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SUPERIOR ENERGY SERVICES, INC.
1105 Peters Road
Harvey, Louisiana 70058

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

To the Stockholders:

 

Superior’s annual stockholders’ meeting will be held on Wednesday, May 23, 2007, 9:00 a.m., at 201 St. Charles Avenue, 52nd Floor, New Orleans, Louisiana 70170. At the meeting, stockholders will be asked to:

 

1. elect directors;

 

2. approve the proposed 2007 Employee Stock Purchase Plan;

 

3. ratify the appointment of KPMG LLP as our registered public accounting firm for 2007; and

 

4. consider any other business that may properly come before the meeting.

 

Only holders of record of our common stock as of the close of business on March 30, 2007 are entitled to receive notice of, attend and vote at the meeting.

 

Your vote is important. Whether or not you plan to attend the meeting, please complete, sign and date the enclosed proxy or instruction card and return it promptly in the enclosed envelope, or vote by one of the other methods specified in this proxy statement. If you attend the annual meeting, you may vote your shares in person, even if you have sent in your proxy.

 

By Order of the Board of Directors

 

 

Greg Rosenstein

Secretary

 

Harvey, Louisiana

April 18, 2007

SUPERIOR ENERGY SERVICES, INC.
1105 Peters Road
Harvey, Louisiana 70058

 

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

 

This Proxy Statement is being mailed to our stockholders on or about April 18, 2007.

 

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

 

 

 

ELECTION OF DIRECTORS

 

The size of our Board has been fixed at seven directors. Proxies cannot be voted for a greater number of persons. Unless you specify otherwise in your proxy card, your shares will be voted by the proxy holder FOR the election of each of the seven nominees named below to serve until the next annual meeting and until their successors are duly elected and qualified. If any nominee should decline or be unable to serve for any reason, votes will be cast for a substitute nominee designated by the Board. The nominees have advised us that they will serve on the Board if elected.

 

Information About Directors

 

The Nominating and Corporate Governance Committee recommends, and the Board nominates, the following seven individuals for election as directors at the annual meeting:

 

Harold J. Bouillion, 63, has served as a Director since November 2006. Mr. Bouillion is currently the Managing Director of Bouillion & Associates, LLC, which provides tax and financial planning services, a position he has held since 2002. Between 1966 until 2002, Mr. Bouillion was with KPMG LLP where he served as Managing Partner of the New Orleans office from 1991 through 2002.

 

Enoch L. Dawkins, 69, has served as a Director since August 2003. He has over 40 years of experience in the energy industry. From 1991 until his retirement in March 2003, Mr. Dawkins served as president of Murphy Exploration and Production Company, a subsidiary of Murphy Oil. His career included numerous management positions domestically and internationally with Ocean Drilling and Exploration, a company he joined in 1964, including serving as President from 1989 until its acquisition by Murphy Oil Company in 1991. Mr. Dawkins is also a director of Energy Partners, Ltd.

 

James M. Funk, age 57, has served as a Director since May 2005. Mr. Funk is presently an independent oil and gas consultant. Mr. Funk served as a director of Westport Resources Company from April 2000 until its merger with Kerr McGee Corporation in June 2004. Mr. Funk also served as President of Equitable Production Company, from June 2000 until December 2003. Prior to this, Mr. Funk worked for 23 years at Shell Oil Company, where he served in a variety of executive and management capacities, most recently as President of Shell Continental Companies (January 1998 through January 1999). Mr. Funk holds a PhD in geology and is a certified petroleum geologist. Mr. Funk also serves as a director of Matador Resources Company, a private oil and gas company headquartered in Dallas, Texas.

 

Terence E. Hall, 61, has served as the Chairman of the Board, Chief Executive Officer and a Director since December 1995. From December 1995 until November 2004, he also served as our President. Since 1989, he has

also served as President and Chief Executive Officer of our wholly-owned subsidiaries Superior Energy Services, L.L.C. and Connection Technology, L.L.C., and their predecessors.

 

Ernest E. “Wyn” Howard, III, 64, has served as a Director since January 2005. Mr. Howard retired as a director of Stratus Properties, Inc. in 1996, where he previously served as President and Chief Executive Officer. He also previously served as Chief Financial Officer, Executive Vice President and a director of Freeport-McMoRan Copper & Gold Inc. In the 1970s and 1980s, Mr. Howard served in a variety of executive capacities with Freeport-McMoRan, Inc. and its predecessor company, McMoRan Oil & Gas Co. Since March 2003, Mr. Howard has also served as a Trustee and member of the Audit Committee and Nominating Committee of Capital One Funds.

 

Richard A. Pattarozzi, 63, has served as a Director since June 2002. Mr. Pattarozzi retired as a Vice President of Shell Oil Company in January 2000. He also previously served as President and Chief Executive Officer for both Shell Deepwater Development, Inc. and Shell Deepwater Production, Inc. Mr. Pattarozzi serves on the Board of Directors of Global Industries, Ltd., Stone Energy Corporation, Tidewater, Inc. and FMC Technologies, Inc., and is Past Chairman and Trustee of the Offshore Energy Center and Trustee and Secretary of the World War II Museum.

 

Justin L. Sullivan, 67, has served as a Director since December 1995. Mr. Sullivan has been a private investor and has served as a business consultant since May 1993. Prior to May 1993, he held senior operating and financial management positions with various companies in the forest products industry. Mr. Sullivan also has been an accounting faculty member of the University of New Orleans and Tulane University. Mr. Sullivan holds an MBA (accounting option) from Tulane University and is a certified public accountant.

 

Meetings of the Board; Meeting Attendance

 

There were 10 Board meetings in 2006. Each director attended at least 75% of the meetings of the Board and the committees of which he was a member. The Board of Directors has determined that the following directors are “independent” within the meaning of the New York Stock Exchange (NYSE) listing standards currently in effect: Ernest E. Howard, III, Richard A. Pattarozzi, Justin L. Sullivan, James M. Funk and Harold J. Bouillion. Under NYSE listing standards, our Board is not able to consider our sixth non-management director, Enoch L. Dawkins, “independent” because one of his sons-in-law is a consulting principal with KPMG LLP, our registered public accounting firm.

 

The Board has adopted a policy that recommends that all directors personally attend each stockholders meeting. At the last annual meeting of stockholders held on May 23, 2006, all of our directors were in attendance, except Mr. Bouillion who was not a member of the Board at that time.

 

Board Committees

 

Our Board has, as standing committees, an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee and a Reserves Committee. The Board has affirmatively determined that each member of each of our standing committees has no material relationship with the Company and is also “independent” within the meaning of NYSE listing standards, with the exception of Mr. Dawkins, as noted above. Members of the individual committees are named below:

 

 

 

 

Each of the Audit, Compensation, Nominating and Corporate Governance, and Reserves Committees has adopted a written charter that has been approved by the Board. Copies of these charters, as well as copies of our Corporate Governance Guidelines and our Code of Business Ethics and Conduct, are available on the investor relations page of our website at www.superiorenergy.com, and are available in print upon request.

 

Audit Committee

 

The Audit Committee is primarily responsible for assisting the Board in fulfilling its fiduciary duties to our stockholders with respect to financial matters. The Audit Committee is primarily responsible for evaluating and selecting the Company’s independent auditors, approving the nature and scope of services performed by the independent auditors and reviewing the range of fees for such services, conferring with the independent auditors and reviewing the results of their audits, overseeing the Company’s annual evaluation of the effectiveness of internal control over financial reporting and the Company’s internal audit function. The Audit Committee met six times during 2006. The Board of Directors has determined that Justin L. Sullivan qualifies as our audit committee financial expert.

 

Compensation Committee

 

The Compensation Committee determines the nature and amount of compensation of all of our executive officers, including our chief executive officer, determines the amount of equity awards granted to employees, provides guidance and makes recommendations to management regarding employee benefit programs and administers our long-term incentive plans. The Compensation Committee met seven times during 2006.

 

Our chief executive officer makes recommendations to the Compensation Committee for salary, bonus, and long-term incentive awards for all executive officers except himself. He develops these recommendations based on competitive market information, the Company’s compensation strategy, his assessment of the individual performance and tenure of the executives. The Compensation Committee discusses the recommendations with the chief executive officer, then either approves or modifies the recommendations as it determines is appropriate. Regarding the chief executive officer’s compensation, the Compensation Committee reviews the competitive market information and determines changes to pay and incentive awards based on the compensation strategy and their assessment of his performance.

 

In prior years, the Compensation Committee has engaged Mercer Human Resource Consulting, an independent compensation consultant, to advise the committee on matters relating to executive compensation and assist it in developing and implementing our executive compensation programs. At the Compensation Committee’s request, Mercer annually conducted an executive compensation review to benchmark the Company’s senior executive compensation relative to an industry peer group selected by the Compensation Committee with input from the compensation consultant and management and published market survey data. This review and the related market information are discussed in more detail under “Compensation Discussion and Analysis — Executive Compensation Policies and Processes.” In December 2006, the primary consultant with Mercer elected to resign from Mercer and join another compensation consulting firm, Cogent Compensation Partners. Since that time, the Compensation Committee has elected to continue using the same consultant, now employed with Cogent. See the discussion in “Executive Compensation — Compensation Discussion and Analysis” regarding our compensation consultant.

 

The terms of our stock incentive plans permit the Compensation Committee to delegate to appropriate personnel its authority to make awards to employees other than those subject to Section 16 of the Securities Exchange Act of 1934; however, the committee has not delegated this authority to any individual.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee assists the Board in identifying qualified individuals to become directors, determining the composition of the Board and Board committees, monitoring the process to assess Board effectiveness and developing and implementing our corporate governance guidelines. The Nominating and Corporate Governance Committee met two times during 2006.

 

Reserves Committee

 

The Reserves Committee was established in May 2005 and evaluates and selects the Company’s independent engineering consultants, verifies the qualification and independence of the Company’s independent engineering consultants, evaluates the performance of the Company’s independent engineering consultants and reviews the

Company’s internal procedures relating to reserves disclosure, including significant reserves engineering principles. The Reserves Committee met two times in 2006.

 

Nominee Qualifications

 

When seeking candidates for director, the Nominating and Corporate Governance Committee identifies potential nominees for director, other than potential nominees who are current directors standing for re-election, through business and other contacts. The committee will also consider director nominees recommended by stockholders in accordance with the procedures described in our By-laws. We did not pay any fee to any third party to identify or evaluate or assist in identifying or evaluating potential nominees for director at the 2007 annual meeting of stockholders. However, the committee may in the future choose to retain a professional search firm to identify potential nominees for director.

 

Stockholders who would like to propose a director nominee may do so by sending written notice containing the information required by our By-laws by mail, c/o Secretary, Superior Energy Services, Inc. 1105 Peters Road, Harvey, Louisiana 70058. For the 2007 annual meeting, we did not receive timely notice of director nominations from any stockholder. Stockholder recommendations will be considered for inclusion in our proxy materials only if received no later than the 120th calendar day before the first anniversary of the date of our proxy in connection with this year’s annual meeting (no later than December 20, 2007) with respect to recommendations for nominees to be considered at the 2008 annual meeting of stockholders.

 

The Nominating and Corporate Governance Committee believes that nominees to our Board of Directors must meet the following minimum qualifications: the nominee must have achieved significant success in business or have extensive financial expertise, particularly in the energy industry; must be committed to representing the long-term interests of our stockholders; and must have high ethical and moral standards and integrity. The committee evaluates a potential nominee by considering whether the potential nominee meets the minimum qualifications described above, as well as by considering the following factors:

 

 

In addition, with respect to an incumbent director whom the Nominating and Corporate Governance Committee is considering as a potential nominee for re-election, the committee reviews and considers the incumbent director’s service to us during his or her term, including the number of meetings attended, level of participation, and overall contribution to the Board. Each of the nominees for director at the 2007 annual meeting of stockholders is a current director standing for re-election. There are no differences in the manner in which the Nominating and Corporate Governance Committee evaluates nominees for director suggested by stockholders using the process set forth in our By-laws.

 

Executive Sessions; Lead Director

 

The Board has adopted a policy providing that the non-management directors meet in executive session at each regularly-scheduled Board meeting, or more frequently if necessary. The policy also provides that the Board elect a lead director each year. The lead director’s responsibilities include presiding over the executive sessions of the non-management directors and at other meetings of the Board in the absence of the Chairman. He communicates any issues discussed by the non-management directors back to the Chairman, confers with the Chairman at intervals between Board meetings, and assists in planning for Board and Committee meetings. In addition, he acts as a liaison between the Board and the Chairman to ensure close communication and coordination between them and to promote a harmonious and effective relationship. The Board elected Mr. Dawkins to serve as lead director of the

Board until the 2007 annual meeting of stockholders. In addition, our independent directors meet periodically in executive session.

 

Communications with the Board

 

Stockholders and other interested parties may communicate directly with one or more members of our Board, or the non-management directors as a group, by sending a letter by mail addressed to Secretary, Superior Energy Services, Inc. 1105 Peters Road, Harvey, Louisiana 70058. The secretary will forward the communication directly to the appropriate director or directors.

 

Compensation Committee Interlocks and Insider Participation

 

During 2006, the Compensation Committee was composed entirely of non-management directors and none of our executive officers served as a director or member of the compensation committee of another entity whose executive officers served on the Board.

 

Director Compensation

 

Our non-management directors receive an annual retainer of $30,000 a year. The chairman of the Audit Committee receives an additional retainer of $20,000 a year, and the chairmen of the Nominating and Corporate Governance, Compensation and Reserves Committees and our lead director each receive an additional retainer of $10,000 a year. These amounts are paid in equal monthly installments. Non-management directors also receive a $1,500 fee for each Board and committee meeting attended. Effective May 1, 2007, the annual cash retainer paid to our non-management directors will increase to $40,000.

 

In order to closely align the non-management directors’ compensation with the financial interests of our stockholders, a significant portion of their compensation is paid in equity in accordance with the terms of our Amended and Restated 2004 Directors Restricted Stock Units Plan (the “Directors Plan”). Under the terms of the Directors Plan, on the day following each annual meeting of stockholders, each non-management director is automatically granted a number of restricted stock units (“RSUs”) having an aggregate value equal to a specified dollar amount set by the Board of Directors (the “RSU Compensation Amount”), which was $100,000 for 2006. The exact number of units granted is determined by dividing the RSU Compensation Amount by the fair market value of our common stock on the day of the annual meeting. An RSU represents the right to automatically receive from us, within 30 days of the date the participant ceases to serve on the Board, one share of our common stock. In addition, upon any person’s initial election or appointment as an eligible director, otherwise than at an annual meeting of stockholders, such person will receive a pro rata number of RSUs based on the number of full calendar months between the date of grant and the first anniversary of the previous annual meeting. The RSU Compensation Amount for 2007 will be $140,000 and will be determined in the future at the Board meeting held immediately after the annual meeting of stockholders.

 

The table below summarizes the compensation of our non-management directors for fiscal year ended December 31, 2006. Mr. Hall does not receive any special compensation for his service as a director. His compensation as an executive is reflected in the “Summary Compensation Table” herein. All non-management directors are reimbursed for reasonable expenses incurred in attending Board and committee meetings.

 

2006 Director Compensation

 

 

 

 

Stock Ownership of Certain Beneficial Owners

 

The following table shows the number of shares of our common stock beneficially owned as of December 31, 2006 by persons known by us to beneficially own more than 5% of the outstanding shares of our common stock. The information in the table is based on our review of filings with the Securities and Exchange Commission. Each person listed below has sole voting and investment power with respect to the shares beneficially owned unless otherwise stated.

 

 

 

 

Stock Ownership of Management

 

The following table shows the number of shares of our common stock beneficially owned as of March 15, 2007 by (i) our directors, (ii) our chief executive officer, chief financial officer and three other most highly-compensated executive officers, and (iii) all of our directors and executive officers as a group. The information in the table is based on our review of filings with the Securities and Exchange Commission. Each person listed below has sole voting and investment power with respect to the shares beneficially owned unless otherwise stated.

 

 

 

 

EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The Purpose of Our Executive Compensation Program

 

Our compensation program has been designed to attract and retain executives with the skills, educational background, experience and personal qualities needed to successfully manage our business. The purpose of the program is to provide a meaningful reward system that motivates our executives to be good stewards of our stockholders’ interests. It is also intended to provide a competitive total reward program that allows the Company to attract and retain qualified executive talent from among the pool of talent in our industry, and among other industries as appropriate.

 

Our executive compensation program is intended to provide incentives for executives to:

 

 

Our Executive Compensation Philosophy

 

The Company’s executive compensation program is designed to attract and retain key executives, motivate them to achieve the Company’s short- and long-term objectives, and reward them for strong financial and safety performance. The Company uses several different compensation elements that are geared to both the short- and long-term performance of the Company. The following principles influence the design and administration of the Company’s executive compensation program:

 

 

We believe that executive compensation should be highly influenced by and correlated to the Company’s overall performance and stockholder return. In addition, the performance of the executive and the teamwork exhibited by the executive must be considered. We work to design plans that pay out based on the achievement of specific performance targets, realizing that the goal-setting process and the administration of incentive compensation plans in our industry are less than perfect primarily due to its historical volatility and cyclicality as a result of commodity pricing. We also believe that incentive compensation should make up the largest part of an executive’s compensation package, and the incentive portion should increase when performance warrants, and decrease when it does not. Our total compensation program for executives includes short and long-term incentives, which are both directly linked to company performance through the performance criteria in the program.

 

 

We are committed to providing a competitive compensation program for our executives as well as all of our employees. It is critical in the energy industry to provide competitive pay, without which it is very difficult to attract and retain the caliber of talent required to be successful in our industry. The Compensation Committee has approved, with input from management and the Committee’s compensation consultant, our pay strategy relative to the market. We have established a process for evaluating the competitiveness of all elements of direct compensation, including base pay, short-term and long-term incentives.

 

 

For the executive team, the majority of the compensation program is at risk through short-term and long-term incentives. These incentives are considered at-risk if the compensation opportunity at the start of the performance cycle can vary depending upon the Company’s performance. Executives receive annual incentive awards when the Company meets or exceeds annual established goals approved by the Committee. Long-term awards are split between time- and performance-based incentives. The performance-based, long-term incentives only pay out when the Company outperforms its industry peers over a longer period of time. By having a compensation program for executives that emphasizes pay at risk, we believe we strengthen the alignment between pay and stockholder interests.

 

 

In designing our incentive compensation programs, we have attempted to strike a meaningful balance between short-term motivation and long-term value. For example, we utilize an annual incentive compensation program that rewards executives for the achievement of annual goals geared to the profitability and safety performance of the Company. However, so as not to overemphasize the short-term at the expense of the long-term, we provide long-term incentive opportunities which have significantly more potential reward value to the executive if goals are met and share price grows. As part of our annual evaluation of the compensation program, we consider whether the program is balanced in terms of base pay and incentives, both short-term and long term.

 

A primary focus of our compensation program is to motivate executives to stay with the Company and create long-term stability for the Company. We believe one of the keys to retaining key employees is to provide a competitive total compensation opportunity. To reinforce this objective, we have included design elements in the program that provide strong retention incentives. Executives forfeit their opportunity to earn a payout from the performance-based long-term incentives if they voluntarily leave the Company before the 3-year performance cycle is complete, except in the case of retirement. Also, the use of time-vested restricted stock and stock options provide a strong retention value for employees to stay with the Company.

 

 

We have taken several steps recently to encourage our executives to be owners of Company stock and thereby have a strong alignment with stockholder interests. First, time-vested awards in our long-term incentives include restricted stock grants. Second, if payout occurs with our performance-based long-term incentives, the value of the payment to the executive can be made with up to 50% stock. Finally, starting in 2007, we implemented an Executive Stock Ownership Plan, which requires all executives to own shares of Company stock equivalent to a stated multiple of the executive’s base salary. The multiple varies depending on the executive’s job title.

 

 

In keeping with our philosophy that executive compensation should be tied to performance, we have taken an approach that de-emphasizes indirect compensation, such as perquisites. In the energy industry, it is important to manage fixed costs because of the significant influence of commodity prices on Company profitability. Indirect compensation has been an insignificant part of our total compensation program and represents an immaterial part of the total compensation package for the executive team.

 

Oversight of the Executive Compensation Program

 

Our executive compensation program is administered by the Compensation Committee of our Board of Directors.

 

The Committee’s responsibilities include:

 

 

Since 2004, the Committee has engaged Mercer Human Resource Consulting, an independent compensation consultant, to advise the Committee on matters relating to executive compensation and assist it in developing and implementing our executive compensation programs. In December 2006, the primary consultant with Mercer, who had provided periodic advice to the Committee, elected to resign from Mercer and join another compensation consulting firm, Cogent Compensation Partners. The Committee elected to continue using the same primary consultant, now employed with Cogent, due to his familiarity with our compensation program. The Committee continues to evaluate the capabilities and suitability of their consultant relationship and retains the right to terminate the consultant’s contract at any time.

 

At the Committee’s request, the consultant has annually conducted an executive compensation review to benchmark the Company’s senior executive compensation relative to an industry Peer Group selected by the

Compensation Committee with input from the compensation consultant and management and published market survey data. This review and the related market information are discussed in more detail under “Executive Compensation Policies and Processes.” The consultant also provides other services to the Committee and the Company, including assistance with the evaluation and development of the Company’s compensation strategy, reviewing and evaluating the Company’s Peer Group, and reviewing and designing incentive compensation programs.

 

During 2006, the Committee reviewed and evaluated an executive tally sheet that was prepared by Mercer with the assistance of the Company’s management. This report contained a listing and quantification (as appropriate) of each component of the compensation for each of our senior executive officers, and special executive benefits and perquisites as well as accumulated values (e.g., stock option holdings) and other contingent compensation such as severance arrangements. The various elements of compensation included in the tally sheet are described in detail in the sections to follow.

 

Components of Executive Compensation

 

The main components of our executive compensation program are base salary, annual bonus and long-term incentives. Overall, the Company positions the majority of the executive compensation program to be at-risk based on the Company’s performance, with a specific emphasis on long-term performance. As an executive’s level of responsibility increases, a greater portion of total compensation is at risk, creating the potential for greater variability in the individual’s compensation level from year to year. The Committee believes that its current combination of programs provides an appropriate mix of fixed and variable pay, balancing short-term operational and long-term performance, and encouraging executive retention. A description of each element of the Company’s compensation program follows.

 

Base Salary

 

The primary role of the Company’s base salary element is to compensate executives for the experience, education, personal qualities and other qualifications that are key for their specific role within the Company. In establishing base cash compensation for our executives, we target the market median. (For a thorough description of the applicable benchmarking data and our annual process, see “Executive Compensation Policies and Processes — Annual Benchmarking Process, Peer Group and Survey Data.”) Specifically, we strive for overall executive salaries to be close to the market median on a composite basis. However, we generally consider individual base salaries that are either +/− 10% of the market median to be within the competitive range of the median target. We believe this market positioning enables us to limit our exposure to fixed compensation costs. It also provides our executive team with a competitive base salary, providing the ability to attract and retain the executive talent necessary to carry out the Company’s business strategy.

 

Each year, when base salaries are reviewed, the CEO makes a recommendation regarding salary adjustments for the other executive officers. In formulating his recommendation, the CEO considers various factors, including the individual’s performance and contributions, the performance of his business unit, experience level, tenure in position, the average base pay level for similar positions, and the Company’s performance. However, company performance does not drive a formula that determines base salary changes. The Committee considers the CEO’s recommendation when making a final determination on salary adjustments for other executive officers. The Committee independently follows a similar process when reviewing the CEO’s base salary and approving any adjustments.

 

In early 2006, the Committee reviewed the annual market study to help evaluate the base salary increases for 2006. Overall, our executive base salaries were 94% of the median. The Committee recognized that base salaries had been consistently below the median over the previous years, due in part to the Company’s growth, and wanted to increase salaries to stay competitive. Based on the criteria above, the Committee approved base salary increases for executive officers effective April 1, 2006. While the adjustments varied between the officers, the overall base salary increase was 11%. In reviewing the base salary of the CEO, the market study found his base salary to be 92% of the market median. Considering the above factors, the CEO’s performance and the Company’s desire to remain

competitive, the Committee determined that a base salary increase of 12% was appropriate, bringing the CEO’s new salary to $590,000.

 

When base salaries of all executive officers were reviewed in late 2006, they were 82% of market median on an overall basis, and lower, relative to median, than the previous year. This result was caused by several factors, including the Company’s growth, re-organization of the executive team which expanded the job responsibilities of several officers, and the promotion of one officer. When determining annual base salaries, the Committee considered these factors and the Company’s need to plan for future growth and development, and approved base salary increases for the executive officers effective April 1, 2007. While the adjustments varied between the officers, the overall base salary increase was 21%. The market study also found the CEO’s base salary to be 87% of the market median. Considering the Company’s continued growth and profitability and continued strategic initiatives to position the Company for future growth while delivering positive stockholder returns, the Committee adjusted the CEO’s salary to $725,000, an increase of 23%, effective April 1, 2007. This increase moved the CEO’s salary to 107% of the market median.

 

Annual Incentive Bonus

 

The purpose of the Company’s annual incentive bonus program is to reward executives for achievement of annual operational, financial and safety goals. The Company’s strategy is to set annual incentive target levels that result in median payouts when performance objectives are met, providing the opportunity to earn more than the median payout when performance warrants. Further, the Committee may consider paying discretionary incentive awards when performance warrants, as was the case in 2006.

 

In administering the plan, the Committee annually approves the minimum, target and maximum award opportunities for all the executives. Participants in the annual incentive bonus program are recommended by management and approved by the Committee. The Committee also approves the annual incentive plan goals at the beginning of the performance cycle. For the 2006 plan year, the Committee approved pre-tax income as the performance measure for the plan. Executive officers were eligible to receive an annual incentive bonus based on a target percentage of their base salary. They could earn more, or less, than the target amount based on the level of achievement as measured against the pre-tax income goals. For 2006, the Committee approved the opportunity for minimum (25% of salary), target (50% of salary), and maximum (100% of salary) payouts, based upon specific levels of performance. The range of performance was set at 75%, l00% and 130%, respectively, of targeted pretax income.

 

Assuming the particular executive officer qualified for a annual incentive bonus payout, the payout could either be reduced by a maximum of 25% if pre-determined “base” metrics were not met or increased by a maximum of 12.5% for achieving “stretch” targets. The metrics used to either reduce or increase target payout were linked to safety performance, and included “Total Recordable Incident Rate” and “Lost Time Incident Rate.”

 

In January 2007, the Committee reviewed the results of the 2006 annual incentive bonus program and the bonus recommendations submitted by the CEO for each executive officer except himself. For the primary performance measures, the Company achieved 155% of its target for pretax income and achieved superior results in terms of the safety metrics. After considering the accomplishments of the executive team during 2006, and the Company’s continued growth and profitability, the Committee approved the CEO’s recommendations for making additional discretionary award payments outside of the annual incentive program. These payments ranged from an additional 35% to 50% of salary for participants other than the CEO. The Committee also considered a discretionary bonus award for the CEO. After discussing Mr. Hall’s performance during 2006 and his impact on the growth, profitability and strategic direction of the Company, the Committee approved a discretionary award of $675,000.

 

In January 2007, the Committee also approved the parameters of the annual incentive program for 2007, providing for minimum, target and maximum annual incentive award levels, as a percentage of salary, based upon the achievement of 91.5%, 100% and 110.4% of an individual performance target. Unlike prior years, for 2007 the annual cash incentive award payout levels will vary depending on the executive’s position.

 

Long-Term Incentives

 

The purpose of our long-term incentive program is to focus executives on long-term Company goals, growth and creation of stockholder value. The Committee has adopted a strategy which provides annual grants that give the executive the opportunity to earn 75^th percentile of the market based on performance. Consistent with the Company’s compensation philosophy, the Committee believes stock-based incentive awards are one of the best ways to align the interests of our executives with those of our stockholders. The Committee also believes it is important to focus the executives on specific long-term goals that support long-term Company growth and creation of stockholder value.

 

In 2005, the Committee recognized the changing environment surrounding long-term incentives and the need for a performance based equity compensation program to provide a strong link to stockholder interests. The Committee adopted a long-term incentive (“LTI”) program that provided a mix of long-term incentive awards, thus moving away from our historical reliance on stock options as the exclusive LTI award. The mix of grants in the 2005 awards included performance share units (PSU’s) and stock options. The creation of this program enabled the Company to better administer the use of equity shares available for grants. In addition, it improved our ability to manage the associated accounting expense and cash requirements for the various awards, while allowing the Company to provide competitive long-term reward opportunities for the achievement of specific goals and stockholder value creation.

 

Under the program, each of the executive officers (and approximately 45 other key employees currently participating in the program, although this number will likely increase with the Company’s continued growth) has a target percentage established to determine the award values under the LTI program. For the first two years of the program, the CEO’s target percentage was 300% of his base salary, for the COO and CFO, the target percentage was 200% of their respective base salaries, and for the other executive officers the target percentage was 150% of their respective base salaries. Participants in the LTI program are recommended by the CEO and approved by the Committee.

 

For 2006, the LTI program consisted of performance share units (“PSUs”), stock options and shares of restricted stock, although stock options were only granted to the executive officers. The Committee approved the annual grant in February 2006. In determining the awards for the executives, the Committee considered a recommendation by the CEO, which considered many factors, including the Company’s performance, the individual performance of the executives, the calculated share usage and associated accounting expense, as well as the fact that the Company had not made consistent regular annual equity/LTI grants over the previous years. The Committee approved an LTI mix for 2006 consisting of 43% in stock options, 19% in restricted shares, and the remaining 38% in PSUs for the executive officers. This mix resulted in a grant that was 30% above target levels for the executive officers. Non-executive officer participants in the LTI program received restricted stock and PSU’s.

 

Following the review of Mercer’s market study in 2006, the Committee elected to adjust the Company’s target awards going forward in order to remain competitive with the market median. Based on the market data, and the increased size and scope of the Company, the Committee elected to change the target percentage for the 2007 awards for the CEO to 375%, the COO to 275%, the CFO to 250%, the Senior EVP to 225% and 175% for the EVPs.

 

In December 2006, the Committee established and made grants under the LTI program for 2007, once again using a combination of PSU’s, restricted stock, along with stock options for the executive officers. The CEO made a recommendation to the Committee taking into consideration many of the same factors used for the 2006 awards, but focusing on the Company’s overall financial and non-financial results, and the continuing need to remain competitive in a strong market. The overall recommended award was 26% above the LTI targets established for each executive (using the 75^th percentile in the market as a guide) following the review of Mercer’s market study. Considering the need to remain competitive in the industry (especially during the current up cycle) and the Company’s record results relative to our internally established goals and the performance of our Peer Group, the Committee approved the CEO’s recommendation for the other officers and used the same factors in determining the CEO’s award. The 2007 award mix for executive officers was 25% in stock options, 25% in restricted shares and 50% in PSUs. See “Executive Compensation Policies and Processes, sub-section “Timing of Long-Term Incentive Awards” for a discussion about the timing of our long-term incentive grants and the policy going forward.

 

Stock Options.  The options granted under the programs for 2006 and 2007 vest in equal annual installments for three consecutive years, and expire on the tenth anniversary of the date of grant. The exercise price of the options was equal to the fair market value of the option on the date of grant. The Committee does not grant stock options with the so-called “reload” feature, nor does it loan funds to employees to enable them to exercise the stock options. The Company’s long-term performance ultimately determines the value of stock options, since gains from stock option exercises depend entirely on the long-term appreciation of the Company’s stock price. In addition, the stock options contain forfeiture provisions, requiring the executive to return the award or any gain on the exercise of the stock option if he engages in certain competitive activity with the Company during his employment or within three years thereafter. Since the value of a stock option is dependent on the Company’s share price, we believe that this compensation vehicle serves to motivate executives to continue to grow the value of the Company’s stock over the long term.

 

Restricted Stock.  Restricted Stock Awards are widely used in the energy industry to strengthen the link between stockholder and employee interests, while motivating employees to remain with the Company. This is especially true in a cyclical industry in which the value of the Company’s stock may fluctuate significantly between the industry cycles. Our use of restricted stock is intended to provide just such a bridge between the near- and long-term interests of stockholders, and smooth out the volatility of the industry cycles. By this mechanism, employees are more likely to remain with the Company, even during periods of stock price volatility. Further, we believe the use of restricted stock as a long-term incentive award helps motivate executives to take measured risks. This is accomplished because the incentive value to the executive is not entirely dependent on significant price appreciation. The recipients of the shares of restricted stock are entitled to all rights of a stockholder of the Company, including the right to vote the shares and receive dividends and other distributions along with other common stockholders, during the restricted period. The shares of restricted stock granted, if any, for 2006 and 2007 will vest in three equal annual installments. Like the stock option grants, the restricted stock agreements contain forfeiture provisions, requiring the executive to return the award or any gain on the sale of the shares if the executive engages in certain competitive activity with the Company during his employment or within three years thereafter.

 

Performance Share Units.  The third award element for the Company’s balanced long term incentive program is Performance Share Units, or PSU’s. PSU’s are awards of units assigned an initial target value of $100 which can be earned by participants if the Company achieves certain pre-established performance goals. These goals are set for a three year period and are intended to provide the executive with a reasonable line of sight to meaningful performance that leads to the creation of stockholder value over the long term. These awards provide the executives the opportunity to earn a value per unit of $0 to $200 based on the Company’s performance over the three year period. For both the 2006 and 2007 grants, the Committee used two performance criteria for the PSUs: (i) return on invested capital (“ROIC”); and (ii) total stockholder return. In each case the performance is measured relative to the Peer Group, which is also used for competitive market benchmarking and described in the section “Executive Compensation Policies and Processes.” Grants of PSUs provide for the payout of up to 50% in shares of common stock at the Committee’s discretion and the remainder in cash following the end of the three year performance period, if the recipient has met continued service requirements.

 

The PSUs link the Company’s long-term performance directly to compensation received by executive officers and other key employees and encourages them to make significant contributions towards increasing ROIC and, ultimately, total stockholder return. Under both performance criteria, the maximum, target and threshold levels are met when our ROIC and stockholder return are in the 80th percentile, 60th percentile and 40th percentile, respectively, as compared to the ROIC and total stockholder return of the Peer Group. If “maximum” levels are attained within both performance criteria, at the end of the three year period, the participant eligible to receive a cash award valued at 200% of the date-of-grant value of the PSU. If “target” levels are attained within both performance criteria, the participant is eligible to receive a cash award valued at 100% of the date-of-grant value of the PSU. If “threshold” levels are attained within both performance criteria, the participant is eligible to receive a cash award valued at 50% of the date-of-grant value of the performance unit. Finally, no value is given to the PSU’s if performance is below the threshold level. The Committee may elect to pay up to 50% of the award in shares of common stock. Results that fall in-between the “maximum,” “target” and “threshold” levels of both performance criteria will be calculated based on a sliding scale.

 

Perquisites

 

We seek to maintain a cost conscious culture in connection with the benefits provided to executives. Further, our conservative approach to providing perquisites supports our philosophy of relating the majority of compensation to performance and our emphasis on direct compensation versus indirect compensation. The Company does provide each of our executive officers an automobile (either through an allowance or use of a Company owned or leased car) and also reimburses them for all deductibles, co-pays and other out of pocket expenses associated with our health insurance programs through a program called Exec-U-Care. In addition, Mr. Hall is allowed to use a corporate airplane for personal travel. We believe that such an accommodation for our chief executive officer is warranted because it promotes access to our CEO and mitigates safety concerns associated with public travel. Mr. Hall, however, reimburses the Company for his personal travel on the corporate airplane in an amount equal to the cost of a first class, nonrefundable ticket to his destination. Mr. Hall also reimburses the Company for any incidental expenses incurred during his personal travel, such as baggage handling fees at the airport and meals for the pilots.

 

The attributed costs of the personal benefits described above for the named executive officers for the fiscal year ended December 31, 2006, are included in the “Summary Compensation Table” herein.

 

Post-Employment Compensation

 

In addition to the annual compensation received by the executive officers during 2006, our executives also have certain severance and change of control benefits provided under their employment agreements and our incentive plans. These benefits are discussed more fully in the section entitled “Potential Payments upon Termination or Change in Control” herein.

 

Nonqualified Deferred Compensation

 

In 2004 the Committee approved a nonqualified deferred compensation program. The purpose of the program is to provide an income deferral opportunity for executive officers and certain senior managers of the Company in order to help in the attraction and retention of these key employees.

 

The program is administered by the NQDC Administrative Committee, which is comprised of senior managers in the Company appointed under the direction of the Compensation Committee. Eligible participants are recommended by senior managers in the Company and approved by the NQDC Administrative Committee. Participants in the program may make an advance election each year to defer up to a maximum of 75% of base salary and 100% of their annual bonus. Participants may choose from a variety of investment choices to invest their deferrals over the deferral period. The plan provides that, upon approval by the Board, the Company could match up to 100% of their deferrals; however, the Company has never elected to grant a match. For a complete description of each Named Executive Officer’s contributions, earnings and aggregate account balance, see the table entitled “Nonqualified Deferred Compensation” herein.

 

Executive Compensation Policies and Processes

 

Annual Benchmarking Process, Peer Group and Survey Data

 

Since 2004, Mercer has conducted an executive compensation benchmark study annually as requested by the Committee. The Committee uses this study to evaluate executive compensation levels, including base salary, incentive targets and actual incentive payouts relative to the market and the Company’s stated strategy. The study is based on a combination of published survey data and an industry Peer Group, discussed in further detail below.

 

Mercer has used published compensation survey data to develop competitive market data. Generally, the surveys used include companies from the broader energy industry that influence the competitive market for executive compensation levels. Other surveys, which include companies from general industry, are also used as appropriate for positions that compete across industries (e.g., CFO). In both cases, data is drawn from the surveys representing companies that are considered appropriate to compare to Superior in terms of size and scale.

 

Mercer and the Committee also previously established a Peer Group (the “Peer Group”) consisting of twelve oilfield services companies to help measure our performance criteria under our LTI program described above and to compare our compensation competitiveness. The Peer Group currently consists of: BJ Services Company, Helix Energy Solutions Group, Inc., Helmerich & Payne, Inc., Oceaneering International, Inc., Oil States International, Inc., Pride International, Inc. RPC, Inc., Seacor Holdings Inc., Smith International, Inc., Tetra Technologies, Inc., W-H Energy Services, Inc. and Weatherford International, Ltd.

 

Timing of Long-Term Incentive Awards

 

Since we adopted our LTI program, we have made annual awards at a regularly scheduled meeting held in the first half of the year. In December 2006, the Committee determined that it would make all future LTI awards at its meeting held in December of each year.

 

Policy Regarding Section 162(m) of the Internal Revenue Code

 

Section 162(m) of the Internal Revenue Code generally limits our ability to take a federal income tax deduction for compensation paid to our Chief Executive Officer and other named executive officers in excess of $1 million, except for qualified performance-based compensation. The stock options we grant have been structured to qualify as performance-based so they are not subject to this deduction limitation. While the Committee will seek to utilize deductible forms of compensation to the extent practicable, it believes it is important to preserve flexibility in administering compensation programs. Accordingly, the Company has not adopted a policy that all compensation must qualify as deductible under Section 162(m).

 

Stock Ownership Guidelines

 

With the creation of the current LTI program, the Company has encouraged stock ownership through equity awards to our executives. We believe it is important that the interests of our executives and directors be aligned with the long-term interests of our stockholders. Effective January 1, 2007, the Committee adopted stock ownership guidelines applicable to our executive officers. Under the guidelines, each executive officer is required to own shares of stock equal in value to a designated multiple of his or her base salary based on the executive’s position:

 

 

The required share amounts are determined as of the date the officer becomes subject to the guidelines, and is calculated by dividing each officer’s applicable base salary multiple by the 365-day average closing price of our common stock as reported on the New York Stock Exchange, and then rounding to the nearest 100 shares. The target ownership level does not change with changes in base salary or common stock price, but will change in the event the officer’s position level changes. Our executive officers are required to achieve their required ownership levels within five years from the date they become subject to the guidelines. Our Committee will administer the guidelines and will periodically review each participant’s compliance (or progress towards compliance) and may impose additional requirements the Committee determines are necessary or appropriate to achieve the purposes of this program.

 

On March 2, 2007, the Board of Directors approved stock ownership guidelines applicable to our non-management directors. Under the guidelines, each non-management director is required to own shares of stock equal in value to five times the annual retainer paid to the directors. The directors will have five years to comply with the guidelines, and the restricted stock units held by the directors will be counted towards their ownership requirements.

 

Executive Employment Agreements

 

We have entered into employment agreements with each of our eight executive officers. See the discussion below under “Potential Payments upon Termination or Change in Control,” which details the severance and change in control benefits provided for by these agreements.

 

Mr. Hall’s employment agreement has a term that currently expires on July 15, 2009. The term is automatically renewed for an additional year on each July 15 unless the Company or Mr. Hall gives at least 90 days written notice that the term will not be extended. As of April 1, 2007, Mr. Hall’s current annual base salary is $725,000. He is also eligible to earn an annual incentive bonus based upon the achievement of performance objectives and is eligible for stock option and other stock-based grants under our long-term incentive plans, in each case as approved by the Committee and described further below. Mr. Hall’s employment agreement contains non-competition and other provisions intended to protect our interests in the event that Mr. Hall ceases to be employed. The agreement provides for the termination of Mr. Hall’s employment upon his death or disability, by us for cause or by Mr. Hall for good reason. In relation to the Company, cause is defined to include a willful and continued failure by Mr. Hall to substantially perform his duties, or willful misconduct by him that is materially injurious to us. In relation to Mr. Hall, good reason includes any failure by us to comply with any material provision of his employment agreement.

 

Mr. Taylor’s and Mr. Blanchard’s employment agreements have terms that currently expire on April 1, 2010. Beginning April 1, 2006, and on each subsequent April 1, the terms of Mr. Taylor’s and Mr. Blanchard’s employment agreements automatically renew for an additional year unless, within 180 days prior to such date, either the Company or Mr. Taylor or Mr. Blanchard, as appropriate, give prior written notice of the Company’s or his election not to extend the employment term. As of April 1, 2007, Mr. Taylor’s current annual base salary is $350,000, and Mr. Blanchard’s current annual base salary is $450,000. Each of Messrs. Taylor and Blanchard is also eligible to earn an annual incentive bonus based upon the achievement of performance objectives and are eligible for stock option and other stock-based grants under our long-term incentive plans, in each case as approved by the Committee. Their employment agreements also contain non-competition and other provisions intended to protect our interests in the event that either officer ceases to be employed.

 

The employment agreements with each of our other five executive officers, have original terms that extended through April 1, 2007, after which the employment relationship converted to a month-to-month, at will relationship, terminable for any reason by us or him upon 30 days prior written notice to the other party. We are currently evaluating new employment agreements for these officers. Effective as of April 1, 2007, the base salaries for these officers are as follows: Mr. Bernard ($300,000), Mr. Cook ($240,000), Mr. Holleman ($240,000), Mr. Miller ($260,000), and Mr. Young ($240,000). All of these officers are eligible to earn annual incentive bonuses based upon the achievement of performance objectives and are eligible for stock option and other stock-based grants under our long-term incentive plans, in each case as approved by the Compensation Committee. Each of their employment agreements also contains non-competition and other provisions intended to protect our interests in the event that they cease to be employed.

 

Compensation Committee Report On Executive Compensation

 

The Compensation Committee of our Board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management, and based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

 

Submitted by the Compensation Committee:

 

Richard A. Pattarozzi

Harold J. Bouillion

James M. Funk

Justin L. Sullivan

 

Executive Officer Compensation

 

The following table summarizes the compensation Chief Executive Officer, Chief Financial Officer, and our three other highest paid executive officers for the fiscal year ended December 31, 2006.

 

Summary Compensation Table

 

 

 

 

 

 

 

The following table presents additional information regarding stock and option awards, as well as non-equity incentive plan awards granted to our named executive officers during the year ended December 31, 2006.

 

Grants of Plan-Based Awards
During Fiscal 2006

 

 

 

 

 

 

The following table illustrates the outstanding equity awards held by our named executive officers as of December 31, 2006.

 

Outstanding Equity Awards at Fiscal Year-End

 

 

 

 

 

 

 

The following table provides information regarding the value realized by our named executive officers upon the vesting of restricted stock awards during the year ended December 31, 2006. None of our named executive officers exercised stock options during 2006.

 

Option Exercises and Stock Vested in 2006

 

 

 

The following table summarizes the compensation our named executive officers have deferred under our Nonqualified Deferred Compensation Plan.

 

Non-Qualified Deferred Compensation for Fiscal 2006

 

 

 

 

The Nonqualified Deferred Compensation Plan is intended for the executive officers of the Company and other senior managers in the Company who qualify for participation. Participants in the program may make an advance election each year to defer up to a maximum of 75% of base salary and 100% of their annual bonus. Participants are immediately 100% vested in their benefits under the plan, and may choose from a variety of investment vehicles to invest their deferrals over the deferral period. The plan provides that benefits are paid out in either a lump-sum payment or in equal annual payments over 2 to 15 year period, as elected by the participant. In addition, regardless of a participant’s election as to payment, a lump-sum payment of benefits will be made following a participant’s death or disability. Although the plan provides that upon approval by the Board, the Company may provide a match of up to 100% of the deferrals, the Company has not elected to provide the match.

 

Potential Payments upon Termination or Change in Control

 

Pursuant to Mr. Hall’s employment agreement, upon termination of Mr. Hall’s employment, the Company must pay him (or his estate in the event of a termination as a result of death) all compensation owing through the date of his termination, including any bonuses, incentive compensation or other amounts accrued and payable to him as of such date. In addition, if Mr. Hall’s employment is terminated as a result of disability or death, he or his estate is also entitled to a lump sum payment in an amount equal to his annual base salary. If Mr. Hall’s employment is terminated by the Company without cause or by Mr. Hall for good reason then, in addition to any amounts otherwise due to him under the employment agreement, Mr. Hall is entitled to a lump-sum payment equal to the product of the sum of his base salary and the bonus paid or payable to him for the preceding fiscal year and the greater of the number of years (including partial years) remaining in his term of employment or the number 2. Finally, if Mr. Hall’s terminates his employment for good reason within two years following a change in control of our Company, in addition to amounts otherwise due him under the employment agreement, he is entitled to (i) a lump-sum payment equal to two times his then current annual base salary plus the bonus payable to him for the preceding fiscal year, (ii) continue his participation in our medical, dental, accidental death, and life insurance plans for two years, subject to COBRA required benefits thereafter, and (iii) be fully-vested in any stock options, stock grants and PSUs (at maximum value) held by him. Mr. Hall will also receive a payment in an amount sufficient to make him whole for any excise tax on amounts payable pursuant to a change of control that are considered “excess parachute payments” under Section 4999 of the Internal Revenue Code.

 

Pursuant to Mr. Taylor’s and Mr. Blanchard’s employment agreements, upon termination of either’s employment, we must pay Mr. Taylor or Mr. Blanchard, as appropriate (or their estates in the event of a termination as a result of death), all compensation owing through the date of their termination, including any bonuses, incentive compensation or other amounts accrued and payable to them as of such date. Upon termination in connection with a change in control of our Company, Mr. Blanchard and Mr. Taylor are entitled, respectively, to a lump-sum payment

equal to two times the sum of (i) their base salary and (ii) the average of the annual bonuses paid or payable to them for the preceding three fiscal years. Pursuant to the terms of our incentive plans, all stock options, restricted stock grants and PSUs (at maximum value) held by Mr. Taylor and Mr. Blanchard will immediately vest upon a change of control. Each of Mr. Taylor and Mr. Blanchard will also be entitled to receive an amount sufficient to make him whole for any excise tax on amounts payable pursuant to a change of control that are considered “excess parachute payments” under Section 4999 of the Internal Revenue Code.

 

The employment agreements with each of our other five executive officers provide that upon a change in control of our Company, each officer is entitled to a lump-sum payment equal to two times the amount of his base salary. In addition, pursuant to the terms of our incentive plans, all stock options, restricted stock grants and PSUs (at maximum value) held by these officers will immediately vest upon a change of control.

 

The following table quantifies the potential payments to our named executive officers under the contracts, arrangements or plans discussed above, for various scenarios involving a change of control or termination of employment of each of our named executive officers, assuming a December 31, 2006 termination date, and where applicable, using the closing price of our common stock of $32.68 (as reported on the New York Stock Exchange as of December 29, 2006).

 

 

 

AUDIT COMMITTEE REPORT

 

The Audit Committee is comprised of Messrs. Sullivan as Chairman, Bouillion, Howard, and Pattarozzi. Each of these individuals meets the independence requirements of the New York Stock Exchange, as well as any other applicable legal and regulatory requirements. The duties and responsibilities of the Audit Committee are set forth in its written charter adopted by the Board. The committee reassesses its charter as conditions dictate, but in no event less than once a year, and updates it to comply with the rules of the New York Stock Exchange and any other applicable legal and regulatory requirements.

 

The Audit Committee reviewed and discussed our financial statements with management, which is primarily responsible for preparing the statements, and our independent registered independent public accounting firm, KPMG LLP, who is responsible for expressing an opinion on the conformity of the financial statements with generally accepted accounting principles. The committee also discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61, and has reviewed KPMG’s independence. As part of the committee’s review of KPMG’s independence, it received and discussed the written disclosures and the letter from KPMG required by Independence Standards Board Statement No. 1. The Audit Committee has also considered whether KPMG’s provision of non-audit services to us, which are described below, was compatible with its independence. The committee has concluded that it is.

 

Based on its reviews and discussions with management and KPMG, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 for filing with the Securities and Exchange Commission.

 

THE AUDIT COMMITTEE

 

Justin L. Sullivan

Harold J. Bouillion

Ernest E. Howard, III

Richard A. Pattarozzi

 

Fees Paid to Independent Registered Public Accounting Firm

 

KPMG has billed us the following amounts for professional services rendered during each of the fiscal years represented:

 

 

 

Pre-Approval Process

 

The services performed by the independent auditor in 2006 were pre-approved by the Audit Committee. The Audit Committee has established a policy to pre-approve all audit and non-audit services provided by our independent auditor. For non-audit services permissible under law, management may either (i) submit the project for pre-approval by the chairman of the audit committee, if the total anticipated cost of the project is no more than $10,000 and the total anticipated cost of all such projects pre-approved by the chairman during the fiscal quarter does not exceed $25,000, or (ii) submit the project for pre-approval by the full audit committee, either at its next regularly scheduled meeting, at a special meeting, or by unanimous written consent.

 

Management may engage the independent registered public accounting firm to perform specific permissible audit-related and non-audit services described on an exhibit to the policy without the pre-approval of the audit committee, provided that such services are performed pursuant to separate engagement letters and the aggregate cost of those services does not exceed $10,000 per calendar quarter. Once this amount is exceeded in any calendar quarter, the independent registered independent public accounting firm may not provide additional services unless they are pre-approved as described above. Permissible services not listed on the exhibit must be separately pre-approved by the audit committee.

 

In accordance with the committee’s policies, at each regularly scheduled meeting of the audit committee, the chairman of the audit committee and management will advise the full audit committee of the scope and anticipated cost of any projects undertaken without the approval of the full audit committee. Since the adoption of these policies, the full audit committee has approved all non-audit services provided by our independent auditors.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and 10% stockholders to file with the Securities and Exchange Commission reports of ownership and changes in ownership of our equity securities. To the best of our knowledge, all required forms were timely filed with the SEC during 2006, except that due to an administrative error, James A. Holleman failed to timely report purchases of an aggregate 3,900 shares of common stock on September 28 and 29, 2006, which purchases were subsequently reported on a Form 4 filed October 4, 2006.

 

PROPOSAL TO APPROVE THE SUPERIOR ENERGY SERVICES, INC.
2007 EMPLOYEE STOCK PURCHASE PLAN

 

The Board has adopted the Superior Energy Services, Inc. 2007 Employee Stock Purchase Plan (the “Plan”) and directed that the Plan be presented to our stockholders for approval at the 2007 annual meeting. The Plan is designed to encourage employees to acquire a stake in the Company through stock ownership. The following summary of the material features of the Plan is qualified in its entirety by reference to the full text of the Plan, which is set forth as Exhibit A hereto.

 

Purpose of the Proposal

 

The Board of Directors believes that the Plan is in the best interests of our Company and our stockholders and provides a convenient and advantageous way for employees to acquire an equity interest in the Company, thereby further aligning the interests of the employees and the Company’s stockholders. The Plan is intended to meet the requirements of Section 423 of the Internal Revenue Code. If the requirements of Section 423 are met, participants will have the opportunity to take advantage of certain federal income tax benefits. One of the requirements of Section 423 is that the Plan be approved by our stockholders.

 

The Plan

 

The Plan provides eligible employees of the Company and its subsidiaries with an opportunity to conveniently acquire shares of our common stock at a discount. The maximum aggregate number of shares of common stock that may be purchased through the Plan is 1,000,000 shares. The number of shares that may be purchased through the

Plan will be subject to proportionate adjustments to reflect stock splits, stock dividends, or other changes in our capital stock.

 

Participation in the Plan is available to employees who have been employed by the Company or, unless otherwise determined by our board of directors, a subsidiary of the Company that is a corporation or is treated as a corporation or a division for tax purposes, for at least 90 days on a regular full-time basis. Non-management directors, leased employees, employees who typically work 20 or fewer hours per week or less than five months per year, independent contractors and employees who own stock possessing 5% or more of the total combined voting power or value of all classes of the Company’s or a subsidiary’s capital stock are not eligible to participate in the Plan. Approximately 3,700 employees are eligible to participate in the Plan.

 

The Plan permits eligible employees to purchase shares of common stock through payroll deductions during monthly offering periods beginning on the first day of each month during the year (the “Offering Periods”). Eligible employees may purchase shares through payroll deductions of up to 20% of total compensation per pay period, but may purchase no more than $10,000 worth of shares of common stock in any calendar year, as measured as of the first day of each applicable Offering Period. The price an employee pays is 85% of the fair market value of a share of common stock at the end of the Offering Period. Fair market value is equal to the closing price of a share of common stock on the last day of the Offering Period. Shares of common stock purchased through the Plan may be treasury shares, newly issued shares or shares purchased on the open market.

 

Upon a merger or consolidation involving the Company in which the Company is not the surviving corporation or upon a liquidation of the Company, the Board may terminate the Plan, provide for a new purchase date for the remaining Offering Period, or take such other action as it deems appropriate and is acceptable to the Company’s successor. Upon termination of the Plan, all rights to purchase shares through the Plan will expire and all uninvested amounts contributed will be returned to participants. The administration of the Plan is handled by our Human Resources Department. The Plan may be terminated or amended by our Board at any time in its sole discretion, but may not be amended, without prior stockholder approval, to increase the maximum number of shares issuable or to reduce the purchase price per share. The proceeds of stock sales received by the Company under the Plan will constitute general funds of the Company and may be used by it for any purpose.

 

If our stockholders approve the Plan at the annual meeting, employees may begin participating in the Plan August 1, 2007.

 

On April 11, 2007, the closing sale price for a share of our common stock reported on the New York Stock Exchange was $36.26.

 

Federal Income Tax Consequences

 

The Plan is intended to qualify for the federal income tax treatment available to participants in an employee stock purchase plan that meets the requirements of Section 423 of the Internal Revenue Code. An employee who participates in a plan that qualifies under Section 423 will not realize income at the time he or she enrolls in the Plan or purchases shares. If an employee does not dispose of the shares within two years following the first day of the Offering Period in which shares were acquired, then upon disposition of the shares the employee will realize ordinary income equal to the lesser of (i) the excess of the fair market value of the shares on the first day of the Offering Period in which such shares were acquired over the price the employee paid to acquire the shares or (ii) the amount by which the net proceeds received by the employee from the sale of the shares exceed the price paid by the employee to acquire the shares. Any further gain on such sale will be taxed as capital gain. No income tax deduction will be allowed the Company for shares purchased by the employee, provided such shares are held for the period described above.

 

If an employee disposes of shares within the period described above, the employee will recognize ordinary income equal to the lesser of (i) the excess of the fair market value of the shares on the date of purchase under the Plan over the price the employee paid to acquire the shares or (ii) the amount by which the net proceeds received by the employee on the sale of the shares exceed the price the employee paid to acquire the shares. (Any further gain on such sale will be taxed as capital gain.) In such instances, the Company will generally be entitled to a tax deduction equal to the amount of ordinary income recognized by the employee.

Vote Required

 

Approval of the Plan requires the affirmative vote of the holders of a majority of the votes cast on the proposed plan, and the total votes cast on the proposal must represent more than 50% of our outstanding common stock as of the record date of the stockholders’ meeting.

 

The Board unanimously recommends that the stockholders vote FOR the proposal to approve the Plan.

 

Equity Compensation Plan Information

 

The following table presents information as of December 31, 2006, regarding compensation plans under which our common stock may be issued to employees and non-employees as compensation.

 

 

PROPOSAL TO RATIFY THE RETENTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The audit committee has selected KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007, which selection is submitted to our stockholders for ratification. If our stockholders do not ratify the selection of KPMG LLP by the affirmative vote of holders of a majority of the voting power present or represented at the annual meeting, the selection will be reconsidered by the audit committee.

 

Representatives of KPMG LLP are expected to be present at the annual meeting and will have an opportunity to make a statement if they desire to do so. They will also be available to respond to appropriate questions from stockholders.

 

Recommendation of the Board of Directors