exh10_1.htm


    
      Exhibit
10.1

    

    


    LUFKIN
INDUSTRIES, INC.

    2009
VARIABLE COMPENSATION PLAN

    


    Policy:

    
      	
               
      

            	
              A
      Variable Compensation Plan for 2009 has been established and approved for
      designated participants to encourage sustained high performance and
      continued employment with the Company. In order for the 2009 Variable
      Compensation Plan to be operational, the Company's performance must clear
      established hurdles. The triggering mechanism for the plan is a percent of
      shareholders' equity goal. To maintain a 9% return on average equity from
      operational earnings before Pension Income and LIFO would have to be $62.2
      million pretax profits from operations and $40.1 million after tax profits
      from operations (excluding "other
income").

            


    

    


    Individual
Participation:

    
      	
               
      

            	
              Anticipating
      that the Company's performance objectives are attained in 2009 for
      purposes of this Plan, designated individuals may participate by achieving
      their established divisional, departmental and personal goals. Each
      participant will be provided with an Individual Incentive Plan, which
      describes their variable compensation opportunities and the corresponding
      goals that must be obtained.

            


    

    


    Establishment
of Goals:

    
      	
               
      

            	
              The
      establishment of an individual's goals should be consistent with the
      Company's overall budget and business plan for 2009. Additionally, every
      goal established for an individual will be illustrated as having three
      separate attainment levels for purposes of measurement. The three
      attainment levels will be identified as: (1) Threshold, (2) Target and (3)
      Maximum.

            


    


    
      
         


      

      
         


        
        

      

      
         


      

    

     

    Individual
Opportunity:

    


    
      	 
      	
              Opportunity
      as a % of Base Salary

            
	 
      	
              Threshold

            	
              Target

            	
              Maximum

            
	
              Tier
      I

            	
              36

            	
              58

            	
              125

            
	
              Tier
      II

            	
              30

            	
              50

            	
              100

            
	
              Tier
      III

            	
              20

            	
              30

            	
              41

            
	
              Tier
      IV

            	
              15

            	
              25

            	
              35

            
	
              Tier
      V

            	
              8

            	
              15

            	
              22

            


    

    


    Measurement
of Objectives:

    Individual
and unit measurements should:

    
      	
              1.  

            	
              Relate
      to the goals and objectives of the
Company.

            


    

    
      	
              2.  

            	
              Be
      perceived as equitable and valid measures of job
    performance.

            


    

    
      	
              3.  

            	
              Quantifiable
      to the extent possible.

            


    

    


    Awards
to Plan Participants:

    Awards to
participants of this plan will be made based upon:

    
      	
              1.  

            	
              The
      level of accomplishment of assigned goals and
  objectives.

            


    

    
      	
              2.  

            	
              Overall
      contribution to the Company's
performance.

            


    

    
      	
              3.  

            	
              Consistency
      within the framework of the Plan.

            


    

    
      	
              4.  

            	
              Extraordinary
      financial items (both favorable and unfavorable) will not be considered as
      part of performance information.

            


    

    
      	
              5.  

            	
              President
      reserves the right, subject to approval from the Compensation Committee,
      to reduce or forfeit any participant's award if he believes the individual
      or unit's performance does not truly reflect the award generated by this
      plan.

            


    

    
      	
              6.  

            	
              President
      may recommend, with the approval of the Compensation Committee, an
      incentive award to a participant or other key employee if, in his opinion,
      the calculated award does not truly reflect the participant's contribution
      to the company.

            


    

    


    Plan
Administration:

    
      	
              1.  

            	
              Participation
      in the Variable Compensation Plan does not constitute an employment
      contract.

            


    

    
      	
              2.  

            	
              Participation
      in the Variable Compensation Plan does not guarantee participation in any
      subsequent year.

            


    

    
      	
              3.  

            	
              All
      participants are advised that their participation in this plan must be
      held strictly
confidential.