UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

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

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ENSCO International Incorporated

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held On May 28, 2009

 

The Annual Meeting of Stockholders of ENSCO International Incorporated (the “Meeting”) will be held at the Four Seasons Resort & Club, 4150 North MacArthur Boulevard, Irving, Texas, at 10:00 a.m., Dallas time (CDT), on Thursday, May 28, 2009 to consider and vote on:

 

1. Election of three Class I Directors, each for a three-year term;

 

 

4. Such other business as may properly come before the Meeting.

 

Stockholders of record at the close of business on March 31, 2009 are entitled to receive notice of and to vote at the Meeting or any adjournment of the Meeting. A list of all stockholders entitled to vote at the Meeting is on file at our executive offices, 500 North Akard Street, Suite 4300, Dallas, Texas 75201-3331.

 

In accordance with rules of the Securities and Exchange Commission that allow companies to furnish their proxy materials over the Internet, we are mailing a Notice of Internet Availability of Proxy Materials instead of a paper copy of our Proxy Statement and our 2008 Annual Report to most of our stockholders. The Notice of Internet Availability of Proxy Materials contains instructions on how to access those documents and vote over the Internet.

 

The Notice of Internet Availability of Proxy Materials also contains instructions on how to request a paper copy of our proxy materials, including our Proxy Statement, our 2008 Annual Report and a form of Proxy Card or voting instruction card. All stockholders who do not receive a Notice of Internet Availability of Proxy Materials will receive the proxy materials via mail or electronically via e-mail. We believe this process will allow us to provide our stockholders the information they need in a more timely manner, while lowering the costs of printing and delivering the proxy materials.

 

If you received a Proxy Card or voting instruction card by mail, you may vote by completing, signing, dating and returning your Proxy Card or voting instruction card in the envelope provided. You may also vote by telephone at 1-800-690-6903 or via the Internet at www.proxyvote.com by following the instructions shown on the Proxy Card or voting instruction card. Any stockholder attending the Meeting may vote in person. If you have returned a Proxy Card or voting instruction card or otherwise voted, you may revoke prior instructions and cast your vote at the Meeting by following the procedures described in the Proxy Statement.

 

By Order of the Board of Directors,

 

Cary A. Moomjian, Jr.

Vice President, General Counsel and Secretary

 

April 14, 2009

 

YOUR VOTE IS IMPORTANT. FOR SPECIFIC INSTRUCTIONS ON VOTING, PLEASE REFER TO THE INSTRUCTIONS INCLUDED WITH THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS OR THE PROXY CARD OR VOTING INSTRUCTION CARD INCLUDED WITH THE PROXY MATERIALS.

 

 

PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS
OF ENSCO INTERNATIONAL INCORPORATED
TO BE HELD ON THURSDAY, MAY 28, 2009

 

This Proxy Statement, a Proxy Card or voting instruction card and the 2008 Annual Report to stockholders of ENSCO International Incorporated (“Ensco” or the “Company”) are first being sent or distributed to stockholders on or about April 15, 2009. Our Board of Directors (“Board”) is soliciting your proxy to vote your shares at the Annual Meeting of Stockholders to be held at the Four Seasons Resort & Club, 4150 North MacArthur Boulevard, Irving, Texas, on Thursday, May 28, 2009 at 10:00 a.m., Dallas time (CDT) (the “Meeting”), and any adjourned sessions of the Meeting. Our Board is soliciting your proxy to give all stockholders of record the opportunity to vote on matters that will be presented at the Meeting. This Proxy Statement provides information on these matters to assist you in voting your shares.

 

ABOUT THE MEETING

 

 

Who is qualified to vote?

 

You are qualified to receive notice of and to vote at the Meeting if you owned shares of our common stock, par value $.10 per share, at the close of business on March 31, 2009, our record date for the Meeting.

 

What is a proxy?

 

A proxy is your legal designation of another person (the “proxy”) to vote on your behalf. By completing and returning the Proxy Card or voting instruction card included with the proxy materials or otherwise voting in accordance with the instructions provided in this Proxy Statement, you are giving the proxies appointed by our Board and identified on the Proxy Card the authority to vote your shares in the manner you indicate.

 

How many shares of our common stock may vote at the Meeting?

 

As of March 31, 2009, there were 141,815,649 shares of our common stock outstanding and entitled to vote. Each share of our common stock is entitled to one vote on each matter presented.

 

What is the difference between a “stockholder of record” and a “street name” holder?

 

These terms describe how your shares are held. If your shares are registered directly in your name with American Stock Transfer and Trust Company, our transfer agent, you are a “stockholder of record”. If your shares are held in the name of a broker, bank, trust or other nominee as a custodian, you are a “street name” holder.

 

What are my choices when voting?

 

With respect to each proposal, you may cast your vote in favor of or against the proposal, or you may elect to abstain from voting your shares.

 

We have majority voting for election of directors in uncontested elections. Under our bylaws, when a quorum is present, a nominee seeking election to an uncontested directorship shall be elected if the votes cast in favor of the nominee exceed the opposing votes. In a contested election, the nominee who receives the most votes cast in favor of his or her election (a plurality) shall be elected. In determining the number of votes cast, shares that abstain from voting or not voted will not be treated as votes cast. You may cast your vote for or against each of the three nominees for Class I Directors or abstain from voting your shares on any or all of the nominees.

 

You may cast your vote for or against approval of an amendment to the ENSCO 2005 Long-Term Incentive Plan and reapproval of the material terms of the performance goals therein or abstain from voting your shares on this proposal. Similarly, you may cast your vote for or against the ratification of the appointment of KPMG LLP (“KPMG”) as our independent registered public accounting firm for 2009 or abstain from voting your shares on this proposal.

 

What are our Board’s recommendations on how I should vote my shares?

 

Our Board recommends that you vote your shares as follows:

 

 

 

How will my shares be voted if I do not specify how they should be voted?

 

If you sign and return your Proxy Card or voting instruction card without indicating how you want your shares to be voted, the proxies appointed by our Board will vote your shares as follows:

 

 

How are abstentions and broker non-votes treated? How will they be counted for quorum purposes?

 

In determining the number of votes cast, shares abstaining from voting or not voted on a matter will not be treated as votes cast. However, abstentions and broker non-votes will be deemed as “present” at the Meeting and counted for quorum purposes, but will have no effect on any of the proposals. For purposes of the Meeting, the holders of at least a majority of the shares of our common stock issued and outstanding and entitled to vote at the Meeting will constitute a quorum.

 

If a broker holds your shares, you may have received a Notice of Internet Availability of Proxy Materials, proxy materials electronically via e-mail or this Proxy Statement together with a voting instruction card from your broker. It is important that you vote your shares as instructed.

 

Rules of the New York Stock Exchange (“NYSE”) determine whether proposals presented at stockholder meetings are “discretionary” or “non-discretionary” with respect to broker voting. If a proposal is discretionary, a broker may vote on the proposal without voting instructions from the owner. Under the rules of the NYSE, the proposals to elect directors and to ratify the appointment of independent auditors are considered “discretionary”. This means that brokers may vote on these matters in their discretion on behalf of beneficial owners who have not voted their shares.

 

However, Proposal 2 for the approval of an amendment to the ENSCO 2005 Long-Term Incentive Plan and the reapproval of the performance goals therein for purposes of Section 162(m) of the Internal Revenue Code is a non-routine matter that is considered “non-discretionary” under the NYSE rules governing broker votes. With respect to such proposal, your broker must receive voting instructions from you, as it does not have discretionary voting power.

 

What vote is required to approve each proposal?

 

Each proposal will be approved upon establishment of a quorum if the votes cast in favor of the proposal exceed the votes cast opposing the proposal. In a contested director election, the nominee who receives the most votes cast in favor of his or her election (a plurality) shall be elected.

 

Who will count the votes?

 

Broadridge Financial Solutions, Inc. will count the votes and submit them to our inspectors of election. The inspectors of election will be present at the Meeting.

 

Who pays the cost of this proxy solicitation?

 

We pay the costs of soliciting proxies. Upon request, we will reimburse brokers, banks, trusts and other nominees for reasonable expenses incurred by them in forwarding the proxy materials to beneficial owners of shares of our common stock.

Is this Proxy Statement the only way that proxies are being solicited?

 

In addition to distributing these proxy materials, certain of our directors, officers or employees may solicit proxies by telephone, facsimile, e-mail or personal contact. They will not be specifically compensated for doing so.

 

Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

 

We are following the Securities and Exchange Commission (“SEC”) rules that allow companies to furnish their proxy materials over the Internet. Accordingly, we have sent a Notice of Internet Availability of Proxy Materials to most of our stockholders. Instructions on how to access the proxy materials and vote over the Internet may be found in that Notice.

 

Why didn’t I receive a notice in the mail regarding the Internet availability of proxy materials?

 

If you elected to receive proxy materials by mail or electronically by e-mail for any of your holdings in the past, you were automatically enrolled using the same process for all of your holdings this year. If you would like to change the method of delivery, please follow the instructions shown below under “Can I choose the method in which I receive future proxy materials?”.

 

Why did I receive more than one Proxy Card or voting instruction card?

 

You may receive multiple Proxy Cards or voting instruction cards if you hold shares in different ways (e.g., joint tenancy, trusts, custodial accounts) or in multiple accounts. You should vote on and sign each Proxy Card or voting instruction card you receive.

 

How can I access the proxy materials over the Internet?

 

Pursuant to rules adopted by the SEC, we provide stockholders access to our proxy materials for the Meeting over the Internet. The proxy materials for the 2009 Meeting are available at www.proxyvote.com. To access these materials and to vote, follow the instructions shown on the Proxy Card, voting instruction card or Notice of Internet Availability of Proxy Materials.

 

Can I get paper copies of the proxy materials?

 

You may request paper copies of the proxy materials and our 2008 Annual Report by calling 1-800-579-1639 or e-mailing sendmaterial@proxyvote.com. You also may request paper copies when prompted at www.proxyvote.com.

 

Can I choose the method in which I receive future proxy materials?

 

There are three methods in which stockholders may receive future proxy materials or notice thereof:

 

 

How do I vote my shares?

 

If you are a “stockholder of record”, you have several choices. You can vote your shares by following the specific instructions provided on the Proxy Card or Notice of Internet Availability of Proxy Materials:

 

 

If you hold your shares in “street name”, your broker, bank, trust or other nominee will arrange to provide materials and instructions for voting your shares.

 

If you are a current or former Ensco employee who holds shares in the ENSCO Savings Plan, you will receive voting instructions from the trustee of the plan for shares allocated to your account. If you fail to give voting instructions to the trustee, your shares will be voted by the trustee in the same proportion as shares held by the trustee for which voting instructions were received. To allow sufficient time for voting by the trustee and administrator of the ENSCO Savings Plan, your voting instructions for shares held in the plan must be received by 11:59 p.m. (EDT) on May 26, 2009.

 

Can I vote my shares by completing and returning the Notice of Internet Availability of Proxy Materials?

 

No, the Notice of Internet Availability of Proxy Materials will instruct you on how to vote.

 

Can I vote my shares in person at the Meeting?

 

If you are a “stockholder of record”, you may vote your shares in person at the Meeting.

 

If you hold your shares in “street name”, you must obtain a proxy from your broker, bank, trust or other nominee, giving you the right to vote the shares at the Meeting.

 

Can I change my vote?

 

You may revoke your proxy or otherwise change your vote by doing one of the following:

 

 

If you voted electronically, you can also return to www.proxyvote.com and change your vote before the Meeting. Follow the same voting process and your original vote will be superseded.

 

If you are a beneficial owner of our shares and a broker or other nominee holds your shares, you can revoke your proxy or otherwise change your vote by following the instructions provided by your broker or other nominee.

 

If you have any further questions about voting your shares or attending the Meeting, please contact our Investor Relations Department at (214) 397-3000.

 

OWNERSHIP OF VOTING SECURITIES

 

The following tables show amounts and percentages of shares of our common stock owned beneficially as of March 31, 2009 by (i) each person or group known by us to own more than 5% of the outstanding shares of our common stock (the only class of voting securities outstanding); (ii) each of our directors and director nominees, including employee directors; (iii) our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated executive officers (identified in the 2008 Summary Compensation Table); and (iv) all of our current directors and executive officers as a group.

 

Beneficial Ownership Table

 

 

 

 

 

						Restricted Stock
		Options				Number of Shares				Annual Vesting
Daniel W. Rabun			81,250				10,000				5,000
							35,000				5,000
							33,332				8,333
							76,665				15,333
							154,997
William S. Chadwick, Jr.			28,125				20,000				4,000
							3,500				1,750
							7,441				1,063
							11,499				3,833
							13,332				3,333
							33,335				6,667
							89,107
James W. Swent III			27,500				25,000				5,000
							3,000				1,500
							6,999				2,333
							10,668				2,667
							23,335				4,667
							69,002
Phillip J. Saile			41,250				10,000				2,000
							6,000				2,000
							9,332				2,333
							23,335				4,667
							48,667
H. E. Malone, Jr.			7,500				1,750				875
							3,201				1,067
							4,268				1,067
							10,000				2,000
							19,219

 

		ENSCO
		Savings Plan				SERP
William S. Chadwick, Jr.			9				2
Phillip J. Saile			4,086				1,215

 

 

						Restricted Stock
		Options				Number of Shares				Annual Vesting
Paul E. Rowsey, III			18,000				300				150
							900				300
							1,200				300
							3,000				600
							5,400
Rita M. Rodriguez			18,000				300				150
							900				300
							1,200				300
							3,000				600
							5,400
David M. Carmichael			9,000				300				150
							900				300
							1,200				300
							3,000				600
							5,400
Gerald W. Haddock			9,000				300				150
							900				300
							1,200				300
							3,000				600
							5,400
Thomas L. Kelly II			9,000				300				150
							900				300
							1,200				300
							3,000				600
							5,400
C. Christopher Gaut			—				5,000				1,000
							5,000
Keith O. Rattie			—				5,000				1,000
							5,000
J. Roderick Clark			—				5,000				1,000
							5,000

 

Gerald W. Haddock			3,424
Keith O. Rattie			598

 

 

PROPOSAL 1

 

ELECTION OF THREE CLASS I DIRECTORS, EACH FOR A THREE-YEAR TERM

 

Our amended and restated certificate of incorporation provides that our Board of Directors (our “Board”) is divided, or “classified”, as respects the period of time our directors individually hold office. Our Board is divided into three classes (Classes I, II and III) each consisting of, as nearly as possible, one-third of the Board with each class of directors having a staggered three-year term. Our bylaws specify that our Board will be composed of not less than three nor more than fifteen directors. Our Board currently has nine members, with three directors in each class.

 

The current term for our Class I Directors will expire at the Meeting. The current term for our Class II Directors will expire at the 2011 Annual Meeting of Stockholders, and the current term for our Class III Directors will expire at the 2010 Annual Meeting of Stockholders.

 

Three persons have been nominated by our Board for election to three-year terms as Class I Directors at the Meeting, all of whom are incumbent Class I Directors.

 

We have adopted majority voting for directors in uncontested elections. Under our bylaws, when a quorum is present, a director seeking election to an uncontested directorship shall be elected if the votes cast in favor of the nominee exceed the opposing votes. In a contested election, the nominee who receives the most votes cast in favor of his or her election (a plurality) shall be elected. In determining the number of votes cast, shares abstaining from voting or not voted will not be treated as votes cast.

 

Unless otherwise instructed, the persons designated as proxies will vote all proxies received FOR the election of the persons named as Board nominees for Class I Directors for a term of three-years. If, at the time of the Meeting, any of the nominees should be unable or decline to serve, the discretionary authority provided in any submitted proxies will be used to vote for a substitute or substitutes as may be designated by our Board. Our Board has no reason to believe that any substitute nominee or nominees will be required.

 

Nominees

 

Class I Directors (For election to a three-year term that expires in 2012)

 

C. Christopher Gaut; age 52; Former President, Halliburton Drilling and Evaluation Division

 

Mr. Gaut has been one of our directors since May 2008. He served as President of Halliburton’s Drilling and Evaluation Division from January 2008 until his early retirement on April 8, 2009. Prior to assuming that position, he served as Executive Vice President and Chief Financial Officer of Halliburton Company. Prior to joining Halliburton in March 2003, Mr. Gaut was a Member, Office of the President and Chief Operating Officer, of ENSCO International Incorporated and also served our Company as Senior Vice President and as Chief Financial Officer, a position he assumed in 1988. He is on the Board of Directors of Forum Oilfield Technologies, Inc. Mr. Gaut holds a Bachelor Degree in Engineering from Dartmouth College and a Masters of Business Administration Degree from the Wharton School of Business at the University of Pennsylvania. Mr. Gaut currently serves on our Nominating, Governance and Compensation Committee. He lives in Houston, Texas.

Gerald W. Haddock; age 61; Private Investor

 

Mr. Haddock has been one of our directors since December 1986. During 1999, he founded Haddock Enterprises, LLC, an entrepreneurial development company concentrating in oil and gas and real estate, located in Fort Worth, Texas, and has served as its President since that time. Mr. Haddock formerly served as President and COO of Crescent Real Estate Equities from 1994 to 1996 and as President and CEO of Crescent Real Estate Equities from 1996 to 1999. During 2005, Mr. Haddock joined the Board of Directors of Meritage Homes Corporation and has served on its Executive Compensation Committee since August 2005. In addition, he was named Chairman of its Nominating Corporate Governance Committee during 2006. He also serves on the Baylor Foundation Board of Directors. In August 2005, Mr. Haddock was named a member of the Board of Trustees of The M.D. Anderson Proton Therapy Education and Research Foundation. Mr. Haddock holds Bachelor of Business Administration and Juris Doctorate Degrees from Baylor University. He also received a Masters of Laws in Taxation Degree from New York University and a Masters of Business Administration Degree from Dallas Baptist University. Mr. Haddock currently is Chairman of our Audit Committee. He lives in Fort Worth, Texas.

 

Paul E. Rowsey, III; age 54; Managing Partner, E2M Partners, LLC

 

Mr. Rowsey has been one of our directors since January 2000. He is currently the Managing Partner and a founder of E2M Partners, LLC, a private real estate management and investment firm. Prior to forming E2M in January 2005, Mr. Rowsey was a founder and President of Eiger, Inc., a sponsor and manager of real estate funds. Prior to forming Eiger during 1999, he was the President and a member of the Board of Directors of Rosewood Property Company, a vertically integrated real estate operating, development and investment company. He holds a Bachelor of Arts Degree in Management Science from Duke University and a Juris Doctorate Degree from Southern Methodist University. Mr. Rowsey currently serves on our Audit Committee. He lives in Dallas, Texas.

 

Our Board of Directors recommends that stockholders vote “FOR” the election of each of our Board’s nominees for Class I Directors.

 

Current Directors

 

Class III Directors (Term expires in 2010)

 

David M. Carmichael; age 70; Private Investor

 

Mr. Carmichael has been one of our directors since May 2001. He has been a private investor since June 1996. Between 1994 and 1996, he served as Vice Chairman and Chairman of the Management Committee of KN Energy, Inc., which merged with American Oil & Gas Corporation during 1994. From 1985 until its merger with KN Energy, Inc., Mr. Carmichael served as Chairman, Chief Executive Officer and President of American Oil & Gas Corporation. He formed CARCON Corporation during 1984, where he served as President and Chief Executive Officer until its merger into American Oil & Gas Corporation during 1986. From 1976 to 1984, Mr. Carmichael was Chairman and Chief Executive Officer of WellTech, Inc. He served in various senior management positions with Reading & Bates Corporation between 1965 and 1976. Mr. Carmichael is a director and Compensation Committee member of Cabot Oil & Gas Corporation and National Resource Partners L.P. He also serves on the Audit Committee of National Resource Partners L.P. Mr. Carmichael holds a Plan II Honors Degree from the School of Arts and Sciences at The University of Texas at Austin and a Juris Doctorate Degree from The University of Texas School of Law. Mr. Carmichael currently serves on our Nominating, Governance and Compensation Committee. He lives in Houston, Texas.

 

Thomas L. Kelly II; age 50; General Partner of CHB Capital Partners

 

Mr. Kelly has been one of our directors since September 1987. He has been a General Partner of CHB Capital Partners, a private equity fund that provides capital and expertise to closely-held businesses, since July 1994. Between 1984 and 1994, he served as a principal with private equity investment companies. Mr. Kelly holds a Bachelor of Arts Degree in Economics and a Bachelor of Science Degree in Administrative Science from Yale University and a Masters of Business Administration Degree from Harvard University. Mr. Kelly currently is Chairman of our Nominating, Governance and Compensation Committee. He lives in Denver, Colorado.

Rita M. Rodriguez; age 66; Senior Fellow, Woodstock Theological Center at Georgetown University

 

Dr. Rodriguez has been one of our directors since August 2003. An international finance researcher and advisor who has authored numerous books and articles, Dr. Rodriguez has been a Fellow and Senior Fellow of the Woodstock Theological Center at Georgetown University since September 2002. Dr. Rodriguez was self-employed in the field of international finance from March 1999 to September 2002. She was a full-time member of the Board of Directors of the Export-Import Bank of the United States between 1982 and March 1999, a Professor of Finance at the University of Illinois at Chicago from 1978 to 1982 and an Assistant and Associate Professor of Business Administration at Harvard Business School from 1969 to 1978. Dr. Rodriguez serves as a member of the Board of Directors of Affiliated Managers Group, Inc., Phillips-Van Heusen Corporation and Private Export Funding Corporation (a private sector company, which assists in the financing of U.S. exports through the mobilization of private capital). She is Chairperson of the Audit Committees of Affiliated Managers Group, Inc. and Private Export Funding Corporation and is a member of the Audit Committee of Phillips-Van Heusen Corporation. Dr. Rodriguez holds a Bachelor of Business Administration Degree from the University of Puerto Rico, as well as Masters of Business Administration and Doctor of Philosophy Degrees from the New York University Graduate School of Business. Dr. Rodriguez currently serves on our Audit Committee. She lives in Washington, D.C.

 

Class II Directors (Term expires in 2011)

 

J. Roderick Clark; age 58; Former President and Chief Operating Officer of Baker Hughes Incorporated (Retired)

 

Mr. Clark has been one of our directors since May 2008. He served as President and Chief Operating Officer of Baker Hughes Incorporated from February 2004 through January 2008. Before becoming President and COO, he served as Vice President, Marketing and Technology. Mr. Clark joined Baker Hughes Incorporated during 2001 as President of Baker Petrolite. He formerly served as President and CEO of Consolidated Equipment Companies Inc. He also formerly served as President of Sperry-Sun, a Halliburton company. Mr. Clark has held financial, operational and leadership positions with FMC Corporation, Schlumberger and Grace Energy Corporation. Mr. Clark serves as a member of the Board of Directors and Audit Committee of Teekay Corporation, as a member of the Board of Directors and Governance Committee of Kirby Corporation, as a member of the Board of Incorporate Members of Dallas Theological Seminary and as a member of the Board of Trustees of the Center for Christian Growth (T Bar M Camps). He holds Bachelor of Arts and Masters of Business Administration Degrees from the University of Texas. Mr. Clark currently serves on our Nominating, Governance and Compensation Committee. He lives in Fort Worth, Texas.

 

Daniel W. Rabun; age 54; Chairman, President and Chief Executive Officer of the Company

 

Mr. Rabun has been one of our directors since March 2006, when he joined us as President. Mr. Rabun was appointed to serve as our Chief Executive Officer effective January 1, 2007 and elected Chairman of our Board on May 22, 2007. Before joining Ensco during 2006, Mr. Rabun was a partner at the international law firm of Baker & McKenzie LLP. Mr. Rabun provided legal advice and counsel to us for over fifteen years before joining the Company and served as one of our directors during 2001. He has been a Certified Public Accountant since 1976 and a member of the Texas Bar since 1983. He holds a Bachelor of Business Administration Degree in Accounting from the University of Houston and a Juris Doctorate Degree from Southern Methodist University. He lives in Flower Mound, Texas.

 

Keith O. Rattie; age 55; Chairman, President and Chief Executive Officer of Questar Corporation

 

Mr. Rattie has been one of our directors since May 2008. He serves as Chairman, President and Chief Executive Officer of Questar Corporation. He was named President of Questar in February 2001, Chief Executive Officer in May 2002 and Chairman in May 2003. Mr. Rattie previously served as Vice President and Senior Vice President of Coastal Corporation. Prior to joining Coastal, he spent 19 years with Chevron Corporation in various

engineering and management positions, including General Manager of Chevron’s international gas unit. Mr. Rattie serves as a director of Zions First National Bank, a subsidiary of Zions Bancorporation, and is a past Chairman of the Board of the Interstate Natural Gas Association of America. He holds an undergraduate Degree in Electrical Engineering from the University of Washington and a Masters of Business Administration Degree from St. Mary’s College. Mr. Rattie currently serves on our Audit Committee. He lives in Park City, Utah.

 

PROPOSAL 2

 

APPROVAL OF AN AMENDMENT TO THE 2005 LONG-TERM INCENTIVE PLAN AND REAPPROVAL OF THE MATERIAL TERMS OF THE PERFORMANCE GOALS THEREIN FOR PURPOSES OF SECTION 162(m) OF THE INTERNAL REVENUE CODE

 

The Company’s 2005 Long-Term Incentive Plan (“LTIP”), effective January 1, 2005, is designed to promote the interests of the Company and its stockholders by establishing a relationship between the awards under the LTIP and the long-term accomplishments of the participants utilizing competitive targets. The LTIP provides for awards of stock options and restricted stock to reward and provide incentives to participants and to retain them through potential share value appreciation and equity accumulation.

 

The purposes of the LTIP are to:

 

 

A copy of the amended and restated LTIP is attached as Exhibit A to this Proxy Statement and is incorporated herein by reference. The following summary of the LTIP is subject to and qualified in its entirety by the LTIP.

 

Proposed LTIP Amendment

 

When the LTIP was originally adopted and approved by our stockholders, it was anticipated that awards under the LTIP would be comprised of 50 percent nonqualified stock options and 50% restricted stock. As originally adopted, the LTIP included an aggregate 10,000,000 shares of our common stock available for issuance, of which no more than 2,500,000 shares could be granted as restricted stock awards. During 2005 and 2006, our practice was to grant equity awards as a combination of 50% nonqualified stock options and 50% restricted stock, generally at a ratio of either three or four nonqualified stock options per share of restricted stock. Commencing during 2007, we began to grant equity awards to most LTIP participants entirely in shares of restricted stock and granted awards entirely in restricted stock to all participants during 2008.

 

This shift away from stock options resulted from a focus on the competitive forces facing our Company, including increased employee turnover and competitor compensation practices, and the belief that restricted stock constituted the most effective use of equity to retain key management and supervisory personnel. With this change in practice, the number of shares of restricted stock available for issuance under the LTIP has largely been depleted. As of the March 31, 2009 record date for the Annual Meeting of Stockholders, we had 5,878,752 shares available for issuance under the LTIP, of which 5,492,370 shares were available for stock options and 386,382 shares were available for restricted stock awards.

We are seeking stockholder approval of an amendment to the LTIP to increase the maximum number of authorized restricted stock awards from 2,500,000 shares to 6,000,000 shares. The proposed amendment will provide the flexibility to issue 3,886,382 shares as restricted stock awards out of the remaining 5,878,752 total shares available for issuance under the LTIP. In November 2008, our Board of Directors approved the amendment of the LTIP, subject to approval by our stockholders.

 

The proposed amendment does not increase the total number of shares available for issuance under the LTIP, which will remain at 10,000,000 shares.

 

We currently believe the proposed amendment should provide enough shares of restricted stock to accommodate grants over the next several years.

 

In addition to providing the flexibility to make additional restricted stock awards, the amendment made certain technical modifications to the LTIP, including amending the definition of “Covered Employee”, effective January 1, 2007, to conform to guidance issued by the Internal Revenue Service. This aspect of the amendment did not require stockholder approval and was effective in November 2008.

 

Reapproval of the Material Terms of the Performance Goals in the LTIP for Purposes of Section 162(m) of the Internal Revenue Code

 

Section 162(m) of the Internal Revenue Code generally disallows a federal income tax deduction to any publicly held corporation for compensation paid in excess of $1 million in any taxable year to its principal executive officer or any of its three other most highly compensated officers (other than the principal executive officer and the principal financial officer) who are employed by it on the last day of the taxable year. Section 162(m) does not disallow a deduction for performance-based compensation, the material terms of which are disclosed to and approved by its stockholders. The deduction for compensation recognized by participants due to the lapse of restrictions on restricted stock awards will be subject to the Section 162(m) limitation. With respect to nonqualified stock options and performance awards, however, we have structured and implemented the LTIP so that compensation resulting from the exercise and vesting of these awards is considered performance-based compensation for purposes of Section 162(m).

 

To allow us to qualify for the income tax deduction and thereby enhance stockholder returns, we obtained stockholder approval of the LTIP and the material terms of the related performance goals during 2005. To continue to qualify for the income tax deduction, our stockholders must approve the material terms of the performance goals of the LTIP no less frequently than every five years. If the existing performance goals are not approved by our stockholders within the required timeframe, the LTIP will continue in effect; however, in accordance with Section 162(m), our ability to deduct performance-based compensation under the LTIP will be limited as described above. Accordingly, we are soliciting stockholder reapproval of the material terms of the performance goals in the LTIP, as amended.

 

Administration of the LTIP

 

The LTIP is administered by our Board of Directors with respect to awards to non-employee directors and by the Nominating, Governance and Compensation Committee (referred to in this Proposal 2 as the “Compensation Committee”) with respect to all other awards. The Compensation Committee will at all times consist solely of at least two directors who are “independent” within the meaning of applicable rules of the SEC and the NYSE. The Compensation Committee currently consists of Chairman Thomas L. Kelly II, David M. Carmichael, J. Roderick Clark and C. Christopher Gaut, all of whom qualify as independent directors. Matters requiring approval of two or more “outside directors”, as defined by Section 162(m) of the Internal Revenue Code, in order to permit a tax deduction for compensation over $1 million paid to certain executive officers will be referred to the Executive Compensation Subcommittee (the “Subcommittee”), which consists of Thomas L. Kelly II, David M. Carmichael and J. Roderick Clark, all of whom meet such qualification.

 

The Compensation Committee is authorized to:

 

 

 

All decisions, determinations and interpretations of the Compensation Committee are final and binding on all participants.

 

Shares Subject to the LTIP

 

A maximum of 10,000,000 shares of our common stock is reserved under the LTIP for issuance as stock options and awards of restricted stock. Prior to giving effect to the proposed amendment, no more than 2,500,000 shares could be granted as restricted stock awards. If the proposed amendment is approved, of the 10,000,000 shares available for issuance under the LTIP, up to 6,000,000 shares may be issued as restricted stock awards and any shares not issued as restricted stock awards may be issued as stock option awards up to the LTIP maximum. As of March 31, 2009, 2,113,618 shares have been issued and are outstanding as restricted stock awards.

 

These limits are subject to adjustment for certain transactions affecting our common stock. Expired, forfeited or canceled stock options or restricted stock awards will not count against these limits and can be regranted under the LTIP for the same type of award. Any and all shares available under the LTIP may be granted to any employee or non-employee director during the term of the LTIP. The shares of our common stock issued under the LTIP may come from authorized but unissued shares, shares held in treasury or previously issued shares reacquired by the Company, including shares purchased on the open market.

 

Participants

 

Our officers, employees and non-employee directors are eligible to participate in the LTIP. Incentive stock options may be granted only to employees. Except with respect to awards to non-employee directors and certain executive officers, the Compensation Committee has the sole discretion to select participants from among the eligible persons. The Subcommittee has the sole discretion to select participants from among certain executive officers whose compensation is subject to the deduction limitation of Section 162(m) of the Internal Revenue Code and, to the extent so applicable, determine the terms of the equity awards granted to such participants. We currently have approximately 257 officers and employees participating in the LTIP.

 

Limitation on Grants of Awards

 

No more than 1,500,000 shares of our common stock may be subject to awards granted under the LTIP during any one-year period to the Chief Executive Officer, Chief Financial Officer or any of our three other most highly compensated officers (other than our Chief Executive Officer or our Chief Financial Officer).

 

Types of Awards

 

The LTIP provides for the grant of awards consisting of:

 

 

Stock Option Grants and Provisions

 

Stock options granted under the LTIP may be:

 

 

Any stock option granted in the form of an incentive stock option must comply with Section 422 of the Internal Revenue Code.

 

Except for stock option grants to non-employee directors, the Compensation Committee selects the recipients of stock options and sets the terms of the options, including the number of shares for which an option is granted, the term of the option and the time(s) when the option can be exercised.

 

All stock options will be evidenced by option agreements, as determined by the Compensation Committee. An option will be effective on the date of grant unless the Compensation Committee specifies otherwise.

 

The exercise price of all stock options will be at least equal to the fair market value of our common stock on the date of grant as determined by the Compensation Committee. The fair market value generally is determined to be the closing market price per share quoted on the NYSE on the date of grant. As of the March 31, 2009 record date for the Annual Meeting of Stockholders, the closing market price per share of our common stock on the NYSE was $26.40.

 

The Compensation Committee has broad discretion in setting the terms and conditions of options granted under the LTIP. Subject to this authority, stock options generally vest and become exercisable by the optionee at the rate of 25% per year on each anniversary of the date of grant, except that stock options that are automatically granted to non-employee directors are fully vested and exercisable on the date of grant.

 

Similarly, the Compensation Committee may determine the term of each option granted under the LTIP, so long as the term does not exceed seven years from the date of grant (or five years in the case of an incentive stock option granted to a participant who is a 10% stockholder on the date of grant). Stock options terminate upon expiration of their term or, if earlier, (i) 90 days after termination of employment or service for a reason other than death, permanent and total disability or retirement on or after normal retirement age, (ii) 12 months after death or (iii) 12 months after permanent and total disability. If a participant retires on or after his or her normal retirement age, his or her stock options will generally become fully vested and exercisable for the remainder of the option term. Normal retirement age with respect to a participant means the later of (a) his or her 65th birthday or (b) the date the participant has credit for a “period of service” under the ENSCO Savings Plan of at least 20 years, considering for purposes of the LTIP (i) with respect to any participant hired before the effective date of the LTIP, any other prior service recognized previously by the Company as of his or her date of hire and (ii) with respect to any participant hired after the effective date of the LTIP, any other prior service recognized by the Compensation Committee.

 

The Compensation Committee, in its discretion, may consider a participant whose employment terminates after his or her 62nd birthday but prior to satisfying the requirements specified in the preceding sentence to have retired on or after his or her normal retirement age. In addition, the Compensation Committee has the authority, in its discretion, to grant stock options under the LTIP (i) that are not subject to accelerated vesting and an extended exercise period upon retirement on or after attainment of normal retirement age and (ii) stock options to participants who will attain normal retirement age within a specified period of time following the date of grant that will not be subject to accelerated vesting and/or an extended exercise period for some or all of the vested shares until a specified deferred date following attainment of normal retirement age.

 

Option awards under the LTIP are usually subject to “clawback” provisions (but may not be in the Compensation Committee’s discretion), whereby, if a participant competes with us within one year of his or her voluntary resignation or termination for cause (either such resignation or termination referred to in this Proposal 2 as a “Termination”), then the participant may be required to make certain payments to the Company. In the case of options exercised within one year of Termination, the participant may be required to remit to us an amount equal to the fair market value of the option shares, computed on the date of exercise, minus the aggregate exercise price for the options.

As used in the LTIP, “cause” means, as reasonably determined by our Board or the Compensation Committee in good-faith, (i) gross misconduct or gross neglect by the participant in the discharge of his or her duties, (ii) the participant’s breach of any policy or written agreement with us, (iii) proven dishonesty in the performance of the participant’s duties, (iv) the participant’s conviction or plea of guilty or nolo contendere to a felony or crime of moral turpitude or (v) alcohol or drug abuse by the participant.

 

The status of each stock option granted to an employee as either an incentive stock option or a nonqualified stock option will be designated by the Compensation Committee at the time of grant. If, however, the aggregate fair market value (determined as of the date of grant) of shares with respect to which incentive stock options become exercisable for the first time by an employee exceeds $100,000 in any calendar year, the options with respect to the excess shares will be nonqualified stock options.

 

If an incentive stock option is granted to an employee who then owns, directly or by attribution under the Internal Revenue Code, stock possessing more than 10% of the total combined voting power of all classes of our stock, then the term of that option may not exceed five years, and the option exercise price must be at least 110% of the fair market value of our common stock on the date of grant.

 

The option exercise price upon exercise may, at the discretion of the Compensation Committee, be paid by an optionee in cash, other shares of our common stock owned by the optionee which are “qualifying shares”, or by a combination of cash and qualifying shares. Qualifying shares are shares of our common stock which the optionee has owned for more than six months and paid for under the provisions of Rule 144 of the Securities Act or were purchased by the optionee in the public market. The Compensation Committee has also approved procedures established for same-day sales through a broker to enable optionees to make cashless exercises.

 

The LTIP prohibits the repricing of stock options.

 

Restricted Stock Grants and Provisions

 

The Compensation Committee has discretion to authorize grants of restricted stock awards. A restricted stock grant entitles the recipient to receive, at no cost, shares of our common stock subject to such restrictions and conditions as the Compensation Committee may determine at the time of the grant. The recipient may have all the rights of a stockholder with respect to the restricted stock. These rights include dividend and voting rights, and they are effective as soon as restricted stock is granted, and issuance of the restricted stock is recorded by our transfer agent.

 

A grant of restricted stock will be subject to non-transferability restrictions, forfeiture provisions and such other conditions (including conditions on voting and dividends) as the Compensation Committee may determine at the time of grant. Grants of restricted stock generally vest at the rate of 20% per year on anniversary dates of the date of grant and fully vest at the end of five years from the date of grant.

 

Shares cease to be restricted and will be deemed “vested” after the lapse of all restrictions. The Compensation Committee may in its discretion waive any condition or restriction related to a grant of restricted stock or accelerate the dates on which a grant of restricted stock vests.

 

Except as provided in an award agreement, a participant generally will become fully vested in all shares of restricted stock upon retirement on or after normal retirement age (as described above) and may become fully vested in whole or part upon permanent and total disability or death. If an employee participant’s employment is terminated for any other reason prior to shares of restricted stock becoming vested, such shares will be forfeited unless otherwise determined in the discretion of the Compensation Committee.

 

Restricted stock awards are typically subject to similar clawback provisions as stock option awards, except that, if a participant competes with us within one year of his or her Termination, the participant may be required to remit to us an amount equal to the fair market value of the shares that vested within one year of Termination, calculated as of the date of vesting.

Performance Awards and Provisions

 

The Compensation Committee and, to the extent applicable, the Subcommittee may grant performance awards, which are restricted stock grants under which the recipient’s right to receive shares of our common stock is based upon satisfaction of pre-established performance goals and such other conditions, restrictions and contingencies as the Compensation Committee may determine. At the time of the grant, the Compensation Committee will establish the maximum number of shares of our common stock subject to each performance award and the performance period over which the performance applicable to the award will be measured. A performance period cannot be shorter than our fiscal year. A performance award is forfeited if the recipient’s employment or service terminates during the applicable performance period in a manner similar to a restricted stock award, except as otherwise determined by the Compensation Committee.

 

The right to receive our common stock pursuant to a performance award may be contingent upon satisfaction of performance factors and targets established by the Compensation Committee prior to the beginning of the performance period. The performance measures and targets may be made subject to adjustment for specified significant extraordinary items or events and may be absolute, relative to one or more other companies or relative to one or more indices.

 

The performance measures may be based upon:

 

 

Specific performance factors and targets may also relate to and be determined in terms of individual performance and our performance when evaluated against comparable companies, peer or industry groups or other indices.

 

To ensure compliance with the requirements of deductibility under Section 162(m) of the Internal Revenue Code, the Compensation Committee (and, to the extent applicable, the Subcommittee) must establish performance

goals and targets prior to the beginning of the performance period for which the goals relate, and the Compensation Committee may not increase any award or, except in the case of qualified terminations of employment or service, waive the achievement of any specified goal or target. Any issuance of shares of our common stock under a performance award is conditioned on the written certification of the Compensation Committee that the performance goals and targets and any other material conditions were satisfied.

 

Awards to Non-Employee Directors

 

The LTIP provides for certain automatic grants of nonqualified stock options or awards of restricted stock to non-employee directors. The LTIP initially provided that, upon election or appointment to our Board of Directors, a new non-employee director who has not previously served as one of our directors receives an automatic grant of nonqualified stock options to purchase 15,000 shares of our common stock. Each other non-employee director re-elected at, or continuing to serve following, each annual stockholders meeting receives an automatic grant of nonqualified stock options to purchase 6,000 shares of our common stock. Our Board of Directors may determine, from time to time, to provide for a different number of shares to be subject to the automatic grants of nonqualified options to non-employee directors or to make awards of restricted stock to non-employee directors. These automatic grants or awards are effective on the date of each annual stockholders meeting. Currently, each incumbent non-employee director receives an annual automatic grant of 3,000 restricted shares. New non-employee directors receive an initial grant of 5,000 restricted shares as the total award during the year in which they are elected or appointed to our Board of Directors.

 

Except as provided in an award agreement, a non-employee director participant generally will become fully vested in all shares of restricted stock upon retirement on or after normal retirement age (as described above) and may become fully vested in whole or part upon permanent and total disability or death. If a non-employee director terminates his or her service other than for retirement with the consent of the Board or if his or her service is terminated for cause prior to shares of restricted stock becoming vested, such shares will be forfeited unless otherwise determined in the discretion of the Committee.

 

Provisions Relating to a Dissolution, Liquidation, Reorganization or Change in Control

 

The LTIP provides certain benefits in the event of a dissolution, liquidation, reorganization or change in control of the Company. If the Company is dissolved or liquidated, all outstanding awards will immediately vest or become exercisable or payable in full, and all forfeiture restrictions will lapse upon such date to be fixed by the Compensation Committee. The Compensation Committee will provide written notice to each participant at least 30 days in advance of the fixed date. Any stock options that are not exercised will terminate on the fixed date.

 

Upon the occurrence of a reorganization, we will negotiate for the surviving entity or other purchaser involved to assume all of our obligations under all outstanding awards or convert all outstanding awards into awards of at least equal value in capital stock of the surviving entity or purchaser. If that surviving entity or purchaser does not agree to assume or convert all outstanding awards, then all outstanding awards will immediately vest or become exercisable or payable, and all forfeiture restrictions will lapse, at least 30 days in advance of the effective date of the reorganization. Any stock options that are not exercised will terminate on the effective date of the reorganization.

 

Under the LTIP, the term “reorganization” means any merger, consolidation, sale of all of our assets, or sale by the Company of securities in a negotiated transaction through which we become a wholly-owned subsidiary of another company.

 

If the employment of a participant is terminated without cause or if a participant resigns from his or her employment for good reason within the two-year period following a change in control of the Company, all of his or her outstanding awards will immediately vest or become exercisable or payable, and all forfeiture restrictions will lapse. Any stock options that are not exercised by the participant will terminate 90 days after the date his or her employment terminates or such other date as may be determined by the Compensation Committee. The Compensation Committee, in its discretion, may elect to issue LTIP awards that will not be subject to accelerated vesting if the participant’s employment is terminated for certain specified reasons following a change in control.

A change in control is deemed to occur if:

 

 

Other Modifications

 

In the event of specified changes in our capital structure, the Compensation Committee will have the power to adjust the number and type of shares authorized by the LTIP (including any limitations on individual awards) and the number, option exercise price or types of shares covered by outstanding awards. The Compensation Committee will also have the power to make other appropriate adjustments in awards under the LTIP.

 

Other Provisions Applicable to Awards

 

Awards are non-transferable except by disposition following death.

 

The Compensation Committee may authorize the assumption of awards granted by other entities that are acquired by us or otherwise.

 

We have established a Securities Trading Policy and Procedure which governs disclosure and trading on inside information and prohibits directors, officers and certain managers from trading our common stock during certain specified regular or special blackout periods. In respect to any participant subject to our Securities Trading Policy and Procedure, if a stock option term ends or a restriction period for a restricted stock award lapses during a blackout period, such option term or restriction period is automatically extended to the second business day following the end of that blackout period.

 

Term and Amendment of LTIP

 

The LTIP became effective January 1, 2005. No awards may be granted under the LTIP after December 31, 2014, and the LTIP terminates once all awards have been satisfied or exercised, or expire. The Compensation Committee, in its discretion, may terminate the LTIP at any time with respect to any shares of our common stock for which awards have not previously been granted.

 

The Compensation Committee may amend the LTIP at any time; however, any change that would negatively impact the rights of a participant with respect to an outstanding award must be agreed upon by the participant. An amendment must receive stockholder approval if it changes the class of eligible individuals, increases the number of shares of our common stock that may be issued under the LTIP or involves any other material revision as determined under the rules of the NYSE.

 

Material Federal Income Tax Consequences

 

The following is a brief summary of certain of the United States Federal income tax consequences relating to the LTIP based on federal income tax laws currently in effect. This summary applies to the LTIP as normally operated and is not intended to provide or supplement tax advice to employees or non-employee directors. This summary contains general statements based on current United States Federal income tax statutes, regulations and guidance. This summary is not intended to be exhaustive and does not describe state, local or foreign tax consequences or the effect, if any, of gift, estate and inheritance taxes. The LTIP is not qualified under Section 401(a) of the Internal Revenue Code.

 

The Internal Revenue Code provides that a participant granted a nonqualified stock option ordinarily does not realize taxable income upon the grant of the option. A participant does, however, realize income upon the exercise of a nonqualified stock option to the extent that the fair market value of our common stock on the date of exercise exceeds the option exercise price. We are entitled to a federal income tax deduction for compensation in an amount equal to the ordinary income so realized by the participant. This deduction is conditioned on reporting federal income tax with respect to the amount of that compensation. When the participant sells the shares acquired pursuant

to a nonqualified stock option, any gain or loss will be capital gain or loss, although there will be no tax consequences for us. This assumes that the shares represent a capital asset when held by the participant.

 

The grant of an incentive stock option does not result in taxable income to an employee. The exercise of an incentive stock option also does not result in taxable income, provided that the circumstances satisfy the employment requirements in the Internal Revenue Code. However, the exercise of an incentive stock option may give rise to alternative minimum tax liability for the employee. In addition, if the employee does not dispose of the common stock acquired upon exercise of an incentive stock option during the statutory holding period, then any gain or loss upon subsequent sale of the common stock will be a long-term capital gain or loss. This assumes that the shares represent a capital asset when held by the employee.

 

The statutory holding period lasts until the later of:

 

 

If the employment and statutory holding period requirements are satisfied, we may not claim a federal income tax deduction upon either the exercise of the incentive stock option or the subsequent sale of the common stock received upon exercise. If these requirements are not satisfied, the amount of ordinary income taxable to the employee is the lesser of:

 

 

and any excess of the amount realized on disposition over the fair market value of the common stock on the date of exercise is long-term or short-term capital gain or loss, assuming the shares represent a capital asset when held by the employee. We are entitled to a federal income tax deduction in an amount equal to any ordinary income realized by the employee.

 

An award of restricted stock does not result in taxable income to the participant on the date of grant. Under Section 83(b) of the Internal Revenue Code, a participant may elect to include in ordinary income, as compensation at the time restricted stock is first issued, the fair market value of the common stock at the time of issuance. Unless a Section 83(b) election is made, no taxable income will generally be recognized by the recipient of a restricted stock award until the shares are no longer subject to the transfer restrictions or the substantial risk of forfeiture. When either the transfer restrictions or the substantial risk of forfeiture lapses, the participant will recognize ordinary income in an amount equal to the fair market value of the common stock on the date of lapse. Any cash dividends or other distributions paid with respect to the restricted stock prior to the lapse of the transfer restrictions or the substantial risk of forfeiture will be included in the participant’s ordinary income as compensation at the time of receipt.

 

Generally, a participant will not recognize any taxable income upon the grant of performance awards. When the participant is issued shares of our common stock because the performance goals under the award have been satisfied, the fair market value of the shares of our common stock received in payment for such awards generally is taxable to the participant as ordinary income.

 

As a general rule, we or one of our subsidiaries will be entitled to a deduction for federal income tax purposes at the same time and in the same amount that a participant recognizes ordinary income from awards under the LTIP. The amount of the deduction is the amount of the award that is considered reasonable compensation under the Internal Revenue Code.

 

The exercisability of a stock option, the payment of a performance award or the elimination of restrictions on restricted stock may be accelerated, and special settlement rights may be triggered and exercised as a result of a reorganization or change in control. If any of the foregoing occurs, all or a portion of the value of the relevant award at that time may be a parachute payment. This is relevant for determining whether a 20% excise tax (in addition to income tax otherwise owed) is payable by the participant as a result of the receipt of an excess parachute payment

pursuant to the Internal Revenue Code. We will not be entitled to a deduction for the portion of any parachute payment which is subject to excise tax.

 

Inapplicability of ERISA

 

Based upon current law and published interpretations, we do not believe that the LTIP is subject to any of the provisions of the Employee Retirement Income Security Act of 1974, as amended.

 

Stockholder approval is required to approve the proposed amendment to the LTIP, and we are soliciting reapproval of the LTIP, as amended, by our stockholders in order to qualify for the income tax deduction under Section 162(m) of the Internal Revenue Code.

 

The Board of Directors recommends that stockholders vote “FOR” the approval of the amendment to the 2005 Long-Term Incentive Plan and the reapproval of the material terms of the performance goals therein for purposes of Section 162(m) of the Internal Revenue Code.

 

PROPOSAL 3

 

RATIFICATION OF THE AUDIT COMMITTEE’S APPOINTMENT OF KPMG LLP AS OUR

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2009

 

Our Audit Committee has appointed the accounting firm of KPMG to serve as our independent registered public accounting firm (“independent auditors”) for the fiscal year ending December 31, 2009. KPMG has served as our independent auditors for the fiscal year ended December 31, 2002 and thereafter, having been duly appointed by the Board of Directors or by the Audit Committee in conformity with the then applicable rules. Representatives of KPMG are expected to be present at the Meeting to respond to questions and to make a statement should they so desire.

 

The Board of Directors recommends that stockholders vote “FOR” the ratification of the appointment of KPMG as our independent registered public accounting firm for the year ending December 31, 2009.

 

Independent Auditor Pre-approval Policies and Procedures

 

Consistent with SEC rules and policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of our independent auditors. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditors.

 

Under the policy, we submit an itemized listing of all services for which pre-approval is requested to the Audit Committee. Such itemized listing includes a description of each proposed service, the associated estimated fees and other terms of the engagement. To the extent any such service is a non-audit service, the submission includes a determination that such service qualifies as a permitted non-audit service and an explanation as to why the provision of such service would not impair the independence of the auditors.

 

Fees and Services

 

The aggregate fees (excluding value added taxes) billed to us for the fiscal years ended December 31, 2008 and 2007 by KPMG and its affiliates, were as follows (in thousands):

 

 

Our Audit Committee pre-approved the services provided during 2007 and 2008 described above in accordance with our Audit Committee’s policy and the pre-approval requirements of the Sarbanes-Oxley Act of 2002. Accordingly, there were no services for which the de minimus exception, as defined in Section 202 of the Sarbanes-Oxley Act of 2002, was applicable. Our Audit Committee has considered whether the provision of the non-audit services by KPMG were compatible with maintaining KPMG’s independence.

 

CORPORATE GOVERNANCE

 

Board of Directors; Meetings and Committees

 

Our Board of Directors met nine times during the year ended December 31, 2008. During 2008, our Board had two standing committees, the Audit Committee and the Nominating, Governance and Compensation Committee, each of which selected a Committee Chairman from its members. During 2008, each incumbent director attended at least 75% of the meetings held by our Board and the committees of which he or she was a member. Our Board has affirmatively determined that Dr. Rodriguez and Messrs. Carmichael, Clark, Gaut, Haddock, Kelly, Rattie and Rowsey are independent, as the term is defined by SEC rules and the Corporate Governance Standards of the NYSE, and have no material relationships with us. Accordingly, a majority of our Board is currently independent as required by SEC rules and NYSE Corporate Governance Standards. The independent directors conducted executive sessions without management during each of the four regular quarterly meetings of the Board and during several of the special meetings of the Board that were convened during 2008. Only independent directors serve on the Board’s standing committees.

 

Director Attendance at the Meetings of Stockholders

 

The ENSCO Corporate Governance Policy provides that, barring extenuating circumstances, all members of the Board of Directors shall attend our Annual Meetings of Stockholders and also shall attend any and all special stockholders meetings which may be duly convened. Seven of the eight incumbent directors and all three non-incumbent director nominees attended our 2008 Annual Meeting of Stockholders.

 

Other Governance Matters

 

Over the past several years, our Nominating, Governance and Compensation Committee (the “Compensation Committee” or the “Committee”) and Board of Directors approved several corporate governance initiatives, many of which were in response to SEC and NYSE rule revisions.

 

Upon the recommendation of the Committee, our Board of Directors approved the ENSCO Code of Business Conduct Policy (“Ethics Policy”) and the ENSCO Corporate Governance Policy, both of which are published in full in the Corporate Governance section of our website (www.enscointernational.com/ENSCO/governance.asp) and are available in print upon request without charge. Such requests should be directed to the Investor Relations Department, ENSCO International Incorporated, 500 North Akard Street, Suite 4300, Dallas, Texas 75201-3331.

 

During 2008, the Committee and Board of Directors engaged in a comprehensive review of our governance policies and practices with the objective of implementing revisions which would constitute best practices and would be responsive to issues of concern to the investment community. As a result, the Committee and Board approved revisions to the ENSCO Corporate Governance Policy to address best practices and revised NYSE listing standards with the most substantive revisions relating to the NYSE listing standards for director independence. Additionally,

during November 2008, on the recommendation of the Committee, our Board approved an amendment to our bylaws to provide clear guidelines for submission of stockholder proposals and director nominations.

 

Our Ethics Policy applies to all of our directors and employees, including the principal executive officer, principal financial officer, principal accounting officer or controller and other persons performing similar functions. Our Ethics Policy addresses all of the NYSE content requirements and includes provisions addressing conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of our assets and compliance with our policies and with laws, rules and regulations, including laws addressing insider trading, antitrust and the U.S. Foreign Corrupt Practices Act (“FCPA”). No waivers of the provisions of our Ethics Policy have been requested or granted since the Ethics Policy was first issued on November 1, 2002.

 

Pursuant to our Ethics Policy, we established provisions for confidential and anonymous submission of reports of non-compliance with our policies, practices, standards and procedures to a management committee and also established means for submission of reports of accounting, auditing or other business irregularities by any employee or other person directly to the Chairmen of our two standing Board committees. Additional Ethics Policy provisions addressing requests for, and submission of, responses to whistleblower reports and references to our Fraud Detection and Prevention Policy were approved during 2004.

 

During 2005, we amended our Ethics Policy to require all our employees, officers and directors to report any known or planned violations of the Ethics Policy and to expressly state that all transactions involving our Company must be recorded in our books and records. During 2007, we amended our Ethics Policy to supplement the provisions regarding compliance with FCPA and to implement various ministerial changes. We further amended our Ethics Policy in November 2008 to add new provisions addressing (1) fair dealing with employees and customers and (2) waivers. Except as respects the provisions which were added or modified during 2004, 2005, 2007 and 2008 as aforementioned, there have been no substantive revisions or amendments to our Ethics Policy.

 

The governance practices adopted by our Board of Directors address all of the NYSE content requirements, including an annual self-evaluation of the Board and its committees, and annual reviews of the committee charters, our Ethics Policy and the ENSCO Corporate Governance Policy. Our governance practices provide that the independent director members of the Board shall conduct regular executive sessions without management (which alternately are chaired by the Chairmen of our Board’s two standing committees) and a formal annual evaluation of our CEO’s performance. Our Board fulfilled these requirements during 2008.

 

The ENSCO Corporate Governance Policy states that a substantial majority of the Board of Directors shall be independent, as the term is defined therein and by SEC rules and NYSE Corporate Governance Standards. Except as respects their directorships, we do not have any business or other relationships with our independent directors. Only independent directors serve on the Board’s standing committees. In this regard, our Board has affirmatively determined that Dr. Rodriguez and Messrs. Carmichael, Clark, Gaut, Haddock, Kelly, Rattie and Rowsey are independent and have no material relationship with us. Accordingly, a substantial majority of our Board is currently independent as defined above.

 

As respects the independence determinations relating to Directors Clark and Gaut, respectively, our Board of Directors made its determinations with knowledge of the following:

 

 

Notwithstanding the foregoing business relationships, our Board of Directors concluded that said relationships have not and will not affect the independence of either Director Clark or Director Gaut and that they are independent, as the term is defined by SEC rules and Corporate Governance Standards of the NYSE.

 

The ENSCO Corporate Governance Policy provides that we shall establish a process by which stockholders and other interested parties may communicate directly with our Board of Directors, any committee of the Board, the non-employee directors as a group or any individual director. The established process, which is published on our website (www.enscointernational.com/ENSCO/governance.asp), provides a means for submission of such interested parties’ communications via an independent, third party mail forwarding service. Such communications may be submitted by mail, addressed as follows: Ensco Stockholder Communications, 5600 W. Lovers Lane, Suite 116, Box #130, Dallas, Texas 75209-4330. Mail so addressed will be forwarded directly to the then presiding Chairmen of our Board’s standing committees and will not be screened by management.

 

Our Board of Directors, its standing committees and management are committed to continue proactively pursuing best practices of corporate governance, accountability and transparency. In this regard, our website has a direct link to the SEC’s EDGAR system relating to our SEC filings, including all Forms 3, 4 or 5 filed pursuant to Section 16 of the Securities Exchange Act of 1934, as amended (“Exchange Act”). The Corporate Governance section of our website (www.enscointernational.com/ENSCO/governance.asp) contains our Audit Committee Charter, the Nominating, Governance and Compensation Committee Charter, the ENSCO Corporate Governance Policy and our Ethics Policy, copies of which also are available in print upon request without charge. Such requests should be directed to the Investor Relations Department, ENSCO International Incorporated, 500 North Akard Street, Suite 4300, Dallas, Texas 75201-3331. Additional data available in the Corporate Governance section of our website include information on the composition and functions of the Board and its committees as well as instructions for submission of whistleblower reports and submission of general stockholder communications to our Board.

 

Audit Committee

 

We have established and maintained an Audit Committee in accordance with the rules promulgated under the Exchange Act. Our Audit Committee appoints a firm of independent auditors to examine, review and audit our consolidated financial statements, reviews the general scope of services to be rendered by the independent auditors and pre-approves and authorizes payment of the associated fees, reviews our financial condition and results of operations and makes inquiries as to the adequacy of our financial and accounting controls. Our Audit Committee met nine times during 2008. Our Audit Committee currently consists of Chairman Gerald W. Haddock, Dr. Rita M. Rodriguez, Keith O. Rattie and Paul E. Rowsey, III, all of whom meet the independence criteria of audit committee members prescribed by the SEC and the NYSE. None of the members of our Audit Committee serve on more than three U.S. public company audit committees.

 

Our Board of Directors has determined that each of the four members of the Audit Committee, Chairman Haddock, Dr. Rodriguez, Mr. Rattie and Mr. Rowsey, meets the requisite SEC criteria to qualify as an audit committee financial expert, is financially literate and has accounting or related financial management expertise as defined in the NYSE Corporate Governance Standards. In making recommendations and determinations regarding audit committee financial experts, our Board of Directors and the Audit Committee considered the relevant academic and professional experience of the Audit Committee members as follows: Mr. Haddock, with a Bachelor of Business Administration Degree in Accounting and Masters of Laws in Taxation and Business Administration Degrees, actively supervised the principal financial officer of Crescent Real Estate Equities Company; Dr. Rodriguez, with Bachelor of Business Administration in Accounting and Masters of Business Administration Degrees and a PhD in Economics and Finance, served as a full-time director of the Export-Import Bank of the United States; Mr. Rattie, with Bachelor of Electrical Engineering and Masters of Business Administration Degrees, serves as Chairman, President and Chief Executive Officer of Questar Corporation and actively supervises its principal financial officer; and Mr. Rowsey, with a Bachelor of Arts in Management Science, actively supervises the principal accounting officer of E2M Partners, LLC.

In November 2008, our Audit Committee considered several proposed changes to the Audit Committee Charter. At that time, the Audit Committee determined that the proposed revisions should be subject to further review and consideration. In April 2009, on recommendation of the Audit Committee, our Board of Directors approved an amendment to the Audit Committee Charter which primarily addressed best practices and compliance with the intent and purpose of recently revised SEC and NYSE rules. The amendment also addressed recommendations of a consultant that conducted a Quality Assurance Review of our internal audit function and provisions recommended by the Audit Committee’s outside counsel. The most substantive changes address recent changes in applicable accounting rules, including the adoption of Statement on Auditing Standards No. 114 and Public Company Accounting Oversight Board Rule 3526.

 

Related Party Transactions

 

In accordance with our Audit Committee Charter, except as respects compensatory agreements with our officers or directors that fall within the purview of the Nominating, Governance and Compensation Committee, the Audit Committee is responsible for reviewing and approving the terms and conditions of all proposed transactions between our Company, any of our subsidiaries or affiliates and any of our officers or directors, or relatives or affiliates of any such officers or directors, to ensure that such “related-party” transactions are fair and are in our overall best interest. No transactions requiring such approval occurred during 2008.

 

H.E. Malone, Jr., Vice President — Finance of our subsidiary ENSCO Offshore International Company, is the brother-in-law of Carl F. Thorne, our former Chief Executive Officer and former Chairman of our Board of Directors who retired on May 22, 2007. On February 28, 2007, we entered into a Retirement Agreement with Mr. Thorne that provided for Mr. Thorne to receive certain equity awards and cash payments. For more information regarding Mr. Thorne’s Retirement Agreement, including the approximate dollar value of transactions with Mr. Thorne during 2008, see “Employment Contracts, Termination of Employment Arrangements and Potential Post-Termination Payments” in the Compensation Discussion and Analysis section of this Proxy Statement.

 

REPORT OF THE AUDIT COMMITTEE

 

The Audit Committee of the Board of Directors of ENSCO International Incorporated (the “Company”) is comprised of four independent directors who satisfy the requirements of independence as established by Section 10A of the Securities Exchange Act of 1934, as amended, and in the New York Stock Exchange listing standards. The Audit Committee is governed by a written Charter adopted by the Board of Directors. To fulfill its responsibilities, the Audit Committee met nine times during the Company’s 2008 fiscal year.

 

Management is responsible for the Company’s internal controls, financial reporting process and compliance with laws and regulations and ethical business standards. The independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States) and to issue a report thereon. The Audit Committee is directly responsible for the appointment, compensation and oversight of the independent auditors employed by the Company (including resolution of disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditors report directly to the Audit Committee.

 

The Audit Committee has met and held discussions with management and the independent auditors. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Audit Committee has reviewed and discussed the audited consolidated financial statements with management and the independent auditors. The Audit Committee discussed matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees) with the independent auditors.

 

The Audit Committee has received the written disclosures and the letter from the independent auditors required by applicable requirements of Public Company Accounting Oversight Board Rule 3526 regarding the independent auditors’ communications with the Audit Committee concerning independence and has discussed with the independent auditors the independent auditors’ independence.

The Audit Committee has recommended and the Board of Directors, in the exercise of its business judgment, is expected to approve (as will be confirmed by a majority of the directors’ signatures thereon) inclusion of the Company’s audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, to be filed with the Securities and Exchange Commission. The recommendation was based upon the Audit Committee’s review, the exercise of its business judgment, the discussions referred to above and reliance upon the Company’s management and independent auditors.

 

Submitted by the Audit Committee,

 

Gerald W. Haddock, Chairman

Keith O. Rattie

Rita M. Rodriguez

Paul E. Rowsey, III

 

February 25, 2009

 

In accordance with the recommendation of the Audit Committee, our Board of Directors approved inclusion of the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008, and all of our directors acknowledged such approval by signing the Annual Report on Form 10-K as filed with the SEC on February 26, 2009.

 

Nominating, Governance and Compensation Committee

 

The principal functions of our Nominating, Governance and Compensation Committee are to select, identify and screen candidates for nomination to our Board of Directors, to recommend composition of committees of our Board, to recommend our officers, to oversee and recommend matters of corporate governance and to review and approve executive officer compensation and employee compensation matters, including matters regarding our various benefit plans, independently or in conjunction with our Board of Directors, as appropriate. To fulfill its responsibilities, the Committee met five times during 2008. The Committee currently consists of Chairman Thomas L. Kelly II, David M. Carmichael, J. Roderick Clark and C. Christopher Gaut, all of whom meet the independence criteria prescribed by the NYSE for service on a nominating committee and on a compensation committee.

 

The Committee has established an Executive Compensation Subcommittee (the “Subcommittee”), which consists of Chairman Thomas L. Kelly II, David M. Carmichael and J. Roderick Clark, all of whom qualify as “outside directors” for purposes of Section 162(m) of the Internal Revenue Code. The Subcommittee has been delegated authority to qualify compensation paid by the Company for deductibility under Internal Revenue Code Section 162(m).

 

Compensation Committee Interlocks and Insider Participation

 

As of December 31, 2008, the members of the Nominating, Governance and Compensation Committee were Chairman Thomas L. Kelly II, David M. Carmichael, J. Roderick Clark and C. Christopher Gaut. Mr. Gaut served the Company from 1988 to 2003 in various capacities including Chief Financial Officer. No member of the Compensation Committee is involved in a relationship requiring disclosure as an interlocking executive officer/director or under Item 404 of Regulation S-K.

 

Director Nominations

 

Our Nominating, Governance and Compensation Committee, with direct input from the Chairman of the Board and other Board members, is primarily responsible for identifying and screening candidates for nomination to Board membership. Additionally, when and as deemed appropriate, we may retain the services of a third party to identify, evaluate or assist the Committee and Board in evaluating potential director nominees. Our Board of Directors is responsible for nominating individuals to serve on our Board.

Pursuant to the ENSCO Corporate Governance Policy, candidates nominated for election or re-election to our Board of Directors should possess the following qualifications:

 

 

 

 

The Compensation Committee will evaluate the qualifications of each director candidate, including nominees recommended by stockholders, against these criteria in making recommendations to our Board of Directors concerning director nominations. The Compensation Committee is responsible for assessing the appropriate mix of skills and characteristics required of Board members in the context of the perceived needs of our Board at a given point in time and periodically reviews and updates the aforesaid criteria as deemed necessary. Diversity in personal background, race, gender, age and nationality for the Board as a whole may be taken into account favorably in considering individual candidates. We may identify potential director candidates from a number of sources, including recommendations from directors, management, stockholders and executive recruiting firms retained for such purpose.

 

The Compensation Committee will consider director nominations timely made by stockholders pursuant to the requirements of our bylaws referred to in the “Information Concerning Stockholder Proposals” section of this Proxy Statement. Any stockholder who intends to nominate a candidate for election as a director at the 2010 Annual Meeting must use the procedures set forth in our bylaws, which provide that nominations of persons for election to the Board of Directors at an Annual Meeting of Stockholders may be made at the Annual Meeting by any stockholder entitled to vote on the election of directors at the meeting who timely complies with the notice procedures described below.

 

A stockholder’s notice must be in proper form and, to be timely, must be delivered to or mailed to and received by our Secretary at our principal executive offices not less than 50 days nor more than 75 days prior to the first anniversary of our prior year’s annual meeting, subject to any other requirements of law; provided, however, that if the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be delivered not less than 50 days nor more than 75 days prior to the annual meeting, or, if less than 65 days prior public announcement of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received no later than the fifteenth day following the day on which public announcement of the date of the meeting was first made. The first anniversary of last year’s annual meeting is May 22, 2009. Any such nomination must also comply with the other provisions contained in our bylaws relating to nominations of persons for election to the Board of Directors.

We did not receive any nominations for director made by any person or group beneficially owning more than 5% of our common stock by the date that was 120 days before the anniversary of the date on which our Proxy Statement was sent to stockholders in connection with the previous year’s Annual Meeting.

 

REPORT OF THE NOMINATING, GOVERNANCE AND COMPENSATION COMMITTEE

 

The functions of the Nominating, Governance and Compensation Committee (the “Committee”) of the Board of Directors of ENSCO International Incorporated (the “Company”), among others, are to oversee and recommend matters of corporate governance and to review and approve executive officer compensation and employee compensation matters, including matters regarding the Company’s various benefit plans and to continually assess the effectiveness of these programs in consideration of the stated compensation strategy, independently or in conjunction with the Board of Directors, as appropriate. The Committee operates independently of management.

 

The Committee has reviewed and discussed the Compensation Discussion and Analysis (the “CD&A”) for the year ended December 31, 2008 with management. In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the CD&A be included in the Company’s Proxy Statement on Schedule 14A for the 2009 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission.

 

Submitted by the Nominating, Governance and Compensation Committee,

 

Thomas L. Kelly II, Chairman

David M. Carmichael

J. Roderick Clark

C. Christopher Gaut

 

April 6, 2009

 

In accordance with the recommendations of the Nominating, Governance and Compensation Committee, our Board of Directors approved inclusion of the Compensation Discussion and Analysis in this Proxy Statement during a regular meeting of the Board held on April 7, 2009.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Use of Outside Experts and External Data

 

Our Nominating, Governance and Compensation Committee (for purposes of this report, the “Compensation Committee” or the “Committee”) in carrying out its responsibility for establishing, implementing and monitoring the effectiveness of our executive compensation philosophy has the independent authority to rely on outside experts to assist in its deliberations. During 2008 and 2009, the Committee and its Executive Compensation Subcommittee (the “Subcommittee”) utilized or received compensation advice and data from outside advisors including Equilar, Inc. (“Equilar”), an executive and director compensation benchmarking service, and Pearl Meyer & Partners (“PM&P”), which was retained to serve as a compensation consultant to the Committee in November 2008.

 

The data provided by Equilar and general surveys of industry practices, as well as proxy statement compensation disclosures, were utilized by our Human Resources Department and our Compensation Committee for comparative purposes and to establish benchmarks for various components of compensation for our employees, executive officers and directors. The Compensation Committee also received data regarding compensation trends, issues and recommendations from management, including Michael K. Wiley, our General Manager-Human Resources and Security (who attends all Committee meeting general sessions).

 

Market data regarding executive and director compensation were utilized for comparative purposes to assist in establishing reference points for the principal components of compensation. Equilar, general surveys of industry practices and proxy statements were also utilized to provide information to the Compensation Committee on

compensation trends in the general marketplace and, where available, as respects other drilling and oilfield service companies. Equilar has no authority to make compensation recommendations or decisions, and the information received from this firm was utilized by our Human Resources Department and Compensation Committee primarily for benchmarking purposes. PM&P is expected to assist the Committee in a comprehensive review of our compensation and benefit plans during 2009. During late 2008, PM&P assisted the Committee in the establishment of 2009 ECIP performance goals, but did not have any authority beyond serving as a consultant and advisor to the Committee.

 

Industry Conditions and Implications of Market Forces

 

Our Compensation Committee recognizes the need to provide appropriate compensation and benefits to attract and retain employees, including executive officers.

 

During the first half of 2008, the Committee focused on the tight labor market and intense competition which existed in the drilling industry, having recognized that competition for skilled personnel may increase further as new offshore rigs under construction enter the marketplace. An expressed aspect of the Company’s vision statement is “to be the clear choice among employees, customers and investors”, and the Committee urged management and our Human Resources Department to focus upon employee and executive officer development, training and succession planning, with emphasis on compensation and benefit programs designed to attract and retain personnel. While these principles remain applicable, the global economic downturn and resulting impact on our business and markets have recently caused us to curtail, reduce or stabilize some of our compensation programs, including a determination by the Committee that there will be no increases in executive officer base salaries in 2009.

 

Our basic underlying philosophy for executive officer compensation is to utilize competitive performance-based compensation to attract, employ, retain and reward individuals capable of leading us to achieve our business objectives. The objectives include financial, operational and safety performance, preservation of a strong balance sheet, strategic and opportunistic enhancement of our asset base and positioning assets in markets that offer prospects for long-term growth in profitability, all of which we believe will serve to add stockholder value.

 

Overall operational efficiency and safety performance are among our core values and key business objectives. The accomplishment of these business objectives is measured against specific annual goals and published industry safety standards and serves as a means of determining performance-based compensation. Our executive compensation philosophy also includes the concept that bonus compensation should increase when we have strong financial performance and should decrease when we have weak financial performance.

 

Plan Amendments and Related Activities

 

Our Compensation Committee conducted a comprehensive review of our compensation and benefits philosophy during 2004. This review resulted in the development of the ENSCO 2005 Cash Incentive Plan (“ECIP”) and the 2005 Long-Term Incentive Plan (“LTIP”), both of which were approved by our stockholders at the 2005 Annual Meeting of Stockholders. Although there were no material changes to the ECIP, the LTIP or the executive compensation philosophy during 2006 and 2007, the Committee approved several new performance-based and retentive compensation initiatives during this period which were designed to motivate and retain senior field personnel in recognition of the highly competitive industry labor market at that time.

 

Our Compensation Committee continued to review and refine its philosophy in respect of compensation and benefits at all levels throughout our Company during 2007 and 2008. This included a comprehensive review of the performance measures for bonus awards under the ECIP and a review of the types and amounts of share-based equity to be awarded under the LTIP. During 2007, the Committee awarded equity entirely in restricted stock to all LTIP participants except executive officers and managers at or above the General Manager level and, during 2008, awarded equity entirely in restricted stock to all LTIP participants. This shift away from stock options resulted from a focus on the competitive forces facing our Company, including increased employee turnover and competitor compensation practices, and the belief that restricted stock constitutes an effective use of equity awards to retain key management and supervisory personnel. Our adoption of FAS 123(R), which requires expense recognition of stock option awards, and a desire to optimize the effectiveness of share-based compensation were also factors in these decisions.

In November 2006, our Compensation Committee approved and recommended, and our Board of Directors approved, an amendment to the LTIP to authorize issuance of equity awards that are not subject to early vesting and, as respects options, will not remain exercisable for the entire option term following retirement after achieving the service time and age criteria of “normal retirement age” as defined in the LTIP. In April 2008, our Compensation Committee approved and recommended, and our Board of Directors approved, an amendment to the LTIP to authorize issuance of restricted stock that is not subject to early vesting in the event of termination of employment for certain reasons specified in the LTIP following a change in control. Commencing in April 2008, our Compensation Committee approved issuance of certain restricted stock awards that are not subject to early vesting for any reason.

 

In May 2008, our Compensation Committee approved and recommended, and our Board of Directors approved, an amendment to the LTIP which authorized issuance of equity awards, whether in the form of restricted stock or stock options, with a designated deferral of the applicability of the provisions addressing early vesting following retirement and, as respects options, that will not remain exercisable for the entire option term after achieving the service time and age criteria of “normal retirement age” as defined in the LTIP. The amendments discussed in this and the prior paragraph were intended to facilitate issuance of equity that would not be subject to early vesting in whole or part so as to enhance the retentive aspects of the associated awards and grants.

 

The migration to granting annual equity entirely in restricted stock over the past few years has largely depleted the number of shares available for future issuance as restricted stock under the LTIP. Accordingly, our Compensation Committee approved and recommended, and our Board of Directors approved, an amendment to the LTIP in November 2008 to increase the number of shares which may be granted as restricted stock from 2,500,000 to 6,000,000, without increasing the total number of shares authorized under the LTIP (10,000,000). This amendment is subject to stockholder approval as set forth in Proposal 2 of this Proxy Statement. Additionally, the November 2008 amendment of the LTIP amended the definition of “Covered Employee” to conform to guidance issued by the Internal Revenue Service, refined language regarding the manner in which shares are determined to be available for issuance under the LTIP and clarified language pertaining to the methodology by which shares withheld at the election of LTIP participants to satisfy withholding tax obligations are processed.

 

In March 2008, our Compensation Committee approved and recommended, and our Board of Directors approved, an amendment to the ENSCO Savings Plan that specified the investment funds available for participant investment, provided a limitation on the portion of a participant’s contribution and account balances that may be invested in our Company’s stock fund and provided for automatic enrollment of newly-employed eligible participants. The amendment also included provisions directed towards compliance with the quarterly benefits statement and certain other provisions of the Pension Protection Act of 2006, changed the default investment fund for new participants and specified related procedures in compliance with the Qualified Default Investment Alternative regulations promulgated by the Department of Labor. The ENSCO Savings Plan was further amended in November 2008 to address the impact of the new Ensco Multinational Savings Plan (as discussed below), update available investments and “true-up” certain Company matching contributions upon the approval and recommendation of the Compensation Committee and approval of the Board of Directors.

 

In November 2008, our Compensation Committee approved establishment of the Ensco Multinational Savings Plan to create a vehicle to allow certain of our non-U.S. employees to defer current income for retirement in a manner similar to the ENSCO Savings Plan without being subject to U.S. tax withholding requirements. The Ensco Multinational Savings Plan essentially mirrors the features of the ENSCO Savings Plan in respect of vesting, matching contributions and profit-sharing provisions.

 

The 2005 Supplemental Executive Retirement Plan (“2005 SERP”) also was amended by our Board of Directors upon recommendation of the Compensation Committee in March and November 2008. The March 2008 amendments revised the available investment funds to be consistent with the funds offered to ENSCO Savings Plan participants, expanded the permissible investment options to provide for investments in a self-directed brokerage investment program, provided a limitation on the portions of a participant’s contributions and account balance that may be invested in our Company’s stock fund and specified the manner of account investment for any participant who fails to affirmly direct the investment of his or her account when he or she initially becomes eligible to participate in the 2005 SERP. The November 2008 amendments addressed compliance with new requirements of

Section 409A of the Internal Revenue Code. Similar amendments to the Non-Employee Director Deferred Compensation Plan were approved in March and November 2008. Amendments similar to the investment provisions of the 2005 SERP were approved for the pre-2005 Supplemental Executive Retirement Plan in March 2008.

 

As respects the ECIP, during 2008, the Compensation Committee approved and recommended, and our Board of Directors approved, amendments to permit a decrease of the amount of formula-driven calculated bonus awards for the Company’s senior officers by up to 25% based upon failure to achieve pre-established individual goals for 2008 and subsequent plan years. These amendments also permit the Compensation Committee (or, as respects certain compensation for our executive officers, the Subcommittee) to make a limited discretionary bonus award to any participant based on the achievement of the pre-established individual goals for the applicable plan year. The amendments approved during 2008 also conform the provisions of the ECIP to guidance and final regulations under Sections 162(m) and 409A of the Internal Revenue Code and address certain technical amendments.

 

Executive Officer Compensation Philosophy

 

Executive officer compensation is composed of three principal components: (1) base salary; (2) cash bonus; and (3) long-term incentives in the form of restricted stock and, in prior years, nonqualified stock options. Our Compensation Committee endeavors to achieve an appropriate combination of these three principal components for purposes of allocating between long-term and currently-paid compensation for executive officers, although total compensation is weighted more heavily in favor of long-term incentives.

 

We compete with oilfield service companies and other industries or professions for executive level talent. Compensation for our executive officers is measured by reference to the median of a peer group of oilfield service companies of a similar size and historical financial performance as approved by our Compensation Committee. During 2008, our peer group companies were BJ Services Company, Cameron International Corporation, Diamond Offshore Drilling Incorporated, Noble Corporation, Oceaneering International Incorporated, Patterson-UTI Energy Incorporated, Pride International Incorporated, Rowan Companies Incorporated, Superior Energy Services, Inc., Tidewater Incorporated, Transocean Incorporated and Weatherford International, Ltd.

 

Our Compensation Committee’s compensation philosophy generally designates the 50th percentile, or median, of our peer group companies as a target for aggregate base salary, cash bonus and long-term incentives. For our executive officers, cash bonuses are based upon pre-determined targets. When the ECIP was established, the target bonuses were intended to approximate the 50th percentile of our peer group companies. In recent years, ECIP cash bonuses paid to our executive officers were generally below this level. To compensate for this difference during 2007, the Committee awarded additional long-term incentives to approximate the 50th percentile of our peer group companies. Unlike several of our peer group companies, we do not provide defined benefit retirement plans, significant perquisites or other benefits and compensatory arrangements.

 

In establishing, implementing and administering our executive compensation philosophy, our Compensation Committee generally does not specifically consider amounts realizable from prior compensation, although such amounts are an inherent part of an overall subjective decision-making process. If the relevant performance measures utilized for a prior award or payment are restated or otherwise adjusted in a manner that would reduce the size of a prior award or payment, the Committee would adjust or recover such award or payment or otherwise reduce compensation in accordance with the terms of the underlying plans and applicable laws, rules and regulations, including application of the provisions of the Sarbanes-Oxley Act of 2002 in the event of a restatement of our earnings.

 

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to any publicly held corporation for compensation paid in excess of $1 million in any taxable year to its principal executive officer or any of its three other most highly compensated officers (other than the principal executive officer and principal financial officer), unless such compensation meets certain specific requirements. The Compensation Committee and the Subcommittee consider the implications of Section 162(m) and generally prefer to grant awards that will be deductible without limitation where doing so will further the purposes of our executive compensation philosophy. The Compensation Committee established the Subcommittee, which consists solely of two or more “outside directors” as defined by Section 162(m), to approve awards where tax deductibility is desired and approval by the

Subcommittee is necessary. The Compensation Committee will, however, take into consideration the various other factors, together with Section 162(m) considerations, in making executive compensation decisions.

 

As previously noted, PM&P was retained to serve as a compensation consultant to the Committee in November 2008. During 2009, it is contemplated that our executive compensation policy, including all components of compensation, our plans and plan administration, will be subject to a detailed review by the Committee in conjunction with PM&P.

 

Base Salary

 

Base salary is considered a critical component of compensation because it constitutes a current cash payment and reward to our employees at all levels, including executive officers, and is an essential factor in attracting and retaining qualified personnel. The appropriate establishment of this component relative to the marketplace is essential to enable us to attract and retain qualified individuals in a competitive industry labor market. Our Compensation Committee designates the 50th percentile of our peer group companies as a target for base salary because it generally believes our executive officers should receive a base salary which approximates the base salaries of their counterparts in other drilling and oilfield service companies.

 

To provide guidance to the Committee, comparative data are obtained from several sources, including Equilar, general surveys of industry practices and proxy statements. Actual salaries are based on the Committee’s assessment of each executive officer’s overall contribution to the achievement of our business objectives as well as comparisons to similar positions at our peer group companies. The annual salaries paid to our principal executive officer, principal financial officer and three other most highly compensated executive officers (the “Named Executive Officers”) are reported below in the Summary Compensation Table.

 

In response to the recent global economic downturn, which has adversely impacted our business and market conditions, our Compensation Committee has determined that there will be no increases in executive officer base salaries during 2009.

 

ECIP Cash Bonus

 

The ECIP annual cash bonuses paid to our executive officers and other management personnel are based upon pre-determined goals. The ECIP was approved by our stockholders effective January 1, 2005. Stockholder approval was obtained to satisfy certain requirements of Section 162(m) of the Internal Revenue Code regarding executive compensation (see discussion above). Our Compensation Committee and Subcommittee believe that a significant portion of executive officer bonus compensation should be tied to the performance of the executives as a group as measured by pre-established financial and non-financial goals, including strategic team goals.

 

A primary objective of the ECIP is to create a strong link between annual cash bonuses and achievement of specific goals and objectives. Under the ECIP, executive officers and other management employees may receive an annual cash bonus based upon achievement of pre-established financial, safety performance and strategic team goals. In special circumstances, a discretionary award may be approved. As described in the ECIP, except with respect to limited discretionary bonus awards based on the achievement (or non-achievement) of pre-established individual goals for a plan year, the authority to make discretionary awards primarily is intended to provide a means of redressing unanticipated inequities or to reward exemplary performance.

 

The ECIP uses performance bands to determine annual payments. For 2008, our Compensation Committee approved three performance bands: a minimum threshold, a target and a maximum. If the minimum threshold for the fiscal year is not met, no bonus will be paid for that component. Payments are prorated for performance between the minimum threshold and the target and between the target and the maximum for each component. When the targets are achieved, ECIP cash bonus awards are intended to approximate the median of our peer group companies.

 

Our Compensation Committee administered the ECIP bonus awards for 2008 through application of pre-established performance measures. The bonus administration was largely formula-driven, based upon achievement of pre-established financial, safety performance and strategic team goals in relation to executive officer

compensation. This resulted in a determination by the Committee and Subcommittee that the overall bonus calculation amounted to 189% of target.

 

As amended, the ECIP provides that achievement of pre-established individual goals for executive officers could result in a decrease in the formula-calculated award by up to 25% in the event achievement of pre-established individual goals significantly fails to meet the targeted goals. Conversely, achievement of pre-established individual goals that significantly exceeds targeted performance could result in a discretionary increase of the formula-calculated awards by up to 25%. The net impact of such adjustments on the executive officer ECIP bonuses as a group for 2008 was negligible.

 

The 2009 ECIP financial, safety performance and strategic team goals, their target ranges and their possible payouts are described in the Grants of Plan-Based Awards Table and accompanying footnotes. The actual amounts awarded for 2006, 2007 and 2008 are disclosed in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The bases for establishment of the financial, safety performance and strategic team goals and their associated target ranges are described in the discussion under the Grants of Plan-Based Awards Table.

 

Long-Term Incentives

 

A longstanding objective of our Compensation Committee has been to motivate, reward and retain our executive officers by means of equity compensation. Because the value of equity awards over time bears a direct relationship to the price of our common stock, the Committee believes equity awards under the LTIP constitute an effective incentive to create long-term value for our stockholders. The compensation philosophy is to grant share-based awards to key personnel to instill stockholder perspective and values in their performance and to provide a strong retention element in overall compensation.

 

Both restricted stock and nonqualified stock option grants have been used to motivate, reward and retain our executive officers and key employees through potential share value appreciation and equity accumulation. Equity accumulation is generally encouraged, and we adopted specific security ownership guidelines for our executive officers during 2007. The guidelines, which are included in the ENSCO Corporate Governance Policy, provide that each Named Executive Officer should hold a minimum of 10,000 shares of our common stock upon becoming a Named Executive Officer and should hold a minimum of 20,000 shares of our common stock after five years of continuous service as one of our Named Executive Officers.

 

The LTIP encourages participants to focus on our long-term performance and provides an opportunity for our executive officers and other key personnel to be aligned with stockholders through grants of restricted stock or stock options. Under the LTIP, equity awards are made annually by our Compensation Committee based on a combination of competitive data and an evaluation of individual performance. In determining the awards, the Committee considers contributions, impact on long-term stockholder value and the need to provide a strong retentive component in executive officer and key employee compensation.

 

Our Compensation Committee normally makes determinations regarding annual LTIP equity awards at its regular meeting held in May of each year. To provide a consistent approach to the timing of equity award issuance, the Committee has adopted a general policy of issuing annual equity on or about June 1 of each year. This policy was applied for the annual awards to our executive officers during 2008. Our Compensation Committee generally designates the median of our peer group companies as a target in respect of equity awards.

 

The annual LTIP equity awards issued on June 1, 2008 were in the form of restricted stock. The annual restricted stock grants vest (restrictions lapse) at a rate of 20% each year over a five-year period. Consistent with our understanding of general practices, including practices of our peer group companies, our unvested restricted shares have dividend and voting rights on the same basis as our outstanding common stock.

 

Our Compensation Committee adopted a practice of granting special equity awards to officers and key employees who are newly-hired or promoted. During 2008, such special awards were granted to two of our new executive officers. An award of 44,335 restricted shares was granted to John Mark Burns on June 2, 2008 following commencement of employment to serve as President of our principal offshore holding company, ENSCO Offshore International Company, and an award of 19,500 restricted shares was granted to Patrick Carey Lowe on August 18,

2008 following commencement of employment as our Senior Vice President with responsibility for safety, health and environmental matters, capital projects, engineering and strategic planning. All 2008 LTIP equity awards granted to our Named Executive Officers are reported in the Grants of Plan-Based Awards Table.

 

Other Executive Compensation Matters

 

We offer a variety of health and welfare and retirement savings programs to all eligible employees. Our executive officers and management generally are eligible for the same benefit programs on the same basis as our other domestic payroll employees. The health and welfare programs are intended to protect employees against catastrophic loss and encourage a healthy lifestyle. The health and welfare programs we offer include medical, wellness, pharmacy, dental, vision, life insurance and accidental death and disability. Effective January 1, 2009, we offered the U.S. taxpayer employee participants in our health and welfare program the option of participating in a flexible spending account, thus permitting deferral of pre-tax dollars for use in paying qualified medical and childcare expenses.

 

Executive officers may participate on the same basis as other employees in the employer matching and profit sharing provisions of our defined contribution savings plans on a tax-deferred basis. For 2008, the maximum total matching contribution available to executive officers and other employees who participated in the ENSCO Savings Plan (a qualified 401(k) plan) and the Supplemental Executive Retirement Plans (“SERP”) was 5% of eligible salary.

 

Discretionary profit sharing contributions, which are directly aligned with our financial performance and profitability, amounted to 10% of eligible wages for executive officers and other employees in respect of 2008. The profit sharing awards are determined annually by our Board of Directors, following due consideration of the recommendation of our Compensation Committee. The annual profit sharing distributions generally are limited to the lesser of 4% of annual net income or 10% of eligible employee wages. The matching contributions and profit sharing awards to our Named Executive Officers are reported in the All Other Compensation column of the Summary Compensation Table.

 

Executive officers participate in the SERP and may elect to defer a portion of their base salary and/or annual cash bonus payments up to a percentage specified annually by our Compensation Committee and ratified by our Board (50% for 2008, inclusive of the 5% 401(k) contribution). For 2009, maximum deferrals were specified by our Compensation Committee and ratified by our Board at 50% of base salary (inclusive of the 5% 401(k) contribution) and 100% of annual ECIP bonus payments. Executive officers who elect to defer compensation in the SERP must do so annually prior to the beginning of each calendar year and may direct the investment of the amount deferred and retained by us. The SERP is administered by a third party, and deferred compensation may be invested in authorized funds which are similar to the investment options available under the ENSCO Savings Plan. Pursuant to an amendment of the SERP that became effective June 1, 2008, investments may be made in funds or publicly-traded securities on a self-directed basis. Additional information regarding deferred compensation is reported below in the Nonqualified Deferred Compensation Table.

 

Chief Executive Officer Compensation

 

Our independent directors believe the principal components of compensation for our Chief Executive Officer (“CEO”) should be subject to their review and concurrence or approval. Base salary, ECIP cash bonus and equity awards under the LTIP are reviewed and approved by our Compensation Committee on an annual basis following consultation with and concurrence by our independent directors. In March 2008, the Board of Directors approved the Compensation Committee’s proposal to amend the Committee Charter so as to provide that recommendations for CEO compensation shall be developed by the Committee (or, where appropriate, the Subcommittee), presented to the independent directors in executive session and approved by the Committee following consultation with, and concurrence by, the independent directors. The Committee Charter also was amended in April 2009 to address the formation of the Subcommittee and to define its role in administration of executive compensation that is intended to be deductible pursuant to Internal Revenue Code Section 162(m), which includes the ECIP bonus paid to our CEO in respect of 2008.

The base salary of our CEO is reviewed annually, consistent with our Compensation Committee’s salary administration policy for all executive officers as discussed above. The Committee considers adjustments to base salary based upon a subjective evaluation of our CEO’s contributions to our progress in achieving certain business objectives and by reference to the median salary paid to Chief Executive Officers by our peer group companies.

 

Following a review of executive officer compensation trends and competitive data provided by Equilar, general surveys of industry practices and proxy statements, our Compensation Committee, following consultation with, and concurrence by, the independent directors, approved a $53,625 increase in Mr. Rabun’s salary as our CEO from $825,000 to $878,625 effective July 1, 2008. The Committee believes the salary increase was appropriate in recognition of the performance achieved and was necessary to bring our CEO’s salary to the median range of Chief Executive Officers at our peer group companies.

 

In accordance with the terms of the ECIP, Mr. Rabun was awarded an ECIP cash bonus of $1,173,784 in 2009 relative to 2008 performance. This was composed of $744,000 based on achievement of financial performance measures, $324,384 based on strategic team goals and $105,400 based on achievement of safety performance measures. Pursuant to the LTIP, Mr. Rabun received an award of 76,665 restricted shares during 2008, as more fully described below in the Grants of Plan-Based Awards Table. Mr. Rabun’s ECIP bonus relative to 2008 performance and his 2008 annual equity award were determined by the Compensation Committee and, the Subcommittee, respectively, and were approved following consultation with, and concurrence by, the independent directors on April 7, 2009 and May 22, 2008, respectively. The equity award was issued to Mr. Rabun on June 1, 2008, and the ECIP bonus was paid to him in April 2009.

 

In evaluating 2008 CEO performance and setting Mr. Rabun’s overall compensation, our Compensation Committee, in consultation with our independent directors, considered several performance related factors including Mr. Rabun’s success in managing our general business in his second year as our CEO, the Company’s achievement of outstanding financial and safety performance under his stewardship, his role in the prudent and conservative management of our balance sheet, his participation in the selection and successful assimilation of two new executives into the senior management team, and his able management of our assets and human resources with a strategic focus.

 

Employment Contracts, Termination of Employment Arrangements and Potential Post-Termination Payments

 

Although we have not historically entered into employment, severance or change in control agreements with our executive officers, our Board of Directors and Compensation Committee deemed it appropriate to enter into such agreements in connection with succession planning activities involving the initial employment of Mr. Rabun and the promotion of Mr. Chadwick to his current position. During 2006, Mr. Rabun joined us as President and as a member of our Board of Directors with the expectation that he would succeed Mr. Thorne as our Chief Executive Officer on January 1, 2007. At that time, the Committee and our Board also approved Mr. Chadwick’s promotion to Executive Vice President and Chief Operating Officer. In conformity with current compensation trends and practices as reported by Mercer Human Resource Consulting, LLC (“Mercer”), an independent firm that specializes in providing compensation services and comparative data, the Committee and Board authorized contracts with Messrs. Rabun and Chadwick as described below.

 

On February 6, 2006, we entered into an employment offer letter agreement with Mr. Rabun in connection with his election as our President and appointment as a member of our Board of Directors effective March 20, 2006. Under the agreement, Mr. Rabun’s initial annual base salary was set at $750,000, subject to annual review and adjustment. The agreement provided that he was eligible to receive an annual ECIP cash bonus for 2006 based upon performance against pre-established goals. Additionally, Mr. Rabun was granted 75,000 shares of restricted stock and options to purchase 100,000 shares of our common stock with an exercise price of $47.12 per share, equal to the market value of our common stock on March 20, 2006, the date Mr. Rabun’s employment commenced (“Initial Grants”). The Initial Grants are reported in the Outstanding Equity Awards at Fiscal Year-End Table. Pursuant to the agreement, Mr. Rabun was not eligible for an annual equity award under the LTIP during 2006.

 

In order to offset loss of certain retirement entitlements attendant to his former position, we made a cash contribution of $1,100,000 to Mr. Rabun’s SERP account as an employer discretionary contribution upon

commencement of his employment pursuant to the agreement. This contribution was fully vested on the date of contribution. The agreement also provided that Mr. Rabun receive other benefits generally available to our executive officers and credited him with six years of prior service for purposes of determining Normal Retirement Age under the terms of the LTIP.

 

Under the agreement, Mr. Rabun will be entitled to a severance payment of two times his most recent base salary and target bonus as well as immediate vesting of 20% of the Initial Grants if he is involuntarily terminated other than by reason of gross negligence, malfeasance, breach of fiduciary duty or similar cause (“for cause”) or he voluntarily terminates his employment for “good reason”. Separately, in the event of an actual or constructive termination other than “for cause” within two years following a change in control, Mr. Rabun will be entitled to three times his most recent base salary and target bonus, as well as full vesting of all outstanding equity awards.

 

The severance protections described above will apply for the initial four years of Mr. Rabun’s employment and will renew annually thereafter unless terminated in writing by us with at least one-year prior notice. The table below summarizes Mr. Rabun’s estimated severance entitlement (assuming that a triggering event took place on December 31, 2008, and the price per share of our common stock was the closing market price of $28.39 on that date).

 

Daniel W. Rabun
Estimated Severance for Involuntary
or Good Reason Termination

 

 

Estimated Severance for Actual or Constructive Termination
Following a Change in Control

 

 

 

 

On March 1, 2006, we entered into a letter agreement with Mr. Chadwick, our Executive Vice President and Chief Operating Officer. The agreement provided that Mr. Chadwick will be entitled to a severance payment of two times his most recent base salary and target bonus if he is involuntarily terminated other than by reason of gross negligence, malfeasance, breach of fiduciary duty or similar cause (“for cause”). Separately, in the event of an actual or constructive termination other than “for cause” within two years following a change in control, Mr. Chadwick

will be entitled to three times his most recent base salary and target bonus, as well as full vesting of all outstanding equity awards.

 

The severance protections described above will apply for four years following Mr. Chadwick’s appointment to serve as Executive Vice President and Chief Operating Officer, which was effective January 1, 2006, and will renew annually thereafter unless terminated in writing by us with at least one-year prior notice. The table below summarizes Mr. Chadwick’s estimated severance entitlement (assuming that a triggering event took place on December 31, 2008, and the price per share of our common stock was the closing market price of $28.39 on that date).

 

William S. Chadwick, Jr.
Estimated Severance for Involuntary
or Good Reason Termination

 

 

Estimated Severance for Actual or Constructive Termination
Following a Change in Control

 

 

 

 

On February 28, 2007, we entered into a Retirement Agreement with Mr. Thorne, who relinquished his position as our CEO effective as of December 31, 2006. The Retirement Agreement generally provided that Mr. Thorne would continue to serve as our employee, non-executive Chairman and a member of our Board of Directors until his retirement and resignation on May 22, 2007.

 

Our Board of Directors, in consultation with our Compensation Committee and outside advisors, carefully considered transition roles and a compensation package for Mr. Thorne that would reflect market practices in similar situations and would facilitate an orderly transition of his responsibilities with the intention of according him fair, reasonable and customary cash and equity compensation for his retirement to reflect (i) Mr. Thorne’s outstanding service as our longstanding CEO and his major impact on our development, (ii) his contributions to, and facilitation of, the orderly transition of the CEO responsibilities and (iii) his continued assistance by agreeing to provide consulting services to us for the benefit of our new CEO and our Board of Directors. In consideration of the benefits accorded to him by the Retirement Agreement, Mr. Thorne agreed not to compete with us for a period of three years following his retirement.

 

Under the Retirement Agreement, Mr. Thorne continued to receive a monthly salary of $70,200 until his retirement. In addition, Mr. Thorne received a bonus of $901,311 for the year ending December 31, 2006 in

accordance with the terms of the ECIP and the Retirement Agreement. Immediately prior to his retirement and subject to certain specified conditions, Mr. Thorne received a grant of 92,000 shares of restricted stock under the LTIP. The Retirement Agreement generally provided that such restricted stock would be granted upon such terms as shall be determined by our Compensation Committee in consultation with our independent directors and that one-third of such restricted stock would vest upon each of the first three anniversaries of the date of Mr. Thorne’s retirement or, if earlier, upon Mr. Thorne’s death or permanent and total disability or a change in control and shall otherwise be granted upon terms generally consistent with other grants of restricted stock.

 

The Retirement Agreement also provided that our Compensation Committee would exercise its discretion pursuant to the provisions of the 1998 Incentive Plan to take such action as is necessary to vest all unvested stock options and restricted stock previously granted to Mr. Thorne under the 1998 Incentive Plan so that Mr. Thorne would receive the same entitlements upon retirement as would be available under the terms of the LTIP, thereby fully vesting all unvested stock options and restricted stock of Mr. Thorne and generally enabling Mr. Thorne to exercise all outstanding options issued to him under the 1998 Incentive Plan through the remaining term thereof.

 

In accordance with the terms of the ECIP and his Retirement Agreement, Mr. Thorne was awarded a cash bonus of $901,311 during 2007 relative to 2006 performance. This was composed of $674,760 based on achievement of financial performance measures, $175,438 based on achievement of strategic team goals and $51,113 based on achievement of safety performance measures. In evaluating 2006 performance and setting the incentive bonus, our Compensation Committee recognized Mr. Thorne’s success in managing our business during a year of record financial results, his participation in orderly management succession planning and his contributions in management of our assets and human resources.

 

Pursuant to the LTIP, Mr. Thorne received an award of 138,000 nonqualified stock options and 46,000 restricted shares during 2006. Under the LTIP, equity awards fully vest upon retirement following achievement of Normal Retirement Age, which is defined as 65 years of age with at least 20 years of credited service with Ensco. Mr. Thorne had met the Normal Retirement Age criteria by May 22, 2007 and retired on that date.

 

The Retirement Agreement further provided that Mr. Thorne would serve as our independent consultant for the twelve-month period following his retirement, for which we would pay him a monthly retainer fee of $70,200. Mr. Thorne agreed to provide such consulting services as an independent contractor and not as our employee. Accordingly, he did not have the power or authority to contract or otherwise create any liability or obligation on our behalf and was not entitled to participate in any of our insurance, benefit, health or welfare plans except as provided under the health benefit provisions of the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). Additionally, from the May 22, 2007 date Mr. Thorne vacated an office in our corporate headquarters until May 31, 2008, we paid him an allowance of $10,000 per month for the purposes of obtaining and staffing any required office. During 2008, Mr. Thorne received payments totaling $380,620 in connection with the consulting and office space provisions of his Retirement agreement. Additionally, a portion of the restricted stock issued to Mr. Thorne as part of his Retirement Agreement vested on May 22, 2008. The dollar value of restricted stock awards that vested during 2008 was $2,285,765.

 

We have not entered into any employment or severance agreements with our other executive officers.

 

Retirement and Other Benefits

 

All full-time employees in the United States are eligible to participate in the ENSCO Savings Plan, and beginning in January 2009 certain of our non-U.S. employees are eligible to participate in the Ensco Multinational Savings Plan. Executive officers and other key personnel are entitled to participate in the SERP. We do not have a pension plan for our executive officers or other employees in the United States.

 

Perquisites and Other Personal Benefits

 

In conformity with our Compensation Committee’s conservative philosophy, our executive officers only receive limited perquisites involving items such as wholly or partially paid club memberships and, on the same basis as other employees in the corporate headquarters, subsidized office parking. Our executive officers are eligible to

receive company-paid or company-subsidized life insurance and disability coverage on the same basis as our other domestic payroll employees.

 

Compensation of Management

 

Summary Compensation Table

 

The table below summarizes the total compensation earned by each of our Named Executive Officers for the fiscal years ended December 31, 2008, 2007 and 2006:

 

Summary Compensation Table

 

 

 

Base salary for our executive officers is set relative to the median of a peer group of oilfield service companies approved by our Compensation Committee. Our 2008 peer group companies are described under the heading “Executive Officer Compensation Philosophy”. Actual salaries are based on the Committee’s assessment of each executive’s overall contribution to the achievement of our business objectives as well as comparisons to similar positions in the peer group companies.

 

As described above under the heading “Employment Contracts, Termination of Employment Arrangements and Potential Post-Termination Payments”, we entered into an employment offer letter agreement with Mr. Rabun, a letter agreement with Mr. Chadwick and a retirement agreement with Mr. Thorne. We have not entered into any other employment, severance or other individual compensatory agreements with our executive officers.

 

All Other Compensation Table

 

The table below summarizes premiums paid for group term life insurance, contributions to various benefit plans we sponsor and other payments (see notes) for the fiscal year ended December 31, 2008:

 

All Other Compensation Table
For the Year Ended December 31, 2008

 

 

 

 

Grants of Plan-Based Awards Table

 

The table below contains estimated future payouts pursuant to the ECIP and information regarding grants of restricted stock and nonqualified stock options for the fiscal year ended December 31, 2008:

 

Grants of Plan-Based Awards Table
For the Year Ended December 31, 2008

 

 

 

 

2009 ECIP PERFORMANCE MEASURES

 

						Minimum
Performance Measures		Weighting				Threshold				Target				Maximum
EPS			30%			$	0.40			$	5.94			$	8.11
RONAEBIT			30%				5	%			19	%			36.3	%
Safety (TRIR)			10%				1.15				1.00				0.80
Strategic Team Goals			30%				0	%			100	%			200	%
TOTAL AWARD			100%

 

 

2008 ECIP PERFORMANCE MEASURES

 

						Minimum												Actual				% of Target
Performance Measures		Weighting				Threshold				Target				Maximum				Results				Achieved*
EPS			30%			$	0.40			$	5.40			$	7.65			$	8.11				200%
RONAEBIT			30%				5%				18%				35%				36.3%				200%
Safety (TRIR)			10%				1.14				1.00				0.80				0.86				170%
Strategic Team Goals			30%				0%				100%				200%				174%				174%
TOTAL AWARD			100%																				189%