SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

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o		Soliciting Material under sec.240.14a-12

MICHAEL BAKER CORPORATION

(Name of Registrant as Specified in its Charter)  

 

(Name of Person(s) Filing Proxy Statement, If Other Than the Registrant)

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MICHAEL BAKER CORPORATION

Airside Business Park

100 Airside Drive

Moon Township, PA 15108

 

NOTICE OF ANNUAL MEETING

AND PROXY STATEMENT

 

Dear Shareholder:

 

We invite you to attend the annual meeting of shareholders of Michael Baker Corporation (“Michael Baker”) on May 25, 2011 at 10:00 a.m. in Pittsburgh, Pennsylvania.

 

These materials include the formal notice of the meeting and the Proxy Statement. The Proxy Statement tells you more about the items upon which we will vote at the meeting, which include:

 

 

It also explains how the voting process works, gives personal information about Michael Baker’s director candidates, describes the principle features of Michael Baker’s executive compensation, and addresses the rationale for ratifying the selection of Deloitte & Touche LLP.

 

We are once again providing access to our Proxy Statement, proxy card and 2010 Annual Report to Shareholders, referred to as our “Proxy Materials”, over the Internet. Accordingly, on April 15, 2011 we are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to our shareholders of record and beneficial owners. You will have the ability to access the Proxy Materials on a website referred to in the Notice or request a printed or e-mailed set of the Proxy Materials. Instructions on how to access the Proxy Materials over the Internet or to request a printed or e-mailed copy may be found in the Notice. In addition, you may request delivery of future annual meeting proxy materials in printed form by mail or electronically by e-mail on an ongoing basis. For those of you who have requested to receive the materials in hard copy, the proxy materials have been sent to you by mail or e-mail.

 

Whether or not you plan to attend the annual meeting, please cast your vote by proxy over the Internet, by telephone or by requesting a proxy card to complete, sign, date and return in the mail, by following the instructions provided in the Notice. Regardless of the method used, please vote your shares so that enough shares are represented to allow us to conduct the business of the annual meeting. Voting over the Internet, by telephone or by proxy card does not affect your right to vote in person if you attend the annual meeting.

 

Sincerely yours,

 

H. James McKnight

Executive Vice President,

Chief Legal Officer and

Secretary

 

April 15, 2011

NOTICE OF 2011 ANNUAL MEETING

 

Date, Time and Place

 

 

Purpose

 

 

Procedures

 

 

Your vote is important. Please vote over the Internet, by telephone or by requesting a proxy card.

 

H. James McKnight

Executive Vice President,

Chief Legal Officer and

Secretary

 

April 15, 2011

 

TABLE OF CONTENTS

 

 

We have made these materials available over the Internet, and for those who have received or may request to receive the materials in hard copy or by e-mail the proxy materials have been sent to you, on or about April 15, 2011 because the Board of Directors of Michael Baker Corporation (“Michael Baker”) is soliciting your proxy to vote at Michael Baker’s 2011 annual meeting of shareholders.

 

Shareholders of Michael Baker as reflected in Michael Baker’s stock records at the close of business on April 5, 2011 may vote.

 

Pursuant to rules adopted by the Securities and Exchange Commission, we are once again providing access to our Proxy Statement, proxy card and 2010 Annual Report to Shareholders, referred to as our “Proxy Materials”, over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to our shareholders of record and beneficial owners. You will have the ability to access the Proxy Materials on a website referred to in the Notice or request a printed or e-mailed set of the Proxy Materials. Instructions on how to access the Proxy Materials over the Internet or to request a printed or e-mailed copy may be found in the Notice. In addition, you may request delivery of future annual meeting proxy materials in printed form by mail or electronically by email on an ongoing basis.

 

You can direct your vote by proxy as follows:

 

 

Giving Michael Baker a proxy means that you authorize Michael Baker to vote your shares in accordance with your directions. If you give Michael Baker a proxy, but do not direct how to vote your shares on each proposal, your shares will be voted in favor of each proposal.

 

You may receive more than one Notice depending on how you hold your shares. Shares registered in your name are generally covered by one Notice. If you hold shares through someone else, such as a stockbroker, then you may get material from them asking you how you want to vote.

 

You may revoke your proxy before it is voted by submitting a new proxy with a later date, including a proxy submitted over the Internet or by telephone, by voting in person at the meeting or by notifying Michael Baker’s Secretary in writing.

 

As of the close of business on April 5, 2011, approximately 9,293,719 shares of Michael Baker common stock were issued and outstanding.

 

Quorum

 

In order to conduct the business of the meeting, there must be a quorum. This means at least a majority of the issued and outstanding shares eligible to vote must be represented at the meeting, either in person or by proxy. You are considered a part of the quorum if you vote over the Internet, vote by telephone or submit a properly signed proxy card if you received one. Votes withheld, broker non-votes and abstentions, as well as votes for or against a proposal, are counted as eligible votes represented at the meeting in determining a quorum. Broker non-votes are proxies submitted by brokers that do not indicate a vote for a proposal because the broker does not have discretionary voting authority and has not received instructions as to how to vote on the proposal.

 

Election of Directors

 

If a quorum is present at the meeting, the vote to elect nine directors to Michael Baker’s Board of Directors will be determined based on a plurality of the votes cast. This means the nine director candidates receiving the greatest number of votes cast will be elected to fill the open seats on the Board of Directors.

 

Approval of an Advisory Resolution on Michael Baker’s 2010 Named Executive Officer Compensation

 

If a quorum is present at the meeting, then the approval of the advisory resolution on Michael Baker’s 2010 named executive officer compensation requires the affirmative vote of a majority of the votes cast, in person or by proxy, at the annual meeting. The result of this vote is not binding on the Board of Directors.

 

Advisory Vote on the Frequency of Future Shareholder Votes on Michael Baker’s Named Executive Officer Compensation

 

The advisory vote on the frequency of future shareholder votes on Michael Baker’s named executive officer compensation will be determined based on a majority of the votes cast, in person or by proxy, at the annual meeting. The result of this vote is not binding on the Board of Directors.

 

Ratification of the Selection of Deloitte & Touche LLP

 

If a quorum is present at the meeting, then the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011 will be approved if the majority of the votes cast, in person or by proxy, on the proposal by the holders of shares is in favor of the proposal.

 

Other Matters

 

If a quorum is present, then any proposal other than the election of directors, the approval of the advisory resolution on Michael Baker’s named executive officer compensation, the advisory vote on the frequency of future shareholder votes on Michael Baker’s named executive officer compensation and the ratification of the selection of Deloitte & Touche LLP will be approved if a majority of the votes cast (in person or by proxy) are in favor of the proposal, unless the matter requires more than a majority of votes cast under statute or Michael Baker’s bylaws. There are no other proposals included in this Proxy Statement or expected to come before the Annual Meeting.

 

Shares Held by your Broker

 

If your shares are held by a broker, the broker will ask you how you want your shares voted. If you give the broker instructions on how to vote your shares, your shares will be voted as you direct. If you do not give instructions, one of two things will happen, depending on the proposal. For Proposal 4, the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011, the broker may vote your shares at its discretion. For all other proposals, the broker may not vote your shares at all if you do not give instructions.

 

Abstentions and Broker Non-Votes

 

Under the Pennsylvania Business Corporation Law, an abstention or a broker non-vote is not considered a vote cast or considered in the calculation of the majority of votes cast and, therefore, will have no effect on the vote for an item.

 

Under the proxy rules of the Securities and Exchange Commission, a person beneficially owns Michael Baker common stock if the person has the power to vote or dispose of the shares, or if such power may be acquired, by exercising options or otherwise, within 60 days. The table below shows the amount and percentage of Michael Baker common stock that is beneficially owned, as of April 5, 2011, by the named executive officers in the “Summary Compensation Table,” Michael Baker’s current non-employee directors/nominees, and all of Michael Baker’s directors and executive officers as a group. Each person has sole voting power and sole dispositive power, unless indicated otherwise. No shares have been pledged as security by the named executive officers or director nominees.

 

 

 

 

 

 

The following table shows shareholders who are known to Michael Baker to be a beneficial owner of more than 5% of Michael Baker’s common stock as of December 31, 2010.

 

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934 requires Michael Baker’s directors and executive officers to file reports of beneficial ownership and changes in beneficial ownership of Michael Baker stock. Directors and officers must furnish Michael Baker with copies of these reports. Based on these copies and directors’ and executive officers’ representations, Michael Baker believes all directors and executive officers complied with the requirements in 2010, except for the reporting of the sale of 6,000 shares by G. John Kurgan which was reported late on a Form 4 filed on May 14, 2010, and the late Form 4 reporting on June 23, 2010, of restricted stock awards to the following executives: Joseph R. Beck 1,739 shares; David G. Higie 1,739 shares; James M. Kempton 1,449 shares; Samuel C. Knoch 1,739 shares; G. John Kurgan 5,072 shares; Bradley L. Mallory 18,841 shares; H. James McKnight 5,072 shares; Edward L. Wiley 5,072 shares; Michael Ziemianski 1,739 shares; Michael J. Zugay 5,072 shares.

 

Michael Baker’s Board of Directors currently has nine members. Robert N. Bontempo, Nicholas P. Constantakis, Robert H. Foglesong, Mark E. Kaplan, Bradley L. Mallory, John E. Murray, Jr., Pamela S. Pierce, Richard L. Shaw and David N. Wormley, whose terms of office are expiring, have been nominated to serve for new terms ending in 2012. All nominations were recommended by the Governance and Nominating Committee of the Board, as further described in “The Governance and Nominating Committee” on page 12, and approved by the entire Board of Directors.

 

You have one vote for each share of Michael Baker common stock you own, and you have cumulative voting rights in the election of directors. Cumulative voting entitles you to that number of votes in the election of directors equal to the number of shares of Michael Baker common stock you own, multiplied by the total number of directors to be elected. Under cumulative voting, you may cast the total number of your votes for one nominee or distribute them among any two or more nominees as you choose. Your proxy will be voted “for” the election of these nominees, unless you withhold authority to vote for any one or more of them. Shares represented by proxies, unless otherwise indicated on the proxy card, will be voted cumulatively in such manner that the number of shares voted for each nominee (and for any substitute nominated by the Board of Directors, if any nominee listed becomes unable or is unwilling to serve) will be as nearly equal as possible. The nine nominees receiving the highest number of affirmative votes cast at the annual meeting by the holders of common stock voting in person or by proxy, a quorum being present, will be elected as directors. If any nominee is unable or unwilling to stand for election, your proxy authorizes Michael Baker to vote for a replacement nominee if the Board names one.

 

Only votes “for” a candidate are counted in the election of directors. The nine nominees who receive the most votes will be elected as directors.

 

The Board recommends you vote “for” each of the following candidates.

 

The following table sets forth certain information regarding the nominees as of April 5, 2011. All of the nominees are continuing directors who were elected directors by Michael Baker’s shareholders at the 2010 Annual Meeting. Except as otherwise indicated, each nominee has held the principal occupation listed or another executive position with the same entity for at least the past five years.

 

 

The Board met seven times during 2010. All directors then serving participated in at least 75% of all meetings of the Board and the committees on which they served in 2010 with the exception of Mr. Kaplan, who attended 71% of the Board meetings. The standing Board committees that help the Board fulfill its duties include the Executive Committee, the Audit Committee, the Compensation Committee, the Governance and Nominating Committee, and the Health, Safety, Environmental and Compliance Committee.

 

The Board has adopted categorical standards to assist it in determining whether its members meet the independence requirements of the NYSE Amex. The Board has reviewed the independence of its members under the NYSE Amex listing standards and has determined that a majority of its members are independent. Specifically, none of the following directors, Dr. Bontempo, Mr. Constantakis, General (Ret.) Foglesong, Mr. Kaplan, Dr. Murray, Ms. Pierce and Dr. Wormley, has a material relationship with Michael Baker and each such director meets the independence requirements of the NYSE Amex.

 

It is Michael Baker’s policy that all directors attend the annual meeting of shareholders if reasonably possible. All directors then serving attended the 2010 annual meeting of shareholders with the exception of Mr. Shaw.

 

The Board operates under the leadership of the Chairman. There is no prohibition in Michael Baker’s bylaws that precludes the Chairman from also assuming the role of Chief Executive Officer. It is, however, Michael Baker’s common practice to have a different individual fill the role of Chairman and Chief Executive Officer, except during times of transition when the same person may fill both roles in an interim capacity while an appropriate candidate is found to assume the vacant position. Currently, Mr. Shaw is Chairman of the Board and Mr. Mallory is the Chief Executive Officer. Michael Baker feels the current leadership structure provides the appropriate balance of oversight, independence, administration and hands-on involvement in Board activities that are required for the efficient conduct of corporate governance activities.

 

The Board takes an active role in overseeing Michael Baker’s risks, including but not limited to those created by legislative, business regulatory, and public policy changes. Michael Baker’s management is responsible for managing these risks, which it does through several individuals, including the Chief Executive Officer, the Chief Financial Officer, the Chief Legal Officer, and through an individual designated as the Chief Risk Officer, who is responsible for overseeing Michael Baker’s enterprise risk management program. The Board receives periodic updates from management on these and other risks at its scheduled meetings throughout the year.

 

Oversight of certain specific key risks has been delegated by the Board to various standing committees. The oversight of risks associated with Michael Baker’s various compensation programs, including incentive compensation, has been delegated to and is monitored by the Compensation Committee. The monitoring of audit and key financial risks is the responsibility of the Audit Committee, which contains at least one individual who has been deemed an “audit committee financial expert” in accordance with the rules of the Securities and Exchange Commission. Risks associated with job safety and related to health compliance, as well as changes in regulations affecting workplace safety, are overseen by Michael Baker’s Health, Safety, Environmental and Compliance Committee. The Audit Committee, the Compensation Committee, and the Health, Safety, Environmental and Compliance Committee report their activities to the Board periodically as needed.

 

The Executive Committee has all of the powers of, and the right to exercise all of the authority of, the Board of Directors in the management of the business and affairs of Michael Baker. The Executive Committee met five times in 2010. The Executive Committee members are Mr. Shaw, Mr. Mallory and Drs. Bontempo and Murray. Mr. Shaw serves as the Executive Committee’s Chairman.

 

The Audit Committee acts under a written charter, which was amended and restated by the Board of Directors on July 10, 2010. The Audit Committee reviews and reassesses the adequacy of the Audit Committee Charter on an annual basis. A current copy of the Audit Committee Charter is available on Michael Baker’s website at http://www.mbakercorp.com and available in print to any shareholder upon request.

 

The Audit Committee met thirteen times in 2010. The Audit Committee members are Mr. Constantakis, Mr. Kaplan and Ms. Pierce. Mr. Constantakis was appointed Chairman of the Audit Committee on November 1, 2007. Mr. Kaplan was appointed to the Audit Committee in February 2008. Ms. Pierce was appointed to the Audit Committee in September 2008. The Board of Directors has concluded that all Audit Committee members are independent as defined by the NYSE Amex listing standards. In addition, the Board has determined that Mr. Constantakis and Mr. Kaplan each qualify as an “audit committee financial expert,” as such term is defined by the regulations of the Securities and Exchange Commission.

 

The Audit Committee assists the Board in overseeing the accounting and financial reporting processes of Michael Baker. It is directly responsible for appointing, compensating, retaining and overseeing the work of the independent registered public accounting firm engaged by Michael Baker. The functions performed by the Audit Committee include:

 

 

 

The Audit Committee has established procedures for the receipt, retention and treatment of complaints received by Michael Baker regarding accounting, internal controls or auditing matters. The Audit Committee has oversight of the internal audit function, including reviewing the annual internal audit plan and assessing the internal audit function’s performance.

 

The Audit Committee considers whether the independent registered public accountants’ provision of non-audit related services is compatible with maintaining the independence of the independent registered public accountants.

 

The Audit Committee is responsible for reviewing Michael Baker’s financial reporting process on behalf of the Board of Directors. Management of Michael Baker has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. In the performance of the Audit Committee’s oversight function, the Audit Committee meets with management periodically to consider the adequacy of Michael Baker’s internal controls and the objectivity of its financial reporting. The Audit Committee meets privately with the independent registered public accountants of Michael Baker, who have unrestricted access to the Audit Committee. Specifically, the Audit Committee reviewed and discussed the consolidated balance sheet of Michael Baker and its subsidiaries as of December 31, 2010, and the related consolidated statements of income, shareholders’ investment and cash flows, for the year then ended, with management of Michael Baker and the independent registered public accountants. These consolidated financial statements, which are the responsibility of Michael Baker’s management, are included in Michael Baker’s annual report to shareholders and in Michael Baker’s annual report on Form 10-K as filed with the Securities and Exchange Commission. They have been audited by Deloitte & Touche LLP, independent registered public accounting firm, and their report thereon, which accompanies the consolidated financial statements, is an important part of Michael Baker’s reporting responsibility to its shareholders. Based on the Audit Committee’s review of the consolidated financial statements and the discussions with Michael Baker’s management and the independent registered public accountants, the Audit Committee is responsible for making a recommendation to the Board of Directors of Michael Baker regarding inclusion of the audited financial statements in Michael Baker’s annual report on Form 10-K.

 

The Audit Committee has met with the independent registered public accountants and discussed the matters that they are required to communicate to the Audit Committee by Statement on Auditing Standards No. 114 (The Auditor’s Communication With Those Charged With Governance) relating to the conduct of the audit. These items include, but are not limited to, significant issues identified during the audit such as management judgments and accounting estimates, accounting policies, proposed audit adjustments, financial statement disclosure items and internal control issues, and if there were any disagreements with management or difficulties encountered in performing the audit.

 

Michael Baker’s independent registered public accountants also provided the Audit Committee with the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence. The Audit Committee has met with and discussed the independent registered public accountants’ independence. The Audit Committee has determined that Deloitte & Touche LLP are independent auditors with respect to Michael Baker within the meaning of the federal securities laws and the rules and regulations thereunder and Rule 3200T of the Public Company Accounting Oversight Board.

 

As part of the ongoing oversight process, the Audit Committee, with the advice of legal counsel, Michael Baker’s independent registered public accountants and other advisors, has adopted and implemented in a timely manner any new rules and regulations promulgated by the Securities and Exchange Commission and NYSE Amex.

 

Based on the Audit Committee’s review and discussions, the Audit Committee has recommended to Michael Baker’s Board of Directors that the aforementioned 2010 audited financial statements be included in Michael Baker’s annual report on Form 10-K for filing with the Securities and Exchange Commission.

 

Respectfully submitted,

 

 

 

The Compensation Committee acts under a written charter, which is available on Michael Baker’s website at http://www.mbakercorp.com and available in print to any shareholder upon request.

 

The Compensation Committee provides assistance to the Board relating to the compensation of Michael Baker’s officers and directors. The Committee’s principal responsibilities include:

 

 

The Compensation Committee ensures that the compensation of Michael Baker’s executives and other key employees is fair and competitive, as well as in compliance with applicable laws.

 

The Chief Executive Officer approves salary adjustments for executive officers based on research provided by the Chief Resource Officer. A final comparison is made to verify that the total percentage increase in compensation paid to the executive officers as a group is not disproportionate to the percentage increase applicable to other Michael Baker employee groups. The Compensation Committee annually reviews market data by reviewing executive compensation surveys compiled by third-party consultants, compensation of an industry peer group and compensation of a group of local companies to assess Michael Baker’s competitive position for the components of executive compensation (base salary, short-term incentive compensation, and long-term incentive compensation).

 

The Compensation Committee annually reviews market data compiled by third-party consultants, along with general industry information and other relevant sources to assess the competitiveness of the Chief Executive Officer’s salary, and based on this review, and in consideration of the terms of the Chief Executive Officer’s Employment Agreement, as described below, approves in advance any salary increase for the Chief Executive Officer.

 

Pursuant to its charter, the Compensation Committee is authorized to engage compensation consultants of its selection to advise it with respect to Michael Baker’s salary and incentive compensation and benefits programs. The Compensation Committee has historically engaged compensation consultants for a variety of purposes. The Compensation Committee regularly reviews data from multiple third party sources in connection with performance of its duties, including data compiled by or provided by compensation consultants. Mercer (US) Inc. (“Mercer”) assisted in providing information concerning Michael Baker’s short-term incentive compensation plan. Michael Baker’s management engaged Mercer to assist in recommending the 2010 compensation of Michael Baker’s Chief Executive Officer, and conducted a competitive analysis for its other executive officers based on a variety of sources.

 

In regard to Michael Baker’s non-employee directors, the Compensation Committee also uses data from an industry peer group and local companies and survey data compiled by third-party consultants to assess and determine the level of director compensation. This data is compiled by the Chief Resource Officer and provided to the Compensation Committee. Director compensation is reviewed and approved by the full Board of Directors.

 

The Compensation Committee also adopts or amends incentive compensation plans and equity award plans in which the executive officers and non-employee directors are participants.

 

The Compensation Committee met five times in 2010. The Compensation Committee members are Drs. Bontempo and Murray and Mr. Constantakis. Dr. Bontempo was appointed as the Compensation Committee’s Chairman on September 9, 2008. All of the members of the Compensation Committee are non-employee directors satisfying the independence standards of the NYSE Amex listing standards.

 

During 2010, Michael Baker had no interlocking relationships in which (i) an executive officer of Michael Baker served as a member of the compensation committee of another entity, one of whose executive officers served on the Compensation Committee of Michael Baker; (ii) an executive officer of Michael Baker served as a director of another entity, one of whose executive officers served on the Compensation Committee of Michael Baker; or (iii) an executive officer of Michael Baker served as a member of the compensation committee of another entity, one of whose executive officers served as a director of Michael Baker. No member of the Compensation Committee was at any time during the 2010 fiscal year or at any other time an officer or employee of the Company, and no member had any relationship with Michael Baker requiring disclosure under Item 404 of Securities and Exchange Commission Regulation S-K.

 

The Compensation Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis included on pages 14 through 29 of the Proxy Statement with management.

 

Based on the review and discussion, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Proxy Statement.

 

Respectfully submitted,

 

 

The Governance and Nominating Committee acts under a written charter which was adopted by the Board of Directors on February 20, 2003. A current copy of the Governance and Nominating Committee Charter is available on Michael Baker’s website at http://www.mbakercorp.com and available in print to any shareholder upon request.

 

The principal functions of the Governance and Nominating Committee are to:

 

 

The Governance and Nominating Committee met three times in 2010. The current Governance and Nominating Committee members are Mr. Kaplan, General Foglesong and Dr. Murray, each of whom are non-employee directors satisfying the independence standards of the NYSE Amex listing standards. Dr. Murray is the Chairman of the Governance and Nominating Committee. General Foglesong was appointed to the Governance and Nominating Committee in 2010.

 

The Committee will consider nominees for director recommended by shareholders. Shareholders wishing to recommend a director candidate for consideration by the Committee can do so by complying with Section 2.01.01 of Michael Baker’s bylaws, which provide for, among other things, submission of nominations not less than 90 days nor more than 120 days prior to the one-year anniversary of the preceding year’s annual meeting. In addition to providing timely notice, any shareholder wishing to recommend a director candidate for consideration must also provide notice in the proper written form to the Secretary of Michael Baker, Airside Business Park, 100 Airside Drive, Moon Township, PA 15108. To be in proper written form, a shareholder must set forth in the notice all information relating to the nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the

Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, and a description of all direct or indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among the shareholder making the nomination and the proposed nominee. The notice must also provide the shareholder’s name and address as they appear in Michael Baker’s books, the class and number of shares that are held of record or beneficially owned by the shareholder, any derivative positions held or beneficially owned by the shareholder and whether and to what extent any hedging or other transaction or series of transactions has been entered into by or on behalf of such shareholder, and any material interest of the shareholder in such nominee. No candidates for Board membership have been put forward by shareholders for election at the annual meeting.

 

In evaluating candidates for the Board, the Governance and Nominating Committee considers the entirety of each candidate’s credentials. Although the Board does not have a separate diversity policy, the Governance and Nominating Committee is guided by the objective set forth in its charter of ensuring that the Board consists of individuals from diverse experience and backgrounds who collectively provide meaningful counsel to management. The Committee believes that Board diversity is an expansive attribute that includes differing points of view, professional experience and expertise, and education, as well more traditional diversity concepts. The Committee considers the candidates’ character, integrity, experience, understanding of strategy and policy-setting, and reputation for working well with others. If candidates are recommended by Michael Baker’s shareholders, then such candidates will be evaluated using the same criteria. With respect to nomination of continuing directors for re-election, the individual’s past contributions to the Board are also considered.

 

Pursuant to authority granted under its charter, the Governance and Nominating Committee has the authority to hire and pay a fee to a consultant or search firm to assist in the process of identifying and evaluating director candidates. The Committee did not use a consultant or search firm in the last fiscal year and, accordingly, did not pay any fees for identifying director candidates.

 

The Health, Safety, Environmental and Compliance Committee acts under a written charter, which is available on Michael Baker’s website at http://www.mbakercorp.com and available in print to any shareholder upon request.

 

The Health, Safety, Environmental and Compliance Committee reviews and considers health, safety, environmental and related compliance issues and sustainability initiatives relative to Michael Baker.

 

The Health, Safety, Environmental and Compliance Committee met four times in 2010. The current Health, Safety, Environmental and Compliance Committee members are Ms. Pierce, Mr. Mallory and Dr. Wormley. Ms. Pierce is the Chairperson of the Health, Safety, Environmental and Compliance Committee. Mr. Mallory was appointed to the Health, Safety, Environmental and Compliance Committee in 2010.

 

Overview

 

This compensation discussion describes the material elements of compensation awarded to, earned by, or paid to each of Michael Baker’s executive officers who served as named executive officers during 2010. The discussion focuses primarily on the information contained in the tables and related footnotes and narrative for 2010, but the discussion also describes compensation actions taken prior to 2010 to the extent it enhances the understanding of Michael Baker’s executive compensation disclosure.

 

The principal elements of Michael Baker’s executive compensation program for 2010 are base salary, short-term incentive compensation and long-term incentive compensation. Michael Baker’s other benefits and perquisites consist of group life insurance premiums paid on behalf of Michael Baker’s executives, and tax gross-up payments associated with certain perquisites. Michael Baker’s philosophy on compensation places a share of overall compensation “at risk,” thereby rewarding employees based on the overall performance of Michael Baker.

 

Objectives and Philosophy

 

The overall objectives of Michael Baker’s executive compensation program are:

 

 

During 2010, the Compensation Committee focused on assessing whether Michael Baker’s incentive compensation programs were structured to reward an executive’s performance in the manner in which the Compensation Committee believes is effective and appropriate. As discussed below in regard to the short-term incentive compensation plan, the Compensation Committee decided not to utilize individual targets for the 2010 plan year and to grant discretionary awards under the existing short-term incentive compensation plan. Michael Baker’s prior long-term incentive plan was terminated in 2007. In 2010, the Board adopted and the shareholders approved a new Long-Term Incentive Plan and Employee Stock Purchase Plan, which are described in more detail below. In determining executive compensation for 2010, the Compensation Committee reviewed the relationship of an executive’s compensation to that of other executive officers of Michael Baker, similar executive officers in comparable companies, and Michael Baker’s current and projected growth and profitability performance. The Compensation Committee believes that executive compensation packages provided by Michael Baker to its executives during 2010, including the named executive officers, were competitive and appropriately rewarded the named executive officers.

 

Compensation Process

 

Compensation Committee.  Executive officer compensation is administered by the Compensation Committee of Michael Baker’s Board of Directors, which is composed of three members, Drs. Bontempo and Murray and Mr. Constantakis. Dr. Bontempo was appointed Chairman of the Compensation Committee on September 9, 2008. The Compensation Committee approved the 2010 compensation arrangements described in this compensation discussion and analysis. Michael Baker’s Board of Directors appoints the Compensation Committee members and delegates to the Compensation Committee the direct responsibility for, among other matters:

 

 

 

The Compensation Committee annually reviews market data through executive compensation surveys compiled by third-party consultants, considering compensation of an industry peer group and compensation of a group of local companies to assess Michael Baker’s competitive position for the components of executive compensation (base salary, short-term incentive compensation and long-term incentive compensation).

 

The Compensation Committee annually reviews market data compiled by third-party consultants, along with general industry information and other relevant sources to assess the competitiveness of the Chief Executive Officer’s salary, and based on this review, and in consideration of the terms of the Chief Executive Officer’s Employment Agreement, as described below, approves in advance any salary increase for the Chief Executive Officer.

 

Role of Compensation Experts.  Pursuant to its charter, the Compensation Committee is authorized to engage compensation consultants to advise with respect to Michael Baker’s salary and incentive compensation and benefits programs. The Compensation Committee has historically engaged compensation consultants for a variety of purposes. The Compensation Committee regularly reviews data from multiple third party sources, in connection with the performance of its duties, including data compiled by or provided by compensation consultants. Mercer assisted in providing information concerning Michael Baker’s short-term incentive compensation plan. Michael Baker’s management engaged Mercer to assist in recommending the 2010 compensation of Michael Baker’s Chief Executive Officer, and conducted a competitive analysis for its other executive officers based on a variety of sources.

 

Role of Michael Baker’s Executive Officers in the Compensation Process.  The Chief Executive Officer approves all salary adjustments for executive officers other than the Chief Executive Officer based on research provided by the Chief Resource Officer.

 

Components of Compensation

 

Michael Baker’s 2010 compensation consisted of base salary, short-term incentive compensation and long-term incentive compensation elements primarily structured to reward Michael Baker’s executive officers for achieving certain financial and business objectives. In 2010, the compensation of Michael Baker’s named executive officers was allocated as follows:

 

 

Base Salaries.  An overall base salary budget increase recommendation is compiled by the Human Resources function for all divisions of Michael Baker. A preliminary merit increase percentage is communicated to the Compensation Committee during the October meeting for the next calendar year. Human Resources monitors market conditions and makes a final recommendation to the Compensation Committee during the December meeting. The final approval is made during the first meeting of the new calendar year. These increases are determined by reviewing a variety of third party compensation data. For 2010 salaries, the Compensation Committee reviewed such data from Hewitt, Engineering and Construction Compensation Forum (“ECCF”), Dietrich Surveys (“Dietrich”), Salary.com, and WorldatWork.

 

Michael Baker establishes a salary range based on benchmarking for each of its executive officers’ salary grade level. The competitive norm for salary ranges for 2010 was established by reviewing data from the third party consultant surveys including Hewitt, ECCF, Dietrich, Salary.com, and WorldatWork. Consideration was also given to Michael Baker’s industry peer group. Michael Baker’s industry peer group for benchmarking includes Tetra Tech

Inc., Granite Construction, Inc., Oceaneering International, Inc., MasTec, Inc., Insituform Technologies, Inc., ENGlobal Corporation, Sterling Construction Company, Hill International, Inc. and TRC Companies, Inc. In using this group for benchmarking, the Compensation Committee takes into consideration that many of the peer group companies have higher market capitalization and/or total revenue than Michael Baker. Finally, consideration was given to comparable local companies to determine if the proposed ranges of executive salaries were in line with the local markets. This benchmarking is performed using local companies such as Mine Safety Appliances Company, Westinghouse Air Brake Technologies Corporation, Koppers Holdings, Inc., and L.B. Foster Company. The use of local companies in addition to survey data and Michael Baker’s peer group is based on the philosophy that Michael Baker’s executives are hired from a talent pool that is not comprised of only engineering industry executives and that Michael Baker competes in the local market for certain of its executive officer positions. Michael Baker generally establishes its executive officer salary midpoint at the average midpoint determined through this benchmarking process. Based on this benchmarking process, the salary ranges for Michael Baker’s executive officers were increased by 2% for fiscal year 2010.

 

Individual executive officer base salaries for Michael Baker’s executive officers are reviewed annually by the Chief Executive Officer with increases to be effective in April of the next fiscal year. Increases for the executive officers other than the Chief Executive Officer are approved by the Chief Executive Officer. The position of the executive officer within the salary range for the executive’s position established by the benchmarking process described above and the executive’s years in the position, responsibility and contributions to the business are all taken into consideration. Individual salaries may be above or below the midpoint in the established range based on the individual’s years in the position, contribution to business results, capabilities and qualifications, potential and the importance of the individual’s position to Michael Baker’s success. For 2010, the base salary increases for the named executive officers ranged from 0% to 15.2%. These increases are discussed further in connection with the “Summary Compensation Table,” which follows on page 20.

 

Short-Term Incentive Compensation.  Michael Baker’s short-term incentive compensation plan is intended to compensate executive officers if financial performance targets are achieved for the preceding fiscal year. This short-term incentive compensation program is driven by obtaining certain levels of financial performance based on preset earnings per share targets. Because this is a company-wide objective, no individual performance targets are utilized and the Compensation Committee focuses on the overall funding of the plan. Therefore, as in 2008 and 2009, no incentive targets were set for the named executive officers for the 2010 plan year.

 

The Compensation Committee may grant discretionary bonuses to executive officers under the 2010 Incentive Compensation Plan. The Compensation Committee considered alternative strategic and financial performance targets, in order to reward employees for outstanding performance during 2010. For 2010, the Compensation Committee recommended to the Board and the Board adopted an earnings per share formula to provide performance targets for the executive officers. Based upon 2010 performance, the Compensation Committee recommended and the Board approved a discretionary pool available for distribution of $500,000, of which none was paid to the named executive officers.

 

Long-Term Incentive Compensation.  Michael Baker’s Long-Term Incentive Plan (the “LTIP”) was adopted by the Board and approved by the shareholders in 2010. The purposes of the LTIP are to:

 

 

The LTIP is administered by Michael Baker’s Compensation Committee. The Committee has authority to designate the individuals eligible to participate in the LTIP, to grant awards under the LTIP, and subject to the terms of the LTIP, to establish terms and conditions of each award. The Committee also has the authority to interpret the LTIP, to adopt, amend and rescind rules and regulations relating to the LTIP, and to make other determinations and take all actions necessary or advisable for the implementation and administration of the LTIP.

 

Under the LTIP, the Committee may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance share units, and other stock-based awards. In determining eligibility of any participant and the number of shares or value of an award, the Committee considers the individual’s position and responsibilities, the nature and value of the individual’s services, the individual’s potential contribution to the success of Michael Baker, and such other factors as the Committee may deem relevant.

 

The Committee’s administration of the LTIP provides for five tiers of participation, or “impact levels”, with each impact level corresponding to a different level of award. The Committee believes the multiple impact level design gives the Committee the maximum amount of flexibility in determining the appropriate mix of awards to different levels of eligible employees to promote the achievement of Michael Baker’s strategic objectives and align the employee’s interests with the interests of the shareholders. Currently, each impact level of the LTIP is awarded an amount of restricted stock that is determined by the Committee. The restricted stock awarded to each impact level under the LTIP vests in equal installments on each of the three annual anniversary dates following the date of the award, contingent upon the recipients continued employment at Michael Baker.

 

Restricted stock awards are initially subject to the achievement by Michael Baker of certain key performance indicators that are established and approved by the Committee. The key performance indicators are designed to align awards under the LTIP with Michael Baker’s achievement of its five year strategic plan. Each key performance indicator is weighted and targets are established for the five year period. The target for any given year has a minimum and a maximum value. The target minimum value represents the key performance indicator level below which no award will be granted. The target maximum value represents the key performance indicator level above which no additional potential awards will be granted.

 

In recognition of the fact that Michael Baker’s prior Long Term Incentive Plan was terminated in 2007, in 2010 the Committee approved a “kick-off” award of restricted stock to each participant in order to immediately begin to provide benefits to the LTIP participants. The initial award was not dependent upon the achievement of any performance targets. The restricted stock awarded as the initial “kick-off” award will vest in equal installments on each of the three annual anniversary dates following the date of the award, contingent upon the recipients continued employment at Michael Baker. Each named executive officer received an amount under the “kick-off” award as provided in the Summary Compensation table below.

 

Along with Michael Baker’s LTIP, the Board adopted and the shareholders approved Michael Baker’s Employee Stock Purchase Plan (the “ESPP”) in 2010. The purpose of the ESPP is to provide a method whereby employees of Michael Baker, including named executive officers, will have an opportunity to purchase shares of Michael Baker common stock through payroll deductions.

 

The ESPP is administered by Michael Baker’s Compensation Committee. The Committee has the authority and responsibility for the administration of the ESPP.

 

Under the ESPP, an eligible employee may elect to purchase shares of Michael Baker common stock by participating during any quarterly purchase period. An eligible employee may authorize a payroll deduction between 1% and 10%, subject to Internal Revenue Code limits applicable to the Plan.

 

The initial purchase period of Michael Baker’s ESPP was from January 1, 2011 to March 31, 2011. The purchase price of shares of Michael Baker’s common stock purchased under the ESPP is discounted to 90% of the fair market value of the common stock on the purchase date. However, the Committee may change the designated percentage of the discount with respect to any future purchase period, but not below 85%, and the Committee may determine with respect to any prospective purchase period that the purchase price shall be the designated percentage of the lower of (a) the fair market value of Michael Baker common stock on the Offering Date or (b) the fair market value of Michael Baker common stock on the Purchase Date.

 

Stock Ownership Requirements.  We do not currently have any policy or guidelines that require a specified ownership of Michael Baker’s common stock by Michael Baker’s directors or executive officers or stock retention guidelines applicable to equity-based awards granted to directors and executive officers. As of April 5, 2011, Michael Baker’s directors and executive officers as a group owned approximately 3% of Michael Baker’s outstanding common stock.

 

Perquisites and Other Personal Benefits.  Supplemental benefits are offered to selected executive officers with the goal of attracting and retaining key executive talent. We provide the following perquisites to Michael Baker’s executive officers: group life insurance premiums paid on behalf of Michael Baker’s executives, and tax gross-up payments associated with certain perquisites.

 

Compensation Risk Assessment

 

As part of its oversight, the Compensation Committee considers the impact of Michael Baker’s compensation programs, plans and awards, and the incentives created by the compensation awards that it administers, on Michael Baker’s risk profile. The Committee reviews the executive compensation policies and procedures, including the incentives the policies and procedures create, and other factors that may affect the likelihood of excessive risk taking, to determine whether Michael Baker’s compensation policies and practices present a significant risk to Michael Baker. The Committee also considers the effects of the policies and procedures that exist to mitigate any potential excessive risk taking, including the balance of compensation between cash and equity, short and long term performance measures, financial and non-financial measures, and the discretion of the Committee to amend or rescind any of the compensation programs, plans or awards. Based on this review, the Committee has concluded that the risks arising from Michael Baker’s compensation programs, plans and awards are not reasonably likely to have a material adverse effect on Michael Baker.

 

Post-termination Compensation

 

Michael Baker does not generally provide employment or severance agreements to its executive officers. However, in June 2008, Michael Baker entered into an employment agreement with Mr. Mallory, which is discussed below, under which he is provided certain post-termination benefits under certain circumstances. On April 20, 2009, Michael Baker entered into employment continuation agreements, which are more fully discussed below, with several of its senior executives, including the named executive officers.

 

Tax Implications of Executive Compensation.  Michael Baker’s aggregate deductions for each named executive officer’s compensation are potentially limited by Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), to the extent the aggregate amount paid to an executive officer exceeds $1.0 million, unless it is paid under a predetermined objective performance plan meeting certain requirements, or satisfies one of various other exceptions specified in the Code.

 

Stock Option Practices.  The Compensation Committee has the discretion to award stock options under Michael Baker’s Long-Term Incentive Plan. Under the terms of the plan, the Committee may grant “incentive stock options” pursuant to Section 422 of the Code, and “nonstatutory stock options”, which are stock options that do not so qualify. The option price for each stock option may not be less than 100% of the fair market value of Michael Baker common stock on the date the stock option is granted. Fair market value, for purposes of the Long-Term Plan, is the closing price of Michael Baker common stock on the NYSE Amex Exchange for the date as of which fair market value is to be determined.

 

A stock option becomes exercisable at such time or times and/or upon the occurrence of such event or events as the Committee may determine. No stock option may be exercised after the expiration of ten years from the date of grant. A stock option to the extent exercisable at any time may be exercised in whole or in part.

 

The Committee has not granted stock options to named executive officers under the Long-Term Incentive Plan. The Long-Term Incentive Plan provides standard terms and conditions applicable to stock options and the Committee’s discretion with respect to such terms.

 

Unless the Committee, in its discretion, otherwise determines, the following provisions will apply in the case of an optionee whose employment is terminated.

 

Retirement.  If the employment of an optionee is terminated by reason of retirement under any Michael Baker retirement plan then in effect, outstanding stock options held by the optionee that are exercisable immediately prior to the termination of employment will be exercisable by the optionee at any time prior to the expiration date of the stock option or within one year after the date of termination, whichever is the shorter period.

 

Disability.  If the employment of the optionee is terminated by reason of the optionee’s disability, covered by a long-term disability plan of Michael Baker then in effect, all outstanding stock options of the optionee will be exercisable (whether or not so exercisable immediately prior to the termination of employment) at any time prior to the expiration date of the stock option or within one year after the date of termination of employment, whichever is the shorter period.

 

Death.  Following the death of an optionee during employment or within a period following termination of employment during which an option remains exercisable, all outstanding stock options of the optionee will be exercisable (whether or not so exercisable immediately prior to the death of the optionee) by the person entitled to do so under the Will of the optionee, or, if the optionee shall fail to make testamentary disposition of the stock option or shall die intestate, by the legal representative of the optionee, at any time prior to the expiration date of the stock option or within one year after the date of death of the optionee, whichever is the shorter period.

 

Sale of Business Unit or Subsidiary.  If the employment of an optionee is terminated due to the sale of a business unit or subsidiary by which the optionee is employed, outstanding stock options held by the optionee that are exercisable immediately prior to the termination of employment will be exercisable by the optionee at any time prior to the expiration date of the stock option or within one year after the date of termination, whichever is the shorter period.

 

Involuntary Termination.  If the employment of an optionee is involuntarily terminated by Michael Baker without cause, as determined by the Committee or its delegate in its sole discretion, outstanding stock options held by the optionee that are exercisable immediately prior to the termination of employment will be exercisable by the optionee at any time prior to the expiration date of the stock option or within thirty days after the date of termination of employment, whichever is the shorter period.

 

If the employment of an optionee terminates for any reason other than as described above, all outstanding stock options granted to the optionee will automatically terminate, unless the optionee’s employment was terminated following a “Change in Control,” as described under the Long-Term Incentive Plan section within the “Potential Payments on Termination or Change in Control” section below.

 

No reload option rights or dividend equivalents may be granted in connection with any stock option.

 

The post-termination provisions applicable to restricted stock awards are described on page 27, below.

 

Severance.  The named executive officers are covered under Michael Baker’s standard severance policy. While the standard severance policy sets certain amounts that a named executive officer is to receive under the policy, Michael Baker may negotiate the terms of severance agreements with its executive officers based on the facts and circumstances of the separation.

 

Accrued Vacation.  Under Michael Baker’s separation policy, employees who leave Michael Baker are entitled to receive payment for any accrued vacation.

 

Paid up Life Insurance Policy.  Under Michael Baker’s separation policy, employees who have ten years of service and are at least 55 years of age, including the named executive officers who meet these criteria, and who retire from service at Michael Baker receive a paid up life insurance policy of $5,000.

 

This table shows the compensation for each person serving as Michael Baker’s Chief Executive Officer, Chief Financial Officer and the three other most highly paid executive officers, other than the Chief Executive Officer and Chief Financial Officer, in 2010.

 

 

 

 

 

During 2009, Michael Baker’s executive officers did not have employment agreements, except for Mr. Mallory. Mr. Mallory serves as President and Chief Executive Officer under an employment agreement entered into on June 17, 2008. Mr. Mallory’s employment agreement is for a term of three years, and provides that Mr. Mallory will, among other things, be entitled to the following compensation:

 

 

Subject to certain forfeiture conditions summarized in the “Potential Payments on Termination or Change in Control” section on page 23, 10,000 SARs vested on December 17, 2009, 15,000 SARs vested on June 17, 2010, and 15,000 SARs will vest on June 17, 2011.

 

For 2010, the base salary increases resulting from the process described in the Compensation Discussion and Analysis for the other named executive officers ranged from 0% to 15.2% as follows:

 

 

Mr. Mallory received a 62% pay increase on March 1, 2008 in connection with his promotion to Chief Executive Officer. His employment agreement permits the Board to adjust his base rate for inflation at a rate not to exceed 3%. Based on the timing of his promotion and pay increase in 2008 and a decreasing rate of inflation to -0.4% based on the Employment Cost Index in 2009 and 2010, no pay increase was given in 2009 and 2010.

 

Mr. Zugay became Chief Financial Officer on April 1, 2009. As such he was not eligible for a pay increase based on Michael Baker’s policy which awards increases in March of every year with an effective April date. Mr. Zugay received a 15.2% pay increase in 2010 in order to adjust his salary to the level of comparable executives as determined by the Employment Cost Index.

 

Mr. Kurgan received a pay increase within Michael Baker’s guidelines based on his individual performance and placement in his salary range. Michael Baker creates increase guideline charts that provide a range of recommendations for pay increases in relation to performance. Mr. Kurgan’s range was between 2.0% and 5.5%, resulting in a 5% pay adjustment.

 

Mr. McKnight received a pay increase within Michael Baker’s guidelines based on his individual performance and placement in his salary range. Michael Baker creates increase guideline charts that provide a range

recommendation for pay increases in relation to performance. Mr. McKnight’s range was between 2.0% and 5.5%, resulting in a 4.8% pay adjustment.

 

Mr. Wiley received a pay increase within Michael Baker’s guidelines based on his individual performance and placement in his salary range. Michael Baker creates increase guideline charts that provide a range of recommendations for pay increases in relation to performance. Mr. Wiley’s range was between 2.0% and 5.5%, resulting in a 5% pay adjustment.

 

As discussed in the Compensation Discussion and Analysis above, the Company did not utilize individual incentive targets for the named executive officers for 2010 under the 2010 Incentive Compensation Plan. As a result, only discretionary incentive awards were granted under the 2010 Incentive Compensation Plan and none were granted to named executive officers. Discretionary incentive awards are included in the “Summary Compensation Table”.

 

 

 

 

The following table provides information regarding outstanding equity awards at December 31, 2010 for the individuals named in the “Summary Compensation Table” set forth above.

 

 

 

 

 

The following table provides information regarding the options exercised by the named executive officers during fiscal year 2010.

 

 

 

 

General

 

Michael Baker does not generally provide employment or severance agreements to its executive officers. As discussed above, Mr. Mallory entered into an employment agreement with Michael Baker on June 17, 2008. Mr. Mallory’s employment agreement provides that, in the event that his employment with Michael Baker terminates because of his death, disability, or he is terminated by Michael Baker for Cause (as defined below), he is entitled to receive any accrued salary, any outstanding reimbursable reasonable business expenses, and any amounts due pursuant to Michael Baker’s health benefit plan and other benefits generally available to Michael Baker employees. All other compensation and benefits are forfeited under these circumstances. If Mr. Mallory’s employment with Michael Baker had terminated on December 31, 2010 because of his death or disability, or had he been terminated by Michael Baker for Cause, he would have been entitled to receive $26,999, which represents his accrued vacation at that time.

If Mr. Mallory’s employment is terminated by Michael Baker without Cause he is entitled to:

 

 

 

 

 

 

Pursuant to Mr. Mallory’s employment agreement, in the event Michael Baker terminates Mr. Mallory’s employment on or after the 24th month anniversary but prior to the 36th month anniversary of the employment agreement, any vested SARs would be payable upon the 30th day following Mr. Mallory’s separation of service subject to any six month delay as may be required pursuant to Section 409A of the Internal Revenue Code. Payment of any vested SARs shall be equal to the positive difference, if any, between the fair market value of a share of Michael Baker’s common stock on the date of Mr. Mallory’s separation of service and the fair market value of a share of Michael Baker’s common stock on the date his employment agreement commenced, multiplied by the number of vested SARs subject to a maximum payment of $7.166675 per SAR if less than all of the SARs have vested.

 

If Michael Baker had terminated Mr. Mallory’s employment on December 31, 2010 without Cause he would have been entitled to receive a total of $669,281, which represents one times his current base salary, the fair market value of 25,000 vested SARs subject to the maximum payment as described above, his accrued vacation and the amount he was eligible to receive under Michael Baker’s severance policy at that time.

 

Under the terms of Mr. Mallory’s employment agreement, termination for “Cause” is defined as (i) any willful action which adversely affects, or is intended to adversely affect, Michael Baker or any person or entity affiliated therewith, or the business or property of the foregoing, (ii) the commission of a felony (as determined by a plea or a finding of guilt in a court of competent jurisdiction), (iii) failure or refusal of Mr. Mallory to perform any material duties hereunder or to obey any direction from the Board, which failure or refusal remains uncured 30 days following written notice to Mr. Mallory specifying such failure or refusal or (iv) any conduct contributing to, or any failure to correct deficiencies directly or indirectly resulting in, financial restatements or irregularities.

 

Also discussed above, the named executive officers entered into employment continuation agreements with Michael Baker on April 20, 2009. Under the terms of these agreements, if the executive is employed on the date on which a change of control, as defined in the agreement, occurs the executive will be entitled to remain employed by Michael Baker until the twenty-four month anniversary of the change of control, subject to the termination provisions described below. During such employment period, the executive’s position will be at least commensurate with that held immediately prior to the change of control and the executive’s services will be performed at the location where the executive was employed immediately before the change of control or at a different location within a specified distance from such location. During the employment period, the executive will (a) receive a base salary at a monthly rate at least equal to the monthly salary paid to the executive immediately prior to the change of control, (b) be afforded the opportunity to receive a bonus (i) on terms and conditions no less favorable to the executive than the annual bonus opportunity made available to the executive for the fiscal year ended immediately prior to the change of control and (ii) in an amount not less than the average bonus earned by the executive during the three fiscal year period immediately prior to the change of control, (c) participate in all long-term incentive compensation programs for key executives and benefit plans at a level that is commensurate with the executive’s opportunity to participate in such plans immediately prior to the change of control, or if more favorable, at the level made available to the executive or other similarly situated officers at any time thereafter, (d) receive vacation and

fringe benefits, expense reimbursement and office and support staff at a level that is commensurate with the executive’s benefits immediately prior to the change of control, or if more favorable, at the level made available to the executive or other similarly situated officers at any time thereafter, and (e) be indemnified, during and after his employment period, for claims arising from or out of the executive’s performance as an officer, director or employee of Michael Baker to the maximum extent permitted by applicable law and Michael Baker’s governing documents. Michael Baker is also required to maintain existing or comparable insurance policies covering such matters at a level of protection that is no less than that afforded under Michael Baker’s governing documents in effect immediately prior to the change of control.

 

If an executive’s employment is terminated within the twenty-four month employment period after a change of control due to death or disability, as defined in the agreement, the executive will receive only the executive’s base salary through the date of termination, any vested amounts or benefits under Michael Baker’s benefit plans, including accrued but unpaid vacation, and any benefits payable for death or disability under applicable plans or policies. If, after a change of control, an executive’s employment is terminated within the twenty-four month employment period by Michael Baker for cause, as defined in the agreement, or the executive voluntarily terminates his or her employment other than for good reason, as defined in the agreement, the executive will receive only the executive’s base salary through the date of termination and any vested amounts or benefits under Michael Baker’s benefit plans, including accrued but unpaid vacation. If, after a change of control, an executive’s employment is terminated within the twenty-four month employment period by Michael Baker other than for cause or the executive terminates his or her employment for good reason, the executive will receive (a) the executive’s base salary through the date of termination, (b) a cash amount equal to two times the sum of the executive’s annual base salary and the average of the bonuses payable to the executive for Michael Baker’s three fiscal years ending immediately prior to the change of control, subject to reduction as provided in the agreement, including for any further salary payable to executive for periods following termination of employment, and any severance benefit or separation pay otherwise payable to the executive under any Michael Baker benefit plan, policy, agreement or otherwise, and (c) any vested benefits under Michael Baker’s benefit plans, including accrued but unpaid vacation. The executive will also be entitled to continue participation in all of Michael Baker’s employee and executive welfare and fringe plans until the earlier of the twenty-four month anniversary of the termination date or the date the executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer. The amounts described are subject to further reduction as may be necessary to avoid characterization of amounts as “excess parachute payments” under the Internal Revenue Code. The table below sets forth the payment amounts each named executive officer would receive under the employment continuation agreements if the events described below would have occurred on December 31, 2010:

 

 

 

 

Michael Baker will also pay the executive’s costs incurred in enforcing the agreement if the executive is the prevailing party in a dispute. The agreement also contains requirements and restrictions applicable to the executive’s disclosure of Michael Baker confidential information and return of Michael Baker property following a termination of employment.

 

During 2010, executive officers were covered by Michael Baker’s standard severance policy. Under this policy, the following named executive officers would have received the following amounts if termination had occurred on December 31, 2010:

 

 

While these are the minimum amounts that the named executive officers would receive under the Company’s standard severance policy, Michael Baker may negotiate the terms of severance arrangements with its executive officers based on the facts and circumstances of the separation. Michael Baker’s separation policy provides that the amount of accrued vacation will be paid to employees who leave Michael Baker. Under this policy, the following named executive officers would have received the following amounts if termination had occurred on December 31, 2010:

 

 

Michael Baker’s separation policy also provides that employees who have ten years of service and are at least 55 years of age, including the named executive officers who meet these criteria, and who retire from service at Michael Baker will receive a paid up life insurance policy of $5,000. As of December 31, 2010, only Mr. Kurgan, Mr. McKnight and Mr. Wiley meet the requirements and were eligible to receive the fully paid up life insurance policy. The following analysis discusses the potential payments due to the previously-named executive officers upon a termination of employment of such officers under the existing employment arrangements and incentive plans entered into by Michael Baker.

 

Short-Term Incentive Plan

 

No post-termination benefits are available under the 2010 Incentive Compensation Plan for voluntary terminations by an individual. Under this plan, any participant whose employment is terminated by Michael Baker involuntarily other than for cause following the end of a plan year will not forfeit such participant’s right to any unpaid incentive awards for such plan year. In addition, any participant whose employment is terminated by Michael Baker involuntarily other than for cause after June 30 of a plan year will be entitled to a pro-rated incentive award for the period of employment during such plan year, subject to the other terms and conditions of the plan and the achievement of the applicable performance goals and targets for such period.

 

Long-Term Incentive Plan

 

The eligible participants under Michael Baker’s Long-Term Incentive Plan are granted certain rights under a change of control. A “Change of Control” under the Long-Term Incentive Plan means:

 

 

 

For purposes of this definition, “Continuing Directors” shall mean a director of Michael Baker who either (i) was a director of Michael Baker immediately prior to the Effective Date or (ii) is an individual whose election, or nomination for election, as a director of Michael Baker 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 Michael Baker which would be subject to Rule 14a-11 under the Exchange Act).

 

Except as otherwise expressly provided to the contrary in an award agreement made under the Long-Term Incentive Plan, in the event the employment of a participant is terminated by Michael Baker without cause within two years after the occurrence of a Change of Control, his or her restricted stock, restricted stock units, and other stock-based awards shall fully vest and, to the extent subject to an exercise right, may be exercised within one year after the date such termination occurred; provided, however, that the restricted stock units, and other stock-based awards shall remain payable on the date(s) provided in the underlying award agreement and provisions of the Long-Term Incentive Plan unless the Change of Control constitutes a change in ownership or effective control of Michael Baker or a change in the ownership of a substantial portion of the assets of Michael Baker under Section 409A of the Code (a “409A Change of Control”), in which such case the award shall be payable upon such Change of Control. For purposes of this paragraph, “without cause” shall mean any termination of employment where it cannot be shown that the employee has (i) willfully failed to perform his or her employment duties for Michael Baker, (ii) willfully engaged in conduct that is materially injurious to Michael Baker, monetarily or otherwise, or (iii) committed acts that constitute a felony under applicable federal or state law or constitute common law fraud. For purposes of this paragraph, no act or failure to act on the participant’s part shall be considered “willful” unless done, or omitted to be done, by him or her not in good faith and without reasonable belief that his or her action or omission was in the best interest of Michael Baker.

 

Except as otherwise expressly provided to the contrary in an award agreement, if any Change of Control occurs prior to the end of any performance period, all performance criteria and other conditions pertaining to performance share units and other awards under which payments are subject to performance goals shall be deemed to be achieved or fulfilled on a pro-rata basis for (i) the number of whole months elapsed from the commencement of the performance period through the Change of Control over (ii) the number of whole months included in the original performance period, measured at the actual performance level achieved or, if not determinable, in the manner specified by the Committee at the commencement of the performance period, and shall be waived by Michael Baker. Such awards shall be payable on the date(s) provided in the underlying award agreement and provisions of

the Long-Term Incentive Plan unless the Change of Control constitutes a 409A Change of Control, in which such case the Award shall be payable upon such Change of Control.

 

Notwithstanding the foregoing, the Committee may condition the extension of exercise periods, lapse of restrictions and/or deemed achievement of performance goals upon the occurrence of a 409A Change of Control.

 

As described above, in 2010, in order to immediately begin to provide benefits to the LTIP participants, the Committee approved a “kick-off” award of restricted stock to each participant. In addition to the rights of a participant under a Change in Control, as described above, the Restricted Stock Agreement granted the following additional post-termination rights: (i) the restriction on disposition of the restricted stock granted as the “kick-off” award lapse immediately if the termination of the participant’s employment with Michael Baker is the result of the participant’s death, the participant’s retirement under any retirement plan of Michael Baker then in effect, or the participant’s employment is terminated as a result of the sale of a business unit or subsidiary of Michael Baker by which the participant is employed; and (ii) the restriction on disposition of the restricted stock granted as the “kick-off” award lapse immediately if the termination of the participant’s employment with Michael Baker is due to the disability of the participant as covered by the long-term disability plan of Michael Baker then in effect.

 

Employee directors receive no compensation for their service on the Board of Directors. Non-employee directors receive compensation as follows. Each director of Michael Baker receives an annual cash retainer equal to $17,000 for his or her services as director. In addition, each such director is entitled to receive $1,000 for each Board meeting that they attend in person and $750 for each Board committee meeting that they attend in person. If a director participates by telephone in a Board meeting or Board committee meeting, then such director is entitled to receive $100 for each meeting in which they participate. Further, the Chairman of the Board of Directors is entitled to receive an additional annual retainer equal to $15,000 for his services and $1,250 for each Board meeting that he attends in person. The chairmen of the Board committees, excluding the Audit Committee Chairman, are entitled to receive an additional annual retainer equal to $2,500 for services. The Audit Committee Chairman receives an additional annual retainer equal to $4,500 for services. All directors are reimbursed for their out-of-pocket expenses incurred in connection with attendance at meetings and other activities relating to the Board or its committees.

 

Also, non-employee directors may participate in the Outside Directors’ Deferred Compensation Plan, which provides the opportunity to voluntarily defer all or a portion of an eligible director’s compensation. Under this plan, any non-employee director may voluntarily defer their retainer and meeting fees until the sooner of the director’s termination of service as a director for any reason, or the date of payment specified by the director in the election deferral form. Payments from the plan are made in a single lump sum, unless the director elects to receive the payments in the form of either five or ten annual installments. The election to receive the payments in annual installments is irrevocable and applies to all future deferrals. The plan also permits the Board to make payments in the case of severe financial hardship, but only to the extent necessary to satisfy the hardship. The deferred compensation is credited monthly with interest equal to Michael Baker’s long-term borrowing rate as of the beginning of the plan year.

 

In addition, non-employee directors participate in the 1996 Nonemployee Directors Stock Incentive Plan, which provides long-term incentive compensation to eligible directors. Under this plan, each member of the Board of Directors who is not an employee on the first business day following the annual meeting of shareholders each year is granted (i) 1,500 restricted shares which will vest after a two-year period commencing on the date of the issuance of such restricted shares, subject to any change of control of Michael Baker (as defined in the plan), upon which all restrictions will lapse and (ii) an option to purchase 2,000 shares of Michael Baker’s common stock which is not exercisable until the six-month anniversary of the date of grant, subject to any change of control of Michael Baker (as defined in the plan), upon which such options become immediately and fully exercisable.

2010 Director Compensation Table

 

The following table discloses compensation received by each non-employee member of Michael Baker’s Board of Directors who served as a director during 2010:

 

 

 

 

Along with the compensation paid to the above named non-employee directors of Michael Baker’s Board of Directors, Michael Baker pays an annual retainer of $17,000 to Mr. William Copeland, who serves as a director emeritus. As an emeritus director, Mr. Copeland may participate in board meetings as a non-voting member of the Board.

 

Mr. Shaw has a Consulting Agreement, which was amended and restated on April 25, 2001, upon his resignation as Chief Executive Officer, whereby he agreed to perform consulting services for Michael Baker for a two year term. The Consulting Agreement has been extended for a variety of two or one-year periods, most recently, through April 2012. The Consulting Agreement provides annual compensation of $106,252. The Consulting Agreement also provides for a supplemental retirement benefit of $5,000 per month for life, including the life of his surviving spouse, paid life insurance premiums for himself, and paid medical insurance premiums for himself and his spouse for life. These benefits are payable after his retirement if he is not consulting. If Mr. Shaw did not perform consulting services after December 31, 2010, the estimated value of this benefit is $798,488.

 

Related Party Transaction Approval Policy.  It is Michael Baker’s policy that the Governance and Nominating Committee review and approve, in advance, all related party transactions that are required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the Securities and Exchange Commission. If advance approval is not feasible, then the Governance and Nominating Committee must approve or ratify the transaction at the next scheduled meeting of the Governance and Nominating Committee. Transactions required to be disclosed pursuant to Item 404 include any transaction between Michael Baker and any officer, director or certain affiliates of Michael Baker that has a value in excess of $120,000. In reviewing related party transactions, the Governance and Nominating Committee evaluates all material facts about the transaction, including the nature of the transaction, the benefit provided to Michael Baker, whether the transaction is on commercially reasonable terms that would have been available from an unrelated third party, and any other factors necessary to its determination that the transaction is fair to Michael Baker. Michael Baker’s Board has adopted the written Statement of Policy with Respect to Related Party Transactions, a copy of which is available on Michael Baker’s website at http://www.mbakercorp.com and is available in print to any stockholder upon request.

 

As discussed above, Mr. Shaw has entered into a Consulting Agreement through April 2012 which provides annual compensation of $106,252. In addition, under the Consulting Agreement, Michael Baker pays the costs of health insurance and maintains life insurance for Mr. Shaw. The Consulting Agreement provides for a supplemental retirement benefit of $5,000 per month for life, including the life of his surviving spouse, paid life insurance premiums for himself, and paid medical insurance premiums for himself and his spouse for life.

 

In accordance with the recently adopted amendments to Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which was added as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), Michael Baker is providing the shareholders an advisory vote on the compensation arrangements of Michael Baker’s named executive officers as described in the compensation discussion and analysis section above. This proposal, referred to as a “Say on Pay” proposal, permits the shareholders the opportunity to endorse or not endorse Michael Baker’s 2010 named executive officer compensation.

 

As provided in the compensation discussion and analysis section above, the overall objectives of Michael Baker’s compensation program are:

 

 

Shareholders are being asked to vote “FOR” the following advisory resolution:

 

RESOLVED, that the shareholders hereby approve the 2010 compensation of Michael Baker’s named executive officers as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the tabular disclosure regarding named executive officer compensation and the accompanying narrative disclosure, in the proxy statement.

 

While the above resolution is non-binding, the Board values the opinions that shareholders express in their votes and in any additional dialogue. The Board will consider the outcome of the vote and those opinions when making future compensation decisions.

Vote Required

 

This proposal is adopted if it receives the affirmative vote of a majority of votes cast, in person or by proxy. Under the Pennsylvania Business Corporation Law, an abstention is not a vote cast and will not be counted in determining the number of votes required for approval.

 

The Board recommends that you vote “FOR” the advisory resolution approving
Michael Baker’s 2010 named executive officer compensation.

 

 

Pursuant to the recently adopted amendments to Schedule 14A of the Exchange Act, which was added as a result of the Dodd-Frank Act, Michael Baker is providing the shareholders an advisory vote on the frequency of future shareholder advisory votes on Michael Baker’s named executive officer compensation. By voting on this proposal, shareholders may indicate whether they prefer an advisory vote on Michael Baker’s named executive officer compensation once every year, two years or three years. This proposal on the frequency of future shareholder advisory votes on named executive officer compensation is required to be included in our proxy statement once every six years.

 

Michael Baker’s Board recognizes the importance of receiving regular input from our shareholders into such matters as the named executive officer compensation program. The Board believes that any named executive officer compensation program meant to drive long-term shareholder value should include input from the shareholders. As a result, the Board recommends that shareholders vote for an annual advisory vote on named executive officer compensation.

 

Shareholders may cast their vote for their preferred voting frequency by choosing the option of one, two or three years, or by abstaining from the vote. Although the results of the advisory vote on the frequency of future shareholder advisory votes is non-binding on the Board, the Board values the regular input from the shareholders on such matters and will consider the results of the vote when deciding how frequently to conduct the future advisory votes on Michael Baker’s named executive officer compensation.

 

Vote Required

 

The option of one, two or three years that receives the vote of the majority of the votes cast, in person or by proxy, on the matter will be the frequency for the advisory vote on Michael Baker’s named executive officer compensation that has been selected by the shareholders. Under the Pennsylvania Business Corporation Law, an abstention is not a vote cast and will not be counted in determining the number of votes required for approval.

 

Unlike the other proposals included in this year’s proxy statement, you have four choices as how to vote on this proposal. You may cast your vote on your preferred voting frequency by choosing the option of one, two, or three years, or abstain from voting when you vote in response to this proposal.

 

The Board recommends that you vote to hold future shareholder advisory votes on
Michael Baker’s named executive officer compensation every “ONE YEAR”.

 

 

The Audit Committee of our Board has retained Deloitte & Touche LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2011. The Board expects that representatives of Deloitte & Touche LLP will be present at the annual meeting and, while the representatives do not currently plan to make a statement at the meeting, they will have the opportunity to do so if they so desire. They will also be available to respond to appropriate questions.

Reason for the proposal

 

Selection of our independent registered public accounting firm is not required to be submitted for shareholder approval, but the Audit Committee of our Board is seeking ratification of its selection of Deloitte & Touche LLP from our shareholders as a matter of good corporate practice. If shareholders do not ratify this selection, the Audit Committee will reconsider its selection of Deloitte & Touche LLP, and will either continue to retain this firm or appoint a new independent registered public accounting firm. Even if the selection is ratified, the Audit Committee may, in its discretion, appoint a different independent registered public accounting firm at any time during the fiscal year if it determines that such a change would be in Michael Baker’s best interest and the best interests of the shareholders.

 

Vote Required

 

Ratification of Deloitte & Touche LLP as our independent registered accounting firm for the fiscal year ending December 31, 2011, requires the affirmative vote of a majority of the votes cast on the proposal by the holders of Michael Baker common stock voting in person or by proxy at the Annual Meeting, with a quorum of a majority of the outstanding shares of Michael Baker common stock being present or represented. Under the Pennsylvania Business Corporation Law, an abstention or broker non-vote is not a vote cast and will not be counted in determining the number of votes required for approval, though it will be counted in determining the presence of a quorum.

 

The Board recommends that you vote “FOR” Proposal 4.

 

Michael Baker does not expect any business to come before the meeting other than the election of directors, the proposals related to the advisory vote on Michael Baker’s named executive officer compensation and the frequency of the advisory vote, and the ratification of the selection of Deloitte & Touche LLP. If other business is properly raised, your proxy authorizes its holder to vote according to his or her best judgment.

 

The Board of Directors expects that representatives of Deloitte & Touche LLP will be present at the annual meeting and, while the representatives do not currently plan to make a statement at the meeting, they will have the opportunity to do so if they so desire. They will also be available to respond to appropriate questions.

 

The Audit Committee of the Board of Directors of Michael Baker has selected Deloitte & Touche LLP as its independent registered public accounting firm for 2011.

 

This table shows the aggregate fees for services provided by Deloitte & Touche LLP for the fiscal years ended December 31, 2010 and 2009:

 

 

 

 

The Audit Committee is responsible for the appointment, compensation and oversight of the work of the independent registered public accounting firm. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent registered public accounting firm to assure that the provision of such services does not impair the registered public accounting firm’s independence.

The annual audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. All other permitted services must also be pre-approved by the Audit Committee.

 

The Chief Financial Officer determines whether services to be provided require pre-approval or are included within the list of pre-approved services.

 

All services provided by Deloitte & Touche LLP in fiscal years 2010 and 2009 were pre-approved by the Audit Committee.

 

Michael Baker has adopted a Code of Ethics for Senior Officers that includes the provisions required under applicable Securities and Exchange Commission regulations for a code of ethics. A copy of the Code of Ethics for Senior Officers is posted on Michael Baker’s website at http://www.mbakercorp.com and is available in print to any shareholder who requests it. In the event that we make any amendments to or waivers from this Code, we will discuss the amendment or waiver and the reasons for such on Michael Baker’s website.

 

The obligations of the Code of Ethics for Senior Officers supplement, but do not replace, the Code of Business Conduct applicable to Michael Baker’s directors, officers and employees. A copy of the Code of Business Conduct is posted on Michael Baker’s website at http://www.mbakercorp.com and is available in print to any shareholder who requests it.

 

The Board provides a process for shareholders to send communications to the Board or to any of the directors of Michael Baker. Shareholder communications to the Board or any director should be sent c/o the Secretary of Michael Baker, Airside Business Park, 100 Airside Drive, Moon Township, PA 15108. All such communications will be compiled by the Secretary of Michael Baker and submitted to the Board or the individual director at the next regularly scheduled meeting of the Board.

 

Michael Baker pays the cost for proxy solicitation, including the cost of sending the Notice, providing the Internet site for our Proxy Materials, and mailing the Proxy Materials to any shareholder who requests them. For no additional compensation, officers, directors and other employees may, in a limited number of instances, solicit proxies in person, by telephone, electronic transmission and facsimile.

 

The 2012 annual meeting is currently expected to be held in May 2012. To be eligible for inclusion in next year’s proxy for the 2012 annual meeting of shareholders, shareholder proposals must be made in accordance with Section 1.01.01 of Michael Baker’s bylaws, which provides for, among other things, receipt of shareholder proposals by the Company’s Secretary not less than 90 days nor more than 120 days prior to the one-year anniversary of the preceding year’s annual meeting. Any shareholder intending to present a proposal for action by the shareholders at the 2012 annual meeting must give written notice of the matter or proposal to be considered on or before February 25, 2012.

 

By order of the Board of Directors,

 

H. JAMES MCKNIGHT
Executive Vice President,
Chief Legal Officer and
Secretary

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting
to be held on May 25, 2011 for Michael Baker Corporation

						You are receiving this communication because you hold shares in the above named company. This communication is not a form for voting and presents only an overview of the more complete proxy materials that are available to you on the internet or by mail. We encourage you to access and review the proxy materials before voting. You may view the proxy materials online at www.proxydocs.com/BKR or easily request a paper or e-mail copy free of charge (see reverse side).

		ACCOUNT NO.		SHARES

HOW TO VOTE

Vote in Person: While we encourage shareholders to vote by the means indicated on the reverse, a shareholder is entitled to vote in person at the annual meeting. Additionally, a shareholder who has submitted a proxy before the meeting may revoke that proxy in person at the annual meeting.

Vote Online: To vote online, go to www.proxydocs.com/BKR. Please have your 12 Digit Control Number available.

Vote by Mail:		You can vote by mail by returning the proxy card that will be included in our subsequent mailing if you request a paper or e-mail copy of the material using the instructions described below.

HOW TO REQUEST A PAPER OR E-MAIL COPY OF THE PROXY MATERIALS

		INTERNET: www.investorelections.com/BKR
		TELEPHONE: (866) 648-8133
		*E-MAIL: paper@investorelections.com