<PAGE>



                                                                    Exhibit 10.1



                        1998 INCENTIVE COMPENSATION PLAN



                            MICHAEL BAKER CORPORATION




<PAGE>
<TABLE>
<CAPTION>
                                      INDEX

ARTICLE I - GENERAL
<S>  <C>
1.1  ESTABLISHMENT OF THE PLAN
1.2  PURPOSE
1.3  ADMINISTRATION

ARTICLE II - DEFINITIONS

2.1  DEFINITIONS
2.2  GENDER AND NUMBER

ARTICLE III - ELIGIBILITY AND PARTICIPATION

3.1  ELIGIBILITY
3.2  PARTICIPATION
3.3  PARTIAL PLAN YEAR PARTICIPATION

ARTICLE IV - AWARDS

4.1  COMPONENTS OF PARTICIPATION AWARDS
4.2  CORPORATE PERFORMANCE MEASURES AND GOALS
4.3  INDIVIDUAL PERFORMANCE REVIEW CRITERIA
4.4  BUSINESS UNIT PERFORMANCE
4.5  BUSINESS SEGMENT PERFORMANCE
4.6  INDIVIDUAL PERFORMANCE
4.7  DISCRETIONARY AWARDS

ARTICLE V - PAYMENT OF AWARDS

5.1  PAYMENT OF AWARDS
5.2  PLAN FUNDING

ARTICLE VI - CHANGE IN CONTROL

6.1  CHANGE IN CONTROL
6.2  DEFINITION OF CHANGE IN CONTROL

ARTICLE VII - MISCELLANEOUS PROVISIONS

7.1  NON-TRANSFERABILITY
7.2  TAX WITHHOLDING
7.3  AMENDMENTS
7.4  INDEMNIFICATION
7.5  BENEFICIARY DESIGNATION
7.6  RIGHTS OF PARTICIPANTS
7.7  GOVERNING LAW
7.8  EFFECTIVE DATE

1998 INCENTIVE COMPENSATION PLAN - ATTACHMENT 1
     ELIGIBILITY
     OPPORTUNITY
     PERFORMANCE MEASUREMENT
     POTENTIAL PAYOUT (PERCENTAGE OF ANNUAL SALARY)
     FREQUENCY OF PAYOUT
</TABLE>


<PAGE>



                        1998 INCENTIVE COMPENSATION PLAN
                            MICHAEL BAKER CORPORATION



ARTICLE I

GENERAL

1.1  ESTABLISHMENT OF THE PLAN:

Michael Baker Corporation,  a Pennsylvania  corporation (the "Company"),  hereby
adopts this Plan,  which shall be known as the MICHAEL  BAKER  CORPORATION  1998
INCENTIVE COMPENSATION PLAN (the "Plan").

1.2  PURPOSE:

The  purpose  of the Plan is to focus  attention  on  shareholder  value,  drive
performance  in  support  of this  goal and other  business  goals,  and  reward
individual performance.

1.3  ADMINISTRATION:

(a)  The Plan shall be administered by the Incentive Compensation Committee (the
     "Committee"),  of the  Company  with the  concurrence  of the  Compensation
     Committee  of the Board of  Directors  of the  Company.  The members of the
     Committee  shall be appointed by the Chief  Executive  Officer (the "CEO"),
     and any vacancy on the  Committee  shall be filled by an  appointee  of the
     CEO.

(b)  Subject to the  limitations  of the Plan, the Committee  shall,  subject to
     approval by the CEO and  Compensation  Committee of the Board of Directors:
     (i) select from the  regular,  full-time  exempt  Employees of the Company,
     those   who   shall   participate   in  the   Plan  (a   "Participant"   or
     "Participants"),  (ii)  make  awards  in  such  forms  and  amounts  as the
     Committee shall determine, (iii) impose such limitations, restrictions, and
     conditions upon such awards as the Committee shall deem  appropriate,  (iv)
     interpret the Plan and adopt, amend, and rescind administrative  guidelines
     and other  rules and  regulations  relating  to the Plan,  (v)  correct any
     defect or omission or reconcile  any  inconsistency  in this Plan or in any
     award granted  hereunder,  and (vi) make all necessary  determinations  and
     take all other actions  necessary or advisable for the  implementation  and
     administration  of the Plan.  The  Committee's  determinations  on  matters
     within its authority  shall be conclusive  and binding upon the Company and
     all other Persons.


<PAGE>



ARTICLE II

DEFINITIONS

2.1 DEFINITIONS:

Whenever  used  herein,  the  following  terms  shall have the meaning set forth
below, unless otherwise expressly provided.

(a)  "Base  Salary"  shall mean the regular  salary  actually paid during a Plan
     Year to a participant while participating in the Plan. Regular salary shall
     include any salary reduction  contributions  made to the Company's Internal
     Revenue Code Section 401(k) Plan or other deferred  compensation plans, but
     exclusive of any awards under this Plan and of any other bonuses, incentive
     pay,   exercise  of  stock   options,   overtime   pay,   special   awards,
     hiring/retention awards, car allowances,  imputed income related to company
     provided  life  insurance,   reimbursement  for  moving  expenses,  tuition
     reimbursement, additional compensation related to international assignments
     such as expatriate differential  compensation,  tax equalization,  etc., or
     any other extraordinary income.

(b)  "Board" shall mean the Board of Directors of Michael Baker Corporation.

(c)  "Committee" shall mean the Incentive Compensation Committee of the Company,
     which shall consist of at least three employees of the Company.

(d)  "Company" shall mean Michael Baker Corporation and its Subsidiaries.

(e)  "Corporate" shall mean relating to Michael Baker Corporation.

(f)  "Employee" shall mean a regular,  full-time, exempt Employee of the Company
     who  is  in  a  position  meeting  the  defined  eligibility  criteria  for
     participation in the Plan, as stated in Section 3.1.

(g)  "Participant"  shall mean an Employee who is approved by the  Committee for
     participation in the Plan for a specified Plan Year.

(h)  "Performance  Management  Process"  shall  mean  the  Company's  three-step
     performance  cycle.  The cycle begins with setting  individual  performance
     goals, followed by performance coaching, and ending with formal performance
     review at the end of the performance period.

(i)  "Plan Year" shall mean the Company's fiscal year.

(j)  "Business  Unit" shall mean, in 1998,  the operating  units of:  Buildings,
     Civil,  Energy,  Environmental and  Transportation,  and any other Business
     Unit added during the year.

<PAGE>



(k)  "Business  Segment"  shall  mean,  in  1998,  Business  Unit  segments  of:
     Buildings-Design,  Buildings-Construction,  Civil-Engineering,  Civil-Baker
     Support Services,  Inc.,  Energy-Baker/MO,  Transportation-Engineering  and
     Transportation-Construction  (Heavy  &  Highway)  and  any  other  Business
     Segment added during the year.

(l)  "Contribution to Corporate Overhead and Profit" shall mean the following:

     Business Unit Level -- Income before income taxes plus Corporate  overhead,
     Engineering  Support overhead (related only to Engineering  segments),  I/C
     insurance premiums (VGIC), and internal interest expense (VGIC).

     Engineering  Segment  Level -- Income  before  income taxes plus  Corporate
     overhead,  Business  unit  overhead,   Engineering  Support  Overhead,  I/C
     insurance premiums (VGIC), and internal interest expense (VGIC).

     Non-Engineering  Segment Level -- Income before income taxes plus Corporate
     overhead,  Business  unit  overhead,  I/C  insurance  premiums  (VGIC)  and
     internal interest expense (VGIC).


2.2  GENDER AND NUMBER:

Except when otherwise  indicated by the context,  words in the masculine gender,
when used in the Plan,  shall include the feminine  gender,  the singular  shall
include the plural, and the plural shall include the singular.


ARTICLE III

ELIGIBILITY AND PARTICIPATION

3.1 ELIGIBILITY:

Eligibility for participation in the Plan shall be limited to regular, full-time
exempt Employees of the Company.

3.2  PARTICIPATION:

Participation in the Plan shall be determined by the executive management of the
Company.  The CEO shall determine  Corporate  participants and the Business Unit
Heads  shall  determine  Business  Unit  participants,  in all  cases  with  the
concurrence of the Michael Baker Corporation CEO and the Compensation  Committee
of the Board of Directors of the Company. The number of participants in the Plan
shall be influenced by the Business  Unit's ability to  financially  support the
accrual for the projected payout opportunity.  (See Plan Funding 5.2 on page 11)
Participants are to include executive  management,  business unit managers,  and
selected   managers  who  are  accountable  for  significant   contributions  to
Corporate,  as determined by the CEO, and to the Business Unit, as determined by
the  Business   Unit  head.   Participants   are  to  be  designated  as  having
accountability  associated  with  Corporate,  overall  Business Unit or specific
Business Segment performance. Participants are to be designated as having Tier 1
or Tier 2 accountability as defined in an attachment to the Plan.
<PAGE>



3.3  PARTIAL PLAN YEAR PARTICIPATION:

An  Employee  who  becomes  eligible  after  the  beginning  of a Plan  Year may
participate in the Plan for that Plan Year. Such situations may include, but are
not limited to (i) new hires,  (ii) when an Employee is promoted from a position
which  did  not  meet  the  eligibility  criteria,  (iii)  when an  Employee  is
transferred  from an affiliate  which does not  participate in the Plan, or (iv)
when job responsibilities become consistent with other Plan participants.

The CEO retains the right to prohibit or allow participation in the initial Plan
Year  of  eligibility  for any of the  aforementioned  Employees.  Any so  added
participant  will be eligible  to receive a  pro-rated  share based upon a 2,080
work-hour year.

Any Employee  who leaves the  employment  of the company  prior to July 1 of the
Plan Year is not  eligible  to receive  any payout  from the Plan for that year.
Subject to the conditions of the following sentence, any employee who leaves the
employment  of the Company after June 30 of the Plan Year is eligible to receive
a pro-rata  payout  from the Plan for that year  based  upon the  percent of the
fiscal year  employed.  Employees who are  terminated  for cause or  voluntarily
resign their positions from the company at any time during the Plan year are not
eligible to receive any payout from the Plan that year.


ARTICLE IV

AWARDS

4.1  COMPONENTS OF PARTICIPANT AWARDS:

Each  award  may be based  on (i)  Corporate  performance,  (ii)  Business  Unit
performance, (iii) Business Segment/individual performance plan accomplishments.

4.2  CORPORATE PERFORMANCE MEASURES AND GOALS:

For each Plan Year, the Compensation Committee of the Board of Directors and the
CEO shall agree on a range of  performance  goals for  Corporate  results.  Each
performance  range shall include a level of performance at which awards shall be
earned.

Measures  of  performance  may  include,  but are not  limited  to,  one or more
financial ratios such as earnings per share, profitability, return on equity and
return on assets. Performance measures need not be the same within the Company.

For 1998,  corporate results shall be dependent upon audited corporate  earnings
per share (after all incentives have been paid). Payouts related to this part of
the plan will be based upon step  accomplishments  and should not be  pro-rated.
For treatment of corporate payouts, please refer to sections 4.5 and 4.6.
<PAGE>



For 1998, performance level goals for earnings per share are:
<TABLE>
<CAPTION>

              Corporate
             Performance                  Goal Setting
                Level                 (Earnings Per Share)
                -----                 --------------------
           <S>                                <C>
           Level 1 On Plan                    $.66
           Level 2 Commendable                $.72
           Level 3 Outstanding                $.78
</TABLE>

4.3  INDIVIDUAL PERFORMANCE REVIEW CRITERIA

In order for an  individual  to be  eligible  for any  portion  of an  incentive
compensation  payout, they must receive at least a "3.0" or "Meets Expectations"
on the performance review form. This change is made to further reinforce Baker's
cultural strategy which embraces the importance of goal attainment and how those
goals are attained.  As in last year's plan, an individual  must receive a "2.6"
or  greater  on the  performance  plan in order to be  eligible  for the  payout
related to individual performance goals.

4.4  BUSINESS UNIT PERFORMANCE:

Business Unit  performance  shall be reflected in the final award based upon the
Business  Unit's  Contribution to Corporate  Overhead and Profit.  The Incentive
Compensation  Committee shall establish and approve  Competent,  Commendable and
Outstanding  Contribution  goals specific to each Business Unit at the beginning
of the Plan year.  The  Competent  goal shall serve as a Threshold  target which
must be met in order  for  Business  Unit  Managers  and  those  having  overall
Business Unit accountability to be eligible to receive an incentive payout based
upon their individual  performance plans. In addition,  the Competent goal shall
serve as a Threshold  target which must be met in order for all Business Segment
participants  to receive a payout  based upon  Business  Unit  performance.  For
Business  Segment  participants,  the  incentive  compensation  award related to
Business  Unit  performance  is based upon "step"  accomplishment  of Competent,
Commendable, or Outstanding goals and is not to be pro-rated.

Any Business Unit with an objective of a positive contribution  performance (net
income before tax plus corporate  overhead) which results in a year-end negative
contribution,  may  be  eligible  for  the  portion  of  incentive  compensation
dependent  on overall  corporate  earnings  per share  performance,  pending CEO
approval as advised by the Incentive Compensation  Committee.  Any Business Unit
with an objective of a negative contribution  performance (net income before tax
plus corporate overhead) which results in a year-end more negative contribution,
may be eligible for the portion of incentive  compensation  dependent on overall
corporate earnings per share performance, pending CEO approval as advised by the
Incentive  Compensation  Committee.  Factors to be taken into  consideration may
include the amount of deviation from  objective,  impact of the  contribution of
the Business Unit to the Corporation and any extraordinary issues.


<PAGE>



Any Business Unit with an objective of a negative  contribution which results in
a year-end  more  favorable  performance,  will be  eligible  for the portion of
incentive compensation dependent on overall corporate performance.

4.5  BUSINESS SEGMENT PERFORMANCE:

Business Segment  performance shall be reflected in the final award based on the
Business Segment's  Contribution to Corporate Overhead and Profit. The Incentive
Compensation  Committee  shall approve  Competent,  Commendable  and Outstanding
Contribution  goals  specific to each  Business  Segment at the beginning of the
Plan year.  The Competent  goal shall serve as a Threshold  target which must be
met in order for  participants  within the  Segment to be eligible to receive an
incentive payout based upon individual performance plans.

Any Business  Segment with an objective of a positive  contribution  performance
(net income  before tax plus  corporate  overhead)  which  results in a year-end
negative contribution, may be eligible for the portion of incentive compensation
dependent on overall corporate  earnings per share  performance  and/or Business
Unit Contribution to Overhead and Profit, pending CEO approval as advised by the
Incentive  Compensation  Committee.  Any Business Segment with an objective of a
negative  contribution   performance  (net  income  before  tax  plus  corporate
overhead)  which  results  in a  year-end  more  negative  contribution,  may be
eligible  for  the  portion  of  incentive  compensation  dependent  on  overall
corporate  earnings per share  performance  and/or Business Unit Contribution to
Overhead  and  Profit,   pending  CEO  approval  as  advised  by  the  Incentive
Compensation  Committee.  Any  Business  Segment with an objective of a negative
contribution  which results in a year-end more  favorable  performance,  will be
eligible  for  the  portion  of  incentive  compensation  dependent  on  overall
corporate performance and Business Unit Contribution to Overhead and Profit.

4.6  INDIVIDUAL PERFORMANCE:

Individual  performance  shall be  reflected  in the  final  award  based on the
performance rating assigned to an Employee as part of the Performance Management
Process and is based upon a number of factors  established by the  participant's
manager(s) at the beginning of the Plan Year.



<PAGE>



Guidelines  of  performance  goals and  percentage  weights  for  Business  Unit
managers are recommended to be:
<TABLE>
<CAPTION>

                                                            % of Business Unit
                                                            Performance Plans
                                                            -----------------
<S>                                                                <C>
Business Unit Contribution to                                      20%
Corporate Overhead and Profit

New Work Added To The Company                                      45%

Cash Flow Return on Investment (CFROI)                             15%

Critical Success Factors (Continuous Improvement)                  10%

Human Resources Development                                        10%
</TABLE>


Guidelines of  performance  goals and  percentage  weights for Business  Segment
participants are recommended to be:
<TABLE>
<CAPTION>

                                                        % of Business Segment
                                                           and Individual
                                                          Performance Plans
                                                          -----------------
<S>                                                                <C>
Business Segment Contribution to                                   20%
Corporate Overhead and Profit

New Work Added To The Company                                      45%

Accounts Receivables                                               15%

Critical Success Factors (Continuous Improvement)                  10%

Human Resources Development                                        10%
</TABLE>


The above guidelines are recommended but are not prescriptive,  particularly for
functional positions (e.g.:  finance,  marketing,  human resources).  Individual
performance measures for incentive compensation participants are to be developed
jointly  with  the  employee's  immediate  supervisor,  be  consistent  with the
participant's   respective  job   responsibilities,   and  be  included  on  the
participant's  performance  plan.  Participants  may have plans  that  relate to
corporate, unit or segment. The performance plans are to be submitted to the CEO
by the Business Unit head or Functional  Unit head by the designated time in the
Plan year. For  individuals who become  eligible for  participation  in the Plan
during the course of the year, a completed  performance  plan is to be submitted
within four weeks of the individual becoming eligible for participation.


<PAGE>



At the end of the Plan Year, incentive compensation  participants' managers will
determine the level of performance accomplished by the participant.  Participant
performance  which  does not  meet or  exceed  the  Meets  Expectations-On  Plan
Performance-3  level on a specific  goal will result in no incentive  payout for
that  specific  performance  goal.  Once  performance  has  exceeded  the  Meets
Expectations-On  Plan  Performance-3  level on a specific  financial  goal,  any
performance beyond the 3 level will result in a pro-rated  weighted  calculation
of the incremental incentive  compensation earned by the participant,  until the
maximum level 5 performance is achieved. Once performance has exceeded the Meets
Expectations-On  Plan  Performance-3  level  for  major  performance  areas  for
functional unit employees,  any performance  beyond the 3 level will result in a
pro-rated  calculation,  in increments of .5 (e.g.:  3.5, 4.0, 4.5 etc.), of the
incremental incentive compensation earned by the participant,  until the maximum
level 5 performance is achieved.

Payout for participants  meeting  individual  performance  goals will occur when
Business Unit or Business Segment (as applicable)  operating profit accomplishes
threshold  performance  indicated in each Business Unit's or Business  Segment's
Performance Plan (after all individual incentives have been paid).

The specific  accomplishments  associated with these goals are to be recorded on
each  participant's  annual Performance Plan at the end of the Plan Year as part
of the overall performance evaluation.

4.7     DISCRETIONARY AWARDS:

In addition to individual  performance  incentives,  a discretionary pool may be
created  within  Corporate and within each Business  Unit to  selectively  award
those  individuals  who  have  exceeded  expected  performance.  Guidelines  for
discretionary  awards are indicated  within the  Corporate  and Business  Units'
Incentive  Compensation  Plan  Summary  in  the  attachments.   Functional  Unit
discretionary  awards are to be selected by the CEO with the  concurrence of the
Incentive Compensation  Committee.  Business Unit discretionary awards are to be
selected  by  the  Executive  Vice  President  of the  Business  Unit  with  the
concurrence of the Incentive Compensation Committee.


ARTICLE V

PAYMENT OF AWARDS

5.1  PAYMENT OF AWARDS:

At the end of each Plan Year,  the CEO shall  report the overall  Corporate  and
individual  performance  levels to the  Compensation  Committee  of the Board of
Directors, who shall then approve the payment of awards.

The incentive compensation earned as a result of the Company achieving corporate
profitability  goals and through the  achievement  of  Business  Unit,  Business
Segment and individual goals, will be paid in cash no later than March 15 of the
year after which it was earned.
<PAGE>



5.2  PLAN FUNDING:

Accrual for the Incentive  Compensation Plan will be established annually by the
Committee,  subject to the  approval of the CEO.  The  approved  accrual for the
Incentive  Compensation  Plan shall pre-fund the amounts  available to be earned
for incentive  compensation  distributions.  Any forfeitures associated with the
termination of those in the incentive  compensation  plan prior to year-end will
be allocated toward the funding of the incentive pool for the following year. In
addition,  if the  incentive  pool is not paid out in full  because of  Business
Unit,  Business  Segment or participants'  failure to achieve goals  established
under the Plan or the Performance Management Process, the unearned portion would
be allocated toward the funding of the incentive pool for the following year.

Any excess pre-funding accrual based upon corporate goals which are not met and,
therefore,  not earned by  Incentive  Compensation  Plan  participants,  will be
removed from expense.


ARTICLE VI

CHANGE IN CONTROL


6.1  CHANGE IN CONTROL:

In the  event of a Change  in  Control  of the  Company,  as  defined  below,  a
Participant  shall be  entitled  to,  for the Plan Year in which  the  Change of
Control occurs, the award determined using:

    (i)   The Participant's actual Base Salary rate in effect on the date of the
          Change in Control,

    (ii)  Actual Corporate performance results to the date of Change in Control,
          and

    (iii) Participant's Individual Performance results.

The Committee as  constituted  immediately  prior to the Change in Control shall
determine how actual  Corporate  performance  should be measured for purposes of
the award calculation in 6.1. The Committee's  determination shall be conclusive
and final.

Awards  and  any  previously  accrued  awards  shall  be  paid  in  cash  to the
Participant  promptly  following  any  discontinuance  of the Plan on or after a
Change of Control.
<PAGE>



6.2  DEFINITION OF CHANGE IN CONTROL:

A "Change in Control"  will be deemed to have  occurred on the first to occur of
the following:

(a)  The  Company  acquires  actual  knowledge  that any  Person  other than the
     Company, a Subsidiary,  the Company's Stock Ownership Plan and Trust or any
     employee  benefit  plan(s)  sponsored  by  the  Company  has  acquired  the
     Beneficial Ownership,  directly or indirectly, of securities of the Company
     entitling such Person to 20% or more of the Voting Power of the Company;

(b)  A Tender Offer is made to acquire  securities of the Company  entitling the
     holders thereof to 20% or more of the Voting Power of the Company; or

(c)  A solicitation  subject to Rule 14a-11 under the 1934 Act (or any successor
     Rule)  relating to the election or removal of 50% or more of the members of
     any class of the Board  shall be made by any person  other than the Company
     or less than 51% of the members of the Board shall be Continuing Directors;
     or

(d)  The  shareholders  of the Company  shall  approve a merger,  consolidation,
     share  exchange,  division  or sale or other  disposition  of assets of the
     Company as a result of which the  shareholders  of the Company  immediately
     prior  to  such  transaction  shall  not  hold,   directly  or  indirectly,
     immediately  following  such  transaction a majority of the Voting Power of
     (i) in the case of a merger or  consolidation,  the  surviving or resulting
     corporation,   (ii)  in  the  case  of  a  share  exchange,  the  acquiring
     corporation  or  (iii)  in  the  case  of a  division  or a sale  or  other
     disposition of assets, each surviving,  resulting or acquiring  corporation
     which,  immediately  following the transaction,  holds more than 10% of the
     consolidated assets of the Company immediately prior to the transaction.

The  term  "person"  shall  mean  and  include  any   individual,   corporation,
partnership,  company,  association  or other  "person," as such term is used in
Section  14(d) of the  Exchange  Act,  other than the  Company  or any  employee
benefit plans sponsored by the Company.

"Continuing Directors" shall mean a director of the Company who either (a) was a
director  of the  Company  on  the  effective  date  of  the  Plan  or (b) is an
individual  whose  election,  or nomination  for election,  as a director of the
Company was  approved by a vote of at least  two-thirds  of the  directors  then
still in office who were Continuing  Directors  (other than an individual  whose
initial  assumption  of office  is in  connection  with an actual or  threatened
election  contest  relating to the election of  directors  of the Company  which
would be subject to Rule 14a-11 under the 1934 Act, or any successor Rule).
<PAGE>



ARTICLE VII

MISCELLANEOUS PROVISIONS

7.1 NON-TRANSFERABILITY:

No right of  interest of any  Participant  in this Plan shall be  assignable  or
transferable,  or  subject  to  any  lien,  directly,  by  operation  of  law or
otherwise,  including  execution,  levy,  garnishment,  attachment,  pledge, and
bankruptcy.

7.2  TAX WITHHOLDING:

The Company shall have the right to deduct from all payments under this Plan any
foreign,  Federal,  state,  or local taxes  required by law to be withheld  with
respect to such payments.

7.3  AMENDMENTS:

The Company,  in its absolute  discretion,  without notice, at any time and from
time to time,  may  modify  or  amend,  in whole  or in part,  any or all  other
provisions of this Plan, or suspend or terminate it entirely;  provided, that no
such modification, amendment, suspension, or termination may reduce the right of
a  Participant  (or  his  beneficiary  as  the  case  may  be) to a  payment  or
distribution in accordance with the provisions  contained in this Plan or change
to the  detriment of a  Participant  of any  potential  rights in that Plan Year
pursuant to Section 6.1 of this Plan.

7.4  INDEMNIFICATION:

Each person who is or shall have been a member of the  Committee or the Board or
who is or shall have been an Employee of the Company  shall be  indemnified  and
held  harmless by the Company  against and from any loss,  cost,  liability,  or
expense, including, without limitation, fees and expenses of legal counsel, that
may have been imposed upon or reasonably  incurred by him in connection  with or
resulting from any claim, action, suit, or proceeding to which he may be a party
or in which he may be involved  by reason of any action  taken or failure to act
under  the  Plan  and  against  and  from  any  and 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  person  may be  entitled  under  the  Company's
Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.

7.5  BENEFICIARY DESIGNATION:

Each  Participant  under the Plan may name,  from time to time,  beneficiary  or
beneficiaries  (who  may be  named  contingently  or  successively)  to whom any
benefit under the Plan is to be paid in case of his death before he receives any

<PAGE>



or all of such benefit.  Each designation will revoke all prior  designations by
the same Participant,  shall be in a form prescribed by the Company, and will be
effective only when filed by the  Participant in writing with the Company during
his  lifetime.  In the  absence of any such  designation,  or if the  designated
beneficiary  is no  longer  living,  benefits  shall  be paid  to the  surviving
member(s) of the following classes of beneficiaries, with preference for classes
in the order listed below:

(a)  Participant's spouse (unless the parties were divorced or legally separated
     by court decree);

(b)  Participant's children (including children by adoption); or

(c)  Participant's executor or administrator.


Payment of benefits  shall be made  exclusively  to the  member(s)  of the first
class, in the order listed above, which has surviving  member(s).  If that class
has more than one member,  benefit  payment  shall be made in equal shares among
members of that class.

7.6  RIGHTS OF PARTICIPANTS:

Nothing in this Plan shall  interfere  with or limit in any way the right of the
Company to  terminate  or change a  Participant's  employment  at any time,  nor
confer upon any  Participant,  any right to continue  in the  employment  of the
Company for any period of time or to  continue  his present or any other rate of
compensation.  No  Participant in a previous Plan Year, or other Employee at any
time, shall have a right to be selected for participation in a current or future
Plan Year.

7.7  GOVERNING LAW:

The Plan shall be construed in  accordance  with and governed by the laws of the
State of Pennsylvania.

7.8  EFFECTIVE DATE:

The Plan shall be deemed effective as of January 1, 1998.





<PAGE>



      1998 Michael Baker Corporation Incentive Compensation Plan - Summary

Attachment 1                                                   February 19, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ELIGIBILITY FOR INCENTIVE COMPENSATION PLAN
--------------------------------------------------------------------------------
<S>                                       <C>
Number of Participants                    Tier 1:  approximately 60
                                          Tier 2:  approximately 60
                                          Tier 3:  Discretionary
</TABLE>

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Participants
<S>                                       <C>
TIER 1
Corporate                                 Executive Management, Officers and
                                          Directors

Business Units                            Business Unit Heads
                                          Selected Staff who support the
                                          functions of the entire Business
                                          Unit
                                          (Designated by Business Unit Head)

Business Segments-                        Profit Center Managers with greater
Engineering and Design                    than $2.5 Million net revenue
                                          responsibility
                                          (Designated by Business Unit Head)

Business Segments-Construction and        Profit Center Managers with greater
Heavy/Highway and Baker Support           than $60 Million gross revenue
Services, Inc.                            responsibility
                                          (Designated by Business Unit Head)

TIER 2
Corporate                                 Selected Functional Unit Managers

Business Units                            Selected Staff who support the
                                          functions of the entire Business Unit
                                          (Designated by Business Unit Head)

Business Segments                         Selected Managers, Other Profit Center
                                          Managers, and selected Senior Project
                                          Managers
                                          (Designated by Business Unit Head)




<PAGE>

TIER 3                                    Discretionary
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                       <C>
Participant Recommendation                Corporate participants and Business
                                          Unit Heads (CEO)
                                          Within Business Units (Head of
                                          Business Unit)
--------------------------------------------------------------------------------
Participant Approval                      President and Chief Executive
                                          Officer
--------------------------------------------------------------------------------
Participants Added During Year?           Yes, Pro-rata
--------------------------------------------------------------------------------
Ineligible Employees                      Termination for Cause/Voluntary
                                          Resignation
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCENTIVE COMPENSATION OPPORTUNITY

                                          Tier 1      Tier 2     Tier 3
<S>                                       <C>         <C>        <C>
Total % of Annual Salary                  0-25%       0-15%      Discretionary

First Level (total maximum)               8.333%      5%
                                                                 To Be
                                                                 Determined
Second Level (total maximum)              16.667%     10%

Third Level (total maximum)               25%         15%
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE MEASUREMENT

Corporate  Participants,  Heads of  Business  Units  and  Staff,  Managers  with
multiple  Business  Unit  responsibility,  and all  Environmental  Business Unit
Participants
<S>                                       <C>
Corporate Profitability Goals             50% of Potential Award

Individual Performance Plan Goals         50% of Potential Award
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Unit-Segments and Profit Center Managers
<S>                                       <C>
Corporate Profitability Goals             25% of Potential Award

Business Unit Performance Goals           25% of Potential Award

Individual Performance Plan Goals         50% of Potential Award
</TABLE>
--------------------------------------------------------------------------------



<PAGE>



<TABLE>
<CAPTION>
PERFORMANCE GOALS

Corporate Profitability Goals
--------------------------------------------------------------------------------

Audited Corporate Earnings Per Share      % of Payout Based      Earnings
(After All Incentives Have Been Paid)     Upon Corporate Plan    Per Share
                                          -------------------    ---------
<S>                                       <C>                    <C>
1st Level (On-Plan Performance)           33%                    $.66
2nd Level (Commendable)                   33%                    $.72
3rd Level (Outstanding)                   34%                    $.78
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDIVIDUAL PERFORMANCE PLAN GOALS
                                       % of           % of
(Number of goals and % for each        Business       Business
specific goal is to be customized      Unit           Segment        Functional
for each participant based             Participants'  Participants'  Unit
upon Operating Objective,              Individual     Individual     Individual
Marketing driven orientation           Performance    Performance    Performance
and level of accountability. %         Plans          Plans          Plan
is not to be less than 10% for         -------------  -------------  -----------
any goal)
<S>                                        <C>            <C>             <C>
Business Unit or Business Segment          20%            20%             *
Contribution to Corporate Overhead
and Profit

New Work Added to the Company              45%            45%             *

Cash Flow Return on Investment (CFROI)     15%             *              *

Accounts Receivables                        *             15%             *

Critical Success Factors                   10%            10%            10%

Human Resources Development                10%            10%            10%


*Functional  Unit  Performance  Plans are to be  determined  by Dept.  Heads and
participants with CEO approval
</TABLE>



<PAGE>



--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTENTIAL PAYOUT                       Corporate                    Individual
                                       Profitability                Performance
                                       Goals                        Goals
(% of Annual Salary)                   ------------                 ------------
Tier 1 Corporate and Business
Unit Heads and Staff
<S>                                    <C>                          <C>
1st Level (On-Plan Performance)         4.167%                       4.167%
2nd Level (Commendable)                 8.334%                       8.334%
3rd Level (Outstanding)                12.500%                      12.500%




                                                       Business
                                       Corporate       Unit         Individual
                                       Profitability   Performance  Performance
                                       Goals           Goals        Goals
                                       -------------   ----------   ------------
Tier 1 Business Unit-Segments
1st Level (On-Plan Performance)         2.084%          2.084%       4.167%
2nd Level (Commendable)                 4.167%          4.167%       8.334%
3rd Level (Outstanding)                 6.250%          6.250%      12.500%
--------------------------------------------------------------------------------
                                       Corporate                    Individual
(% of Annual Salary)                   Profitability                Performance
                                       Goals                        Goals
                                       ---------------              ------------
Tier 2 Corporate and Business 
Unit Staff
1st Level (On-Plan Performance)         2.50%                        2.50%
2nd Level (Commendable)                 5.00%                        5.00%
3rd Level (Outstanding)                 7.50%                        7.50%
--------------------------------------------------------------------------------
                                                       Business
                                       Corporate       Unit         Individual
                                       Profitability   Performance  Performance
                                       Goals           Goals        Goals
                                       -------------   -----------  ------------
Tier 2 Business Unit-Segments
1st Level (On-Plan Performance)         1.25%           1.25%        2.50%
2nd Level (Commendable)                 2.50%           2.50%        5.00%
3rd Level (Outstanding)                 3.75%           3.75%        7.50%
--------------------------------------------------------------------------------
</TABLE>

<PAGE>


THRESHOLD

Corporate
Minimum earnings per share for any Potential Payout            $0.66
on Corporate Component (after all incentives have been paid)

Business Units and Business Segments
Minimum Contribution to Overhead and Profit (After Accrual for Incentive
Compensation Payments and Internal Interest Charges)
<TABLE>
<CAPTION>

                                     Contribution
                                     ------------
<S>                                  <C>
Civil Business Unit                  $ 7,663,356
Civil-Engineering                    $ 7,137,564
Baker Support Services, Inc.         $   901,046

Buildings Business Unit              $ 3,484,475
Buildings-Design                     $ 2,013,734
Buildings-Construction               $ 2,440,691

Transportation Business Unit         $ 8,190,461
Transportation-Engineering           $ 7,259,758
Transportation-Heavy & Highway       $ 1,251,332

Environmental Business Unit          $ 1,989,210

Energy Business Unit                 $ 4,463,648
Energy/Baker MO                      $ 2,464,938
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                             <C>
TYPE OF PAYOUT                  Cash
--------------------------------------------------------------------------------
FREQUENCY OF PAYOUT             Annually, with payment by the following
                                year's first quarter
--------------------------------------------------------------------------------
FUNDING                         Pre-funding accrual in the year earned
--------------------------------------------------------------------------------
FORFEITURES                     Allocated toward next year's funding
</TABLE>
--------------------------------------------------------------------------------