exv10w3






 Exhibit 10.3




PERFORMANCE GOALS

FOR PERFORMANCE UNIT AWARDS GRANTED IN 2011 UNDER

THE BAKER HUGHES INCORPORATED 2002 DIRECTOR & OFFICER

LONG-TERM INCENTIVE PLAN AND

THE BAKER HUGHES INCORPORATED 2002 EMPLOYEE

LONG-TERM INCENTIVE PLAN

ADOPTED OCTOBER 21, 2010





	 	1.  2011 Performance Unit Program.	 





     The Performance Unit Program, a component compensation program established under each of the
Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan and the Baker Hughes
Incorporated 2002 Employee Long-Term Incentive Plan (the “PUP”), provides for cash awards for
participants if performance goals are met during the term of the PUP. The performance goals are
related to the Company’s achievement as compared to a peer group of companies. Achievement is
measured over multiple performance periods from the beginning of 2011 to the end of 2013.
Twenty-five percent of the Total Unit Value is determined based upon one-year performance relative
to certain specified performance criteria during each of 2011, 2012, and 2013. The final
25 percent of the Total Unit Value is calculated at the end of 2013 based upon the
cumulative performance of the Company over the three-year performance period 2011 through 2013.









	 	2.  Performance Goals for the Performance Period.	 





     For Performance Unit Awards granted by BHI in 2011 under the Plan, the performance goals are
based upon the Company’s (1) change in Revenue as compared to the Peer Group, (2) Pre-Tax Operating
Margin for the applicable performance periods as compared to that of the Peer Group, and (3) Return
on Net Capital Employed or RONCE as compared to the Peer Group. For each performance goal, if the
Company’s performance as compared to the Peer Group is the highest, the Company’s performance rank
shall be first.










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	 	(a)	 	One-Year Performance Periods.






     (I) Revenue Growth. For each of the 2011 Performance Period, the 2012
Performance Period and the 2013 Performance Period the Company’s One-Year Interval
Percentage Increase in Revenue for its 2011, 2012 and 2013 fiscal years, respectively, shall
be compared against the One-Year Interval Percentage Increase in Revenue for all members of
the Peer Group.




     (II) Pre-Tax Operating Margin. For each of the 2011 Performance Period, the
2012 Performance Period and the 2013 Performance Period, the Company’s Pre-Tax Operating
Margin for its 2011, 2012 and 2013 fiscal years, respectively, shall be compared against the
Pre-Tax Operating Margin for all members of the Peer Group during the applicable Current
Period.




     (III) Return of Net Capital Employed. For each of the 2011 Performance Period,
the 2012 Performance Period and the 2013 Performance Period, the Company’s RONCE for its
2011, 2012 and 2013 fiscal years, respectively, shall be compared against the RONCE for all
members of the Peer Group during the applicable Current Period.




	 	(b)	 	Three-Year Performance Period.






     (I) Revenue Growth. For the Three-Year Performance Period, the Three-Year
Percentage Increase in Revenue of the Company shall be compared against the Three-Year
Percentage Increase in Revenue for all members of the Peer Group as of December 31, 2013.




     (II) Pre-Tax Operating Margin. For the Three-Year Performance Period, the sum
of the Pre-Tax Operating Margin of the Company for the 2011 Performance Period, the 2012
Performance Period and the 2013 Performance Period shall be compared against the sum of the
Pre-Tax Operating Margin of the Company for each member of the Peer Group for the 2011
Performance Period, the 2012 Performance Period and the 2013 Performance Period.




     (III) Return on Net Capital Employed. For the Three-Year Performance Period,
the sum of the RONCE of the Company for the 2011 Performance Period, the 2012 Performance
Period and the 2013 Performance Period shall be compared against the sum of the RONCE for
each member of the Peer Group for the 2011 Performance Period, the 2012 Performance Period
and the 2013 Performance Period.




	 	3.	 	Unit Value Based on Peer Group Ranking.





     The Unit Value earned during an applicable performance period (the 2011 Performance Period,
the 2012 Performance Period, the 2013 Performance Period or the Three-Year Performance Period) for
each of the three performance goals is 25 percent the Unit Value Amount listed below. The averages
of 25 percent Unit Value Amounts earned during a performance period is used to determine the Period
Unit Value for the performance period. The payout under each Performance Unit will be based on 12
measures (three Peer Group Ranking results achieved during four discrete performance periods.)



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	2011, 2012, 2013, and Three-Year Performance Period	 
	 	Peer Group Rank
	 	 	5th	 	 	4th	 	 	3rd	 	 	2nd	 	 	1st	 
	 	Unit Value Amount
	 	 	$	0	 	 	 	$	45	 	 	 	$	90	 	 	 	$	135	 	 	 	$	200	 	 
	 





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     In the example below, for illustrative purposes, Year 1 Revenue growth rank was 5th
and 25 percent of $0 is $0. Pre-Tax Operating Margin rank was 2nd and 25 percent
of $135 is $33.75. RONCE rank was 1st and 25 percent of $200 is $50. The average
Unit Value based upon the performance in Year 1 is $27.92. For each Performance Unit awarded, the
sum of the Period Unit Values for each of the performance periods equals the Total Unit Value.









Note that levels of achievement contained in the foregoing example are
not forecasts by the Company of its expected levels of achievement.
Rather, the levels of achievement for purposes of the illustrative
example were selected at random.





     If the Peer Group is reduced by merger(s) or otherwise during the term of the Three-Year
Performance Period the Committee shall make such adjustments to the Unit Value Amount chart as it
deems appropriate in its sole discretion. Such adjustments shall not increase the amounts that
would have been payable under the Unit Value Amount chart absent such adjustments.




		4.  Peer Group.	 





     The Peer Group is as follows for the performance periods ending in 2011, 2012, and 2013, and
for the Three-Year Performance Period.



	 	 	 
	 
	 	Peer Group	 
	 	(5 Companies)	 
	 	Baker Hughes Incorporated
	 
	 	Halliburton Company
	 
	 	National Oilwell Varco Incorporated
	 
	 	Schlumberger Limited
	 
	 	Weatherford International Ltd.
	 
	 






	 	5.  General Performance Unit Formula.	 





     Except as otherwise specified in the Terms and Conditions, the aggregate amount payable to a
Participant for a Performance Unit Award granted in 2011 under the Baker Hughes Incorporated 2002
Director & Officer Long-Term Incentive Plan and the Baker Hughes Incorporated 2002 Employee Long-



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Term Incentive Plan shall be equal to the number of Performance Units granted to the
Participant multiplied by the Final Performance Unit Award Value.




     The Compensation Committee shall determine in writing the extent to which the Performance
Goals applicable to the Performance Unit Awards have been satisfied before the Company makes any
payments under the Performance Unit Awards.



     Subject to the terms of the Plan, the Performance Unit Award and the Terms and Conditions,
unless prior to the Scheduled Payment Date a Change in Control (as defined in the Terms and
Conditions) occurs or the Participant (1) forfeits his Performance Unit Award, (2) dies, or (3)
incurs a Disability (as defined in the Terms and Conditions), on the Scheduled Payment Date the
Company shall pay the Participant an amount equal to the Final Performance Agreement Award Value
(prorated in accordance with the Terms and Conditions in the event of the Retirement of the
Participant within the meaning of the Terms and Conditions).



     The Compensation Committee may not increase the Final Performance Unit Award Value for, or
otherwise increase the aggregate amount payable to a Participant for the performance period under,
a Performance Unit Award Agreement issued by BHI in 2011 under the Baker Hughes Incorporated 2002
Director & Officer Long-Term Incentive Plan or the Baker Hughes Incorporated 2002 Employee
Long-Term Incentive Plan.



     Capitalized terms that are not defined herein shall have the meaning ascribed to such terms in
the Plan or the Terms and Conditions.




		6.  Definitions.	 





     For Performance Unit Award Agreements issued by Baker Hughes Incorporated (“BHI”) in 2011
under the Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan and the Baker
Hughes Incorporated 2002 Employee Long-Term Incentive Plan, the terms set forth below shall have
the following meanings:



     “Capital Employed” means an amount equal to the Relevant Company’s total shareholders’ equity
at the close of the Current Period plus the Relevant Company’s long-term debt, short-term borrowing
and the current portion of long-term debt at the close of the Current Period.



     “Company” means BHI and all of its Affiliates in which BHI directly or indirectly has a
capital investment.



     “Compensation Committee” means the Compensation Committee of the Board of Directors of the
Company.



     “Current Period” means the fiscal year of the Relevant Company that coincides with or ends
within the fiscal year of the Company to which the applicable Performance Goal applies.



     “Final Performance Unit Award Value” or “Total Unit Value” means the sum of the Unit Values
for the 2011 Performance Period, the 2012 Performance Period, the 2013 Performance Period and the
Three-Year Performance Period.



     “One-Year Interval Percentage Increase in Revenue” means the result of (a) minus (b), divided
by (c), where (a) is the Revenue of the Relevant Company for the Current Period, (b) is the Revenue
of



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the Relevant Company for the Prior Period, and (c) is the Revenue of the Relevant Company for
the Prior Period.




     “Participant” means the person to whom a Performance Unit Award is granted.



     “Peer Group” means the group identified in Section 4.



     “Performance Units” means the number of performance units listed in the Participant’s
agreement evidencing his or her Performance Unit Award.



     “Performance Unit Award” means a Performance Unit Award granted under the Plan in 2011.



     “Plan” means the Baker Hughes Incorporated 2002 Director & Officer Long-Term Incentive Plan or
the Baker Hughes Incorporated 2002 Employee Long-Term Incentive Plan, as applicable.



     “Pre-Tax Operating Margin” means the quotient of the Relevant Company’s operating profit for
the Current Period divided by the Relevant Company’s total revenue for the Current Period.



     “Prior Period” means the fiscal year of the Relevant Company that coincides with or ends
within the fiscal year of the Company immediately preceding the fiscal year of the Company to which
the applicable Performance Goal applies.



     “Relevant Company” means the Company or a member of the Peer Group.



     “Return on Net Capital Employed” or “RONCE” means the Relevant Company’s earnings before
interest and taxes plus non-operating income (expense) for the Current Period, divided by the
Relevant Company’s Capital Employed.



     “Revenue” means the revenue of the Company or the revenue of a particular member of the Peer
Group, as applicable.



     “Scheduled Payment Date” means March 13, 2014.



     “Three-Year Interval Percentage Increase in Revenue” means the result of (a) minus (b),
divided by (c), where (a) is the Revenue for the Relevant Company for the Current Period
corresponding to the final fiscal year of the Company ending during the Three-Year Performance
Period, (b) is the Revenue of the Relevant Company for the Prior Period corresponding to the fiscal
year of the Company immediately prior to the first fiscal year of the Company beginning during the
Three-Year Performance Period and (c) is the Revenue of the Relevant Company for the Prior Period
corresponding to the fiscal year of the Company immediately prior to the first fiscal year of the
Company beginning during the Three-Year Performance Period.



     “Three-Year Performance Period” means the three-year period beginning January 1, 2011, and
ending December 31, 2013.



     “2011 Performance Period” means the one-year period beginning January 1, 2011, and ending
December 31, 2011.



     “2012 Performance Period” means the one-year period beginning January 1, 2012, and ending
December 31, 2012.



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     “2013 Performance Period” means the one-year period beginning January 1, 2013, and ending
December 31, 2013.



     “Terms and Conditions” means the Terms and Conditions of Performance Unit Award Agreements
adopted by the Compensation Committee with respect to Performance Unit Awards.



     “Unit Value” or “Period Unit Value” means the averages of the Unit Value Amounts per
Performance Unit earned with respect to a performance period as specified in Section 3.



     “Unit Value Amount” means the applicable dollar amount specified in the first chart in Section
3.




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