EXHIBIT 10.2

NATIONAL OILWELL VARCO, INC.

ANNUAL INCENTIVE PLAN

Purpose

The National Oilwell Varco, Inc. Annual Incentive Plan (the “Plan”) is intended
to promote the interests of National Oilwell Varco, Inc., a Delaware
Corporation, (the “Company”) and its shareholders by providing designated
Executives with incentive compensation that is correlated with the achievement
of specified performance goals. The Plan is intended to provide annual incentive
compensation, primarily to Executives who are considered to be “covered
employees” within the meaning of Section 162(m)(3) of the Internal Revenue Code
of 1986, as amended (the “Code”), that is considered “performance-based
compensation” under Code Section 162(m) and thus not subject to the annual
compensation deduction limit under Section 162(m).

ARTICLE I

DEFINITIONS

For purposes of the Plan, unless the context requires otherwise, the following
terms shall have the meanings indicated:

1.1 “Base Salary” means the regular, annual, base salary payable by the Employer
for a Performance Period to a Participant for services rendered, but excluding
Incentive Compensation payable under the Plan, income derived from stock
options, restricted stock awards, fringe benefits, and any bonuses, incentive
compensation, special awards or other extraordinary remuneration. The Committee
shall stipulate a Participant’s Base Salary for purposes of computing Incentive
Compensation awarded under the Plan to the Participant.

1.2 “Beneficiary” means the beneficiary or beneficiaries designated to receive
any amounts payable under the Plan pursuant to Section 6.2 upon the
Participant’s death.

1.3 “Board” means the Board of Directors of the Company.

1.4 “Cause” when used in connection with the termination of a Participant’s
employment, shall mean (i) the Participant’s gross negligence or willful
misconduct in the performance of Participant’s duties with respect to the
Company or a Subsidiary or (ii) Participant’s final conviction of a misdemeanor
involving moral turpitude or a felony.

1.5 “Change of Control” means (i) the Company completes the sale of assets
having a gross sales price which exceeds 50% of the consolidated total
capitalization of the Company (consolidated total stockholders’ equity plus
consolidated total long-term debt as determined in accordance with generally
accepted accounting principles) as at the end of the last full fiscal quarter
prior to the date such determination is made; or (ii) any corporation, person or
group within the meaning of Section 13(d)(3) and 14(d)(2) of the Exchange Act,
becomes the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of voting securities of the Company representing more than 30% of
the total votes eligible to be cast at any election of directors of the Company.

 

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Notwithstanding the foregoing provisions of this Section 1.5, to the extent that
any payment or acceleration hereunder is subject to Code Section 409A as
deferred compensation, the term Change of Control shall mean an event described
in the foregoing definition of Change of Control that also constitutes a change
in control event as defined in Treasury regulation section 1.409A-3(i)(5).

1.6 “Code” means the Internal Revenue Code of 1986, as amended. References
herein to any Section of the Code shall also refer to any successor provision
thereof, and the regulations and other authority issued thereunder by the
appropriate governmental authority.

1.7 “Committee” means the Compensation Committee of the Board. The Committee
shall be comprised solely of two (2) or more non-employee members of the Board
who qualify to administer the Plan as “disinterested directors” under Rule 16b-3
of the Exchange Act, and as “outside directors” under Code Section 162(m).

1.8 “Company” means National Oilwell Varco, Inc., a Delaware corporation, or its
successor in interest.

1.9 “Employer” means the Company and any Subsidiary.

1.10 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

1.11 “Executive” means an officer of the Company or a Subsidiary.

1.12 “Incentive Compensation” means the compensation approved by the Committee
to be awarded to a Participant for any Performance Period under the Plan.

1.13 “Involuntary Termination” means a Participant’s termination from employment
with the Employer on or within twelve months following a Change of Control that
is either (i) initiated by the Employer for reasons other than Cause, or
(ii) initiated by the Participant after (a) a reduction by the Employer of the
Participant’s authority, duties or responsibilities as in effect immediately
prior to the Change of Control (excluding for this purpose (x) an insubstantial
reduction of such authorities, duties or responsibilities or an insubstantial
reduction of the Participant’s offices, titles and reporting requirements, or
(y) an isolated, insubstantial and inadvertent action not taken in bad faith and
that is remedied by the Employer promptly after receipt of notice thereof given
by Participant), (b) a reduction of Participant’s Base Salary or total
compensation as in effect immediately prior to the Change of Control (total
compensation means for this purpose: Base Salary, participation in this Plan,
and participation in a long-term incentive plan), or (c) the Participant’s
transfer, without the Participant’s express written consent, to a location which
is outside the general metropolitan area in which the Participant’s principal
place of business immediately prior to the Change of Control may be located or
the Employer’s requiring the Participant to travel on Employer business to a
substantially greater extent than required immediately prior to the Change of
Control.

 

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1.14 “Participant” means an Executive who is selected by the Committee to
participate in the Plan pursuant to Article III for any Performance Period.

1.15 “Performance Criteria” means the business criteria that are specified by
the Committee pursuant to Article VII.

1.16 “Performance Goal” means (a) the selected Performance Criteria and (b) the
objective goals established relative to such Performance Criteria, as determined
by the Committee for any Performance Period.

1.17 “Performance Period” means the Company’s fiscal year or such other period
selected by the Committee for the award of Incentive Compensation.

1.18 “Plan” means the National Oilwell Varco, Inc. Annual Incentive Plan, as it
may be amended from time to time.

1.19 “Subsidiary” means any corporation (whether now or hereafter existing)
which constitutes a “subsidiary” of the Company, as defined in Code
Section 424(f), and any limited liability company, partnership, joint venture,
or other entity in which the Company controls more than fifty percent (50%) of
its voting power or equity interests.

ARTICLE II

ADMINISTRATION

Subject to the terms and conditions of this Article II, the Plan shall be
administered by the Committee. The Committee shall have the power, in its
discretion, to take such actions as may be necessary to carry out the provisions
of the Plan and the authority to control and manage the operation and
administration of the Plan. In order to effectuate the purposes of the Plan, the
Committee shall have the discretionary power and authority to construe and
interpret the Plan, to supply any omissions therein, to reconcile and correct
any errors or inconsistencies, to decide any questions in the administration and
application of the Plan, and to make equitable adjustments for any mistakes or
errors made in the administration of the Plan. All such actions or
determinations made by the Committee, and the application of rules and
regulations to a particular case or issue by the Committee, in good faith, shall
not be subject to review by anyone, but shall be final, binding and conclusive
on all persons ever interested hereunder.

In construing the Plan and in exercising its power under provisions requiring
the Committee’s approval, the Committee shall attempt to ascertain the purpose
of the provisions in question, and when the purpose is known or reasonably
ascertainable, the purpose shall be given effect to the extent feasible as
determined by the Committee. Likewise, the Committee is authorized to determine
all questions with respect to the individual rights of all Participants under
the Plan, including, but not limited to, all issues with respect to eligibility.
The Committee shall have all powers necessary or appropriate to accomplish its
duties under the Plan including, but not limited to, the power to:

(a) designate the Executives who are eligible to participate in the Plan as
Participants;

 

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(b) maintain records of all Plan transactions and other data in the manner
necessary for proper administration of the Plan;

(c) adopt rules of procedure and regulations necessary for the proper and
efficient administration of the Plan, provided the rules and regulations are not
inconsistent with the terms of the Plan as set out herein;

(d) enforce the terms of the Plan and the rules and regulations it adopts;

(e) review claims and render decisions on claims for benefits under the Plan;

(f) furnish the Company or the Participants, upon request, with information that
the Company or the Participants may require for tax or other purposes;

(g) employ agents, attorneys, accountants or other persons (who also may be
employed by or represent the Company) for such purposes as the Committee deems
necessary or desirable in connection with its duties hereunder; and

(h) perform any other acts necessary or appropriate for the proper management
and administration of the Plan.

The Committee may delegate to one or more members of the Committee any of its
administrative duties under the Plan pursuant to such conditions or limitations
as the Committee may establish from time to time by directive or practice;
provided, however, the Committee cannot delegate to such member(s) the power or
authority to (i) award Incentive Compensation under the Plan or (ii) to take any
action which would contravene the requirements of Code Section 162(m) or the
Sarbanes-Oxley Act of 2002.

ARTICLE III

ELIGIBILITY

For each Performance Period, the Committee shall select the particular
Executives to whom Incentive Compensation may be awarded under the Plan for such
Performance Period. Executives who participate in the Plan may also participate
in other incentive or benefit plans maintained by an Employer.

ARTICLE IV

ESTABLISHMENT OF INCENTIVE COMPENSATION TARGETS

4.1 Incentive Compensation Award Target. For each award of Incentive
Compensation for a Performance Period, the Committee will establish the level or
levels of targeted Incentive Compensation for each Participant within the first
ninety (90) days of the Performance Period (or within such shorter deadline as
may apply under Code Section 162(m) if the Performance Period is less than 12
months). The Incentive Compensation targets for each Participant that are
established by the Committee will be expressed as a percentage of such
Participant’s Base Salary; provided, however, in no event will a Participant’s
Incentive Compensation exceed five million dollars ($5,000,000) for any single
Performance Period.

 

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4.2 Increase in Incentive Compensation. Under no circumstances may the amount of
any Incentive Compensation awarded to any Participant for a specified
Performance Period be increased by the Committee without requisite shareholder
approval to the extent required by Code Section 162(m).

ARTICLE V

DETERMINATION OF GOALS FOR INCENTIVE COMPENSATION

5.1 Establishment of Performance Goals. For each Performance Period for which
the Committee determines to establish potential Incentive Compensation awards
for one or more Participants, the Committee, within the first ninety (90) days
of such Performance Period (or within such shorter deadline as may apply under
Code Section 162(m) if the Performance Period is less than 12 months), will set
forth in writing all of the terms and conditions of such Incentive Compensation
awards, including: (a) the Performance Goals for the Performance Period,
including the Performance Criteria and the objective goals established relative
to such Performance Criteria, which may include a threshold, target and maximum
level of achievement, and the relative weighting of each Performance Goal in
determining the Participant’s actual Incentive Compensation; provided, however,
the outcome of such Performance Goals must be substantially uncertain at the
time they are established by the Committee; and (b) with respect to each
Participant, the maximum percentage of his Incentive Compensation payable upon
attaining each level of achievement of the Performance Goals.

5.2 Determination. Within a reasonable period of time after the end of each
Performance Period, the Committee shall determine the extent to which the
Performance Goals assigned to each Participant were achieved for the Performance
Period, and based solely on such achievement, shall approve the calculation of
the Participant’s actual Incentive Compensation award. No Incentive Compensation
is payable hereunder unless at least the designated threshold level or levels
for such Performance Goals have been achieved, as determined by the Committee.

5.3 Committee Discretion. The Committee shall have no discretion to approve an
amount of Incentive Compensation to be paid to a Participant under the Plan that
is in excess of the amount determined pursuant to the pre-established Incentive
Compensation award granted to the Participant for the applicable Performance
Period.

ARTICLE VI

PAYMENT OF INCENTIVE COMPENSATION

6.1 Form and Time of Payment. Subject to Section 6.2, a Participant’s Incentive
Compensation for each Performance Period, if any, shall be paid in a cash lump
sum (net of applicable tax and other required withholdings) as soon as
practicable after (a) the results for such Performance Period have been
finalized and (b) the Committee has certified, in writing, that the applicable
Performance Goals have been satisfied for the Performance Period. For purposes
of the preceding sentence, approved minutes of the Committee meeting in which
the certification is made shall be treated as written certification. The
Incentive Compensation shall be paid under the Plan within two and one-half (2
1/2) months after the end of the calendar year in which the Performance Period
relating to such Incentive Compensation ends.

 

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  6.2 Payment in the Event of Termination.

(a) If a Participant’s employment terminates for any reason prior to the end of
a Performance Period, then such Participant shall immediately forfeit and
relinquish any and all rights and claims to receive any Incentive Compensation
hereunder for such Performance Period.

(b) If a Participant’s employment terminates for any reason after the end of a
Performance Period but prior to the date of actual payment pursuant to
Section 6.1, then such Participant (or Participant’s Beneficiary in the event
employment is terminated due to death) shall be entitled to the Incentive
Compensation payment determined by the Committee to be due and payable to such
Participant; provided, however, that if (i) such Participant’s employment is
terminated for Cause, or (ii) such Participant voluntarily terminates employment
with the Company (excluding an Involuntary Termination) during the period after
the end of a Performance Period but prior to the date of actual payment pursuant
to Section 6.1, then such Participant shall immediately forfeit and relinquish
any and all rights and claims to receive any Incentive Compensation hereunder
for such Performance Period.

ARTICLE VII

PERFORMANCE CRITERIA

As determined by the Committee, Incentive Compensation payable under the Plan is
subject to the performance objectives relating to one or more of the following
Performance Criteria (with respect to the Company, any Subsidiary or any
division, operating unit or product line): net earnings (either before or after
interest, taxes, depreciation and/or amortization), sales, revenue, net income
(either before or after taxes), operating profit, cash flow (including, but not
limited to, operating cash flow and free cash flow), cash flow return on
capital, return on net assets, return on stockholders’ equity, return on assets,
return on capital, stockholder returns, return on sales, gross or net profit
margin, customer or sales channel revenue or profitability, productivity,
expense, margins, cost reductions, controls or savings, operating efficiency,
customer satisfaction, working capital, strategic initiatives, economic value
added, earnings per share, earnings per share from operations, price per share
of stock, and market share. Performance Criteria may be stated in absolute terms
or relative to comparison companies or indices to be achieved during a
Performance Period.

The Committee shall establish one or more Performance Criteria for each award of
Incentive Compensation to a Participant. In establishing the Performance
Criteria for each award of Incentive Compensation, the Committee may provide
that the effect of specified extraordinary or unusual events will be included or
excluded (including, but not limited to, all items of gain, loss or expense
determined to be extraordinary or unusual in nature or infrequent in occurrence
or related to the disposal of a segment of business or related to a change in
accounting principle, all as determined in accordance with standards set by
Opinion No. 30 of the Accounting Principles Board (APB Opinion 30) or other
authoritative financial accounting standards). The terms of the stated
Performance Criteria for each applicable award of Incentive Compensation must
preclude the Committee’s discretion to increase the amount payable to any
Participant that would otherwise be due upon attainment of the Performance
Criteria. The Performance Criteria specified need not be applicable to all
awards of Incentive Compensation, and may be particular or unique to an
individual Participant’s function, duties or business unit.

 

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ARTICLE VIII

MISCELLANEOUS PROVISIONS

8.1 Non-Assignability. A Participant cannot alienate, assign, pledge, encumber,
transfer, sell or otherwise dispose of any rights or benefits under the Plan
prior to the actual receipt thereof; and any attempt to alienate, assign,
pledge, sell, transfer or assign prior to such receipt, or any levy, attachment,
execution or similar process upon any such rights or benefits, shall be null and
void.

8.2 No Right to Continue in Employment. Nothing in the Plan confers upon any
Participant the right to continue in the employ of the Company or any
Subsidiary, or interferes with or restricts in any way the right of the Employer
to discharge any Participant at any time (subject to any contract rights of such
Participant).

8.3 Indemnification of Committee Members. Each person who is or was a member of
the Committee shall be indemnified by the Company against and from any damage,
loss, liability, cost and expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or
proceeding to which he is or may be a party, or in which he may be involved, by
reason of any action taken or failure to act under the Plan, except for any such
act or omission constituting willful misconduct or gross negligence. Each such
person shall be indemnified by the Company for all amounts paid by him in
settlement thereof, with the Company’s approval, or paid by him in satisfaction
of any judgment in any such action, suit, or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled from the Company, as a
matter of law, or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.

8.4 No Plan Funding. The Plan shall at all times be entirely unfunded and no
provision shall be made with respect to segregating any assets of any Employer
for payment of any amounts due hereunder. No Participant, Beneficiary, or other
person or entity shall have any interest in any particular assets of an Employer
by reason of the right to receive any Incentive Compensation under the Plan
until such payment is actually received by such person. Participants and
Beneficiaries shall have only the rights of general unsecured creditors of the
Company.

8.5 Governing Law. The Plan shall be construed in accordance with the laws of
the State of Texas without regard to its conflicts of law provisions.

8.6 Binding Effect. The Plan shall be binding upon and inure to the benefit of
the Employer and its successors and assigns, and the Participants and their
Beneficiaries, heirs, and personal representatives.

8.7 Construction of Plan. The captions used in the Plan are for convenience of
reference only and shall not be construed in interpreting the Plan. Whenever the
context so requires, the masculine shall include the feminine and neuter, and
the singular shall also include the plural, and conversely.

 

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8.8 Integrated Plan. The Plan constitutes the final and complete expression of
agreement among the parties hereto with respect to the subject matter hereof.

8.9 Compliance with Code Section 409A. The Plan is not intended to provide for
the payment of any nonqualified deferred compensation that is subject to Code
Section 409A. However, to the extent that any payment under the Plan is
determined by the Committee to be nonqualified deferred compensation subject to
Section 409A, the Plan is intended to comply with Section 409A. If any provision
herein results in the imposition of an excise tax on any Participant or
Beneficiary under Section 409A, such provision will be reformed to the extent
necessary to avoid such imposition as the Committee determines is appropriate to
comply with Section 409A.

8.10 Forfeiture in Certain Circumstances (“Clawback”). The Committee may, at its
sole discretion, terminate any Award of Incentive Compensation (“Award”) if it
determines that the recipient of the Award has engaged in material
misconduct. For purposes of this Clawback provision, 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. The Committee may also specify other conduct requiring the Company
to make a restatement of its publicly reported financial statements as
constituting material misconduct in future Awards. If any material misconduct
results in any error in financial information used in the determination of
compensation paid to the recipient of an Award and the effect of such error is
to increase the payment amount pursuant to an Award, the 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 the Award, then the Committee may take
whatever action it deems appropriate to adjust such compensation.

ARTICLE IX

AMENDMENT OR DISCONTINUANCE

The Committee may at any time, and from time to time, without the consent of (or
liability of the Committee or Employer to) any Participant, amend, revise,
suspend, or discontinue the Plan, in whole or in part, subject to any
shareholder approval required by law; provided, however, the Committee may not
amend the Plan to change the method for determining Incentive Compensation or
the Performance Goals under Articles IV and V without the approval of the
majority of votes cast by the shareholders of the Company in a separate vote to
the extent required by Code Section 162(m).

 

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ARTICLE X

EFFECT OF THE PLAN

Neither the adoption of the Plan, nor any action of the Board or the Committee
hereunder, shall be deemed to give any Participant any right to be granted
Incentive Compensation hereunder. In addition, nothing contained in the Plan,
and no action taken pursuant to its provisions, shall be construed to (a) give
any Participant any right to any compensation, except as expressly provided
herein; (b) be evidence of any agreement, contract or understanding, express or
implied, that any Employer will employ a Participant in any particular position
or for any particular duration; (c) give any Participant any right, title, or
interest whatsoever in, or to, any assets or investments which the Participant
may make to aid it in meeting its obligations hereunder; (d) create a trust or
fund of any kind; or (e) create any type of fiduciary relationship between an
Employer and a Participant or any other person.

ARTICLE XI

TERM

The Plan shall be effective as of January 1, 2008, contingent upon its approval
by the Company’s shareholders in a manner consistent with the shareholder
approval requirements of Code Section 162(m).

 

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