<PAGE>

                                                                    EXHIBIT 10.3

                              EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (the "Agreement"), entered into on July 21,
1998, but effective as of July 1, 1998, by and between FLUOR CORPORATION (the
"Company"), and PHILIP J. CARROLL, JR. (the "Executive"),

                                  WITNESSETH:

          WHEREAS, the Company desires to secure the experience, abilities and
service of the Executive by employing the Executive upon the terms and
conditions specified herein; and

          WHEREAS, the Executive is willing to enter into this Agreement upon
the terms and conditions specified herein;

          NOW, THEREFORE, in consideration of the premises, the terms and
provisions set forth herein, the mutual benefits to be gained by the performance
thereof and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:

          SECTION 1.  Employment. The Company hereby employs the Executive, and
                      ----------
the Executive hereby accepts such employment, all upon the terms and conditions
set forth herein.

          SECTION 2.  Term.  Subject to the terms and conditions of this
                      ----
Agreement, the Executive shall be employed by the Company commencing on July I5,
1998 (the "Effective Date") and terminating on July 14, 2003 (the "Primary
Term") unless sooner terminated pursuant to Section 5 of this Agreement.

          SECTION 3.  Duties and Responsibilities.
                      ---------------------------

          A.  Capacity.  The Executive shall serve in the capacity of Chairman
              --------
of the Board of Directors and Chief Executive Officer of the Company.  The
Executive shall perform the duties ordinarily expected of a Chairman and Chief
Executive Officer and shall also perform such other duties consistent therewith
as the Board of Directors of the Company (the "Board") shall, from time to time,
reasonably determine.  As of the Effective Date, the Board of Directors of the
Company shall appoint Executive to the Board of Directors of the Company as a
Class I Director.

          B.  Full-Time Duties.  The Executive shall devote his full business
              ----------------
time, attention and energies to the business of the Company.  Notwithstanding
anything herein to the contrary, the Executive shall be allowed to (a) manage
the Executive's personal investments and affairs, and (b) (i) serve on boards or
committees of civic or charitable organizations or trade associations, and (ii)
with the permission of the Board of Directors of the Company, serve on the board
of directors of any corporation or as an advisory director of any corporation;
provided that such activities do not materially interfere with the proper
performance of his duties and responsibilities specified in Section 3(A).

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          SECTION 4.  Compensation.
                      ------------

          A.  Base Salary.  During the term of this Agreement, the Executive
              -----------
shall receive a salary (the "Base Salary") of at least $900,000 per annum,
prorated for partial years of employment.  The Base Salary shall be payable by
the Company in accordance with the general payroll practices of the Company in
effect from time to time.  During the term of this Agreement, the Base Salary
shall be reviewed prior to or just following the beginning of each fiscal year
of the Company for increase at the discretion of the Board provided, however,
that such annual increase shall be not less than the percentage budgeted for
increases for the Management Group.

          B.  Signing Bonus.  On July 1, 1998, the Company shall pay to the
               ------------
Executive a lump sum cash payment of $750,000 as a signing bonus in
consideration for the Executive's decision to accept employment with the
Company.  The parties agree that the payment under this Section 4(B) is in the
nature of a signing bonus payable to the Executive, a Texas resident, prior to
the performance of any services in the State of California, and that the payment
is not subject to California state income tax and shall be reported accordingly
for tax purposes by the Company.

          C.  Annual Incentive Bonus.  The Executive shall be eligible for an
              ----------------------
annual bonus at a target level of at least $825,000, payable in the January
following the completion of each fiscal year, commencing in January 1999
prorated for partial years of Employment.  The Executive's bonus may range up to
2 times the target level as determined by the Board in a manner consistent with
the Company's established annual bonus program based on Company and individual
performance.  In addition, the Executive shall receive a non-discretionary
annual incentive bonus of $100,000, prorated for partial years of employment,
which shall be deferred under the Company's Executive Deferred Compensation
Program.

          D.  Long-Term Incentive Award.  The Executive shall be eligible for a
              -------------------------
cash long-term incentive award at a target level of at least $240,000, payable
in January 2002 following the completion of a 3-year performance cycle ending on
October 31, 2001.  The Executive's cash award may range up to 2 times the target
level as determined by the Board in a manner consistent with the Company's
established long-term incentive program based on Company performance over the
performance cycle.


          E.  Equity Compensation.
              -------------------

              (1)  Initial Option Award. As of the Effective Date, the Executive
          shall be granted options (the "Initial Option") to purchase 200,000
          shares of the common stock of the Company ("Common Stock") at an
          exercise price equal to the fair market value per share of Common
          Stock on the Effective Date ($45.75). The Initial Option shall be
          immediately exercisable with respect to 20% of the shares of Common
          Stock subject thereto, and, unless accelerated pursuant to another
          provision of this Agreement, the remainder will become exercisable in
          20% increments on each successive anniversary of the Effective Date,
          such that the Initial Option will become 100% exercisable on the
          fourth anniversary of the Effective Date. The Initial Option shall be
          granted pursuant to

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          the 1996 Fluor Executive Stock Plan (the "ESP") and for purposes of
          determining the Executive's rights with respect to the Initial Option
          upon termination of employment due to retirement, any termination of
          the Executive's employment by the Company without "Cause" (as
          hereinafter defined) or termination by the Executive for "Good Reason"
          (as hereinafter defined) would be deemed to constitute an approved
          retirement.  The Initial Option shall be composed of two types of
          options, with 189,075 shares of Common Stock subject to a non-
          qualified stock option ("Initial NQSO") and 10,925 shares subject to
          an incentive stock option ("ISO"').  The ISO is intended to be an
          "incentive stock option" within Section 422 of the Internal Revenue
          Code of 1986, as amended (the "Code"), to the maximum extent possible.
          The Initial NQSO will be evidenced by a Non-Qualified Stock Option
          Agreement and the ISO will be evidenced by an Incentive Stock Option
          Agreement between the Company and the Executive.

               (2) 1998 Additional Award.  Within 180 days of the Effective
          Date, pursuant to the Company's ESP, the Executive will be granted a
          non-qualified option ("NQSO") to purchase additional shares of Common
          Stock at an exercise price equal to the fair market value on the date
          of grant.  The number of shares of Common Stock subject to the NQSO
          will be determined by the Organization and Compensation Committee of
          the Board, but is expected to be approximately 100,000 shares or an
          equivalent value of restricted share and tandem units.  Unless
          accelerated pursuant to another provision of this Agreement, the NQSOs
          will become exercisable in 25% annual increments beginning on the
          first anniversary of the date of grant, such that the NQSOs will be
          100% exercisable on the fourth anniversary of the date of grant.  The
          terms of the NQSO will be evidenced by a Non-Qualified Stock Option
          Agreement between the Company and the Executive.

               (3) Awards During Term.  During the term of this Agreement, the
          Executive shall be eligible for grants of stock options, restricted
          stock, stock appreciation rights and other incentive awards under and
          in accordance with the Company's ESP or any comparable or successor
          plans that may be adopted by the Company.  All such incentive awards
          shall take into account the Executive's positions, duties and
          responsibilities at the Company.

               (4) Shadow Stock.  As of the Effective Date, the Executive shall
          be granted units of shadow stock ("Units") pursuant to the 1982 Fluor
          Shadow Stock Plan (the "Shadow Plan").  The number of units awarded
          shall be equal to (a) 6.8 million dollars, divided by (b) the fair
          market value of the Common Stock on the Effective Date ($45.75),
          rounded up to the next whole Unit (148,634 units).  All restrictions
          on the Units will expire

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          and the Units will become exercisable in full in the event (x) the
          Executive remains continuously employed through the expiration of the
          Primary Term, or (y) the Executive's employment terminates prior to
          the expiration of the Primary Term due to death, "Disability,"
          termination by the Company without "Cause," termination by the
          Executive for "Good Reason," or following a "Change of Control" (as
          such terms are hereinafter defined). In the event the Executive's
          employment terminates prior to the expiration of the Primary Term for
          any reason other than those set forth in the preceding sentence, then
          the restrictions on the Units shall lapse as of the date of
          termination as to a portion of the Units which equals (i) the number
          of Units originally awarded multiplied by (ii) a fraction, the
          numerator of which is the number of days that have elapsed from the
          Effective Date to the date of termination and the denominator of which
          is 1,825 (the number of days in the Primary Term). For purposes of
          determining the Executive's rights with respect to the Units under the
          Shadow Plan upon termination of employment due to retirement, any
          termination of the Executive's employment by the Company without Cause
          or termination by the Executive for Good Reason would be deemed to
          constitute a retirement. The Units shall have a ten-year term from the
          Effective Date, subject to earlier expiration in accordance with the
          Shadow Plan, in the event of voluntary resignation prior to retirement
          without Good Reason or termination by the Company for Cause. The Units
          will be evidenced by a Shadow Stock Agreement between the Company and
          the Executive.

          F.  Secured Loan.  The Company will provide the Executive with a loan
              ------------
with a principal amount of $5,000,000, to facilitate the purchase of a residence
in the Southern California area.  The loan is to be secured by a First Trust
Deed on the residence and will be structured as an interest-only loan with a
balloon payment of the entire principal amount and all interest accrued during
the term of the loan due on January 15, 2004.  The loan shall accrue interest at
the rate of 5.68%, compounded annually.  The loan shall be evidenced by a
promissory note and deed of trust containing the foregoing terms and such other
terms as are customarily used by the Company for relocation loans and are not
inconsistent with the foregoing terms.  The loan shall be subject to
acceleration in the event of the Executive's termination of employment prior to
expiration of the Primary Term.

          G.  Automobile.  The Company will provide the Executive with the use
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of an automobile of the Executive's choice, in accordance with the Company's
inside director automobile directives.  The automobile may have a value of up to
$75,000.  The Company may own the automobile and will pay the costs of all
maintenance, repair and insurance, including any applicable deductibles.

          H.  Traveling, Moving and Relocation.  The Company shall reimburse the
              --------------------------------
Executive for expenses relating to traveling, moving and relocating from
Houston, Texas, to Irvine, California, according to the Company's Personnel
Policy (HR-121), including the expenses of packing, unpacking, shipping and
storage of personal belongings, normal fees

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associated with the buying and/or selling of the Executive's personal residence,
and a payment to cover any additional federal tax liability associated with the
payment of buy/sell expenses.

          I.  Executive Deferred Compensation.  The Executive will be eligible
              -------------------------------
to participate in all aspects of the Company's Executive Deferred Compensation
Program, including both the deferred salary and deferred incentive award
provisions, on terms at least as favorable as other top executives of the
Company.

          J.  Retirement Plans.  The Executive will be eligible to participate
              ----------------
in the Company's Salaried Employees' Savings Investment Plan and Employee's
Retirement Plan or any similar plan, subject to satisfying the eligibility
requirements of such plans.

          K.  Health, Life and Disability Coverage.
              ------------------------------------

              (1) Group Insurance. The Executive will be covered under the
          Company's group health, group life insurance, accidental death and
          dismemberment, travel accident, long-term disability and short-term
          disability plans under terms generally applicable to other similarly
          situated employees of the Company.

              (2) Executive Health Insurance.  The Executive will participate
          in the Company's executive health care plan, which will provide
          reimbursement for health care expenses incurred by the Executive and
          his dependents in excess of covered charges under the Company's group
          health insurance policy.  Reimbursement under this plan will include
          deductibles and co-insurance payable under the group plan, reasonable
          and customary charges not covered under the group plan, and charges
          for private rooms.  The Executive will be provided, and the Company
          requires him to obtain, an annual physical examination at Company
          expense.

              (3) Supplemental Death Benefit.  Upon the Executive's death while
          in employment, the Company will provide a $2,000,000 death benefit to
          the Executive's designated beneficiary under the Fluor Executive's
          Supplemental Benefit Plan (the "SBP") as in effect on the Effective
          Date.  Upon termination of employment at or after age 65, the
          Executive may request his choice of one of the following forms of
          payment, subject to the approval of the Organization and Compensation
          Committee of the Board:  (a) a continuation of this death benefit, (b)
          a lump sum cash payment within 30 days of retirement equal to
          $920,328, or (c) monthly installment payments of $14,155.82 beginning
          with the month in which the Executive retires and continuing for a
          period of 10 years.  In the event of an approved early retirement, the
          Executive shall be entitled to a continuation of the death benefit or
          to a lump sum or salary continuation benefit calculated under the
          terms of the SBP.  For purposes of the SBP, any termination of the
          Executive's employment by the Company

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          without Cause or by the Executive for Good Reason shall constitute an
          approved early retirement.

          L.  Time Off With Pay.  The Executive shall be immediately credited
              -----------------
with 20 days of accrued paid time off as of the Effective Date.  In addition,
the Executive will accrue at least 3.54 hours of paid time off per week of
service, or 23 days of paid time off per year of service.  Accrued time off may
be used or exchanged for a cash payment equal to an equivalent amount of Base
Salary by the Executive at any time, and upon termination of employment the
Executive shall be paid the accrued paid time off based upon his then-current
Base Salary.

          M.  Legal and Accounting Services.  Beginning in 1998, the Executive
              -----------------------------
shall be entitled to reimbursement for up to $25,000 per calendar year for
personal legal and accounting services, including, but not limited to, tax
preparation and estate planning, such services to be provided by the
professional of the Executive's choice.

          N.  Club Memberships.  The Company will pay all dues necessary to
              ----------------
maintain the Executive's memberships at the River Oaks Country Club and the
Coronado Club in Houston, Texas, and will pay all business-related expenses
incurred by the Executive at such clubs.  In addition, the Company will pay the
membership initiation fees, monthly dues and business-related expenses incurred
by the Executive at country and dining clubs of the Executive's choice in the
Southern California area; provided that no more than three such clubs may be
selected by the Executive without prior Company approval.

          O.  Other Benefits.
              --------------

              (1) The Executive shall be entitled to receive prompt
          reimbursement by the Company for all reasonable, out-of-pocket
          expenses incurred by him in performing services under this Agreement
          upon the submission by the Executive of such accounts and records as
          may be required under Company policy.

              (2) In addition to any other benefits in this Section 4, the
          Executive shall be entitled to participate in all employee benefit
          plans and programs made available to the Company's senior executives,
          as such plans or programs may be in effect from time to time, whether
          funded or unfunded.

          SECTION 5.  Termination of Employment.
                      -------------------------

          Notwithstanding the provisions of Section 2, the Executive's
employment hereunder may terminate under any of the following conditions:

          A.  Death.  The Executive's employment under this Agreement shall
              -----
terminate automatically upon his death.

          B.  Disability.  The Executive's employment under this Agreement may
              ----------
be terminated due to his Disability.  "Disability" shall mean the Executive's
complete inability to substantially perform his duties for any period of at
least 120 consecutive days due to physical or mental incapacity.  The date of
termination due to Disability shall be the date the Executive

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elects to terminate service due to Disability or, if earlier, the date the Board
determines that the Executive has met the definition of Disability.

          C.  Termination by Company Without Cause.  The Company may terminate
              ------------------------------------
the Executive's employment hereunder without Cause (as hereinafter defined) on
30 days' prior written notice to the Executive.

          D.  Termination by Company for Cause.  The Executive's employment
              --------------------------------
hereunder may be terminated for Cause by the Company.  For purposes of this
Agreement, "Cause" means:

              (1) the Executive is charged with commission of a felony
          involving moral turpitude excluding any felony relating, to the
          operation of a motor vehicle or is convicted or enters a no contest
          plea to a felony relating to the operation of a motor vehicle which,
          at the time of commission, the Executive knew had a reasonable
          probability of causing a material adverse effect on, the Company; or

              (2) the Executive's serious, willful gross misconduct or  gross
          neglect of duties (which shall include, without limitation 90 days'
          absence) which, in either case, has resulted, or could reasonably be
          expected to result, in material economic damage to the Company;

provided, however, that no action or failure to act by the Executive will
constitute "Cause" if the Executive reasonably believed in good faith that such
action or failure to act was in the best interest of the Company.

          Any termination of the Executive's employment by the Company for Cause
under this Section 5(D) shall be authorized by a vote of at least a majority of
the non-employee members of the Board.  The Executive shall be given notice by
the Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause.

          E.  Termination by Executive for Good Reason.  The Executive may
              ----------------------------------------
terminate his employment hereunder for "Good Reason." For purposes of this
Section 5(E), "Good Reason" for termination shall exist if, without the consent
of the Executive, any of the following events occur:

              (1) a reduction in the Executive's Base Salary or the termination
          or reduction of a benefit under any employee benefit plan or program
          of the Company or any subsidiary in which he participates unless, in
          the case of a benefit, (x) there is substituted a comparable benefit
          that is economically equivalent to such benefit prior to its
          termination or reduction, as the case may be or (y) such termination
          or reduction affects the members of the

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          Senior Management of the Company generally and occurs prior to a
          Change of Control;

               (2) either (A) the failure by the Company to continue in effect
          any incentive or other compensation plan or program in which the
          Executive is to participate under the terms of this Agreement or (B)
          the taking of any action by the Company that would have a material
          adverse affect on the Executive's participation in, or materially
          reduce his benefits under, any such plan or program, unless (x), in
          the case, of either clause (A) or (B) above, there is substituted a
          comparable plan or program that is economically equivalent, in terms
          of the benefit offered to the Executive, to the plan or program being
          altered, reduced, affected or ended or (y) such failure, or in the
          case of clause (B) above, such taking of any action, affects the
          members of the senior management of the Company generally and occurs
          prior to a Change of Control;

               (3) the loss of any of the Executive's titles or positions as
          described in Section 3 except where such loss is due to the
          Executive's death or disability, or termination of Executive's
          Employment;

               (4) a significant diminution in the Executive's duties and
          responsibilities or the assignment to the Executive of duties and
          responsibilities inconsistent with his positions;

               (5) the relocation of the Company's principal office, or the
          Executive's own office location as assigned to him by the Company, to
          a location more than 50 miles from the present location of the
          Company's principal office;

               (6)  the failure of the Company to obtain the unconditional
          assumption in writing or by operation of law of the Company's
          obligations to the Executive under this Agreement by any successor
          prior to or at the time of a reorganization, merger, consolidation,
          disposition of all or substantially all of the assets of the Company
          or similar transaction; or

               (7) a material breach by the Company of this Agreement, which
          breach continues for more than 30 days following written notice given
          by the Executive to the Company.

          F.   Termination by Executive Without Good Reason.  The Executive may
               --------------------------------------------
terminate his employment hereunder at any time on 30 days' written notice to the
Company.

          SECTION 6.   Change of Control.
                       -----------------

          A.   Upon the Executive's termination of employment for any reason
following a Change of Control, as defined below, any restrictions on any stock
option, restricted stock,

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stock appreciation right, Unit or other equity-based incentive provided under
the ESP, the Shadow Plan or any other plan of the Company (a "Stock Plan") shall
lapse immediately

          B.  A Change of Control shall have the meaning set forth in the ESP as
of the Effective Date, or any definition that is more favorable to the Executive
that is set forth in any subsequent Stock Plan or that is approved by the Board
for the benefit of the Company's senior executives.

          SECTION 7.  Payments Upon Termination.
                      -------------------------

          A.  Upon termination of the Executive's employment for any reason
prior to the expiration of the Primary Term, the Company shall be obligated to
pay, and the Executive shall be entitled to receive:

              (1) all accrued and unpaid Base Salary under Section 4 to the
          date of termination;

              (2) any unpaid bonus under Section 4(C) or long-term incentive
          award under Section 4(D) for the fiscal year or performance cycle
          ending prior to the date of termination;

              (3) title to the automobile provided under Section 4(G), provided
          that the Executive was employed for at least 2 years prior to
          termination of employment;

              (4) all accrued but unused or unpaid time off with pay under
          Section 4(L);

              (5) all incurred but unreimbursed expenses for which the
          Executive is entitled to reimbursement under Section 4; and

              (6) any benefits to which he is entitled under the terms of the
          Executive Deferred Compensation Program, the Employee's Retirement
          Plan, the Salaried Employees Savings Investment Plan, the Long-Term
          Incentive Award Program, and any other applicable employee pension or
          benefit plan or program, or applicable law.

          B.  Upon termination of the Executive's employment upon the death of
Executive pursuant to Section 5(A), the Company shall be obligated to pay, and
the Executive shall be entitled to receive:

              (1) all of the amounts and benefits described in Section 7(A);
          and

              (2) the death benefit payable under Section 4(K)(3) and any other
          death benefit payable under a plan or policy provided by the Company.

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          C.  Upon termination of the Executive's employment upon the Disability
of the Executive pursuant to Section 5(B), the Company shall be obligated to
pay, and the Executive shall be entitled to receive:

              (1) all of the amounts and benefits described in 7(A);

              (2) the Base Salary, at the rate in effect  immediately prior to
          the date of his termination of employment due to Disability, for a
          period of one year following such termination, offset by any payments
          the Executive receives under the Company's long-term disability plan
          and any supplements thereto, whether funded or unfunded, which is
          adopted by the Company for the Executive's benefit;

              (3) a bonus award for the fiscal year in which his termination
          due to Disability occurs, in an amount equal to the target bonus for
          the fiscal year in which termination occurs, prorated for the number
          of days of the year that elapsed prior to his termination of
          employment;

              (4) a long-term incentive award for each performance cycle in
          which termination of employment due to Disability occurs, in an amount
          equal to the Target long-term incentive award for the particular
          performance cycle, prorated for the number of days of the particular
          performance cycle that elapsed prior to his termination of employment;

              (5) the medical benefits payable under Section 4(K)(1), which
          shall be provided to the Executive and his spouse for life; and

              (6) long-term disability payments, payable at least monthly,
          beginning one year after the Executive's termination of employment due
          to Disability and continuing until the earliest to occur of the
          termination of his Disability, his death or his attainment of age 65,
          or Two years from the date their payment commenced in an amount equal
          to 60% of his Base Salary, at the rate in effect immediately prior to
          the date of his termination of employment due to Disability, reduced
          by (b) any long-term disability payments he receives from any
          disability plan or programs contributed to by the Company (but not by
          any retirement benefits that commence due to his termination of
          employment); and

              (7) commencing with the first month following the month in which
          the Executive is terminated, payments to which the Executive is
          entitled under any plans or programs of the Company providing long-
          term disability or retirement benefits.

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<PAGE>

          In the event a Change of Control occurs within two years after the
Executive's termination of employment due to Disability, the Executive shall be
entitled to a lump-sum payment of the aggregate amounts specified under clauses
(1), (2), (3), (4) and (6) of this Section 7(C) that have not been paid to the
Executive, payable within 5 days after the Change of Control, and all other
benefits payable pursuant to this Section 7(C) shall continue to be paid in
accordance with the terms hereof.

          D.  Upon termination of the Executive's employment: (i) by the Company
without Cause pursuant to Section 5(C); or (ii) by the Executive for Good Reason
pursuant to Section 5(E), the Company shall be obligated to pay and the
Executive shall be entitled to receive:

              (1) all of the amounts and benefits described in Section 7(A);

              (2) Base Salary for the lesser of (x) three years or (y) the
          remaining Primary Term, as if there had been no termination;

              (3) annual bonuses for the lesser of (x) three years or (y)
          remainder of the Primary Term (including a pro rated bonus for any
          partial year), equal to the target bonus for the fiscal year in which
          termination of Employment occurs, such bonuses to be paid at the same
          time annual bonuses are regularly paid by the Company to him;

              (4) long-term incentive awards for the lesser of (x) three years
          or (y) remainder of the Primary Term (including a pro rated award for
          any performance cycle ending after the Primary Term), for each
          performance cycle in which termination of Employment occurs, in an
          amount equal to the target long-term incentive award for the
          particular performance cycle, such awards to be paid at the same time
          long-term incentive awards are regularly paid by the Company to him;

              (5) An immediate lump-sum cash payment equal to the excess (if
          any) of the "Pro-Rata Loan Amount" over the "Unit Value," where:

              the "Pro-Rata Loan Amount" means the portion of the residence loan
              under Section 4(F) that the Executive earned to the date of
              termination, which is an amount equal to $5,000,000 multiplied by
              a fraction, the numerator of which is the number of days that have
              elapsed from the Effective Date to the date of termination of
              employment, and the denominator of which is 1,825 (the number of
              days in the Primary Term), and

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<PAGE>

              "Unit Value" means the value of the Units awarded under Section
              4(E)(4) as of the date of termination; and

              (6)  the medical benefits described in Section 4(K)(1), which
          shall be provided to the Executive and his spouse for life.

          In addition to the benefits mentioned above, a termination by the
Company without Cause or by the Executive with Good Reason shall be deemed an
approved early retirement for purposes of any Stock Plan, the Shadow Plan and
the SBP.  The Executive shall also be entitled to full vesting of his interest
under the Company's Retirement Plans described in section 4(J).  Any benefit due
to the Executive as a result of the previous sentence which may not be paid
under the Company's qualified retirement plans is to be paid by the Company.

          In the event a Change of Control occurs within two years after the
Executive's termination of employment by the Company without Cause or by the
Executive with Good Reason, the Executive shall be entitled to a lump-sum
payment of the aggregate amounts specified under clauses (1), (2), (3), (4) and
(5) of this Section 7(D) that have not been paid to the Executive, payable
within 5 days after the Change of Control, and all other benefits payable
pursuant to this Section 7(D) shall continue to be paid in accordance with the
terms hereof.



          E.  In the event of any termination of employment under this Section
7, the Executive shall be under no obligation to seek other employment, and
there shall be no offset against amounts due the Executive under this Agreement
on account of any remuneration attributable to any subsequent employment that he
may obtain.

          SECTION 8.  Indemnification.
                      ---------------

          (a) The Company agrees to indemnify the Executive to the fullest
extent permitted by applicable law consistent with the Company's Certificate of
Incorporation and By-Laws in effect as of the date hereof with respect to any
acts or non-acts he may have committed during the period during which he was an
officer, director and/or employee of the Company or any subsidiary thereof, or
of any other entity of which he served as an officer, director or employee at
the request of the Company.

          (b) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy.  The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during the Primary Term.

          SECTION 9.  Amendment; Waiver.  The terms and provisions of this
                      -----------------
Agreement may be modified or amended only by a written instrument executed by
each of the parties hereto, and compliance with the terms and provisions hereof
may be waived only by a written instrument executed by each Party entitled to
the benefits thereof.  No failure or delay on the part of any party in
exercising any right, power or privilege granted hereunder shall constitute a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege granted hereunder.

                                      -12-
<PAGE>

          SECTION 10.  Entire Agreement.  Except as contemplated herein, this
                       ----------------
Agreement constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes any and all prior written or oral
agreements, arrangements or understandings between the Company and the
Executive.

          SECTION 11.  Notices.  All notices or communications hereunder shall
                       -------
be in writing, addressed as follows or to any address subsequently provided to
the other party:

          To the Company:

          Fluor Corporation
          Attention: Chief Legal Officer
          3353 Michelson Drive
          Irvine, CA 92698

          To the Executive:

          Philip J. Carroll, Jr.
          5000 Montrose Blvd., #17H
          Houston, TX 77006

All such notices shall be conclusively deemed to be received and shall be
effective, (i) if sent by hand delivery or overnight courier, upon receipt, (ii)
if sent by telecopy or facsimile transmission, upon confirmation of receipt by
the sender of such transmission or (iii) if sent by registered or certified
mail, on the fifth day after the day on which such notice is mailed.

          SECTION 12.  Severability.  In the event that any term or provision of
                       ------------
this Agreement is found to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining terms and provisions hereof shall
not be in any way affected or impaired thereby, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained therein.

          SECTION 13.  Binding Effect; Assignment.  This Agreement shall be
                       --------------------------
binding upon and inure to the benefit of the parties and their respective
successors and assigns (it being understood and agreed that, except as expressly
provided herein, nothing contained in this Agreement is intended to confer upon
any other person or entity any rights, benefits or remedies of any kind or
character whatsoever).  No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such rights
or obligations may be assigned or transferred pursuant to a merger or
consolidation in which the Company is not the continuing entity, or the sale or
liquidation as described of all or substantially all of the assets of the
Company, provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or as a matter of law.  The Company further
agrees that, in the event of a sale of assets or liquidation as described the
preceding sentence, it shall take whatever action it legally can in order to
cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder.

                                      -13-
<PAGE>

          SECTION 14.  Governing Law; Dispute Resolution.  This Agreement shall
                       ---------------------------------
be governed by and construed in accordance with the laws of the State of
California (except that no effect shall be given to any conflicts of law
principles thereof that would require the application of the laws of another
jurisdiction).  Any dispute or misunderstanding arising out of or in connection
with this Agreement shall first be settled, if possible, by the parties
themselves through negotiation and, failing success at negotiation through
mediation and, failing success at mediation, shall be arbitrated at Irvine,
California.  Unless otherwise agreed upon by the Company and the Executive, the
arbitration shall be had before three arbitrators, each party designating an
arbitrator and the two designees naming a third arbitrator experienced in
employment related controversies.  The procedure shall he in accordance with the
rules and regulations of the American Arbitration Association.

          SECTION 15.  Headings.  The headings of the sections contained in this
                       --------
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.

          SECTION 16.  Counterparts.  This Agreement may be executed in one or
                       ------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

          IN WITNESS WHEREOF, the undersigned have executed this Agreement
effective as of the date set forth above.

                              FLUOR CORPORATION


                              By: /s/ BOBBY R. INMAN
                                 -------------------------------
                                  Admiral Bobby R. Inman

                              EXECUTIVE

                              /s/ PHILIP J. CARROLL, JR.
                              ----------------------------------
                              Philip J. Carroll, Jr.

                                      -14-