CJ 2018 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS • Role, level and scope of responsibility; • Experience in current role and years of service; • Overall experience and competencies; • Relevant internal factors to ensure equitable compensation relationships among internal peers; • Competitive positioning and market compensation trends; and • General economic conditions and relevant external factors. Base salary functions as an important counterbalance to short- and long-term incentive and discretionary compensation, all of which are generally contingent on the Company’s performance or success. Among other austerity measures taken in response to the industry downturn, in March 2016, C&J implemented reductions in base salaries for all employees across the organization, including a 10% reduction in the salaries of the Named Executive Officers. Due to the terms of the Named Executive Officer employment agreements, the reduction in base salary was voluntarily made by each Named Executive Officer. During 2017, as performance improved and outlook strengthened, we began to reinstate base salaries and make other adjustments as necessary to remain competitive and determined by management to be appropriate and sustainable. The Named Executive Officers voluntarily elected not to have their salaries reinstated until after the salaries of the rest of the organization had been fully restored. As a result, the base salaries for the Named Executive Officers remained at the reduced levels into the third quarter of 2017. The total base salary earned by each Named Executive Officer in 2017 is reported below in “Executive Compensation Tables.” The Compensation Committee elected not to adjust the NEO’s base salaries for 2018, with the exception of Mr. Bixenman, as described under “—Actions Taken for the 2018 Fiscal Year.” Annual Short-Term Incentive Award—Cash Bonus In 2017, for the first time, the Compensation Committee established the STIP to strengthen the Company’s pay-for-performance culture by: • Rewarding our people for achieving strategic business or operational and financial objectives; and • Connecting individual cash compensation directly to our financial and operational performance. Under the STIP, performance metrics are set annually by the Compensation Committee for the purpose of establishing objectively determinable incentive opportunities that ensure pay-for-performance alignment. The 2017 STI cash bonus awards for Named Executive Officers were based on the Company’s achievement of specific performance goals based on the following performance metrics: • Adjusted EBITDA, defined as adjusted earnings before interest, taxes, depreciation and amortization, weighted at 80%, and • Total recordable injury rate (“TRIR”), weighted at 20%. The Compensation Committee determined to set tiered performance levels for each of the two performance metrics in 2017, with performance achieved between the levels calculated with straight line interpolation. The table below sets forth the five performance levels set for the two performance metrics by the Compensation Committee at the beginning of the year and, with the exception of Mr. Gawick, the percentage of the NEO’s STI target value that could be earned based on the achievement of the performance goals, as well as the actual results of each metric for the 2017 year. Because Mr. Gawick’s employment agreement provides a target value range for his annual STI cash bonus award, the Compensation Committee determined that it was appropriate to structure Mr. Gawick’s 2017 STI cash bonus award consistent with past practice applying the specified range of 150-250% against the performance levels: Threshold Challenge Stretch (“Target”) Perform Outperform (“Maximum”) Actual Result for 2017 Percentage of Target Payout—Adjusted EBITDA 0% 50% 100% 150% 200% 117.9% Percentage of Target Payout—TRIR 50% 75% 100% 125% 150% 70% 38 C&J ENERGY SERVICES, INC. 2018 PROXY STATEMENT