (b)
     Number of securities
remaining available
for equity compensation
plans (excluding
securities reflected in
column (a)) (c) (1)
 

Equity compensation plans approved by security holders

     22,213,457      $ 47.81        8,213,235  

Equity compensation plans not approved by security holders

                    
  

 

 

    

 

 

    

 

 

 

Total

     22,213,457      $ 47.81        8,213,235  
  

 

 

    

 

 

    

 

 

 

 

(1)

Shares could be issued through equity instruments other than stock options, warrants or rights; however, none are anticipated during 2019.

Vote Required for Approval

Approval of the proposal to approve the adoption of the 2018 Equity Plan will require the affirmative vote of the majority of the votes cast on the proposal. An abstention will have the same effect as a vote “against” such proposal. Your shares will be voted as you specify on your proxy. If your properly executed proxy does not specify how you want your shares voted, we will vote them for the adoption of the 2018 Equity Plan.

Description of the Plan

The following summary describes briefly the principal features of the proposed 2018 Equity Plan and is qualified in its entirety by reference to the full text of the proposed 2018 Equity Plan, which is provided as Appendix I to this Proxy Statement.

 

- 21 -


Table of Contents

General Terms

The purpose of the 2018 Equity Plan is to promote the long-term financial interests of the Company, including its growth and performance, by encouraging directors, officers and employees of the Company and its affiliates to acquire an ownership position in the Company, by enhancing the ability of the Company to attract and retain directors, officers and key employees of outstanding ability, and by providing directors, officers and key employees with an interest in the Company aligned with that of the Company’s stockholders. It is not possible to determine at this time the number of shares of Company common stock covered by options or restricted stock awards that may be granted in the future under the 2018 Equity Plan to any employee.

Administration

Generally, the 2018 Equity Plan will be administered by the Compensation Committee, which is and will be composed of independent directors of the Company. The Board will administer the 2018 Equity Plan as to awards to members of the Board. In addition, the Compensation Committee has the authority to delegate to one or more members of the Board or one or more officers of the Company the power to administer the plan as to employees, other than persons subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The Compensation Committee will have full authority, subject to the terms of the 2018 Equity Plan, to establish rules and regulations for the proper administration of the 2018 Equity Plan, to select the employees, consultants and directors to whom awards are granted, and to set the date of grant, the type of award that shall be made and the other terms of the awards.

Eligibility

All employees, consultants and directors of the Company and its affiliates are eligible to participate in the 2018 Equity Plan. The selection of those employees, consultants and directors, from among those eligible, who will receive awards is within the discretion of the Compensation Committee. As of February 28, 2019, there were approximately 34,669 worldwide employees working for the Company and its affiliates who were eligible to participate in the plan. Of the approximate 38,333 worldwide employees, approximately 3,664 were temporary employees (the majority of which were non-US employees) and a small subset of this group may be classified by the Company as “consultants”. It is not possible at this time to determine the benefits or amounts that will be received by or allocated to eligible participants under the 2018 Equity Plan.

Term of the Plan

The 2018 Equity Plan will terminate on May 11, 2028, after which time no additional awards may be made or options granted under the 2018 Equity Plan.

Number of Shares Subject to 2018 Equity Plan and Award Limits

A total of 10,613,235 shares will be available for future grants under the 2018 Equity Plan.

In connection with the granting of an option or SAR, the number of shares available for issuance under the 2018 Equity Plan shall be reduced by the number of shares in respect of which the option or SAR is granted or denominated. For example, upon the grant of stock-settled SARs, the number of shares available for issuance shall be reduced by the full number of SARs granted, and the number of shares available for issuance shall not thereafter be increased upon the exercise of the SARs and settlement in shares, even if the actual number of shares delivered in settlement of the SARs is less than the full number of SARs exercised. In connection with the granting of an award that is not an option or SAR, the number of shares available for issuance under the 2018 Equity Plan shall be reduced by a number of shares equal to the product of (i) the number of shares in respect of which the award is granted, and (ii) 2.5. However, awards that by their terms do not permit settlement in shares shall not reduce the number of shares available for issuance under the 2018 Equity Plan.

 

- 22 -


Table of Contents

Any shares that are tendered by a participant or withheld as full or partial payment of withholding or other taxes or as payment for the exercise or conversion price of an award under the 2018 Equity Plan shall not be added back to the number of shares available for issuance under the 2018 Equity Plan.

Whenever any outstanding option or other award (or portion thereof) expires, is cancelled or forfeited or is otherwise terminated for any reason without having been exercised or payment having been made in the form of shares, the number of shares available for issuance under the 2018 Equity Plan shall be increased by the number of shares allocable to the expired, forfeited, cancelled or otherwise terminated option or other award (or portion thereof). To the extent that any award is forfeited, or any option or SAR terminates, expires or lapses without being exercised, the shares subject to such awards will not be counted as shares delivered under the 2018 Equity Plan.

No participant may receive awards with respect to more than 4,000,000 shares in any calendar year. The maximum amount of awards denominated in cash that may be granted to any participant during any calendar year may not exceed $10,000,000. The maximum value for any award issued to a director during any calendar year, determined on the date of grant, may not exceed $600,000. The limitations described in the preceding two sentences may be adjusted upon a reorganization, stock split, recapitalization or other change in the Company’s capital structure.

Types of Awards

The 2018 Equity Plan permits the granting of any or all of the following types of awards (“Awards”): (1) stock options, (2) restricted stock, (3) restricted stock units, (4) performance awards, (5) phantom shares, (6) stock appreciation rights, (7) stock payments, and (8) substitute awards.

Restricted Stock

Awards may be granted in the form of restricted stock (“Restricted Stock Award”). Restricted Stock Awards may be awarded in such numbers and at such times as the Compensation Committee may determine. Restricted Stock Awards will be subject to certain terms, conditions or restrictions, including vesting terms that may be linked to performance criteria or other specified criteria including passage of time. The Compensation Committee may, in its discretion, waive any restrictions on any outstanding Restricted Stock Award as of a date determined by the Compensation Committee. Cash dividends paid with respect to a Restricted Stock Award will not be paid during the vesting period but shall be accrued and paid in cash at the time, and to the extent, the underlying shares of Company common stock are delivered.

Performance Awards

The Compensation Committee may, in its sole discretion, grant Performance Awards under the 2018 Equity Plan that may be paid in cash, shares of Company common stock, or a combination thereof as determined by the Compensation Committee. At the time of the grant, the Compensation Committee will establish the maximum dollar amount of each Performance Award, the performance goals which may be linked to performance criteria or other specified criteria, including passage of time, and the performance period over which the performance goals will be measured.

Performance Awards will be granted by the Compensation Committee no later than ninety days following the commencement of the performance period, will designate, in writing, the performance criteria applicable to the performance period, and establish performance goals and amounts of awards, as applicable, which may be earned for the performance period. Following the completion of the performance period, the Compensation Committee must certify in writing whether the applicable performance goals have been achieved for the performance period, and no award or portion of an award will be considered earned or vested until the Compensation Committee certifies in writing that the conditions to which the distribution, earning or vesting of such award is subject have been achieved.

 

- 23 -


Table of Contents

If a change of control occurs during a performance period and a Participant is employed by the Company or one of its Affiliates on the date a Change of Control occurs and the Participant’s employment is, within the 24 month period commencing on the effective date of such Change of Control, either involuntarily terminated by the Company or, if the Participant has an employment agreement which permits resignation for “good reason” the Participant resigns for “good reason” as defined in such employment agreement (each referred to as a “Qualifying Termination”), the payment level for any then outstanding Performance Awards shall be the greater of to the greater of (i) the amount payable if each of the performance criteria shall be deemed to be satisfied at the target payment level, provided the Award shall be prorated based on the total number of days during the performance period prior to the date of the Employee’s Qualifying Termination in relation to the total number of days during the performance period, or (ii) the amount payable based on the actual performance for each of the performance criteria through the date of the Employee’s Qualifying Termination.

Stock Options

The term of each option will be as specified by the Compensation Committee at the date of grant (but not more than ten years). The effect of the termination of an optionee’s employment, consulting relationship, or membership on the Board will be specified in the Award agreement that evidences each option grant. The Compensation Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an option may vest and be exercised. The period during which an option is exercisable shall be set forth in the Award agreement. No portion of an option which is unexercisable at termination of the participant’s employment or service, as applicable, shall thereafter become exercisable, except as may be otherwise provided by the Compensation Committee either in the Award agreement or by action following the grant of the option. At the election of the Compensation Committee, any option may be exercised by an optionee with a “net exercise.”

The option price will be determined by the Compensation Committee and will be no less than the fair market value of the shares on the date that the option is granted, except for adjustments for certain changes in the Company’s common stock.

The Compensation Committee may determine the method by which the option price may be paid upon exercise, including in cash, check, other shares of Company common stock owned by the optionee, shares issuable upon option exercise, other securities or property, withholding of shares, or by a combination thereof. The 2018 Equity Plan also allows the Compensation Committee, in its discretion, to establish procedures pursuant to which an optionee may affect a cashless broker exercise of an option. No participant who is a member of the board of directors or an executive officer shall be permitted to pay the exercise price or tax withholding obligation of an option or any other Award in any method that would violate Section 13(k) of the Exchange Act.

Restricted Stock Units

Restricted Stock Units are rights to receive shares of Company common stock, which vest over a period of time as established by the Compensation Committee and with the satisfaction of certain performance criteria or objectives. The Compensation Committee may, in its discretion, require payment or other conditions of the Participant respecting any Restricted Stock Unit. The Compensation Committee shall establish, with respect to and at the time of each Restricted Stock Unit, a period over which the award shall vest with respect to the Participant. Following the end of the vesting period for a Restricted Stock Unit (or at such other time as the applicable Restricted Stock Unit Agreement may provide), the holder of a Restricted Stock Unit shall be entitled to receive one share of Stock for each Restricted Stock Unit then becoming vested or otherwise able to be settled on such date. Cash dividend equivalents will not be paid during the vesting period but shall be accrued and paid in cash at the time, and to the extent, the underlying shares of Company common stock are delivered.

 

- 24 -


Table of Contents

A Restricted Performance Unit will terminate if the Participant does not remain continuously in the employ of the Company and its subsidiaries or does not continue to perform services as a consultant or a director for the Company and its subsidiaries at all times during the applicable vesting period, except as may be otherwise determined by the Compensation Committee. The terms and provisions of Restricted Stock Unit Agreements need not be identical.

Phantom Shares

Phantom Shares under the 2018 Equity Plan are awards of, or rights to receive amounts equal to, a specified number of shares of Company common stock over or following a specific period of time. Such awards may be subject to fulfillment of conditions, which may be linked to performance criteria or other specified criteria, including the passage of time, if any, as the Compensation Committee may specify.

Payment of Phantom Shares may be made in cash, Company common stock, or a combination thereof and shall be paid in a lump sum or installments, following the close of the performance period or at such later deferral date elected by the participant each as prescribed by the Compensation Committee. Any payment to be made in cash will be based on the fair market value of the Company common stock on the payment date.

Stock Appreciation Rights

The Compensation Committee may grant to employees, consultants and directors Stock Appreciation Rights (“SAR”), which consist of a right to receive amounts equal to the share appreciation in the Company’s common stock over a specified period of time. The payment may be made in shares of Company common stock, cash or both. A SAR may be granted (1) in connection and simultaneously with the grant of an option, (2) with respect to a previously granted option, or (3) independent of an option.

Stock Payments

Stock Payments may be awarded in such number of shares of Company common stock and may be based upon performance criteria or other specific criteria, if any, as determined appropriate by the Compensation Committee, determined on the date such Stock Payment is made or on any date thereafter. Stock Payments may be made as part of any bonus, deferred compensation or other arrangement, in lieu of all or any portion of such compensation. Cash dividends paid with respect to Stock Payments will not be paid during the vesting period but shall be accrued and paid in cash at the time, and to the extent, the underlying shares of Company common stock are delivered.

Substitute Awards

The Compensation Committee may also grant to individuals who become employees, consultants or directors of the Company or its subsidiaries in connection with a merger or other corporate transaction awards under the 2018 Equity Plan in substitution of an award such person may have held under his or her prior employer’s plan. It is expected that a substitute award will have substantially the same terms as the award it replaces.

Dividend Treatment for Performance Based Awards

Distributions on shares of Company common stock underlying performance awards or awards with performance criteria, including dividends and dividend equivalents, will accrue and be held by the Company without interest until the award with respect to which the distribution was made becomes vested or is forfeited and then paid to the award recipient or forfeited, as the case may be.

 

- 25 -


Table of Contents

Federal Income Tax Consequences

The following is a brief summary of the U.S. federal income tax consequences of the grant, vesting and exercise of awards under the 2018 Equity Plan. This summary is not intended to be exhaustive, and, among other things, does not describe state, local or non-United States tax consequences, or the effect of gift, estate or inheritance taxes. References to the “Company” in this summary mean National Oilwell Varco, Inc., or any affiliate of National Oilwell Varco, Inc. that employs or receives the services of a recipient of an award under the 2018 Equity Plan. Individuals receiving awards under the 2018 Equity Plan 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.

Incentive Stock Options

An optionee will not recognize any taxable income at the time of the award of an incentive stock option. In addition, an optionee will not recognize any taxable income at the time of the exercise of an incentive stock option (although taxable income may arise at the time of exercise for alternative minimum tax purposes) if the optionee has been an employee of the Company at all times beginning with the option award date and ending three months before the date of exercise (or twelve months in the case of termination of employment due to disability). If the optionee has not been so employed during that time, the optionee will be taxed as described below for non-statutory stock options. If the optionee disposes of the shares purchased through the exercise of an incentive stock option more than two years after the option was granted and more than one year after the option was exercised, then the optionee will recognize any gain or loss upon disposition of those shares as capital gain or loss. However, if the optionee disposes of the shares prior to satisfying these holding periods (known as a “disqualifying disposition”), the optionee will be obligated to report as taxable ordinary income for the year in which that disposition occurs the excess, with certain adjustments, of (i) the fair market value of the shares disposed of on the date of exercise, over (ii) the exercise price paid for those shares. Any additional gain realized by the optionee on the disqualifying disposition would be capital gain. If the total amount realized in a disqualifying disposition is less than the exercise price of the incentive stock option, the difference would be a capital loss for the optionee. The Company will, subject to Section 162(m) of the Code, generally be entitled at the time of the disqualifying disposition to a tax deduction equal to that amount of ordinary income reported by the optionee.

Non-Statutory Options

An optionee will not recognize any taxable income at the time of the award of a non-statutory option. The optionee will recognize ordinary income in the year in which the optionee exercises the option equal to the excess of the fair market value of the purchased shares on the exercise date over the exercise price paid for the shares, and the optionee will be required at that time to satisfy the tax withholding requirements applicable to such income. Any appreciation or depreciation in the fair market value of those shares after the exercise date will generally result in a capital gain or loss to the optionee at the time he or she disposes of those shares. The Company will, subject to Section 162(m) of the Code, generally be entitled to an income tax deduction at the time of exercise equal to the amount of ordinary income recognized by the optionee at that time.

Phantom Shares

Phantom shares units are not subject to taxation at the time of grant, and the Company will not be entitled to a deduction at that time, assuming that the restrictions constitute a substantial risk of forfeiture for federal income tax purposes. Phantom shares settled in cash generally result in taxable income to the Participant and, subject to Section 162(m) of the Code, a compensation deduction by the Company at the time the cash payment is made. Phantom shares settled in shares of Company common stock generally result in taxable income to the Participant and, subject to Section 162(m) of the Code, a compensation deduction by the Company, in an amount equal to the fair market value of the shares of Company common stock on the date of the award is settled through the actual or constructive delivery of shares to the Participant. Phantom shares are subject to federal income and employment tax withholding.

 

- 26 -


Table of Contents

Restricted Stock Awards

The recipient of shares of restricted stock will not recognize any taxable income at the time of the award so long as the shares of Company common stock are not transferable and are subject to a substantial risk of forfeiture. Accordingly, the Company is not entitled to a compensation deduction at that time. The recipient will have to report as ordinary income as and when those shares of Company common stock subsequently vest, that is, when they either become transferable or are no longer subject to a substantial risk of forfeiture, an amount equal to the excess of (i) the fair market value of the shares upon vesting over (ii) the cash consideration (if any) paid for the shares. The Company will, subject to Section 162(m) of the Code, then be entitled to a corresponding compensation deduction. All dividends and distributions (or the cash equivalent thereof) with respect to a restricted stock award paid to the employee before the risk of forfeiture lapses will also be compensation income to the Participant when paid. Notwithstanding the foregoing, the recipient of a restricted stock award may elect under Section 83(b) of the Code to be taxed at the time of grant of the restricted stock award based on the fair market value of the shares of common stock on the date of the award, in which case (1) subject to Section 162(m) of the Code, the Company will be entitled to a deduction at the same time and in the same amount, (2) dividends paid to the recipient during the period the forfeiture restrictions apply will be taxable as dividends and will not be deductible by the Company, and (3) there will be no further federal income tax consequences when the risk of forfeiture lapses. In such case, any appreciation or depreciation in the fair market value of those shares of Company common stock after grant will generally result in a capital gain or loss to the recipient at the time he or she disposes of those shares. This election must be made not later than thirty days after the grant of the restricted stock award and is irrevocable.

Restricted Stock Units

Restricted stock units are not subject to taxation at the time of grant, and the Company will not be entitled to a deduction at that time, assuming that the restrictions constitute a substantial risk of forfeiture for federal income tax purposes. On the date a restricted stock unit is settled through the actual or constructive delivery of shares of Company common stock to the Participant, the Participant will realize ordinary income in an amount equal to the fair market value of the shares received in settlement for the units at such time over the amount, if any, paid for the shares, and subject to Section 162(m) of the Code, the Company will be entitled to a corresponding deduction.

Stock Appreciation Rights

The recipient of a stock appreciation right will not recognize taxable income at the time of the award. The recipient will recognize ordinary income when the stock appreciation right is exercised in an amount equal to the excess of (i) the fair market value of the underlying shares of Company common stock on the exercise date over (ii) the base price in effect for the stock appreciation right, and the recipient will be required to satisfy the tax withholding requirements applicable to such income. The Company will, subject to Section 162(m) of the Code, generally be entitled at the time of exercise to an income tax deduction equal to the amount of ordinary income recognized by the recipient in connection with the exercise of the stock appreciation right.

 

- 27 -


Table of Contents

Performance Awards

Performance Awards paid in cash generally result in taxable income to the Participant and, subject to Section 162(m) of the Code, a compensation deduction by the Company at the time the cash payment is made. Performance Awards paid in shares of Company common stock generally result in taxable income to the Participant and, subject to Section 162(m) of the Code, a compensation deduction by the Company, in an amount equal to the fair market value of the shares of Company common stock on the date of the award is settled through the actual or constructive delivery of shares to the Participant. Performance Awards are subject to federal income and employment tax withholding.

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code places a limit of $1 million on the amount of compensation that the Company may deduct in any taxable year with respect to our chief executive officer, chief financial officer, the next three highest paid executives (the “covered employees”) and any employee who was previously classified as a covered employee. For tax years beginning before January 1, 2018, Section 162(m) of the Code provided an exception to this limitation for compensation that was structured as “performance based” compensation and satisfied certain criteria approved by our stockholders. This exception continues to apply to awards of “performance based” compensation paid under certain written binding contracts which were in effect on November 2, 2017 and which were not modified in any respect after that date but will not apply to any awards issued after that date.

Prohibition on Deferred Compensation

No award shall be “deferred compensation” subject to Section 409A of the Code unless and to the extent that the Compensation Committee specifically determines otherwise, and the 2018 Equity Plan and the terms and conditions of all awards shall be interpreted accordingly. The terms and conditions governing any awards that the Compensation Committee determines will be subject to Section 409A of the Code, including any rules for elective or mandatory deferral of the delivery of cash or shares pursuant thereto, shall be set forth in the applicable award agreement, and shall comply in all respects with Section 409A of the Code. Notwithstanding any provision herein to the contrary, any award issued under the 2018 Equity Plan that constitutes a deferral of compensation under a “nonqualified deferred compensation plan” as defined under Section 409A(d)(1) of the Code and is not specifically designated as such by the Compensation Committee shall be modified or cancelled to comply with the requirements of Section 409A of the Code, including any rules for elective or mandatory deferral of the delivery of cash or shares pursuant thereto.

Miscellaneous

The Compensation Committee may amend or modify the 2018 Equity Plan at any time; provided, however, that stockholder approval will be obtained for any amendment (1) to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, (2) to increase the number of shares available, or (3) to permit the exercise price of any outstanding option or SAR be reduced or for an “underwater” option or SAR to be cancelled and replaced with a new Award or cash. The Company’s Corporate Governance Guidelines do not permit the repricing of options.

Your Board of Directors recommends that you vote “FOR” the proposal to approve the amendments to the National Oilwell Varco, Inc. 2018 Long-Term Incentive Plan.

 

- 28 -


Table of Contents

CORPORATE GOVERNANCE

National Oilwell Varco’s Board of Directors is committed to promoting transparency in reporting information about the Company, complying with the spirit as well as the literal requirements of applicable laws, rules and regulations, and corporate behavior that conforms to corporate governance standards that substantially exceed the consensus view of minimum acceptable corporate governance standards. The Board of Directors adopted Corporate Governance Guidelines which established provisions for the Board’s composition and function, Board committees and committee membership, evaluation of director independence, the roles of the Chairman of the Board, the Chief Executive Officer and the Lead Director, the evaluation of the Chief Executive Officer, regular meetings of non-employee directors, board conduct and review, selection and orientation of directors, director compensation, access to management and independent advisors, and annual review of the Corporate Governance Guidelines. A copy of the Corporate Governance Guidelines is available on the Company’s website, www.nov.com, under the Investor Relations/Corporate Governance section. The Company will furnish print copies of the Corporate Governance Guidelines, as well as its Committee charters, to interested stockholders without charge, upon request. Written requests for such copies should be addressed to: Craig L. Weinstock, Secretary, National Oilwell Varco, Inc., 7909 Parkwood Circle Drive, Houston, Texas 77036.

Director Independence

The Corporate Governance Guidelines address, among other things, standards for evaluating the independence of the Company’s directors. The Board undertakes an annual review of director independence and considers transactions and relationships during the prior year between each director or any member of his or her immediate family and the Company and its affiliates, including those reported under “Certain Relationships and Related Transactions” in this Proxy Statement. As a result of this annual review, the Board affirmatively determined that a majority of the members of the Board of Directors are independent of the Company and its management under the standards set forth in the Corporate Governance Guidelines. The following directors were affirmed as independent: Greg L. Armstrong, Marcela E. Donadio, Ben A. Guill, James T. Hackett, David D. Harrison, Eric L. Mattson, Melody B. Meyer and William R. Thomas.

Board Leadership

Currently, the roles of Chairman of the Board and Chief Executive Officer are combined at the Company. The Company believes that effective corporate governance, including the independent oversight of management, does not require that the Chairman of the Board be an independent director or that the offices of Chairman and Chief Executive Officer be separated. The Company believes that its stockholders are best served by a Board that has the flexibility to establish a leadership structure that fits the needs of the Company at a particular point in time.

The Board believes that our current Chief Executive Officer is best situated to serve as Chairman because Mr. Williams is the director most familiar with our business and most capable of effectively identifying strategic priorities and leading the discussion and execution of our strategy. The Board also believes that the combined role of Chairman and Chief Executive Officer facilitates information flow between management and the Board.

To assist with providing independent oversight of management and the Company’s strategy, the non-employee members of the Board of Directors have appointed Greg L. Armstrong, an independent director, as Lead Director. The Lead Director is responsible for: (1) developing the agenda for, and presiding over the executive sessions of, the Board’s non-management directors, (2) facilitating communications between the Chairman of the Board and other members of the Board, (3) coordinating, with the Chairman, the assessment of the committee structure, organization, and charters, and evaluating the need for any changes, (4) acting as principal liaison between the non-management directors and the Chief Executive Officer on matters dealt with in executive session, and (5) assuming such further tasks as the independent directors may determine.

 

- 29 -


Table of Contents

The Board also holds executive sessions on a quarterly basis at which only non-employee directors are present. In addition, the committees of the Board provide independent oversight of management. Each of the committees of the Board is composed entirely of independent directors.

The Board has concluded that the combined role of Chairman and Chief Executive Officer, together with an independent Lead Director having the duties described above, is in the best interest of stockholders because it provides an appropriate balance between our Chairman’s ability to lead the Board and the Company and the ability of our independent directors, under the leadership of our Lead Director, to provide independent objective oversight of our management.

Board Role in Risk Oversight

The Board of Directors and its committees help conduct certain risk oversight functions for the Company. The Board is periodically advised on the status of various factors that could impact the business and operating results of the Company, including oil and gas prices and the Company’s backlog for capital equipment. The full Board is also responsible for reviewing the Company’s strategy, business plan, and capital expenditure budget at least annually. The full Board also monitors our various enterprise wide risks, including IT and cybersecurity risks. Through these various functions, the Board is able to monitor these risks and assist the Company in determining whether certain mitigating actions, if any, need to be taken.

The Audit Committee serves an important role in providing risk oversight, as further detailed in its charter. One of the Audit Committee’s primary duties and responsibilities is to monitor the integrity of the Company’s financial statements, financial reporting processes, systems of internal controls regarding finance, and disclosure controls and procedures. The Audit Committee is also responsible for establishing procedures for the receipt, retention, response to and treatment of complaints, including confidential, anonymous submissions by the Company’s employees, regarding accounting, internal controls, disclosure or auditing matters, and providing an avenue of communication among the independent auditors, management, the internal audit function and the Board. In addition, the Audit Committee monitors the Company’s compliance with legal and regulatory requirements. The Company considers the Audit Committee an important part of the risk management oversight process, and senior management works closely with the Audit Committee on these matters in managing material risks to the Company.

The other committees of the Board also assist in the risk oversight function. The Nominating/Corporate Governance Committee is responsible for ensuring that the Board and its committees are appropriately constituted so that the Board and its directors may effectively meet their fiduciary obligations to stockholders and the Company. The Nominating/Corporate Governance Committee is also responsible for monitoring and evaluating on an annual basis the effectiveness of the Board and management of the Company, including their effectiveness in implementing the policies and principles of the Corporate Governance Guidelines. The Compensation Committee is responsible for compensation of the Company’s directors and executive officers. These various responsibilities of these committees allow them to work with the Company to make sure these areas do not pose undue risks to the Company.

Risk Assessment in Compensation Programs

Consistent with SEC disclosure requirements, the Company, its Compensation Committee and the Compensation Committee’s independent compensation consultant assess the Company’s executive and broad-based compensation programs on an annual basis and have concluded that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. Although we reviewed all material compensation programs, we focused on the programs with variability of payout, with the ability of a participant to directly affect payout and the controls on participant action and payout.

 

- 30 -


Table of Contents

During such review, we noted that the variable forms of compensation, namely the annual cash incentive program and long-term equity incentives, have structural limitations and other mitigating controls which are designed to prevent the Company from being exposed to unexpected or unbudgeted compensation cost. For example, bonus payments to an executive under the annual cash incentive program are capped at a certain percentage of the executive’s base salary, and the number of shares of restricted stock and stock options granted under the Company’s long-term equity incentive plan are fixed amounts of shares.

After such review and assessment, the Company, the Compensation Committee and the Compensation Committee’s consultant believe that the Company’s compensation policies and practices do not create inappropriate or unintended significant risk to the Company as a whole. The Company and the Compensation Committee also believe that the Company’s incentive compensation arrangements provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage significant risks, and are supported by the oversight and administration of the Compensation Committee with regard to executive compensation programs.

Policies on Business Ethics and Conduct

The Company has a long-standing Business Ethics Policy. In April 2003, the Board adopted the Code of Business Conduct and Ethics For Members of the Board of Directors and Executive Officers and the Code of Ethics for Senior Financial Officers. These codes are designed to focus the Board and management on areas of ethical risk, provide guidance to personnel to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct and help to foster a culture of honesty and accountability. As set forth in the Corporate Governance Guidelines, the Board may not waive the application of the Company’s policies on business ethics and conduct for any Director or Executive Officer. Copies of the Code of Business Conduct and Ethics for Members of the Board of Directors and Executive Officers and the Code of Ethics for Senior Financial Officers, as well as the code of ethics applicable to employees of the Company, are available on the Company’s website, www.nov.com, under the Investor Relations/Corporate Governance section. The Company will furnish print copies of these Codes to interested stockholders without charge, upon request. Written requests for such copies should be addressed to: Craig L. Weinstock, Secretary, National Oilwell Varco, Inc., 7909 Parkwood Circle Drive, Houston, Texas 77036.

Communications with Directors

The Board has provided a process for interested parties to communicate with our non-employee directors. Parties wishing to communicate confidentially with our non-employee directors may do so by calling 1-800-372-3956. This procedure is described on the Company’s website, www.nov.com, in the Investor Relations/Corporate Governance section. Calls to this number will be answered by an independent, automated system 24 hours a day, 365 days a year. A transcript of the call will be delivered to a member of the Audit Committee. Parties wishing to send written communications to the Board, other than sales-related communications, should send a letter addressed to the member or members of the Board to whom the communication is directed, care of the Secretary, National Oilwell Varco, Inc., 7909 Parkwood Circle Drive, Houston, Texas, 77036. All such communications will be forwarded to the Board member or members specified.

Director Attendance at Annual Meetings

The Company does not have a formal policy with respect to director attendance at annual stockholder meetings. In 2018, all members of the Board were in attendance at the annual meeting.

 

- 31 -


Table of Contents

NYSE Corporate Governance Matters

As a listed company with the NYSE, our Chief Executive Officer, as required under Section 303A.12(a) of the NYSE Listed Company Manual, must certify to the NYSE each year whether or not he is aware of any violation by the Company of NYSE Corporate Governance listing standards as of the date of the certification. On May 18, 2018, the Company’s Chief Executive Officer submitted such a certification to the NYSE which stated that he was not aware of any violation by the Company of the NYSE Corporate Governance listing standards.

On February 14, 2019, the Company filed its 2018 Form 10-K with the SEC, which included as Exhibits 31.1 and 31.2 the Chief Executive Officer and Chief Financial Officer certifications required under Section 302 of the Sarbanes-Oxley Act of 2002.

 

- 32 -


Table of Contents

EXECUTIVE OFFICERS

The following persons constitute our current executive officers. The executive officers of the Company serve at the pleasure of the Board of Directors and are subject to annual appointment by the Board of Directors. None of the executive officers, directors, or nominees for director has any family relationships with each other. Information regarding our current executive officers is below:

CLAY C. WILLIAMS, 56

 

LOGO    For a detailed description of Mr. Williams’ background, please refer to page 6.

JOSE A. BAYARDO, 47

 

LOGO    Mr. Bayardo has served as the Company’s Senior Vice President and Chief Financial Officer since August 2015. Prior to joining the Company in 2015, Mr. Bayardo served as Senior Vice President, Resource and Business Development at Continental Resources, Inc. and spent nine years serving in various roles at Complete Production Services, Inc. including Senior Vice President, Chief Financial Officer and Treasurer. Prior to joining Complete Production Services, Mr. Bayardo was an investment banker with J.P. Morgan. Mr. Bayardo holds a Bachelor of Science in Chemical Engineering from the University of Texas at Austin, a Master of Engineering Management from the McCormick School of Engineering at Northwestern University and a Master of Business Administration from the Kellogg Graduate School of Management at Northwestern University.

 

- 33 -


Table of Contents

SCOTT K. DUFF, 51

 

LOGO    Mr. Duff has served as the Company’s Vice President, Corporate Controller and Chief Accounting Officer since July 2014. Mr. Duff previously served as the Company’s Vice President of Internal Audit from 2005 to June 2014. Prior to joining NOV in 2004, Mr. Duff held accounting positions at KPMG, Ernst & Young, and SBC. Mr. Duff holds a Bachelor of Business Administration in Accounting from the University of Texas at San Antonio and is a Certified Public Accountant.

JOSEPH W. ROVIG, 58

 

LOGO    Mr. Rovig has served as the President of Rig Technologies since March 2014. Mr. Rovig has also served as Group Vice President of Global Operations, Vice President of the Eastern Hemisphere, Director of Service and Repair and Senior Vice President of the Offshore Drilling Equipment group within the Company’s Rig Technologies division. Prior to joining the Company, he worked for two drilling contractors in various positions, both domestically and internationally. Mr. Rovig’s internationally-based positions cover twenty years of experience with multiple locations in Asia and Europe

 

- 34 -


Table of Contents

CRAIG L. WEINSTOCK, 60

 

LOGO    Mr. Weinstock has served as the Company’s Senior Vice President, Secretary and General Counsel since October 2014. Prior to his promotion, Mr. Weinstock served as the Company’s Chief Compliance Officer. Before joining National Oilwell Varco in October 2013, he practiced law at Locke Lord, LLP in Texas for 29 years counseling corporate boards and independent directors regarding governance, securities and compliance matters. While practicing with Locke Lord, Mr. Weinstock worked on behalf of National Oilwell Varco on a variety of matters. Mr. Weinstock holds a Bachelor of Arts from the State University of New York and a J.D. from Vanderbilt Law School.

 

- 35 -


Table of Contents

STOCK OWNERSHIP

Security Ownership of Certain Beneficial Owners

Based on information filed with the SEC as of the most recent practicable date, this table shows the number and percentage of shares beneficially owned by owners of more than five percent of the outstanding shares of the common stock of the Company at December 31, 2018 (except where noted below). The number and percentage of shares of common stock beneficially owned is based on 383,427,475 shares outstanding as of December 31, 2018.

 

5% Owners

   No. of
Shares
     Percent
of Class
 

The Vanguard Group (1)

     41,693,548        10.87

100 Vanguard Blvd.

     

Malvern, PA 19355

     

BlackRock, Inc. (2)

     26,005,356        6.80

55 East 52nd Street

     

New York, NY 10055

     

First Eagle Investment

     23,493,626        6.13

Management, LLC (3)

     

1345 Avenue of the Americas

     

New York, NY 10105

     

Harris Associates L.P. (4)

     22,820,259        6.00

111 S. Wacker Drive, Suite 4600

     

Chicago IL 60606

     

Vulcan Value Partners, LLC (5)

     21,718,101        5.67

Three Protective Center

     

2801 Highway 280 South, Suite 300

     

Birmingham, AL 35223

     

State Street Corporation (6)

     18,910,878        4.90

State Street Financial Center

     

One Lincoln Street

     

Boston, MA 02111

     

Dodge & Cox (7)

     16,133,946        4.20

555 California Street, 40th Floor

     

San Francisco, CA 94104

     

 

(1)

Shares owned at December 31, 2018, as reflected in Amendment No. 5 to the Schedule 13G filed with the SEC on February 11, 2019 by The Vanguard Group. Within The Vanguard Group there are the following subsidiaries: Vanguard Fiduciary Trust Company (“VFTC”) and Vanguard Investments Australia, Ltd. (“VIA”).

(2)

Shares owned at December 31, 2018, as reflected in Amendment No. 4 to the Schedule 13G filed with the SEC on February 5, 2019 by BlackRock, Inc. (“Blackrock”). Within the BlackRock group are the following subsidiaries: BlackRock Life Limited, BlackRock International Limited, BlackRock Advisors, LLC, BlackRock (Netherlands) B.V., BlackRock Institutional Trust Company, National Association, BlackRock Asset Management Ireland Limited, BlackRock Financial Management, Inc., BlackRock Japan Co., Ltd., BlackRock Asset Management Schweiz AG, BlackRock Investment Management, LLC, BlackRock Investment Management (UK) Limited, BlackRock Asset Management Canada Limited, BlackRock (Luxembourg) S.A., BlackRock Investment Management (Australia) Limited, BlackRock Advisors (UK) Limited, BlackRock Fund Advisors, BlackRock Asset Management North Asia Limited, BlackRock (Singapore) Limited and BlackRock Fund Managers Ltd.

 

- 36 -


Table of Contents
(3)

Shares owned at December 31, 2018, as reflected in Amendment No. 2 to the Schedule 13G filed with the SEC on February 11, 2019 by First Eagle Investment Management, LLC.

(4)

Shares owned at December 31, 2018, as reflected in Amendment No. 1 to the Schedule 13G filed with the SEC on February 14, 2019 by Harris Associates Inc., for itself and as General Partner of Harris Associates L.P.

(5)

Shares owned at December 31, 2018, as reflected in Amendment No. 1 to the Schedule 13G filed with the SEC on February 14, 2019 by Vulcan Value Partners, LLC.

(6)

Shares owned at December 31, 2018, as reflected in the Schedule 13G filed with the SEC on February 11, 2019 by State Street Corporation. Within the State Street Corporation group are the following subsidiaries: SSGA Funds Management, Inc., State Street Global Advisors Limited (UK), State Street Global Advisors LTD (Canada), State Street Global Advisors, Australia Limited, State Street Global Advisors (Japan) Co., Ltd., State Street Global Advisors Asia Ltd., State Street Global Advisors Singapore Ltd., State Street Global Advisors GmbH, State Street Global Advisors Ireland Limited and State Street Global Advisors Trust Company.

(7)

Shares owned at December 31, 2018, as reflected in Amendment No. 4 to the Schedule 13G filed with the SEC on February 14, 2019 by Dodge & Cox.

 

- 37 -


Table of Contents

Security Ownership of Management

This table shows the number and percentage of shares of the Company’s common stock beneficially owned as of March 29, 2019 by each of our current directors and executive officers and by all current directors and executive officers as a group. The number and percentage of shares of common stock beneficially owned is based on 385,932,068 shares outstanding as of March 29, 2019. Beneficial ownership includes any shares as to which the director or executive officer has the right to acquire within 60 days of March 29, 2019 through the exercise of any stock option, warrant or other right. Each stockholder has sole voting and investment power, or shares these powers with his spouse, with respect to the shares beneficially owned.

 

     Shares Beneficially Owned         
Name of Individual    Number of
Common
Shares(1)
     Outstanding
Options
Exercisable
Within 60
Days
     Percent
of Class*
 

Greg L. Armstrong

     54,132        12,697        *  

Jose A. Bayardo

     175,748        338,807        *  

Marcela E. Donadio

     20,953        0        *  

Scott K. Duff

     54,645        174,658        *  

Ben A. Guill

     87,368        0        *  

James T. Hackett

     20,530        0        *  

David D. Harrison

     55,324        12,697        *  

Eric L. Mattson

     61,034        8,359        *  

Melody B. Meyer

     4,429        0        *  

Joseph W. Rovig

     97,406        221,570        *  

William R. Thomas

     15,237        0        *  

Craig L. Weinstock

     74,766        256,552        *  

Clay C. Williams

     534,624        1,272,525        *  

All current directors and executive officers as a group (13 persons)

     1,256,196        2,297,865        *  

 

*

Less than 1 percent.

(1)

Includes shares deemed held by executive officers and directors in trusts, brokerage accounts and in the Company’s 401(k) plans, supplemental savings plans and deferred compensation plans.

 

- 38 -


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

General Overview

The following Compensation Discussion and Analysis (CD&A) describes our executive compensation program and provides information relevant to understanding the decisions our Compensation Committee has made under that program with regards to our Named Executive Officers’ 2018 compensation.

The following is a list of our named executive officers by name and position, as of December 31, 2018:

 

Name    Position

Clay C. Williams

   Chairman, President and Chief Executive Officer

Jose A. Bayardo

   Senior Vice President and Chief Financial Officer

Joseph W. Rovig

   President – Rig Technologies

Craig L. Weinstock

   Senior Vice President, General Counsel and Secretary

Scott K. Duff

   Vice President, Corporate Controller and Chief Accounting Officer

2018 Performance Overview

Improving oil and gas prices resulted in increased drilling activity and demand for certain oilfield equipment and services. Average 2018 worldwide rig count (as measured by Baker Hughes) increased nine percent in comparison to 2017. The increase in activity led to increased revenues across all of the Company’s segments.

 

LOGO      LOGO

Pay for Performance

Our Compensation Committee believes that the Company’s executive compensation program is appropriately designed to align executives’ interest with those of our shareholders and to reward based on performance. The majority of our executive officers’ total compensation opportunity is provided in “at-risk” compensation components and tied to the achievement of our annual and long-term performance goals.

 

- 39 -


Table of Contents

Our annual incentives are tied to a key measure of profitability and growth (Adjusted EBITDA) and a measure tied to improving our returns on capital (National Oilwell Varco Value Added or NVA). Our long-term incentives are tied to our returns to shareholders, both in absolute stock price gains and returns relative to industry peers.

For 2018 the payouts under our “at-risk” incentive programs were as follows:

 

   

2018 Annual Bonus Payout: We exceeded our pre-set financial threshold goals and consequently awarded above target bonuses for 2018 performance.

 

   

Above Target Long-Term Incentive Performance Award Payout: The 2016 performance shares were earned at 200% of target based on our TSR performance relative to the OSX index. When combined with the stock price reduction from grant date, the company’s performance from 2016-2018 resulted in our performance shares vesting at a level that was 182% of the original grant date target value. By way of comparison, half of the 2015 performance shares were earned at 86% of target based on our TSR performance relative to the OSX index. The other half of the performance shares were forfeited based on not meeting our threshold level of Return on Capital. When combined with the stock price reduction from grant date, the company’s performance from 2015-2017 resulted in our performance shares vesting at a level that was 28% of the original grant date target value.

CEO Realizable Pay

The majority of the compensation value our CEO will ultimately receive is directly tied to the Company’s actual operational and financial performance and absolute and relative stock price performance.

The following table demonstrates the strong link between pay and performance by comparing the CEO’s intended target compensation value relative to his realizable value as of December 31, 2018.*

 

LOGO

 

*

In the chart above, “Target Compensation” refers to the annual target total compensation opportunities offered to the CEO across 2016, 2017, and 2018 and includes base salary, target bonus opportunity, and the grant date intended value of LTI in each of the three years. The amounts indicated in the Realizable columns refer to the corresponding amounts earned, or on track to be earned, from the 2016, 2017 and 2018 target compensation opportunities as of December 31, 2018. “Realizable Compensation” includes base salary and bonus actually earned each year as well as the intrinsic value of long-term incentive awards based on the Company’s closing stock price on December 31, 2018. The 2016 performance award reflects the actual payout of 200% of target based on the Company’s top quartile performance ranking relative to the OSX Index; 2017 and 2018 awards reflect 100% of target since the performance period for those awards will not be completed until December 2019 and 2020 respectively.

 

- 40 -


Table of Contents

Good Pay Practices

Our compensation program and policies include key features that are designed to align the interests of our executives and stockholders and to mitigate compensation-related risks. The table below highlights our practices:

 

   

 

What We Do…

 

  

 

What We Do Not Do…

 

      

 

☑    Pay for Performance

 

  

 

☒    No gross-up payments to cover excise taxes or perquisites

 

 

☑    Tie significant levels of compensation to key corporate and individual goals

 

  

 

☒    No Guaranteed Annual or Multi-Year Bonuses

 

 

☑    Annual Bonuses and Long-Term Incentives are subject to the Company’s clawback policy

 

  

 

☒    No Repricing of Underwater Stock Options

 

 

☑    Bonus payments to executives under the annual cash incentive program are capped at a certain percentage of the executive’s base salary

 

  

 

☒    No Dividend Equivalents Paid Prior to Vesting of Performance Awards (and never on unearned portion of awards)

 

 

☑    Stock Ownership Guidelines for executives and directors

 

  

 

☒    No Dividends payable on any other unvested awards

 

 

☑    Varied performance metrics under short-term and long-term incentive plans

 

  

 

☒    No significant compensation in the form of perquisites for executives

 

 

☑    Double Trigger Provisions for Change in Control

 

    

 

☑    Independent Consultant Reports Directly to the Compensation Committee

 

    

 

☑    Review Tally Sheets When Making Executive Compensation Decisions

 

    

 

☑    Mitigate Undue Risk in Compensation Programs

 

    

Say-on-Pay Considerations

At our 2018 annual stockholder meeting, approximately 96% of votes cast were in support of NOV’s executive compensation program. The annual “Say-on-Pay” vote serves as an important guide to the Compensation Committee in ensuring that the executive compensation programs align with stockholder interests. We believe our stockholders strong support is affirmation of the design of our executive compensation programs.

 

- 41 -


Table of Contents

Approach to Executive Compensation Program

Compensation Philosophy

The Company believes, to attract, motivate, and retain talented executives, its compensation program should be properly designed to:

 

   

Provide a strong emphasis on performance; tied to short and long-term objectives,

 

   

Provide a market competitive pay level,

 

   

Provide alignment with shareholder interests, and

 

   

Provide a certain level of financial security.

Components of NOV’s Compensation Program:

 

 

 

Total Compensation

 

 

Components

of Compensation

  

Purpose

Fixed Pay   Base Salary   

•   Fixed level of compensation to attract and retain executive talent

•   Salary level based on tenure, expertise, scope of responsibility and individual performance

“At Risk” Pay   Annual Incentives (Cash)   

•   Incentivize and reward executives for achieving the Company’s corporate growth and profitability goals

•   Encourage smart investments and prudent deployment of capital

•   Attract, motivate, and retain high quality management talent

•   Provide competitive cash compensation opportunity

  Stock Options   

•   Link significant portion of executive compensation to the enhancement of stockholder value

•   Focus executives on share price appreciation and reward for creating long-term stockholder value

•   Require three-year ratable vesting, thus serving as a retention tool

  Performance Shares   

•   Recognize the Company’s total shareholder performance relative to industry peers

•   Link our executives’ realizable compensation to long-term stockholder value creation

•   Provide a long-term incentive vehicle tied to a three-year performance goal

  Restricted Stock   

•   Align interests of executives with shareholders by providing long-term stock ownership

•   Provide forfeitable ownership stake (three-year ratable vesting) to encourage retention

Given the inherent nature of these forms of compensation and the cyclical nature of the industry in which we operate, the Company has tried to provide a balance between aligning pay with absolute performance and relative performance to peers through both up and down cycles.

There are no compensation policy differences among the individual executives, except that the more senior officers, such as our Chief Executive Officer, receive a higher compensation level with a greater percentage of that compensation “at-risk,” consistent with their increased responsibilities. These differences are reviewed and considered in connection with the compensation analysis performed by the Compensation Committee.

 

- 42 -


Table of Contents

How Executive Compensation Decisions are Determined

Role of Compensation Committee

The Company’s executive compensation program is administered by the Compensation Committee of the Board of Directors. The Compensation Committee establishes specific compensation levels for the Company’s executive officers and administers the Company’s long-term incentive award plans.

The Compensation Committee’s objective regarding executive compensation is to design and implement a compensation program that will attract and retain the best available individuals to serve on the Company’s executive team and properly incentivize those executives to achieve the Company’s short-term and long-term financial and operational goals. To this end, the Compensation Committee strives to provide compensation packages for key executives that generally offer compensation opportunities competitive with the peer group of companies described below.

Role of Compensation Consultant

In November 2016, the Compensation Committee engaged Meridian Compensation Partners (“Meridian”), its compensation consultant, to serve as its advisor on executive compensation matters. The compensation consultants provided advice and analysis to the Compensation Committee on the design, structure and level of executive compensation. Meridian conducted a competitive review of executive compensation for the Company’s named executive officers relative to its peer companies, as well as to analyze internal pay equity, share usage and dilution. Meridian analyzed and compared each position’s responsibilities and job title to develop competitive market data based on data from proxy statements and other public filings. Meridian generated data on the components of the Company’s compensation program compared to the competitive market data range (25th percentile to 75th percentile) of the designated peer group.

Role of CEO and Management

Management plays an important role in assisting the Compensation Committee in determining executive compensation. At the request of the Compensation Committee, management works with Meridian to provide relevant information for the Compensation Committee to make informed decisions. Additionally, our CEO provides the Compensation Committee with his assessment of the performance of our other executive officers and recommends compensation for those officers.

Market Considerations

As part of its process to establish compensation levels for the Company’s named executive officers, the Compensation Committee compares each of the major elements of compensation (base salary, annual bonus and long-term incentives) for each of its named executive officers against the compensation provided to comparable executive officers at companies in a designated peer group.

The Company’s peer group, as approved by the Compensation Committee in 2017, was as follows:

 

Anadarko Petroleum Corporation    Apache Corporation    Baker Hughes, a GE Company
Cummins Inc.    TechnipFMC    Halliburton Co.
Helmerich & Payne, Inc.    Illinois Tool Works Inc.    Ingersoll-Rand PLC

Marathon Oil Corporation

   Noble Energy, Inc.    Oceaneering International, Inc.
Parker Hannifin Corporation    Patterson-UTI Energy, Inc.    RPC, Inc.
Schlumberger Ltd.    Superior Energy Services, Inc.    Transocean Ltd.
Weatherford International Ltd.          

 

- 43 -


Table of Contents

Internal Considerations

While the Compensation Committee considers market-competitive levels in setting pay, it also considers numerous other factors such as tenure, individual performance, and level and scope of responsibility.

Specific to the CEO, the Compensation Committee also takes into account Mr. Williams’ successful achievement of his goals and objectives when setting his compensation opportunity. For 2018, Mr. Williams’ performance was measured in four key areas of the Company:

 

   

Financial performance,

 

   

Formulation and implementation of Company strategy,

 

   

Operational and safety performance, and

 

   

Management and employee development.

2018 Compensation Actions

The following section describes the elements of the Company’s compensation program for 2018, why the elements were selected, and how the amounts of each element were determined. The mix of target total compensation for our CEO and other NEOs is shown in the chart below:

 

LOGO

Base Salary

Salary adjustments are typically based on the individual’s experience and background, the individual’s performance during the prior year, the general movement of salaries in the marketplace, our financial position and, for each executive other than the Chief Executive Officer, the recommendations of our Chief Executive Officer.

Mr. Williams’ salary was voluntarily reduced by 11% in 2015 to reflect the deteriorating industry conditions at the time and was held at this reduced level for two consecutive years. In 2018, the Compensation Committee increased Mr. Williams’ salary as the Company’s financial performance improved. Despite the increase, his salary remains below the 25th percentile of our peer group:

 

- 44 -


Table of Contents

LOGO

Similar to the salary history for our CEO, base compensation of our named executive officers remained flat from 2015 through 2017. In 2018, as the Company’s performance improved, the Compensation Committee adjusted the NEO’s 2018 salaries in line with current competitive market rates and based on the Company’s improved financial performance.

 

Name    End of 2016
Salary
   2017
Salary
   2018
Salary
   Percent
Change

Jose A. Bayardo

   $650,000    $650,000    $685,000    5.1%

Joseph W. Rovig

   $550,000    $550,000    $570,000    3.5%

Craig L. Weinstock

   $510,000    $510,000    $540,000    5.6%

Scott K. Duff

   $360,000    $360,000    $380,000    5.2%

Annual Incentive Plan

The objectives of the Company’s annual cash incentive plan are to incent performance to achieve the Company’s corporate growth and profitability goals, encourage smart investments and prudent return on capital, and provide competitive compensation opportunities to attract and retain high quality management talent.

Annual Incentive Award Opportunities

Annual incentive opportunities are provided to the Company’s named executive officers under the Company’s 2018 Incentive Compensation Plan. Each year, the Compensation Committee establishes the target annual incentive opportunity for each named executive officer as a specified percentage of his or her base salary. These target percentages are based on each executive’s level of responsibility for the Company’s financial performance. Incentive payouts will vary based on actual performance against performance objectives. The Compensation Committee did not make any changes to the named executive officers’ target annual incentive opportunities for 2018.

 

- 45 -


Table of Contents
      Target Bonus Opportunity (As Percent of Salary)  

Name

   2017
Annual Plan
Target %
    2018
Annual Plan
Target %
 

Clay C. Williams

     140     140

Jose A. Bayardo

     95     95

Joseph W. Rovig

     95     95

Craig L. Weinstock

     95     95

Scott K. Duff

     90     90

Performance Metrics

The incentive plan provides for cash awards if the Company achieves certain pre-established financial objectives based on the Company’s financial plan. The Company’s annual financial plan is established through a comprehensive budget and financial planning process, which includes a detailed analysis of the Company’s market outlook and available strategic alternatives and is approved by the Board each year.

 

LOGO

Adjusted EBITDA was selected as a measure for the 2018 annual incentive plan given our continued focus on the operating profitability of our business and the ongoing macroeconomic challenges in the oil and gas industry. The Company discloses Adjusted EBITDA in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. In 2018 the Company also added a Working Capital Modifier to the Adjusted EBITDA portion of the annual incentive plan. The purpose of the working capital modifier was to drive improvements in capital efficiency and cash flow.

National Oilwell Varco Value Added (“NVA”) is another measure selected for the 2018 annual incentive plan. NVA was selected as a complimentary performance measure to Adjusted EBITDA to align management with the drivers of Total Shareholder Return, encouraging them to balance growth, margins, and asset utilization.

 

- 46 -


Table of Contents
   

Metric

 

  

Definition

 

  

Rationale

 

Adjusted EBITDA    Operating Profit excluding Depreciation, Amortization and, when applicable, Other Items.   

Adjusted EBITDA was selected given our continued focus on operating profitability, particularly given the ongoing macroeconomic challenges in the oil and gas industry

 

National Oilwell Varco Value Added (“NVA”)    NVA is an amount equal to (a) net earnings before interest, taxes, depreciation and amortization less (b) taxes and an amount equal to a required return on assets, as established by the Compensation Committee.   

Raises awareness of capital efficiency across the organization. Selected as a complimentary performance measure to Adjusted EBITDA to align management with the drivers of TSR, encouraging them to balance growth, margins, and asset utilization.

 

Working Capital Modifier   

Adjusted Working Capital shall be calculated as follows: (Accounts Receivable + Inventory + Contract Assets + Prepaid) – (Accounts Payable + Contract Liabilities + Accrued Cost of Goods Sold). Adjusted EBITDA will be increased by $0.15 for each $1 of Adjusted Working Capital savings below the target and reduced by $0.15 for each $1 of working capital used above the target.

 

   The purpose of the working capital modifier is drive improvements in capital efficiency and cash flow.

Payout Calibration

Payouts under the annual incentive plan are formulaically determined and vary based on performance against pre-established objectives. Each metric has a Threshold, Target, and Maximum level of achievement, which corresponds to a Threshold, Target, and Maximum level of payout. Below a threshold level of performance for each metric, there is no payout on that portion of the annual incentive plan. Each metric is independently evaluated and the payout for each metric is independently calculated. The payout for each metric is capped once the Maximum performance level is achieved.

Payout Results

LOGO

 

- 47 -


Table of Contents

Achieving target requires management to earn the cost of capital on new investments and to sustain performance on existing activities. The actual bonus paid is the sum of the results for each metric. For 2018, actual bonuses paid to executives were calculated as follows:

Corporate

 

  Performance Measure ($M)

 

  

Weight

 

  

Threshold

 

  

Target

 

    

Maximum

 

    

Actual

 

    

 

With
Working
Capital
Modifier

 

    

Performance
Score

 

    

Payout %

 

 

NOV EBITDA

   75%    $497    $ 904      $ 1,310      $ 896      $ 935        107.9      80.7

NOV Value Added (NVA) Improvement

   25%    ($435)    $ 0      $ 435      $ 210               148.3      37.0
                       118

Rig Technologies

 

  Performance Measure ($M)

 

  

Weight

 

    

Threshold

 

  

Target

 

    

Maximum

 

    

Actual

 

    

 

With
Working
Capital
Modifier

 

    

Performance
Score

 

    

Payout %

 

 

NOV EBITDA

     50    $497    $ 904      $ 1,310      $ 896      $ 935        107.9      53.8

RIG EBITDA

     25    $162    $ 294      $ 426      $ 370      $ 417        193.2      48.2

RIG Value Added (NVA) Improvement*

     25    ($261)    $ 0      $ 261      $ 86               133.0      33.3
           135

Working Capital Modifier: Adjusted EBITDA was increased by $0.15 for each $1 of Adjusted Working Capital savings below the target:

 

    

 

Working Capital Modifier

 

               
     

Target
Adjusted

Working
Capital

 

    

Actual

Adjusted

Working

Capital

 

    

Working
Capital
Savings

 

           

Increase to
Adjusted
EBITDA

 

($M)

 

 

NOV*

   $ 4,806      $ 4,543    $ 263        =      +$ 39  

RIG**

   $ 2,139      $ 1,829    $ 310        =      +$ 47  

* Adjusted Working Capital equal to 50% of Q4 annualized revenue

** Adjusted Working Capital equal to 66.5% of Q4 annualized revenue

2018 Annual Incentive Compensation Bonus Payouts

 

Name    Base Salary      Target
Bonus %
    Target
Bonus $
     Overall
Payout %
    Actual
Bonus $
 

Clay C. Williams

   $ 940,000        140   $ 1,316,000        117.9   $ 1,552,748  

Jose A. Bayardo

   $ 685,000        95   $ 650,750        117.9   $ 767,820  

Joseph W. Rovig

   $ 570,000        95   $ 541,500        135.5   $ 733,692  

Craig L. Weinstock

   $ 540,000        95   $ 513,000        117.9   $ 605,289  

Scott K. Duff

   $ 380,000        90   $ 342,000        117.9   $ 403,526  

 

- 48 -


Table of Contents

Long-Term Incentive Compensation

The primary purpose of the Company’s long-term incentive compensation program is to:

 

   

Focus its executives on the Company’s long-term development and prosperity in addition to annual financial goals;

 

   

Balance long-term versus short-term business objectives, reinforcing that one should not be achieved at the expense of the other; and

 

   

Link the officers’ interests with those of the Company’s stockholders.

In 2018 we continued to increase our emphasis on performance-based awards. We believe our 2018 mix of stock options, restricted stock and performance shares (illustrated below) appropriately rewards executives for gains in share price, promotes retention, and motivates long-term performance. The executives’ long-term incentive awards are benchmarked to ensure the type, value and number of each award are consistent with market practices and aligned with the Company’s philosophy.

 

LOGO

Based on the foregoing, on February 28, 2018, the Compensation Committee approved the grant of stock options, restricted stock awards and performance share awards to the Company’s executive officers pursuant to the National Oilwell Varco, Inc. Long-Term Incentive Plan:

 

Name    Intended Target
Equity Value*
  

Securities
Underlying
Stock Options

(#)

   Restricted Stock
Awards (#)
  

Performance
Awards (Target

# of Shares)

Clay C. Williams

   $9,500,000    339,642    89,342    89,342

Jose A. Bayardo

   $3,000,000    107,256    28,213    28,213

Joseph W. Rovig

   $2,000,000    71,504    18,809    18,809

Craig L. Weinstock

   $1,800,000    64,353    16,928    16,928

Scott K. Duff

   $1,800,000    64,353    16,928    16,928

 

*

The intended target value differs somewhat from the required accounting values used in the Summary Compensation Table.

Equity values for the NEO’s long-term incentive awards returned to 2016 levels (the NEOs, excluding the CEO, received a special one-time equity award increase in 2017).

 

- 49 -


Table of Contents

Stock Options

The options were granted at a price equal to the closing trading price of the Company’s common stock on the New York Stock Exchange on the date of approval of the grants by the Compensation Committee ($38.86 per share). Each of such options has a term of 10 years and vests in three equal annual installments commencing on the first anniversary of the grant.

Restricted Stock

The restricted stock awards granted by the Company to the Named Executive Officers shall vest in three equal annual installments commencing on the first anniversary of the date of grant.

Performance Share Awards

The performance share awards can be earned based on performance against pre-established goals and vest three years from the grant date. The performance awards can be earned only if the percentile ranking of the Company’s TSR (total shareholder return) as measured against the TSR of the constituent members of the OSX Index over a three-year performance period, exceeds certain levels. The Compensation Committee believes that the members of the OSX index are an appropriate benchmark against which to compare the Company’s TSR performance.

The following table summarizes the relationship between the Company’s TSR performance when compared with the TSR performance of the members of the OSX index and the associated payout levels for the performance achieved for the TSR portion of the award:

 

Level    Payout %    Percentile Rank vs. OSX Comparator Group

Maximum

   200%    75th percentile or greater

Target

   100%    50th percentile

Minimum

   50%    25th percentile

No Payout

   0%    Below the 25th percentile

Results falling between minimum and target and target and maximum will result in a linearly interpolated payout.

2016 Performance Share Awards Results

For the 2016-2018 performance period, the Company’s TSR ranked at the 79th percentile relative to the constituent members of the OSX index. The TSR was at the maximum level, resulting in 200% of the target shares vesting. The performance share cycle commenced on January 1, 2016 and ended on December 31, 2018. The TSR calculation ranks the Company’s stock performance against the OSX per group using the average of the first and last 30 days of the vesting period and assumes the reinvestment of dividends.

 

- 50 -


Table of Contents

Retirement, Health and Welfare Benefits

The Company offers retirement, health, welfare and wellness programs to all eligible employees. The Company’s executive officers generally are eligible for the same benefit programs on the same basis as the rest of the Company’s employees. The health and welfare programs cover medical, pharmacy, dental, vision, life, accidental death and dismemberment and disability insurance. A selection of supplemental benefits is also available for employees to elect at their own expense. U.S. employees may also earn wellness incentives by participating in voluntary wellness activities.

The Company offers retirement programs that are intended to supplement the employee’s personal savings. The programs include the National Oilwell Varco, Inc. 401(k) and Retirement Savings Plan (“401k Plan”) and National Oilwell Varco, Inc. Supplemental Savings Plan (“Supplemental Plan”). The Company’s U.S. employees, including its executives, are generally eligible to participate in the 401k Plan. Employees of the Company whose base salary meets or exceeds a certain dollar threshold established by the Company’s benefits plan administrative committee are generally eligible to participate in the Supplemental Plan. Participation in the 401k Plan and Supplemental Plan are voluntary. The Supplemental Plan is a non-qualified plan that allows participants to continue saving and receiving Company contributions towards retirement when, due to compensation and contribution ceilings established under the Internal Revenue Code, they or the Company can no longer contribute to the 401k Plan.

U.S. Income Tax Limits on Deductibility

Section 162(m) of the Internal Revenue Code imposes a $1 million limitation on the deductibility of certain compensation paid to our chief executive officer, chief financial officer, the next three highest paid executives (the “covered employees”) and any employee who was previously classified as a covered employee. For tax years beginning prior to January 1, 2018, Section 162(m) of the Code provided an exception to this limitation for compensation that qualified as “performance based” compensation based on satisfaction of certain criteria, including being based on predetermined objective standards approved by stockholders. The 2017 Tax Cuts and Jobs Act (the “Tax Act”), eliminated this exception for tax years beginning after December 31, 2017, although it provides a transition rule for compensation paid under certain written binding contracts which were in effect on November 2, 2017 and which were not modified in any respect after that date. Our compensation programs were designed to qualify for the performance-based compensation exception and, to the extent the transition rule is applicable, we will continue to benefit from that exception for awards that were in place on or before November 2, 2017. Although the Compensation Committee takes the requirements of Section 162(m) of the Code into account in designing executive compensation, the Compensation Committee believes that the potential deductibility of the compensation payable under the Company’s incentive compensation plans and arrangements should be only one of a number of relevant factors taken into consideration in establishing those plans and arrangements for our executive officers and not the sole governing factor in appropriate levels of total compensation for our executive officers based on the Company’s performance. For that reason, the Compensation Committee intends to structure the Company’s incentive compensation plans and arrangements in a manner that assures acknowledging that a portion of those compensation payments may not be deductible under Section 162(m) of the Code.

Option Grant Practices

Historically, the Company has granted stock options to its key employees, including executives, in the first quarter of the year. The Company does not have any program, plan or practice to time its option grants to its executives in coordination with the release of material non-public information and has not timed its release of material non-public information for the purposes of affecting the value of executive compensation. The Company does not set the grant date of its stock option grants to new executives in coordination with the release of material non-public information.

 

- 51 -


Table of Contents

The Compensation Committee has the responsibility of approving any Company stock option grants and does not delegate material aspects of long-term incentive plan administration to any other person. The Company’s senior executives in coordination with the Compensation Committee set a time for the Compensation Committee to meet during the first quarter of the year to review and approve stock option grants proposed by the senior executives. The specific timing of the meeting during the quarter is dependent on committee member schedules and availability and the Company finalizing its stock option grant proposal. If approved by the Compensation Committee, the grant date for stock option awards is the date the Compensation Committee meets and approves the grant, with the exercise price for the option equal to the Company’s closing stock price on the date of grant.

The Company recognizes that its stock price fluctuates over time and in certain cases quite significantly. As stock option grants have historically been granted on an annual basis during the first quarter of the calendar year, executives who have been employed with the Company for some time have received grants with varying exercise prices. The ten-year term of the options also helps reward its executives who remain with the Company, as it provides the executives time, so long as they continue employment with the Company, to realize financial benefits from their option grants after vesting.

Recoupment Policy

On March 23, 2018, the Compensation Committee approved the Company’s Clawback Policy to allow the Compensation Committee, at its sole discretion, to terminate any award of stock options, performance awards and/or restricted stock if it determines that the recipient of such award has engaged in material misconduct that requires the Company to make a restatement of its reported financial statements. A similar clawback provision was included in the 2018 Equity Plan and the participants’ equity award agreements. For purposes of this clawback policy, material misconduct includes conduct adversely affecting the Company’s financial condition, results of operations, or conduct which constitutes fraud or theft of Company assets, any of which require the Company to make a restatement of its reported financial statements. If any material misconduct results in any error in financial information used in the determination of compensation paid to the recipient of any equity award and the effect of such error is to increase the payment amount pursuant to such award, the Compensation Committee may also require the recipient to reimburse the Company for all or a portion of such increase in compensation provided in connection with any such award. In addition, if there is a material restatement of the Company’s financial statements that affects the financial information used to determine the compensation paid to the recipient of an award, then the Compensation Committee may take whatever action it deems appropriate to adjust such compensation.

Stock Ownership Guidelines for Executives

The Company adopted stock ownership guidelines for its executive officers in February 2013. The Company’s stock ownership guidelines for its executive officers are intended to align the interests of the Company’s executive officers and the Company’s stockholders by requiring executives to accumulate and retain a meaningful amount of the Company’s stock. Under the Company’s guidelines, the executive officers must comply with the following ownership requirements:

 

Title   Multiple of Base Salary        

Chairman, President & CEO

  6X

Senior Vice President & CFO

  3X

Other executive officers

  2X

 

- 52 -


Table of Contents

The Company’s executive officers must attain the applicable stock ownership level within five years after first becoming subject to the guidelines. The following shares of Company stock count towards compliance with the guidelines: shares owned by the executive; shares owned jointly by the executive and his or her spouse; shares held in a trust established by the executive for the benefit of the executive and his or her family members; shares equal to the number of vested deferred stock units credited to the executive; shares equal to the in-the-money portion of any vested, unexercised options; unvested shares of time-based restricted stock or restricted stock units; and shares credited to the executive’s 401(k) plan account. Unvested and unearned performance shares or units and unvested stock options do not count towards compliance guidelines. All of the Company’s named executive officers are currently in compliance with the Company’s stock ownership guidelines.

Compensation Consultant Independence

In furtherance of maintaining the independence of the Compensation Committee’s compensation consultant, the Compensation Committee has the sole authority to retain or terminate its compensation consultant. The Compensation Committee annually reviews and approves total expenditures paid to the independent compensation consultant. Meridian and its affiliates did not provide any services to the company or any of the company’s affiliates other than advising the Compensation Committee on director and executive officer compensation during 2018.

Recent Developments for 2019 Compensation

On February 27, 2019, the Compensation Committee, in connection with its annual review of executive compensation and performance, and in consultation with Meridian, approved the base salaries, annual incentive targets and long-term incentive awards of the Company’s executive officers. The Compensation Committee determined to hold all target compensation flat for all named executive officers for 2019. Additionally, the Compensation Committee decided to maintain our general approach to executive compensation, with an emphasis on short and long-term incentive compensation that rewards our executives when they achieve the Company’s financial and operational goals and deliver value for our stockholders. However, the Compensation Committee did approve the following changes to incentive design:

 

   

Increased the weighting of performance shares from 33% to 40% of the 2019 long-term incentive awards.

 

   

Added 3-year improvement in NVA as a measure in the 2019 performance shares and removed NVA from the annual incentive program.

 

   

The changes were made to better align incentives with appropriate performance metrics. The Compensation Committee believes that the Adjusted EBITDA and Adjusted Working Capital metrics are well-suited for short-term incentives, while TSR and NVA better serve as long-term incentive targets.

Compensation Committee Report

The responsibilities of the Compensation Committee, which are set forth in the Compensation Committee Charter adopted by the Board of Directors, include approving and evaluating all compensation of directors and executive officers, including salaries, bonuses, and compensation plans, policies and programs of the Company.

We have reviewed and discussed with senior management the Compensation Discussion & Analysis section included in this proxy statement. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion & Analysis be included in the Company’s 2019 Proxy Statement.

Members of the Compensation Committee

Ben A. Guill, Committee Chair

Eric L. Mattson

William R. Thomas

 

- 53 -


Table of Contents

EXECUTIVE COMPENSATION

The following table sets forth for the year ended December 31, 2018 the compensation paid by the Company to its Chief Executive Officer and Chief Financial Officer and three other most highly compensated executive officers (the “Named Executive Officers”) serving in such capacity at December 31, 2018.

Summary Compensation Table

 

Name and

Principal

Position

(a)

  Year
(b)
   

Salary

($)(1)

(c)

   

Bonus

($)(2)

(d)

   

Stock
Awards

($)(3)

(e)

   

Option
Awards

($)(4)

(f)

   

Non-Equity
Incentive Plan
Compensation

($)(5)

(g)

   

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings

($)(6)

(h)

   

All Other
Compensation
($)(7)

(i)

   

Total ($)

(j)

 

Clay C. Williams

Chairman, President & Chief Executive Officer

 

   

2018

2017

2016

 

 

 

  $

$

$

916,846

800,000

800,000

 

 

 

   

—  

—  

—  

 

 

 

  $

$

$

7,906,767

6,827,843

5,241,849

 

 

 

  $

$

$

3,399,816

3,183,322

4,493,021

 

 

 

  $

$

 

1,552,748

1,782,737

—  

 

 

 

   

$

—  

45,056

—  

 

 

 

  $

$

$

52,258

46,800

46,600

 

 

 

  $

$

$

13,828,435

12,685,758

10,581,470

 

 

 

           

Jose A. Bayardo

Senior VP & Chief Financial
Officer

 

   

2018

2017

2016

 

 

 

  $

$

$

679,212

650,000

650,000

 

 

 

   

—  

—  

—  

 

 

 

  $

$

$

2,496,850

2,793,052

1,701,543

 

 

 

  $

$

$

1,073,633

1,298,495

1,443,945

 

 

 

  $

$

 

767,820

982,893

—  

 

 

 

   

—  

—  

—  

 

 

 

  $

$

$

44,149

106,111

31,000

 

 

 

  $

$

$

5,061,664

5,830,551

3,826,488

 

 

 

                   

Joseph W. Rovig

President – Rig Technologies

 

   

2018

2017

2016

 

 

 

  $

$

$

566,692

550,000

550,000

 

 

 

   

—  

—  

—  

 

 

 

  $

$

$

1,664,597

1,885,072

1,134,362

 

 

 

  $

$

$

715,755

876,533

962,632

 

 

 

  $

$

 

733,692

625,068

—  

 

 

 

   

—  

—  

—  

 

 

 

  $

$

$

45,336

44,000

41,250

 

 

 

  $

$

$

3,726,072

3,980,673

2,688,244

 

 

 

           

Craig L. Weinstock

Senior VP, General Counsel & Secretary

 

   

2018

2017

2016

 

 

 

  $

$

$

535,039

510,000

510,000

 

 

 

   

—  

—  

—  

 

 

 

  $

$

$

1,498,128

1,535,940

1,020,915

 

 

 

  $

$

$

644,174

714,249

866,367

 

 

 

  $

$

 

605,289

771,193

—  

 

 

 

   

—  

—  

—  

 

 

 

  $

$

$

34,778

33,150

33,150

 

 

 

  $

$

$

3,317,408

3,564,532

2,430,432

 

 

 

           

Scott K. Duff

Vice President, Corporate Controller and Chief Accounting Officer

 

   

2018

2017

2016

 

 

 

  $

$

$

376,692

360,000

360,000

 

 

 

   

—  

—  

—  

 

 

 

  $

$

$

1,498,128

1,535,940

850,806

 

 

 

  $

$

$

644,174

714,249

721,976

 

 

 

  $

$

 

403,526

515,720

—  

 

 

 

   

—  

—  

—  

 

 

 

  $

$

$

30,574

27,000

27,000

 

 

 

  $

$

$

2,953,094

3,152,909

1,959,782

 

 

 

 

- 54 -


Table of Contents
(1)

Reflects base salary adjustments made in March 2018. For further information, see “Compensation Discussion and Analysis – 2018 Compensation Actions”.

(2)

Reflects a discretionary bonus payout. For further information, see “Compensation Discussion and Analysis – Components of Compensation - Annual Incentive Award”.

(3)

The amounts reported in this column represent the aggregate grant date fair value of stock awards granted in the relevant year compiled in accordance with FASB Topic 718, excluding forfeiture estimates. Refer to the Company’s 2018 Annual Report, Financial Report to Stockholders for all relevant valuation assumptions used to determine the grant date fair value of the stock awards included in this column.

(4)

The amounts reported in this column represent the aggregate grant date fair value of option awards granted in the relevant year compiled in accordance with FASB Topic 718, excluding forfeiture estimates. Refer to the Company’s 2018 Annual Report, Financial Report to Stockholders for all relevant valuation assumptions used to determine the grant date fair value of option awards included in this column.

(5)

The amounts shown in this column represent the value of the annual cash bonus awards under the Company’s 2018 annual incentive plan. The Company’s EBITDA and Rig Technologies’ EBITDA performance both exceeded the “target” EBITDA objective set under the 2018 annual incentive plan. The Company’s NVA number and the Rig Technologies’ NVA number were both above target. As a result, the named executive officers received the foregoing incentive compensation bonus payout for 2018.

(6)

The change in pension value for 2018 was ($85,861) which was attributable to the net effect of an increase in the discount rate from the prior fiscal year end measurement offset by a decrease in the discount period.

(7)

The amounts include:

  (a)

The Company’s cash contributions for 2018 under the National Oilwell Varco 401(k) and Retirement Savings Plan, a defined contribution plan, on behalf of Mr. Williams – $23,375; Mr. Bayardo – $16,915; Mr. Rovig – $19,521; Mr. Weinstock – $17,875 and Mr. Duff – $22,000.

  (b)

The Company’s cash contributions for 2018 under the National Oilwell Varco Supplemental Savings Plan, a defined contribution plan, on of behalf Mr. Williams – $28,883; Mr. Bayardo – $27,234; Mr. Rovig – $25,815; Mr. Weinstock – $16,903 and Mr. Duff – $8,574.

The following table provides information concerning stock options and restricted stock awards granted to Named Executive Officers during the fiscal year ended December 31, 2018. The Company has granted no stock appreciation rights to the Named Executive Officers.

Grants of Plan-Based Awards

 

Name   Grant
Date
    Estimated Possible Payouts Under
Non-Equity Incentive Plan
Awards
    Estimated Future Payouts
Under Equity Incentive
Plan Awards
   

All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units

(#) (3)

   

All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#)

    Exercise
or Base
Price of
Option
Awards
($/Share)
    Grant Date
Fair Value
of Stock
and Option
Awards
 
 

Threshold

($) (1)

   

Target

($) (1)

   

Maximum

($) (1)

   

Threshold

(#) (2)

   

Target

(#) (2)

   

Maximum

(#) (2)

 
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k)     (l)  

Clay C. Williams

    2018     $ 131,600     $ 1,316,000     $ 2,632,000                                                          
    2018                               44,671       89,342       178,684                             $ 4,771,756  
    2018                                                       89,342                     $ 3,135,011  
    2018                                                               339,642     $ 35.09     $ 3,399,816  

Jose A. Bayardo

    2018     $ 65,075     $ 650,750     $ 1,301,500                                                          
    2018                               14,106       28,213       56,426                             $ 1,506,856  
    2018                                                       28,213                     $ 989,994  
    2018                                                               107,256     $ 35.09     $ 1,073,633  

Joseph W. Rovig

    2018     $ 54,150     $ 541,500     $ 1,083,000                                                          
    2018                               9,404       18,809       37,618                             $ 1,004,589  
    2018                                                       18,809                     $ 660,008  
    2018                                                               71,504     $ 35.09     $ 715,755  

Craig L. Weinstock

    2018     $ 51,300     $ 513,000     $ 1,026,000                                                          
    2018                               8,464       16,928       33,856                             $ 904,124  
    2018                                                       16,928                     $ 594,004  
    2018                                                               64,353     $ 35.09     $ 644,174  

Scott K. Duff

    2018     $ 34,200     $ 342,000     $ 684,000                                                          
    2018                               8,464       16,928       33,856                             $ 904,124  
    2018                                                       16,928                     $ 594,004  
    2018                                                               64,353     $ 35.09     $ 644,174  

 

- 55 -


Table of Contents
(1)

Represents the range of possible payouts under our annual incentive compensation plan.

(2)

On February 28, 2018, the Compensation Committee approved the 2018 Performance Share Award Grant. The performance share awards can be earned by the executives only by performance against established goals and vest three years from the grant date. The performance awards can be earned by the executives only if the percentile ranking of the Company’s TSR (total shareholder return) as measured against the TSR of the constituent members of the OSX Index over a three-year performance period, exceeds certain levels.

(3)

On February 28, 2018, the Compensation Committee approved a grant of restricted stock awards to these executive officers pursuant to the National Oilwell Varco, Inc. Long-Term Incentive Plan. The restricted stock awards granted by the Company to its executive officers vest in three equal annual installments commencing on the first anniversary of the date of grant, provided that such executive officer remains continuously employed with the Company during such time period.

Exercises and Holdings of Previously-Awarded Equity Disclosure

The following table provides information regarding outstanding awards that have been granted to Named Executive Officers where the ultimate outcomes of such awards have not been realized, as of December 31, 2018.

 

- 56 -


Table of Contents

Outstanding Equity Awards at Fiscal Year-End

 

     Option Awards     Stock Awards  
Name  

Number

of

Securities
Underlying
 Unexercised 
Options

(#)

Exercisable

   

Number of
Securities
Underlying
 Unexercised 
Options

(#)

 Unexercisable 

   

Equity
 Incentive Plan 
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options

(#)

 

Option
 Exercise 
Price

($)

    Option
 Expiration 
Date
   

 Number of 
Shares or
Units of
 Stock That 
Have Not
Vested

(#)

 

Market
Value of
Shares or
Units of
 Stock That 
Have Not
Vested

($)

 

Equity
Incentive
 Plan Awards: 
Number of
Unearned
 Shares, Units 
or Other
Rights That
Have Not
Vested

(#)

   

Equity
Incentive
 Plan Awards: 
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights

That Have
Not Vested

($) (1)

 

(a)

 

 

(b)

 

   

(c)

 

   

(d)

 

 

(e)

 

   

(f)

 

   

(g)

 

 

(h)

 

 

(i)

 

   

(j)

 

 

Clay C. Williams

 

            339,642 (2)        $ 35.09       2/29/28                          
      96,640       193,280 (3)        $ 38.86       2/23/27                          
      0       232,558 (4)        $ 28.24       2/25/26                          
     

 

310,053

 

 

 

              $ 54.74       2/26/25                          
     

 

172,966

 

 

 

              $ 68.997       2/26/24                          
     

 

73,749

 

 

 

              $ 63.926       2/16/23                          
     

 

58,565

 

 

 

              $ 77.987       2/22/22                          
     

 

51,245

 

 

 

              $ 73.579       2/23/21                          
     

 

66,895

 

 

 

              $ 40.635       2/17/20                          
                                                  74,703 (5)    $ 1,919,867  
                                                  26,558 (6)    $ 682,541  
                                                  66,680 (7)    $ 1,713,676  
                                                  48,900 (8)    $ 1,256,730  
                                                  89,342 (9)    $ 2,296,089  
                                                  89,342 (10)    $ 2,296,089  

Jose A. Bayardo

            107,256 (2)        $ 35.09       2/29/28                          
      39,420       78,840 (3)        $ 38.86       2/23/27                          
      149,476       74,739 (4)        $ 28.24       2/25/26                          
                                                  24,249 (5)    $ 623,199  
                                                  8,621 (6)    $ 221,560  
                                                  27,280 (7)    $ 701,096  
                                                  20,000 (8)    $ 514,000  
                                                  28,213 (9)    $ 725,074  
                                                  28,213 (10)    $ 725,074  

 

- 57 -


Table of Contents

Joseph W. Rovig

            71,504 (2)        $ 35.09       2/29/28                          
      0       53,220 (3)        $ 38.86       2/23/27                          
      0       49,826 (4)        $ 28.24       2/25/26                          
      74,200                 $ 54.74       2/26/25                          
      27,850                 $ 68.997       2/26/24                          
      6,876                 $ 63.926       2/16/23                          
      6,225                 $ 77.987       2/22/22                          
      6,149                 $ 73.579       2/23/21                          
                                                  16,166 (5)    $ 415,466  
                                                  5,747 (6)    $ 147,698  
                                                  18,410 (7)    $ 473,137  
                                                  13,500 (8)    $ 346,950  
                                                  18,809 (9)    $ 483,391  
                                                  18,809 (10)    $ 483,391  

Craig L. Weinstock

            64,353 (2)        $ 35.09       2/29/28                          
      21,683       43,367 (3)        $ 38.86       2/23/27                          
      64,686       44,843 (4)        $ 28.24       2/25/26                          
      54,700                 $ 54.74       2/26/25                          
      13,753                 $ 68.997       2/26/24                          
      13,753                 $ 72.657       10/2/23                          
                                                  14,549 (5)    $ 373,909  
                                                  5,172 (6)    $ 132,920  
                                                  15,000 (7)    $ 385,500  
                                                  11,000 (8)    $ 282,700  
                                                  16,928 (9)    $ 435,050  
                                                  16,928 (10)    $ 435,050  

 

- 58 -


Table of Contents

Scott K. Duff

            64,353 (2)        $ 35.09       2/29/28                          
      21,683       43,367 (3)        $ 38.86       2/23/27                          
      0       37,370 (4)        $ 28.24       2/25/26                          
      37,100                 $ 54.74       2/26/25                          
      13,753                 $ 68.997       2/26/24                          
      9,168                 $ 63.926       2/16/23                          
      12,450                 $ 77.987       2/22/22                          
                                                  12,125 (5)    $ 311,613  
                                                  4,310 (6)    $ 110,767  
                                                  15,000 (7)    $ 385,500  
                                                  11,000 (8)    $ 282,700  
                                                  16,928 (9)    $ 435,050  
                                                  16,928 (10)    $ 435,050  

 

(1)

Calculations based upon the closing price ($25.70) of the Company’s common stock on December 31, 2018, the last trading day of the year.

(2)

2018 Stock Option Grant – Stock options vest at the rate of 33 1/3% per year, with vesting dates of 2/28/2019, 2/28/2020 and 2/22/2021.

(3)

2017 Stock Option Grant – Stock options vest at the rate of 33 1/3% per year, with vesting dates of 2/22/2018, 2/22/2019 and 2/22/2020.

(4)

2016 Stock Option Grant – Stock options vest at the rate of 33 1/3% per year, with vesting dates of 2/24/2017, 2/24/2018 and 2/24/2019.

(5)

2016 Performance Share Award Grant – The performance share awards will be earned by the executives only by performance against established goals and vest three years from the grant date. The performance awards can be earned by the executives only if the percentile ranking of the Company’s TSR (total shareholder return) as measured against the TSR of the constituent members of the OSX Index over a three-year performance period, exceeds certain levels.

(6)

2016 Grant of Restricted Stock Awards – The restricted stock awards granted by the Company to its executive officers shall vest in three equal annual installments commencing on the first anniversary of the date of grant, provided that such executive officer remains continuously employed with the Company during such time period.

 

- 59 -


Table of Contents
(7)

2017 Performance Share Award Grant – The performance share awards will be earned by the executives only by performance against established goals and vest three years from the grant date. The performance awards can be earned by the executives only if the percentile ranking of the Company’s TSR (total shareholder return) as measured against the TSR of the constituent members of the OSX Index over a three-year performance period, exceeds certain levels.

(8)

2017 Grant of Restricted Stock Awards – The restricted stock awards granted by the Company to its executive officers shall vest in three equal annual installments commencing on the first anniversary of the date of grant, provided that such executive officer remains continuously employed with the Company during such time period.

(9)

2018 Performance Share Award Grant – The performance share awards will be earned by the executives only by performance against established goals and vest three years from the grant date. The performance awards can be earned by the executives only if the percentile ranking of the Company’s TSR (total shareholder return) as measured against the TSR of the constituent members of the OSX Index over a three-year performance period, exceeds certain levels.

(10)

2018 Grant of Restricted Stock Awards – The restricted stock awards granted by the Company to its executive officers shall vest in three equal annual installments commencing on the first anniversary of the date of grant, provided that such executive officer remains continuously employed with the Company during such time period.

The following table provides information on the amounts received by the Named Executive Officers during 2018 upon exercise of stock options or vesting of stock awards.

Option Exercises and Stock Vested

 

     Option Awards     Stock Awards  
Name  

Number of

Shares

Acquired

on Exercise

(#)

 

Value
Realized

on Exercise

($)

   

Number of

Shares

Acquired

on Vesting

(#)

   

Value
Realized

on Vesting

($)

 
(a)   (b)   (c)     (d)     (e)  

Clay C. Williams

 

 

465,116(1)

 

  $

 

9,149,193

 

 

 

   

 

51,509

 

 

 

  $

 

3,006,500

 

 

 

Jose A. Bayardo

 

 

0

 

  $

 

0

 

 

 

   

 

34,319

 

 

 

  $

 

2,402,334

 

 

 

Joseph W. Rovig

 

 

76,436(2)

 

  $

 

841,158

 

 

 

   

 

14,120

 

 

 

  $

 

730,905

 

 

 

Craig L. Weinstock

 

 

25,000(3)

 

  $

 

480,204

 

 

 

   

 

11,097

 

 

 

  $

 

590,882

 

 

 

Scott K. Duff

 

 

37,369(4)

 

  $

 

477,905

 

 

 

   

 

10,511

 

 

 

  $

 

491,890

 

 

 

 

(1)

On August 1, 2018, Mr. Williams exercised 465,116 options from his 2016 grant at $28.24/share.

(2)

On June 27, 2018, Mr. Rovig exercised 46,436 options from his 2016 grant at $28.24/share. On June 28, 2018, Mr. Rovig exercised 3,390 options from his 2016 grant at $28.24/share and 26,610 options from his 2017 grant at $38.86/share.

(3)

On August 1, 2018, Mr. Weinstock exercised 25,000 options from his 2016 grant at $28.24/share.

(4)

On May 14, 2018, Mr. Duff exercised 37,369 options from his 2016 grant at $28.24/share.

 

- 60 -


Table of Contents

2018 Pension Benefits Table

 

Name

(a)

  

Plan Name

(b)

  

Number of Years

Credited Service

(c)

  

Present Value of
Accumulated

Benefit

(d)

  

Payments

During

Fiscal

Year

(e)

Clay C. Williams

 

  

Varco SERP

 

  

9.75

 

  

$949,752

 

  

0

 

Assumptions:

 

   

Measurement Date: December 31, 2018

 

   

Interest Rate for Present Value: 3.90%

 

   

Assumed Retirement Age: the earliest unreduced retirement age at age 65

 

   

Mortality: None

 

   

Form of Payment: 10 years Certain

 

   

All other assumptions, data and plan provisions are based on the ASC 715 year-end disclosure for fiscal year ending December 31, 2018

 

   

Service in column (c) reflects plan freeze as of December 31, 2005

Post-Employment Compensation

The following table provides information on nonqualified deferred compensation provided under the Supplemental Plan to the Named Executive Officers during the fiscal year ended December 31, 2018. For a more detailed discussion, see the section titled “Compensation Discussion and Analysis – Retirement, Health and Welfare Benefits”.

Nonqualified Deferred Compensation

 

Name  

Executive
Contributions
in Last FY

($)(1)

   

Registrant
Contributions
in Last FY

($)(2)

   

Aggregate
Earnings in
Last FY

($)(3)

   

Aggregate
Withdrawals/
Distributions

($)

   

Aggregate
Balance

at Last

FYE

($)

 
(a)   (b)     (c)     (d)     (e)     (f)  

Clay C. Williams

 

  $

 

0

 

 

 

  $

 

28,883

 

 

 

  ($

 

76,694

 

 

  $

 

0

 

 

 

  $

 

1,628,478

 

 

 

Jose A. Bayardo

 

  $

 

76,313

 

 

 

  $

 

27,234

 

 

 

  ($

 

19,856

 

 

  $

 

0

 

 

 

  $

 

232,546

 

 

 

Joseph W. Rovig

 

  $

 

102,005

 

 

 

  $

 

25,815

 

 

 

  ($

 

360,394

 

 

  $

 

0

 

 

 

  $

 

1,719,271