UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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Halliburton Company

(Name of Registrant as Specified In Its Charter)

 

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April 6, 2009

 

To Our Stockholders:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Halliburton Company. The meeting will be held on Wednesday, May 20, 2009, at 9:00 a.m., local time, at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas 77024.

 

At the meeting, stockholders are being asked to:

 

 

Please refer to the proxy statement for detailed information on each of these proposals.

 

It is very important that your shares are represented and voted at the meeting. If you attend the meeting, you may vote in person even if you have previously voted.

 

We appreciate the continuing interest of our stockholders in the business of Halliburton and we hope you will be able to attend the Annual Meeting.

 

Sincerely,

 

David J. Lesar
Chairman of the Board, President
and Chief Executive Officer

 

 

Notice of Annual Meeting of Stockholders

 

to be Held May 20, 2009

 

Halliburton Company, a Delaware corporation, will hold its Annual Meeting of Stockholders on Wednesday, May 20, 2009, at 9:00 a.m., local time, at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas 77024. At the meeting, the stockholders will be asked to consider and act upon the matters discussed in the attached proxy statement as follows:

 

 

These items are fully described in the following pages, which are made a part of this Notice. The Board of Directors has set Monday, March 23, 2009, at the close of business, as the record date for the determination of stockholders entitled to notice of and to vote at the meeting and at any adjournment of the meeting.

 

This year we are furnishing proxy materials to our stockholders over the Internet. On April 6, 2009, we mailed our stockholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our 2009 proxy statement and 2008 Annual Report on Form 10-K and vote online. The notice also provides instruction on how you can request a paper copy of these documents if you desire. If you received your annual materials via email, the email contains voting instructions and links to the proxy statement and Form 10-K on the Internet.

 

IF YOU PLAN TO ATTEND:

 

Attendance at the meeting is limited to stockholders and one guest each. Admission will be on a first-come, first-served basis. Registration will begin at 8:00 a.m., and the meeting will begin at 9:00 a.m. Each stockholder holding stock in brokerage accounts will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Please note that you may be asked to present valid picture identification, such as a driver’s license or passport.

 

By order of the Board of Directors,

 

Sherry D. Williams
Vice President and Corporate Secretary

 

April 6, 2009

 

 

 

 

You are urged to vote your shares as promptly as possible by following the voting instructions in the Notice of Internet Availability of Proxy Materials.

TABLE OF CONTENTS

 

PROXY STATEMENT

 

 

The proxy statement is solicited by the Board of Directors of Halliburton Company (“Halliburton”, the “Company”, “we” or “us”). By executing and returning the enclosed proxy or by following the enclosed voting instructions or by voting via the Internet or by telephone, you authorize the persons named in the proxy to represent you and vote your shares on the matters described in the Notice of Annual Meeting.

 

Subject to space availability, all stockholders as of the record date, or their duly appointed proxies, may attend the Annual Meeting and each may be accompanied by one guest. Admission to the Annual Meeting will be on a first-come, first-served basis. Registration will begin at 8:00 a.m., and the Annual Meeting will begin at 9:00 a.m. Please note that you may be asked to present valid picture identification, such as a driver’s license or passport, when you check in at the registration desk.

 

If you hold your shares in “street name” (that is, through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date.

 

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting.

 

If you attend the Annual Meeting, you may vote in person. If you are not present, your shares can be voted only if you have voted via the Internet or by telephone or returned a properly executed proxy; and in these cases, your shares will be voted as you specify. If no specification is made, the shares will be voted in accordance with the recommendations of the Board of Directors. You may revoke the authorization given in your proxy at any time before the shares are voted at the Annual Meeting.

 

The record date for determination of the stockholders entitled to vote at the Annual Meeting is the close of business on March 23, 2009. Halliburton’s common stock, par value $2.50, is the only class of capital stock that is outstanding. As of March 23, 2009, there were 897,190,846 shares of common stock outstanding. Each of the outstanding shares of common stock is entitled to one vote on each matter submitted to the stockholders for a vote at the Annual Meeting. A complete list of stockholders entitled to vote will be kept at our offices at the address specified below for ten days prior to, and will be available at, the Annual Meeting.

 

Votes cast by proxy or in person at the Annual Meeting will be counted by the persons appointed by us to act as election inspectors for the Annual Meeting. Except as set forth below, the affirmative vote of the majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the subject matter will be the act of the stockholders. Shares for which a stockholder has elected to abstain on a matter will count for purposes of determining the presence of a quorum and will have the effect of a vote against the matter.

 

Each Director shall be elected by the vote of the majority of the votes cast, provided that if the number of nominees exceeds the number of Directors to be elected and any stockholder-proposed nominee has not been withdrawn before the tenth (10th) day preceding the day we mail the Notice of Internet Availability of Proxy Materials to stockholders for the Annual Meeting, the Directors shall be elected by the vote of a plurality of the shares represented in person or by proxy at the Annual Meeting and entitled to vote on the election of Directors. A majority of the votes cast means that the number of shares voted “for” a Director must exceed the number of votes cast “against” that Director; abstentions will be ignored.

 

The election inspectors will treat shares held in street name that cannot be voted by a broker on specific matters in the absence of instructions from the beneficial owner of the shares, known as broker non-vote shares, as shares that are present and entitled to vote for purposes of determining the presence of a quorum. In determining the outcome of any matter for which the broker does not have discretionary authority to vote; however, those shares will not have any effect on that matter. Those shares may be entitled to vote on other matters.

 

In accordance with our confidential voting policy, the stockholders’ votes will not be disclosed to Halliburton’s officers, Directors or employees, except:

 

 

The proxy solicitor, the election inspectors and the tabulators of all proxies, ballots and voting tabulations are independent and are not employees of Halliburton.

 

The Notice of Internet Availability of Proxy Materials is being sent to stockholders on or about April 6, 2009. Our Annual Report on Form 10-K, including financial statements, for the fiscal year ended December 31, 2008 accompanies this proxy statement. The Annual Report on Form 10-K is not to be considered as a part of the proxy solicitation material or as having been incorporated by reference.

 

Our principal executive office is located at 5 Houston Center, 1401 McKinney Street, Suite 2400, Houston, Texas 77010.

 

(Item 1)

 

Mr. Kenneth T. Derr, who has served as a Director since 2001 is retiring from the Board immediately prior to the Annual Meeting of Stockholders on May 20, 2009. He will not be a candidate for reelection for the ensuing year.

 

Nine of the nominees listed below are presently Directors of Halliburton. Mr. Malone is proposed for the first time for election to the Board. The common stock represented by the proxies will be voted to elect the ten nominees as Directors unless we receive contrary instructions. If any nominee is unwilling or unable to serve, favorable and uninstructed proxies will be voted for a substitute nominee designated by the Board. If a suitable substitute is not available, the Board will reduce the number of Directors to be elected. Each nominee has indicated approval of his or her nomination and his or her willingness to serve if elected. The Directors elected will serve for the ensuing year and until their successors are elected and qualify.

Information about Nominees for Director

 

 

The following table sets forth information about persons or groups, based on information contained in Schedules 13G filed with the Securities and Exchange Commission, or SEC, reflecting beneficial ownership, who own or have the right to acquire more than 5% of our common stock.

 

 

 

 

The following table sets forth, as of February 23, 2009, the amount of our common stock owned beneficially by each Director, each Director Nominee, each of the executive officers named in the Summary Compensation Table on page 26 and all Directors, Director Nominees and executive officers as a group.

 

 

 

 

In 1997, our Board adopted a formal statement of its responsibilities and corporate governance guidelines to ensure effective governance in all areas of its responsibilities. Since 1997, our corporate governance guidelines have been reviewed periodically and revised as appropriate to reflect the dynamic and evolving processes relating to corporate governance, including the operation of the Board. Our Board’s Corporate Governance Guidelines, as revised in December 2008, can be found on the Corporate Governance page of our website www.halliburton.com and in Appendix A to this proxy statement.

 

Our Board also wants our stockholders to understand how the Board conducts its affairs in all areas of its responsibility. The full text of our Audit; Compensation; Health, Safety and Environment; and Nominating and Corporate Governance Committees’ charters are available on our website.

 

We have posted on our website our Code of Business Conduct, which applies to all of our employees and Directors and serves as the code of ethics for our principal executive officer, principal financial officer, principal accounting officer or controller, and other persons performing similar functions. If you do not have access to our website you can request a copy of the Code of Business Conduct, our corporate governance guidelines and the charters of the Board’s committees by contacting the Vice President and Corporate Secretary at the address set forth on page 2 of this proxy statement. Any waivers to our code of ethics for our executive officers can only be made by our Audit Committee. There were no waivers of the code of ethics in 2008.

 

Our Board is charged with approving related persons transactions involving our Directors, executive officers or any nominees for Director and any greater than 5% stockholders and their immediate family members. We have adopted a policy governing related persons transactions. The types of transactions covered by this policy are transactions, arrangements or relationships or any series of similar transactions, arrangements or relationships, including any indebtedness or guarantee of indebtedness, in which (1) we and our subsidiaries were or will be a participant, (2) the aggregate amount involved exceeds $120,000 in any calendar year, and (3) any related person had, has or will have a direct or indirect interest (other than solely as a result of being a director of, or holding less than a 10 percent beneficial ownership interest in, another entity). The Board will only approve related persons transactions when the Board determines such transactions are in our best interests or the best interests of our stockholders. In determining whether to approve or ratify a related person transaction, the Board will apply the following standards and such other standards it deems appropriate:

 

 

The Board has standing Audit; Compensation; Health, Safety and Environment; and Nominating and Corporate Governance Committees. Each of the standing committees are comprised of non-employee Directors, and in the business judgment of the Board, all of the non-employee Directors and Mr. Malone, who is proposed for the first time for election to the Board, are independent. The Board has made the determination that all of the non-employee Directors are independent because they meet the independence standards set forth in our corporate governance guidelines. Our independence standards, which meet the requirements of the New York Stock Exchange, or NYSE, provide that a Director will be considered independent if he or she:

 

 

There were no transactions, relationships or arrangements not disclosed in this proxy statement that were considered by the Board in making its determination as to the independence of the Directors. The definition of independence and compliance with this policy is periodically reviewed by the Nominating and Corporate Governance Committee.

 

During the last fiscal year, the Board met on 9 occasions, the Audit Committee met on 9 occasions, the Compensation Committee met on 4 occasions, the Health, Safety and Environment Committee met on 2 occasions, and the Nominating and Corporate Governance Committee met on 2 occasions. The non-employee Directors of the Board met in executive session, with no Company personnel present, on 6 occasions. Mr. Martin, as Lead Director, presides over the executive sessions of the independent Directors. All members of the Board attended at least 75% of the total number of meetings of the Board and the committees on which he or she served during the last fiscal year. Our corporate governance guidelines provide that all Directors should attend our Annual Meeting and all of our Directors attended the 2008 Annual Meeting.

 

To foster better communication with our stockholders, we established a process for stockholders to communicate with the Audit Committee and the Board. The process has been approved by both the Audit Committee and the Board, and meets the requirements of the NYSE and the SEC. The methods of communication with the Board, which follow, include mail, a dedicated telephone number and an e-mail address.

 

Contact the Board

 

You may choose one of the options listed below to report complaints about Halliburton’s accounting, internal accounting controls or auditing matters to the Audit Committee, or other concerns to the Board.

 

 

 

Halliburton’s Director of Business Conduct, a Halliburton employee, reviews all stockholder communications directed to the Audit Committee and the Board. The Chairman of the Audit Committee is promptly notified of any significant communication involving accounting, internal accounting controls, or auditing matters. The Lead Director is

promptly notified of any other significant stockholder communications and significant communications addressed to a named Director are promptly sent to the Director. Copies of all communications are available for review by any Director.

 

Information regarding these methods of communication is also on our website, www.halliburton.com, under “Corporate Governance”.

 

Members of the Committees of the Board of Directors

 

 

 

 

Audit Committee

 

The Audit Committee’s role is one of oversight, while Halliburton’s management is responsible for preparing financial statements. The independent public accounting firm appointed to audit our financial statements (the “principal independent public accountants”) is responsible for auditing those financial statements. The Audit Committee does not provide any expert or special assurance as to Halliburton’s financial statements or any professional certification as to the principal independent public accountants’ work. The following functions are the key responsibilities of the Audit Committee in carrying out its oversight:

 

 

The Audit Committee also reviews Halliburton’s compliance with its Code of Business Conduct. The Audit Committee meets separately with the principal independent public accountants, internal auditors and management to discuss matters of concern, and to receive recommendations or suggestions for change and to exchange relevant views and information.

 

Compensation Committee

 

The primary function of the Compensation Committee is to ensure that our compensation program is effective in attracting, retaining and motivating key employees, that it reinforces business strategies and objectives for enhanced stockholder value and that the program is administered in a fair and equitable manner consistent with established policies and guidelines.

 

The Compensation Committee’s responsibilities include, but are not limited to:

 

 

Health, Safety and Environment Committee

 

The Health, Safety and Environment Committee’s responsibilities include, but are not limited to:

 

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee’s responsibilities include, but are not limited to:

 

 

Stockholder Nominations of Directors. Stockholders may nominate Directors at an Annual Meeting of Stockholders in the manner provided in our By-laws. The By-laws provide that a stockholder entitled to vote for the election of Directors may make nominations of persons for election to the Board at a meeting of stockholders by complying with required notice procedures. Nominations shall be made pursuant to written notice to the Vice President and Corporate Secretary at the address set forth on page 2 of this proxy statement, and must be received at our principal executive offices not less than ninety (90) nor more than one hundred twenty (120) days prior to the anniversary date of last year’s annual meeting of stockholders, or no later than February 20, 2009 and no earlier than January 21, 2009. The notice shall set forth:

 

 

The proposed nominee may be required to furnish other information as Halliburton may reasonably require to determine the eligibility of the proposed nominee to serve as a Director. At any meeting of stockholders, the presiding officer may disregard the purported nomination of any person not made in compliance with these procedures.

 

Qualifications of Directors. Candidates nominated for election or reelection to the Board should possess the following qualifications:

 

 

The Nominating and Corporate Governance Committee is responsible for assessing the appropriate mix of skills and characteristics required of Board members in the context of the needs of the Board at a given point in time and shall periodically review and update the criteria. Diversity in personal background, race, gender, age and nationality for the Board as a whole may be taken into account in considering individual candidates.

 

Process for the Selection of New Directors. The Board is responsible for filling vacancies on the Board. The Board has delegated to the Nominating and Corporate Governance Committee the duty of selecting and recommending prospective nominees to the Board for approval. The Nominating and Corporate Governance Committee considers suggestions of candidates for Board membership made by current Committee and Board members, Halliburton management, and stockholders. The Committee may retain an independent executive search firm to identify candidates for consideration. The Committee retained the executive search firm, Korn/Ferry International, to assist its search in identifying and evaluating Director nominees, and this search firm identified Mr. Malone as a potential Director candidate. A stockholder who wishes to recommend a prospective candidate should notify Halliburton’s Vice President and Corporate Secretary.

 

When the Nominating and Corporate Governance Committee identifies a prospective candidate, the Committee determines whether it will carry out a full evaluation of the candidate. This determination is based on the information provided to the Committee by the person recommending the prospective candidate, and the Committee’s knowledge of the candidate. This information may be supplemented by inquiries to the person who made the recommendation or to others. The preliminary determination is based on the need for additional Board members to fill vacancies or to expand the size of the Board, and the likelihood that the candidate will meet the Board membership criteria listed above. The Committee will determine, after discussion with the Chairman of the Board and other Board members, whether a candidate should continue to be considered as a potential nominee. If a candidate warrants additional consideration, the Committee may request an independent executive search firm to gather additional information about the candidate’s background, experience and reputation, and to report its findings to the Committee. The Committee then evaluates the candidate and determines whether to interview the candidate. Such an interview would be carried out by one or more members of the Committee and others as appropriate. Once the evaluation and interview are completed, the Committee recommends to the Board which candidates should be nominated. The Board makes a determination of nominees after review of the recommendation and the Committee’s report.

 

EXECUTIVE COMPENSATION OBJECTIVES

 

Our executive compensation program is designed to achieve the following objectives:

 

 

These objectives serve to assure our long-term success and are built on the following compensation principles:

 

 

Executive Compensation Procedures

 

Our compensation procedures guide the actions taken by the Compensation Committee. This ensures consistency from year to year and adherence to the responsibilities listed in the Compensation Committee’s Charter. The Compensation Committee reviews compensation annually, which includes:

 

 

These procedures set the platform for the final determination of compensation for the NEOs.

 

Our internal stock nomination process under the 1993 Stock and Incentive Plan ensures that all award grant dates are prospective and not retroactive. For NEOs, the grant date is the day the Committee determines annual compensation actions, generally in December of each year. However, awards may be approved by the Committee throughout the year. Exercise prices are set at the closing stock price on the date of the approved grant. Stock grants authorized for NEOs in 2008 are reflected in the Grants of Plan-Based Awards in Fiscal 2008 and Outstanding Equity Awards at Fiscal Year End 2008 tables.

 

Role of the CEO in Setting Compensation

 

In assisting the Committee in setting executive compensation for the other NEOs only, the CEO along with the independent, external consultant to the Committee, is guided by our compensation principles. They also consider current business conditions and make recommendations as follows:

 

 

The CEO does not provide recommendations concerning his own total compensation. Neither he nor other members of Halliburton management are present when the CEO’s total compensation is discussed by the Committee and other Board members.

 

Use of Independent Consultants and Advisors

 

The Committee engaged Hewitt Associates as its independent, external compensation consultant during 2008. The primary responsibilities of Hewitt Associates, assigned by the Committee, are to:

 

 

These services are provided annually and as requested from time to time throughout the year by the Committee.

 

The contract for executive compensation services was entered into between Hewitt Associates and the Committee. Hewitt Associates also performs benefit administration services for Halliburton under a separate contract. The management of the Halliburton/Hewitt Associates relationship for benefits administration is the responsibility of Halliburton’s Global Benefits department, which has no contact with the Committee’s consultant.

 

Executive Compensation Benchmarking

 

The companies comprising the comparator peer group are chosen based on the following considerations:

 

 

Industry affiliation includes companies that are involved in the energy industry. The comparator peer group is reviewed annually by the Compensation Committee to ensure relevance.

 

Comparator Peer Group

 

The 2008 comparator peer group was composed of specific peer companies within the energy industry as well as selected companies representing general industry. This peer group was utilized to determine market levels of total compensation for the 2008 calendar year. The group includes the following companies:

 

•  3M Company •  Alcoa Inc. •  Anadarko Petroleum Corp. •  Apache Corp. •  Baker Hughes Inc. •  Deere and Co. •  Devon Energy Corp. •  Eastman Kodak Co. •  Emerson Electric Co. •  Goodyear Tire and Rubber Co. •  Hess Corp.		•  Honeywell International Inc. •  Johnson Controls, Inc. •  Occidental Petroleum Corp. •  Paccar Inc. •  Raytheon Co. •  Sunoco Inc. •  Schlumberger Ltd. •  Textron Inc. •  TXU Corp. •  Williams Companies Inc.

 

A slightly different comparator peer group is utilized for the 2008 cycle Performance Unit Program as discussed in the section Long-term Incentives: Performance Units.

 

Role of Market Data

 

We use regression analysis in considering total compensation benchmarking data because of variances in market capitalization and size among the companies comprising our comparator peer group. Thus, adjusted values are used as the basis of comparison of compensation between our executives and those of the comparator peer group.

Total executive compensation for each NEO is structured to target market competitive pay levels at the 50th percentile in base pay, and short-term and long-term incentive opportunities. We also place an emphasis on variable pay at risk, which enables this compensation structure to position actual pay above or below the 50th percentile of our comparator peer group depending on performance.

 

A consistent pre-tax, present value methodology is used in assessing stock-based and other long-term incentive awards, including the Black-Scholes model used to value stock option grants.

 

Hewitt Associates gathers and performs an analysis of market data to determine how Halliburton’s total compensation for its NEOs compares to that of our comparator peer group. Hewitt Associates then advises the Committee on the market data and its results.

 

INTEGRATION OF COMPENSATION COMPONENTS, PLAN DESIGN AND DECISION-MAKING FACTORS

 

Each December, the Committee considers all elements of the executive compensation package for each NEO for the upcoming year. The Committee receives historical and prospective breakdowns of the total compensation components for each NEO as follows:

 

 

Along with historical and prospective breakdowns, a competitive analysis is prepared by Hewitt Associates for each NEO, comparing each of their individual components of compensation as well as total compensation to that of the comparator peer group.

 

In making compensation decisions, each of the following compensation elements is reviewed separately and collectively:

 

 

Of these elements, all but base salary and certain health and welfare benefits are variable and at risk of forfeiture. Hewitt Associates provides market data detailing the elements and the median compensation of similar positions within our comparator peer group. The Committee uses this information as the primary reference point for determining the target value and actual value of each of the above elements of compensation, individually and in the aggregate, for each NEO. This assists the Committee in confirming that our compensation package for NEOs is appropriate and competitive to our comparator peer group.

 

The Committee considers the following when making compensation determinations:

 

 

These factors are considered on an unweighted basis in making final pay decisions and to ensure internal equity among positions having similar scope and responsibility.

 

After considering these factors, the Committee then sets the final compensation opportunity for each NEO so that their actual total compensation is consistent with our philosophy of paying at the 50th percentile or higher for those years of superior performance and paying below the 50th percentile when performance does not meet competitive standards.

The procedures used to set compensation for each of the NEOs are the same. Variations do exist in the amounts of compensation among the NEOs as a result of each NEO’s position and corresponding scope of responsibility, individual performance, length of time in the role and differences in the competitive market pay levels for positions in the comparator peer group.

 

Generally, in years when the Company achieves financial results substantially above or below expectations, actual compensation may fall outside the initial targets established by the Committee. These situations can occur, for example, as a result of industry-wide factors such as changes in demand for services.

 

Determination of CEO and NEO Target Total Compensation

 

When determining the base salary and stock awards for Mr. Lesar, the Committee takes into consideration competitive market pay levels for the CEOs within the comparator peer group. They also consider Mr. Lesar’s accomplishments in the areas of business development and expansion, management succession, development and retention of management, and the achievement of financial and operational objectives.

 

Each year, Mr. Lesar and the members of the Board agree upon a set of objectives based on the categories listed in our corporate governance guidelines which include:

 

 

The Board determined that Mr. Lesar met these objectives in 2008 through the following achievements:

 

 

The Committee considers Mr. Lesar’s performance evaluation when determining his total compensation, including base salary and short and long-term incentives, including stock awards.

 

Other NEO target total compensation is determined similarly to that of the CEO. Actual total compensation, including base salary, stock awards and short-term and long-term incentives, for Messrs. Lesar, Gaut, and Cornelison were at the 50th percentile pay levels of peer positions for 2008.

 

Mr. McCollum was initially targeted above the 50th percentile level of target total compensation because of the unique nature of his position at that time within our finance organization. Subsequently, Mr. McCollum was promoted to Executive Vice President and Chief Financial Officer. His target total compensation was again reviewed by the Compensation Committee in February 2008 and benchmarked to his new position. Because he was new to the Chief Financial Officer position, his total compensation was targeted below the 50th percentile.

Mr. Brown’s target total compensation was not benchmarked because he was not under the purview of the Committee at the time those decisions were made.

 

Base Salary

 

The Committee sets base salary at the median of the comparator group in an effort to control fixed costs and to reward for performance in excess of the median through variable components of pay.

 

In evaluating market comparisons in setting base salary, the Committee also considers the following factors:

 

 

No specific formula is applied to determine the weight of each factor. Salary reviews are conducted annually to evaluate each executive; however, individual salaries are not necessarily adjusted each year.

 

Base pay amounts for the NEOs are listed in the Summary Compensation Table. For 2008, the Committee determined that:

 

 

Short-term (Annual) Incentives

 

The Compensation Committee established the Annual Performance Pay Plan to:

 

 

The Annual Performance Pay Plan provides an incentive to our NEOs to achieve the business objective of generating more earnings than normally expected by the investors who have provided us with capital to grow our business. We measure achievement of this objective using Cash Value Added, or CVA.

 

CVA is a financial measurement that demonstrates the amount of economic value added to our business. The formula for calculating CVA is as follows:

 

Operating Income

  − Corporate Costs

  + Interest Income

  + Foreign Currency Gains and Losses

  + Other Adjustments

= Net Operating Profit
  − Income Taxes

=

Cash Flow

 

Net Invested Capital
x Weighted Average Cost of Capital
=

Capital Charge

 

Cash Value Added (CVA) = Cash Flow — Capital Charge

 

Cash Flow equals the sum of operating income minus corporate costs plus interest income plus foreign currency gains and losses plus other non-operating income reduced by our expected income tax expense.

 

Capital Charge equals total assets (excluding deferred income taxes) less total liabilities (excluding debt, deferred income tax-payable, and short-term notes payable) multiplied by a weighted average cost of capital percentage.

 

Cash Value Added is computed monthly and accumulated throughout the calendar year. Adjustments in the calculation of the CVA payout may, at times, be approved by the Compensation Committee and can include the treatment of unusual items that may have impacted our actual results.

 

At the beginning of each plan year, the Committee approves an incentive award schedule that equates given levels of CVA performance with varying reward opportunities paid in cash. The performance goals range from “Threshold” to “Target” to “Maximum.”

 

Threshold reflects the minimum CVA performance level which must be achieved in order for awards to be earned and Maximum reflects the maximum level that can be earned. For 2008, Threshold CVA was based on 75% of planned operating income excluding corporate costs, Target CVA on 100% of planned operating income excluding corporate costs and Maximum CVA on 125% of planned operating income excluding corporate costs.

 

These goals are based on our annual operating plan, as approved by our Board, and are set at levels that management believes would be sufficient to meet or exceed stockholder expectations of our performance, as well as management’s expectations of the relative performance of our competitors. Given the cyclical nature of our business, our performance goals vary from year to year, which can similarly impact the difficulty in achieving these goals.

 

In determining CVA awards, we have consistently applied a planned income tax rate and weighted average cost of capital percentage when determining actual CVA performance. As a result, the CVA performance goals are not made easier to achieve by improved income tax rates or lower actual cost of capital.

 

Over the past ten years the performance pay plans achieved Maximum performance levels six times, achieved Target performance level two times, and fell short of the Threshold performance level two times.

 

NEO Performance Pay Plan Opportunities

 

Individual incentive award opportunities are established at Threshold, Target and Maximum performance levels as a percentage of base salary at the beginning of the plan year. The maximum amount a NEO can receive is limited to two times the target opportunity level. The level of achievement of annual CVA performance determines the dollar amount of incentive compensation payable to participants following completion of the plan year.

 

The Committee set the 2008 performance goals for the NEOs based on company-wide consolidated CVA results. For Messrs. Gaut and Brown, part of their performance goals also included another metric due to their alignment with the business operations they oversee. Mr. Gaut was measured also on Drilling and Evaluation Division Net-Operating Value-Added (NOVA) and Mr. Brown was also measured on Western Hemisphere NOVA. NOVA utilizes balance sheet items under direct or indirect Division or Region control. It excludes interest income and foreign exchange gains and losses from operating income and uses only selected assets for the capital charge calculation that can be directly or indirectly impacted by personnel decisions. As such, NOVA functions similarly to CVA.

 

The Committee set their individual Threshold, Target and Maximum levels of opportunities under the plan as a percentage of January 1, 2008 annual base salary as follows:

 

 

Actual Threshold, Target and Maximum dollar amounts can be found in the Grants of Plan-Based Awards in Fiscal 2008 table.

The CVA targets for 2008 were $476 million at Threshold, $1,038 million at Target and $1,599 million at Maximum. Actual CVA for 2008 was $1,668 million. The earned awards for each NEO are reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.

 

The Committee approved one adjustment for 2008 regarding the $693 million charge to earnings incurred in the third quarter of 2008 for the premium paid in cash to settle our convertible debt, because the Committee determined this non-operating item should be excluded from the calculation of CVA. Accounting rule changes effective January 1, 2009, required us to reverse this $693 million charge at the beginning of 2009 and to restate prior periods.

 

Long-term Incentives

 

The Committee established the 1993 Stock and Incentive Plan to achieve the following objectives:

 

 

Our 1993 Stock and Incentive Plan provides for a variety of cash and stock-based awards, including nonqualified and incentive stock options, restricted stock and units, performance shares and units, stock appreciation rights, and stock value equivalents, also known as phantom stock. Under the 1993 Stock and Incentive Plan, the Compensation Committee may, at its discretion, select from among these types of awards to establish individual long-term incentive awards.

 

Long-term incentives represent the largest component of total executive compensation opportunity. We believe this is appropriate given our principle that executive pay should be closely tied to stockholder interests and is at-risk based on performance.

 

In 2008, we used a combination of long-term incentive vehicles, including time-based restricted stock, performance units and nonqualified stock options. For NEOs, other than Mr. Lesar, operations-based incentives in the form of performance units targeted 40% of the long-term incentive value, another 40% was delivered through restricted stock and the remaining 20% was delivered in stock options.

 

Combination of Long-term Incentive Vehicles

 

 

Messrs. McCollum, Cornelison, Gaut and Brown all approximated this combination of long-term incentive vehicles.

 

Mr. Lesar’s combination of long-term incentive vehicles was different from the other NEOs, because of the 1993 Stock and Incentive Plan $5,000,000 limit on performance units. Therefore, his long-term incentives were provided 27% in the form of performance units, with the balance of long-term incentives allocated 49% to restricted stock and 24% to stock options.

 

Granting a mix of incentives allows us to provide a diversified yet balanced long-term incentive program that effectively addresses volatility in our industry and in the stock market, in addition to maintaining an incentive to meet performance goals. Stock options and restricted stock are directly tied to our stock price performance and, therefore, directly to stockholder value. Additionally, restricted stock provides a significant retention incentive while performance units shift the focus to improving long-term returns on capital employed, as measured in relation to the comparator peer group for the Performance Unit Program.

 

In determining the size of long-term incentive awards, the Committee first considers market data references to the long-term incentive value for comparable positions and then may adjust the awards upwards or downwards based on

the Committee’s view of internal equity. This can result in positions of similar magnitude and pay receiving awards of varying size. The 2008 long-term incentive awards for each NEO were based primarily on market data.

 

Restricted Stock and Stock Options

 

Our restricted stock and stock option awards are granted under the 1993 Stock and Incentive Plan and listed in the Grants of Plan-Based Awards in Fiscal 2008 table.

 

Except for the grants to Mr. Brown described below, the 2008 restricted stock grants are subject to a graded vesting schedule of 20% over 5 years. However, different vesting schedules may be utilized at the discretion of the Committee. Restricted shares are eligible for dividend payments under the terms of the restricted stock award agreements.

 

Stock option awards vest over a three-year graded vesting period with 331/3% of the grant vesting each year. All options are priced at the closing stock price on the date the grant is approved by the Committee.

 

The restricted stock and option awards shown in the Grants of Plan-Based Awards in Fiscal 2008 table represent the individual awards for each NEO made in 2008. All annual awards to NEOs were made in December 2008 and were approved by the Committee. Messrs. McCollum and Brown also received awards on February 13, 2008. Mr. McCollum’s award was related to his promotion to Executive Vice President and Chief Financial Officer. Mr. Brown’s award was related to his annual review for 2008.

 

Mr. Brown also received two additional restricted stock grants in 2008, in addition to his annual award. The October 7, 2008 award of 68,838 restricted shares has a 5 year cliff vesting schedule, with 100% of the award to vest in year five. An additional December 2, 2008 grant of 97,276 restricted shares has a graded vesting schedule, whereby 20% of the award will vest in years six through ten of the grant; nothing will vest in years one through five. Mr. Brown was granted these awards for retention purposes and to recognize the change in his scope of responsibilities.

 

The stock and option award columns in the Summary Compensation Table reflect the FAS 123R gross compensation expense recognized in 2008 for all outstanding restricted stock and option awards for each NEO.

 

Performance Units

 

The Performance Unit Program was designed to provide NEOs and other selected executives with incentive opportunities based on the level of achievement of pre-established performance objectives during three-year performance periods. The purpose of the program is to reinforce Halliburton’s objectives for sustained long-term performance and value creation. It is also intended to reinforce strategic planning processes, balance short- and long-term decision making and help provide competitive total compensation opportunities.

 

The program measures our consolidated Return on Capital Employed, or ROCE, compared to both absolute goals and relative goals, as measured by the results achieved by our comparator peer group companies.

 

Return on Capital Employed indicates the efficiency and profitability of our capital investments and is determined based on the ratio of earnings divided by average capital employed. The calculation is as follows:

 

 

The modifications that were made to the Performance Unit Program for the 2007 cycle were again utilized in the 2008 cycle. These included modifications to the comparator peer group used for measuring relative performance to focus on comparable oilfield equipment and service companies and domestic and international exploration and production companies. These changes were made in an effort to more accurately represent the timing, cyclicality and volatility related to the oil and natural gas industry. Finally, the performance metrics reflect increased absolute performance goals and more challenging relative performance goals.

The comparator peer group for the 2008 cycle Performance Unit Program includes:

 

•  Anadarko Petroleum Corp.		•  Marathon Oil Corp.
•  Apache Corp.		•  Nabors Industries Ltd.
•  Baker Hughes, Inc.		•  National Oilwell Varco
•  BJ Services Co.		•  Schlumberger Ltd.
•  Cameron International Corp.		•  Smith International, Inc.
•  Chesapeake Energy Corp.		•  Transocean, Inc.
•  Devon Energy Corp.		•  Weatherford International Ltd.
•  Hess Corp.

 

The program allows for rewards to be paid in cash, stock or a combination of cash and stock. The first cycle began in 2001. Since that time the program has achieved slightly below target for the 2001 cycle, at target for the 2002 cycle, between target and maximum for the 2003 cycle and exceeded maximum for the 2004, 2005 and 2006 cycles. As a result of the changes made to the 2007 cycle and forward, achieving maximum payouts will be increasingly more difficult in the future.

 

2006 cycle Performance Unit Program Payout for NEOs

 

The 2006 cycle of the Performance Unit Program ended on December 31, 2008. Results for this cycle included the achievement of performance beyond the Maximum level on both absolute measures and measures relative to our comparator peer group. Halliburton’s three-year average ROCE for the 2006 cycle in absolute terms was 25.79% while the three-year average for the comparator group was 21.15% at the 75th percentile. Rewards for the 2006 cycle were paid in cash during 2009.

 

The amounts presented in the column, Non-Equity Incentive Plan Compensation in the Summary Compensation Table, represent the amounts earned by the NEOs in 2008 under both the 2006 cycle of the Performance Unit Program and the 2008 Annual Performance Pay Plan. For example, Mr. Lesar’s total amount of $8,120,000 represents the payment received for the 2006 cycle of the Performance Unit Program in the amount of $5,000,000, and his payment under the 2008 Annual Performance Pay Plan in the amount of $3,120,000. These amounts are discussed in the narrative following the Summary Compensation Table for all NEOs.

 

2008 cycle Performance Unit Program Opportunities for NEOs

 

Individual incentive opportunities are established based on market references and in accordance with our practice of granting a mix of long-term incentive vehicles. The Threshold, Target and Maximum columns under the heading Estimated Future Payouts Under Non-Equity Incentive Plan Awards in the Grants of Plan-Based Awards in Fiscal 2008 table indicate the potential payout for each NEO under the Performance Unit Program for the 2008 cycle. The potential payouts are performance driven and completely at risk.

 

Mr. Lesar has a Target payout potential of $2,500,000 and a Maximum payout potential of $5,000,000 if the maximum goals of the 2008 cycle Performance Unit Program are met or exceeded. $5,000,000 is the maximum cash award currently allowed under the 1993 Stock and Incentive Plan.

 

Messrs. McCollum and Cornelison were provided a Target opportunity level of 115% and Maximum opportunity level of 230%, utilizing their January 1, 2008 annual base pay. Mr. Gaut was provided a Target opportunity level of 125% and Maximum opportunity level of 250%, utilizing his January 1, 2008 annual base pay. Mr. Brown was provided a Target opportunity level of 75% and Maximum opportunity level of 150%, utilizing his January 1, 2008 annual base pay.

 

Opportunity levels were determined based upon market data of our comparator peer group and the NEO’s role within the organization. Actual payout amounts, if any, will not be known until after December 31, 2010.

 

Supplemental Executive Retirement Plan

 

The objective of the Supplemental Executive Retirement Plan, or SERP, is to provide a competitive level of pay replacement upon retirement. The current pay replacement target is 75% of final base salary at age 65 with 25 years of service.

The material factors and guidelines considered in making an allocation include:

 

 

The calculation takes into account the following variables:

 

 

Several assumptions are made annually, which include a base pay increase percentage, qualified and nonqualified plan contributions and investment earnings and an annuity rate. These factors are reviewed and approved annually by the Compensation Committee in advance of calculating any awards.

 

To determine the annual benefit, external actuaries calculate the total lump sum retirement benefit needed at age 65 from all Company retirement sources to produce an annual retirement benefit of 75% of final base pay. Company retirement sources include any qualified benefit plans and contributions to nonqualified benefit plans. If the combination of these two sources does not yield a total retirement balance that will meet the 75% objective, then contributions can be made annually through the SERP to bring the total benefit up to the targeted level.

 

To illustrate, assume $7.9 million is needed at age 65 to produce an annual retirement benefit equal to 75% of final base pay. The participant has $2.1 million in his qualified benefit plans at retirement and $3.0 million in his nonqualified retirement plans at retirement. Since the total of these two sources is $5.1 million, a shortfall of $2.8 million results. This is the amount needed to achieve the 75% pay replacement objective. Such shortfall may be accumulated through annual contributions to the SERP which will total $2.8 million at age 65.

 

In last year’s proxy statement we disclosed that the SERP was closed to new participants. However, in light of the challenges we are facing to attract and retain qualified executives, we re-opened the SERP to new participants in 2008. However, we limited participation to the direct reports of the CEO and other selected executives as recommended by the CEO and approved by the Compensation Committee at their discretion.

 

Allocations are made annually for each NEO who participates in the SERP, as approved by the Committee. However, participation one year does not guarantee future participation. The average annual amounts allocated over the history of participation are as follows: Mr. Lesar: $220,267; Mr. McCollum: $90,500; Mr. Cornelison: $130,857; Mr. Gaut: $132,167; and Mr. Brown: $211,000.

 

In 2008, the Committee authorized retirement allocations under the SERP to all NEOs as listed in the 2008 Nonqualified Deferred Compensation table and also included in the All Other Compensation column in the Summary Compensation Table.

 

Messrs. Lesar, McCollum, Cornelison and Gaut have participated in the SERP for at least five consecutive years (the number required for vesting purposes for allocations made in 2005 and thereafter) and are fully vested in their respective account balances. Mr. Brown is a new participant in the SERP. New participants in the SERP need to obtain 5 years of additional service with us from the date of their initial award in order to be vested in the SERP.

 

OTHER EXECUTIVE BENEFITS AND POLICIES

 

Retirement and Savings Plan

 

All NEOs participate in the Halliburton Retirement and Savings Plan, which is the defined contribution benefit plan available to all eligible U.S. employees. The matching contributions included in the Supplemental Table: All Other Compensation detail the amounts contributed by the Company on behalf of each NEO under the plan.

Elective Deferral Plan

 

All NEOs may participate in the Halliburton Elective Deferral Plan, which was established to provide highly compensated employees with an opportunity to defer earned base salary and incentive compensation in order to help meet retirement and other future income needs.

 

The Elective Deferral Plan is a nonqualified deferred compensation plan and participation is completely voluntary. Pre-tax deferrals of up to 75% of base salary and/or eligible incentive compensation are allowed each calendar year. Gains or losses are credited based upon the participant’s election from among four benchmark investment choices with varying degrees of risk.

 

In 2008, Messrs. Gaut and Brown participated in this plan by deferring a percentage of their compensation. Mr. Lesar has an account balance from participation in prior years. Messrs. McCollum and Cornelison are not participants in the plan. Further details can be found in the 2008 Nonqualified Deferred Compensation table.

 

Benefit Restoration Plan

 

The Halliburton Company Benefit Restoration Plan provides a vehicle to restore qualified plan benefits which are reduced as a result of limitations imposed under the Internal Revenue Code or due to participation in other Company sponsored plans. It also serves to defer compensation that would otherwise be treated as excessive employee remuneration within the meaning of Section 162(m) of the Internal Revenue Code.

 

The Benefit Restoration Plan earns interest at the rate of 10% per annum. In 2008, all NEOs received awards under this plan in the amounts included in the Supplemental Table: All Other Compensation and the 2008 Nonqualified Deferred Compensation table.

 

Defined Benefit Pension Plans

 

With the exception of Mr. Cornelison, who participated in the Dresser Industries Consolidated Retirement Plan prior to the merger with Dresser Industries, Inc., no other NEO participated in any defined benefit pension plans as we no longer offer these types of plans to our U.S. employees. Also, the NEOs are not participants in any previously offered pension plans, which are now also frozen.

 

Mr. Cornelison’s benefit amounts are reflected in the Pension Benefits Table, with the change in value reflected in the Summary Compensation Table under the Change in Pension Value and NQDC Earnings column.

 

Perquisites

 

Health care and insurance coverage for our NEOs is the same as that provided to all active employees. In addition, we provide our NEOs and other highly compensated employees a physical examination benefit to be voluntarily utilized on an annual basis.

 

Country club memberships are limited and provided on an as-needed basis for business purposes only. Messrs. Cornelison, Gaut and Brown have club memberships.

 

We do not provide cars or car allowances. However, to allow for maximum efficiency and productive use of time, a company-leased car and part-time driver are provided for Mr. Lesar for the primary purpose of commuting to and from work while he is in Dubai and Houston.

 

A taxable benefit for executive financial planning is provided with the amount dependent on the NEO’s level within the company. This benefit does not include tax return preparation. It is paid, only if used, on a reimbursable basis.

 

We also provided for adequate security assessments and measures at the personal residences of Mr. Lesar during 2008.

 

Mr. Lesar uses company aircraft for all travel. Other than Mr. Lesar, no other NEO used company aircraft for personal use in 2008. Spouses are allowed to travel on select business trips.

 

In 2007, Mr. Lesar relocated to Dubai and became an expatriate under our business practice regarding long-term expatriate assignments. Mr. Lesar continues to waive his right to certain assignment allowances provided under the

terms of our business practice with the exception of a goods and services differential and host country housing, utilities and transportation.

 

A differential is commonly paid to expatriates in assignment locations where the cost of goods and services is greater than the cost for the same goods and services in the expatriate’s home country. Differentials are determined by ORC Worldwide, a third-party consultant. Costs associated with Mr. Lesar’s car and driver and his housing and utilities while in Dubai are taxable as income to him. As part of his expatriate assignment, Mr. Lesar participates in our tax equalization program, which neutralizes the tax effect of the international assignment and approximates the tax obligation the expatriate would pay in his home country.

 

Specific amounts for the above mentioned perquisites are detailed for each NEO in the Supplemental Table: All Other Compensation immediately following the Summary Compensation Table.

 

Clawback Policy

 

Adopted by the Board in 2007, we have a clawback policy that will seek to recoup incentive compensation in all appropriate cases paid to, awarded or credited for the benefit of a NEO if:

 

 

Any NEO who receives incentive compensation based on the achievement of financial results that are subsequently the subject of a restatement will not be subject to recoupment unless the NEO personally participates in the fraudulent conduct.

 

Stock Ownership Guidelines

 

In September 2008, the Committee adopted stock ownership guidelines for specified officers, which include all the NEOs, to further align their interests with our stockholders.

 

As a result, Mr. Lesar is encouraged to own Halliburton common stock of an amount equal to or in excess of five times his annual base salary. The other NEOs are encouraged to own an amount of Halliburton common stock equal to or in excess of three times their annual base salary. The Compensation Committee reviews their holdings, which include restricted shares, exercised options and all other Halliburton common stock personally held by the NEO, at each December meeting. Each NEO has 5 years from the date of the adoption of the guidelines to meet them.

 

As of December 31, 2008, all NEOs meet the guidelines.

 

ELEMENTS OF POST-TERMINATION COMPENSATION AND BENEFITS

 

Termination events that trigger payments and benefits include normal or early retirement, change-in-control, cause, death, disability, and voluntary termination. Post-termination payments may include severance, accelerated vesting of restricted stock and stock options, maximum payments under cash-based short and long-term incentive plans, nonqualified account balances and health benefits, among others. The Post-Termination Payment tables in this proxy statement indicate the impact of various termination events on each element of compensation for the NEOs.

 

IMPACT OF REGULATORY REQUIREMENTS ON COMPENSATION

 

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation paid to the CEO or any of the four other most highly compensated officers to the extent the compensation exceeds $1 million in any year. Qualifying performance-based compensation is not subject to this limit if certain requirements are met.

Our policy is to utilize available tax deductions whenever appropriate and consistent with our compensation philosophy. When designing and implementing executive compensation programs, we consider all relevant factors, including tax deductibility of compensation. Accordingly, we have attempted to preserve the federal tax deductibility of compensation in excess of $1 million a year to the extent doing so is consistent with our executive compensation objectives; however, we may from time to time pay compensation to our executives that may not be fully deductible.

 

Our 1993 Stock and Incentive Plan enables qualification of stock options, stock appreciation rights and performance share awards as well as short-term and long-term cash performance plans under Section 162(m).

 

To the extent required by Section 304 of the Sarbanes-Oxley Act of 2002, we will make retroactive adjustments to any cash or equity-based incentive compensation paid to the CEO and CFO where the payment was predicated upon the achievement of certain financial results that were subsequently the subject of restatement. When and where applicable, we will seek to recover any amount determined to have been inappropriately received by the CEO and CFO.

 

The Compensation Committee of the Board of Halliburton Company is responsible for establishing and maintaining competitive executive compensation programs that enable Halliburton to attract, retain and motivate high caliber executives who can considerably impact stockholder value. We also ensure that such programs are administered in a fair and equitable manner consistent with established policies and procedures.

 

Pursuant to our Charter, we are generally responsible for establishing the Company’s overall compensation philosophy and objectives and are specifically responsible for reviewing, approving and monitoring compensation strategies, plan design, guidelines, and practices as they relate to the named executive officers of the Company.

 

Our Committee consists entirely of independent, non-employee Directors appointed annually by the full Board. The composition of our Committee is reviewed annually to provide for adequate and reasonable rotation of members and to ensure that each member meets the criteria set forth in applicable Securities and Exchange Commission, New York Stock Exchange and Internal Revenue Code rules and regulations. Executive sessions, without members of Company management present, are regularly held. In addition, we invite all non-employee Board members to attend and participate in all our committee meetings; however, non-committee members are not entitled to vote.

 

We meet no less than four scheduled times per year and follow a pre-established calendar of actions. This calendar guides our Committee Chairperson, who coordinates with Halliburton’s Chief Executive Officer and executive compensation staff, in establishing the agenda for each meeting.

 

We have reviewed and discussed the Compensation Discussion and Analysis with Company management and, based on such review and discussions, we recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

 

THE COMPENSATION COMMITTEE

 

James R. Boyd
Milton Carroll
Kenneth T. Derr, Chairman
James T. Hackett
Debra L. Reed

 

The following tables set forth information regarding the CEO, CFO and the three other most highly compensated executive officers of Halliburton as of the fiscal year ended December 31, 2008.

 

 

Salary. The amounts represented in the Salary column are attributable to annual salary earned by each NEO. Information related to salary increases in 2008 is discussed in the Compensation Discussion and Analysis under Base Salary.

 

Bonus. No bonus amounts were made to any NEOs in 2008. The amount represented in the Bonus column is attributable to a one-time lump sum award to Mr. McCollum in 2007 for his involvement with the KBR, Inc. separation, which was completed in 2007. This award was discretionary with the payment amount based on his role and involvement with the event.

 

Stock Awards. The amounts in the Stock Awards column indicate the gross compensation expense recognized for restricted stock in 2008. FASB Statement 123R requires the fair value of equity awards to be recognized in the financial statements over the period the employee is required to provide service in exchange for the award, i.e. the vesting period. We calculate the fair value of restricted stock awards by multiplying the number of restricted shares granted by the closing stock price as of the award’s grant date.

 

Option Awards. The amounts in the Option Awards column indicate the gross compensation expense recognized for stock options in 2008. FASB Statement 123R requires the fair value of equity awards to be recognized in the financial statements over the period the employee is required to provide service in exchange for the award, i.e., the vesting period. The fair value of stock options is estimated using the Black-Scholes option pricing model. For a discussion of the assumptions made in these valuations, refer to Note 1 to the Consolidated Financial Statements, Description of Company and Significant Accounting Policies — Stock-based compensation, in the Halliburton Company Form 10-K for the fiscal year ended December 31, 2008.

 

Non-Equity Incentive Plan Compensation. The amounts represented in the Non-Equity Incentive Plan Compensation column are for amounts earned in 2008, to be paid in 2009. The total amount shown consists of payments made for the 2008 plan year under the Halliburton Annual Performance Pay Plan and the 2006 cycle Performance Unit Program. Information about these programs can be found in the Compensation Discussion and Analysis under Short-term (Annual) Incentives for the Halliburton Annual Performance Pay Plan and under Long-term Incentives for the Performance Unit Program.

 

The Threshold, Target and Maximum amounts for the 2008 Halliburton Annual Performance Pay Plan can be found in the Grants of Plan-Based Awards in Fiscal 2008 table under the Estimated Future Payouts Under Non-Equity Incentive Plan Awards.

 

The 2008 Halliburton Annual Performance Pay Plan amounts paid to each NEO are: $3,120,000 for Mr. Lesar; $650,000 for Mr. McCollum; $715,000 for Mr. Cornelison; $924,983 for Mr. Gaut; and $507,000 for Mr. Brown.

The 2006 cycle Performance Unit Program amounts paid to each NEO are: $5,000,000 for Mr. Lesar; $395,000 for Mr. McCollum; $1,155,000 for Mr. Cornelison; $1,380,000 for Mr. Gaut; and $302,500 for Mr. Brown.

 

The amounts paid to the NEOs for the 2006 cycle Performance Unit Program differ from what is shown in the Grants of Plan-Based Awards in Fiscal Year 2008 table under Estimated Future Payments Under Non-Equity Incentive Plan Awards. The Grants of Plan-Based Awards in Fiscal Year 2008 table indicates the potential award amounts for Threshold, Target and Maximum under the 2008 cycle Performance Unit Program, while the Summary Compensation Table shows amounts paid for a prior program cycle, the 2006 cycle, which closed on December 31, 2008.

 

Change in Pension Value and NQDC Earnings. The amounts in the Change in Pension Value and NQDC Earnings column are attributable to the above-market earnings for various nonqualified plans. The methodology for determining what constitutes above-market earnings is the difference between the interest rate as stated in the applicable nonqualified plan document and the Internal Revenue Service Long-Term 120% AFR rate as of December 31, 2008. The 120% AFR rate used for determining above-market earnings in 2008 was 5.35%.

 

Change in Pension Value. Because the present value of Mr. Cornelison’s accumulated benefits as of December 31, 2008 was more than the present value of accumulated benefits as of December 31, 2007, a change in pension value of $2,765 is disclosed in the Pension Benefits Table.

 

Change in NQDC Earnings.

 

Halliburton Company Benefit Restoration Plan Above-Market Earnings. The current interest rate for the Halliburton Company Benefit Restoration Plan is 10% as defined by the plan document. The above-market earnings associated with this plan equals 4.65% (10% (plan interest) minus 5.35% (120% AFR rate)). The amounts shown in this column differ from the amounts shown for the Halliburton Company Benefit Restoration Plan in the 2008 Nonqualified Deferred Compensation table under the Aggregate Earnings in Last Fiscal Year column because the 2008 Nonqualified Deferred Compensation table includes all earnings and losses, and the Summary Compensation Table shows above-market earnings only.

 

NEOs earned above-market earnings for their balances associated with the Halliburton Company Benefit Restoration Plan as follows: $64,630 for Mr. Lesar; $2,816 for Mr. McCollum; $11,432 for Mr. Cornelison; $6,646 for Mr. Gaut; and $2,403 for Mr. Brown.

 

Halliburton Company Elective Deferral Plan Above-Market Earnings. The average earnings for the balances associated with the Halliburton Company Elective Deferral Plan were -26.77% for all funds and 8.2% for the one fund with positive returns. The above-market earnings associated with this fund equals 2.85% (8.2% minus 5.35% (120% AFR rate)). The amounts shown in this column differ from the amounts shown for the Halliburton Company Elective Deferral Plan in the 2008 Nonqualified Deferred Compensation table under the Aggregate Earnings in Last Fiscal Year column because the 2008 Nonqualified Deferred Compensation table includes all earnings and losses, and the Summary Compensation Table shows above-market earnings only.

 

Messrs. Lesar, Gaut and Brown earned above-market earnings for certain balances associated with the one fund in the Halliburton Company Elective Deferral Plan that had positive earnings as follows: $21,444 for Mr. Lesar; $74,718 for Mr. Gaut; and $5,494 for Mr. Brown. Messrs. McCollum and Cornelison are not participants in the Halliburton Company Elective Deferral Plan and do not have any prior balances in the plan.

 

ERISA Excess Benefit Plan for Dresser Industries, Inc. and ERISA Compensation Limit Benefit Plan for Dresser Industries, Inc. The current interest rate for both the ERISA Excess Benefit Plan for Dresser Industries, Inc. and ERISA Compensation Limit Benefit Plan for Dresser Industries, Inc. is 10%, as defined by the plan documents. The above-market earnings associated with these plans equals 4.65% (10% (interest for plans) minus 5.35% (120% AFR rate)).

 

Mr. Cornelison earned above-market earnings for his balances in the ERISA Excess Benefit Plan for Dresser Industries, Inc. and ERISA Compensation Limit Benefit Plan for Dresser Industries, Inc. The amounts for each plan are: $178 and $7,331, respectively.

 

The amounts shown in this column differ from the amounts shown for the ERISA Excess Benefit Plan for Dresser Industries, Inc. and ERISA Compensation Limit Benefit Plan for Dresser Industries, Inc. in the 2008 Nonqualified Deferred Compensation table under the Aggregate Earnings in Last Fiscal Year column because the 2008 Nonqualified

Deferred Compensation table includes all earnings and losses, and the Summary Compensation Table shows above-market earnings only.

 

All Other Compensation. Detailed information for items listed in the All Other Compensation column can be found in the following supplemental table entitled Supplemental Table: All Other Compensation.

 

SUPPLEMENTAL TABLE: ALL OTHER COMPENSATION

 

The following table details the components of the All Other Compensation column of the Summary Compensation Table for 2008.

 

 

Employee Physical. The Employee Physical Program provides NEOs the opportunity to have an annual physical examination to encourage an ongoing habit of health and wellness. Participation in the program is strictly voluntary. The amount shown is based on the value of services the NEO received less any medical insurance covered benefits.

 

Parking. This is the direct cost Halliburton pays for reserved parking spaces. Mr. Gaut offices at a location without reserved parking spaces or a cost associated with parking.

 

Financial Planning. This program allows NEOs to receive financial planning services by accredited financial planners. Tax planning is not covered under this program. The amount is based on the services the NEO received in 2008. If they do not utilize the program, the amount is forfeited.

 

Halliburton Foundation. The Halliburton Foundation allows NEOs and other employees to donate to approved universities, medical hospitals and primary schools of their choice. The Halliburton Foundation matches donations up to $20,000 on a two-for-one basis. Mr. Lesar participates in the Halliburton Foundation’s matching program for Directors, which allows his contributions up to $50,000 to qualified organizations to be matched on a two-for-one basis. Due to timing of when the NEO made the donation and when the Foundation matched the donation, a higher amount than the limit could result. Therefore, the amount shown indicates what the Foundation actually donated on behalf of the NEO during 2008.

 

Halliburton Giving Choices. The Halliburton Giving Choices Program allows NEOs and other employees to donate to approved not-for-profit charities of their choice. Halliburton matches donations by contributing ten cents for every dollar contributed by employees up to a maximum of $1,000. The amounts shown represent the match amounts the program donated to charities on behalf of the NEOs in 2008.

 

Halliburton Political Action Committee. The Halliburton Political Action Committee allows NEOs and other eligible employees to donate to political candidates and participate in the political process. Halliburton matches the donation dollar-for-dollar to a 501(c)(3) status nonprofit organization of the contributor’s choice. The amounts shown represent the match amounts the program donated to charities on behalf of the NEOs in 2008.

 

Restricted Stock Dividends. This is the amount of dividends paid on restricted stock held by NEOs in 2008.

 

Halliburton Retirement and Savings Plan Employer Match. The amount shown is the contribution Halliburton made on behalf of each NEO to the Halliburton Company Retirement and Savings Plan, our defined contribution plan. Halliburton matches up to 4% of each employee’s eligible base pay, up to the 401(a)(17) compensation limit of $230,000 in 2008.

 

Halliburton Retirement and Savings Plan Basic Contribution. This is the contribution Halliburton made on behalf of each NEO to the Halliburton Company Retirement and Savings Plan. If actively employed on December 31, 2008, each employee receives a contribution equal to 4% of their eligible base pay, up to the 401(a)(17) compensation limit of $230,000 in 2008.

Halliburton Company Benefit Restoration Plan. This is the award earned under the Halliburton Company Benefit Restoration Plan in 2008. The plan provides a vehicle to restore qualified plan benefits which are reduced as a result of limitations on contributions imposed under the Internal Revenue Code or due to participation in other Company sponsored plans and to defer compensation that would otherwise be treated as excessive employee remuneration within the meaning of Section 162(m) of the Internal Revenue Code. Associated interest, awards and beginning and ending balances for the Halliburton Company Benefit Restoration Plan are included in the 2008 Nonqualified Deferred Compensation table. Above-market interest earned on these awards and associated balances is shown in the Summary Compensation Table under the Change in Pension Value and NQDC Earnings column.

 

Halliburton Company Supplemental Executive Retirement Plan. These are awards approved under the Halliburton Company Supplemental Executive Retirement Plan as discussed in the Supplemental Executive Retirement Plan section of the Compensation Discussion and Analysis. Awards are approved by the Halliburton Compensation Committee annually. The plan provides a competitive level of pay replacement for key executives upon retirement. Associated interest, awards and beginning and ending balances for the Halliburton Company Supplemental Executive Retirement Plan are included in the 2008 Nonqualified Deferred Compensation table.

 

All Other.

 

The following table represents amounts associated with the 2008 cycle Performance Unit Program, 2008 Annual Performance Pay Plan and restricted stock and stock option awards granted in 2008 for our NEOs.

 

 

 

 

As indicated by footnote (1), the opportunities for each NEO under the 2008 cycle Performance Unit Program if the Threshold, Target or Maximum levels are achieved are reflected under Estimated Future Payouts Under Non-Equity Incentive Plan Awards. This program measures our consolidated Return on Capital Employed as compared to our internal goals as well as relative to our comparator peer group utilized by the program during three-year cycles. The potential payouts are performance driven and completely at risk. For more information on the 2008 cycle Performance Unit Program, refer to Long-term Incentives in the Compensation Discussion and Analysis.

 

As indicated by footnote (2), the opportunities for each NEO under the 2008 Halliburton Annual Performance Pay Plan are also reflected under Estimated Future Payouts Under Non-Equity Incentive Plan Awards. This plan measures company Cash Value Added as compared to our pre-established goals during a one-year period. The potential payouts are performance driven and completely at risk. The amounts earned in 2008 and payable in 2009 for the 2008 Halliburton Annual Performance Pay Plan are reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. For more information on the 2008 Halliburton Annual Performance Pay Program, refer to Short-term (Annual) Incentives in the Compensation Discussion and Analysis.

 

All restricted stock and nonqualified stock option awards are granted under the Halliburton Company 1993 Stock and Incentive Plan. The awards listed under All Other Stock Awards: Number of Shares of Stock or Units and All

Other Option Awards: Number of Securities Underlying Options were awarded to each NEO, on the date indicated, by the Compensation Committee.

 

The annual restricted stock grants awarded to the NEOs in 2008 are subject to a graded vesting schedule of 20% over 5 years, except as indicated in footnotes 3 and 4. This vesting schedule serves to motivate our NEOs to remain with Halliburton. All restricted shares are priced at fair market value on the date of grant. Quarterly dividends are paid on the restricted shares at the same time and rate payable on our common stock, which is currently $0.09 per share. However, the shares may not be sold, transferred or used as collateral. The shares remain subject to forfeiture during the restricted period in the event of a NEO’s termination of employment or an unapproved early retirement.

 

Nonqualified stock options granted in 2008 vest over a three-year graded vesting period with 331/3% of the grants vesting each year. All options are priced at the fair market value on the date of grant using the Black-Scholes options pricing model. There are no voting or dividend rights unless the NEO exercises the options and acquires the shares.

 

The Estimated Future Payouts Under Equity Incentive Plan columns have been omitted because awards under the Performance Unit Program and Halliburton Annual Performance Pay Plan are expected to be paid in cash and are disclosed under Estimated Future Payouts Under Non-Equity Incentive Plan Awards.

 

The following table represents outstanding stock option and restricted stock awards for our NEOs as of December 31, 2008.