Exhibit 10.1

 

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2006 Management Incentive

Plan (MIP)

Effective

Date: 01/01/06

  

Supersedes:

01/01/05

  

Policy

Number: HR.01.06

  

Issuer:

Human Resources

  

Page: 1 of 3

SCOPE

 

1.00 This policy applies to all regular full-time employees of Hydril who have
been approved to participate in the MIP by the executive management team. The
executive management team is defined as the President, Chief Financial Officer
(CFO), Chief Operating Officer (COO) and the Vice Presidents.

PURPOSE

 

2.00 The purpose of the MIP is to motivate and reward key employees that have a
significant impact on Hydril obtaining its overall financial objectives.

POLICY

 

  Eligibility

 

3.00 Employees eligible to participate in the MIP include key management, sales
and key technical employees who have been recommended by their director and
approved by the executive management team of Hydril.

 

3.01 Participant must be a full-time regular employee at the time of the bonus
payment to be eligible to receive the bonus. In the event that an eligible
employee completes the MIP period and is terminated due to a reduction in force
or retires before the MIP bonus payment, such employee will be eligible to
receive the MIP bonus based on the established criteria with the appropriate
approval.

 

3.02 Employees participating in the MIP may not participate in any other
incentive bonus plans at Hydril. Exceptions can be approved by the executive
management team or the board of directors.

 

3.03 Employees that become eligible for the MIP during the calendar year will
participate on a prorated basis, based on the number of completed full months
during the plan year or MIP period.

 

3.04 If the MIP target percent for an employee changes during the calendar year
due to promotion or demotion, the MIP target level and the salary used to
calculate the MIP will be adjusted for the remainder of the MIP period and
calendar year starting at the first of the month during which the change occurs.

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LOGO [g86520logo.jpg]   

2006 Management Incentive

Plan (MIP)

Effective

Date: 01/01/06

  

Supersedes:

01/01/05

  

Policy

Number: HR.01.06

  

Issuer:

Human Resources

  

Page: 2 of 3

 

  Measurement Criteria

 

3.05 In order to reward employees for individual performance while assuring a
fair return for the company and its shareholders, the MIP is structured with the
following three specific areas to measure performance:

 

  •   Hydril’s total Company Financial Performance.

 

  •   Division Financial Performance (Pressure Control, Premium Connection)

 

  •   Individual Performance against established objectives.

 

  The level at which these three criteria affect a participant’s bonus may vary
and is based on the tier (bonus level) level.

 

3.06 Hydril’s Board of Directors and the executive management team will
establish the company’s and the divisions’ financial performance targets. The
consolidated company financials must be profitable for an incentive bonus to be
paid.

 

3.07 The Individual objectives will be set by the employee’s director and
approved by the Vice President, CFO or President of Hydril. The percentage
payout based on the participant’s individual objectives will be recommended by
the supervising Vice President or CFO and approved by the President.

 

3.08 The target level bonus will be set based on which tier the employee is in,
which will be affected by the employee’s position and job responsibilities.

 

3.09 The employee may earn three levels of bonus based on performance. The three
levels are Minimum, Target and Maximum.

 

3.10 The financial performance for the company and the division will be measured
by operating income and the income requirements for the three levels.

 

3.11 If the performance as defined above is at or above the maximum level then
the payout is 150% of the target bonus for that area. If performance is at or
above the target level but below the maximum level then the payout is prorated
based on performance level between 100% and 149%. If performance is at or above
the minimum level but below the target level then the payout is prorated based
on performance level between 50% and 99% for that area.

 

3.12 In order for participation in the individual objectives part of the bonus
to exceed 100% of target, the corporate or division financial performance must
be at or above the target performance established.

--------------------------------------------------------------------------------

LOGO [g86520logo.jpg]   

2006 Management Incentive

Plan (MIP)

Effective

Date: 01/01/06

  

Supersedes:

01/01/05

  

Policy

Number: HR.01.06

  

Issuer:

Human Resources

  

Page: 3 of 3

 

3.13 Participation in the plan will be for the calendar year January through
December 2006. For some participants, the plan will be measured and paid
semi-annually: January through June and July through December. For the remaining
participants the MIP will be measured and paid annually. The bonuses will be
paid within 90 days after the period in which they were earned.

 

3.14 Target operating income includes MIP expense at the planned level as
recorded in the 2006 Plan approved by the Board of Directors in the November
2005 board meeting. Minimum and maximum payout levels will be established by the
Compensation & Governance Committee at the March 2006 meeting and will include
the expected level of MIP expense in operating income.

RESPONSIBILITY

 

4.00 It is the responsibility of the executive management team and the human
resources department to administer this policy. It is the responsibility of the
controller and finance department to review and approve the bonus information
for accuracy.