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                                                                   EXHIBIT 10.16

                           BAKER HUGHES INCORPORATED

                1995 EMPLOYEE ANNUAL INCENTIVE COMPENSATION PLAN

                                   ARTICLE 1

                           ESTABLISHMENT AND PURPOSE

  1.1 ESTABLISHMENT OF THE PLAN. Baker Hughes Incorporated (hereinafter referred
to as the "COMPANY"), a Delaware corporation, hereby establishes an annual
incentive compensation plan to be known as the "BAKER HUGHES INCORPORATED 1995
EMPLOYEE ANNUAL INCENTIVE COMPENSATION PLAN" (hereinafter referred to as the
"PLAN") as set forth in this document. The Plan permits the awarding of annual
cash bonuses to key employees of the Company and its subsidiaries, based on the
achievement of preestablished performance goals. The Plan shall become effective
as of October 1, 1994, and shall remain in effect until terminated by the Board
of Directors of the Company. Notwithstanding any provision herein to the
contrary, no amount shall be paid under the Plan unless and until the
stockholders of the Company approve the Plan prior to September 30, l995.

  1.2 PURPOSE. The purpose of the Plan is to provide Key Employees with a
meaningful annual incentive opportunity geared toward the achievement of
specific corporate and/or individual goals.

                                   ARTICLE 2

                                  DEFINITIONS

  2.1 DEFINITIONS. Whenever used in the Plan, the following terms shall have the
meanings set forth below and, when the defined meaning is intended, the term is
capitalized:

    (a) "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
   Company.

    (b) "CAUSE" means the occurrence of any one of the following:

      (i) The willfull and continued failure by a Participant to substantially
    perform his/her duties (other than any such failure resulting from the
    Participant's disability), after a written demand for substantial
    performance is delivered to the Participant that specifically identifies the
    manner in which the Company believes that the Participant has not
    substantially performed his/her duties, and the Participant has failed to
    remedy the situation within ten (10) business days of receiving such notice;
    or

      (ii) The Participant's conviction for an act of fraud, embezzlement,
    theft, or other criminal act constituting a felony; or

      (iii) The willful engaging by the Participant in gross misconduct or
    malfeasance. However, no act, or failure to act, on the Participant's part
    shall be considered "willful" unless done, or omitted to be done, by the
    Participant not in good faith and without reasonable belief that
    his/her action or omission was in the best interest of the Company; or

      (iv) The violation of the Company's Standards of Conduct, which violation
    is determined to be material by the Committee.

    (c) "COMMITTEE" means the Compensation Committee of the Board or any other
  committee appointed by the Board to administer the Plan. The membership of the
  Committee shall in all cases be comprised solely of two or more outside
  directors (within the meaning of Section 162(m)).

    (d) "COMPANY" means Baker Hughes Incorporated, a Delaware corporation, and
  any successor thereto.

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    (e) "FINAL AWARD" means the actual award earned for a Plan Year by a
  Participant as determined by the Committee (see Article 5.4 herein).

    (f) "KEY EMPLOYEE" means an employee of the Company, or any of its
  subsidiaries, who, in the opinion of the Chief Executive Officer of the
  Company, is in a position to significantly contribute to the growth and
  profitability of the Company (see Article 4 herein).

    (g) "PARTICIPANT" means a Key Employee who is nominated for participation by
  the Chief Executive Officer of the Company and then is selected by the
  Committee to participate in the Plan (see Article 4 herein).

    (h) "PLAN YEAR" means the Company's fiscal year commencing October 1 and
  ending September 30.

    (i) "SECTION 162(M)" means section 162(m) (or any successor provision) of
  the Internal Revenue Code of 1986, as amended, and applicable interpretive
  authority thereunder.

  2.2 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.

  2.3 SEVERABILITY. In the event any provision of the Plan shall be held to be
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid Provision had not been included.

                                   ARTICLE 3

                                 ADMINISTRATION

  3.1 THE COMMITTEE. This Plan shall be administered by the Committee in
accordance with the rules that it may establish from time to time that are not
inconsistent with the provisions of the Plan.

  The determination of the Committee as to any disputed question arising under
this Plan, including questions of construction and interpretation, shall be
final, binding, and conclusive upon persons.

  3.2 INDEMNIFICATION. Each person who is or shall have been a member of the
Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him in settlement thereof, with
the Company's approval, or paid by him in satisfaction of any judgment in any
such action, suit, or proceeding against him, provided he shall give the Company
an opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Restated Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.

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                                    ARTICLE 4

                         ELIGIBILITY AND PARTICIPATION

  4.1 ELIGIBILITY. Eligibility for participation in the Plan shall be limited to
those Key Employees who, by the nature and scope of their position, contribute
to the overall results or success of the Company and its subsidiaries.

  4.2 PARTICIPATION. Participation in the Plan shall be determined annually
based upon the recommendation of the Chief Executive Officer of the Company and
the approval of the Committee. Employees approved for participation shall be
notified in writing of their selection, and of their performance goals and
related Award Opportunities (as defined in Article 5.1), as soon after approval
as is practicable.

  4.3 PARTIAL PLAN YEAR PARTICIPATION. The Committee may, upon recommendation of
the Chief Executive Officer of the Company, allow an individual who becomes
eligible after the beginning of a Plan Year to participate in the Plan for that
year. In such case, the Participant's Final Award normally shall be prorated
based on the number of full months of participation. However, the Committee may,
based upon the recommendation of the Chief Executive Officer of the Company,
authorize an unreduced Final Award.

  4.4 TERMINATION OF APPROVAL. The Committee may withdraw its approval for
participation in the Plan for a Participant at any time. In the event of such
withdrawal, the employee concerned shall cease to be a Participant as of the
date designated by the Committee and the employee shall be notified of such
withdrawal as soon as practicable following such action. Further, such employee
shall cease to have any right to a Final Award for the Plan Year in which such
withdrawal is effective; provided, however, that the Committee may, in its sole
discretion, authorize a prorated award based on the number of full months of
participation prior to the effective date of such withdrawal.

                                   ARTICLE 5

                              AWARD DETERMINATION

  5.1 AWARD OPPORTUNITIES. As soon as practicable (but in no event later than
ninety (90) days) after the beginning of each Plan Year, the Committee shall
establish, in writing, maximum, target, and minimum incentive award levels (the
"AWARD OPPORTUNITIES") for each Participant. The established Award Opportunities
may vary in relation to the responsibility level of the Participant. In the
event a Participant changes job levels or salary grades during the Plan Year,
the Award Opportunities may be adjusted by the Committee, in its sole
discretion, to reflect the amount of time at each job level and/or in each
salary grade.

  5.2 PERFORMANCE GOALS. As soon as practicable (but in no event later than
ninety (90) days) after the beginning of each Plan Year, the Committee shall
establish, in writing, performance goals for each Participant for that Plan
Year. The goals will be based on one or more financial objectives of the Company
determined by and defined by the Committee, which objectives may include profits
before-tax, profits after-tax, earnings per share, and/or the ratio of after-tax
profits to net capital employed; provided, however, that as an alternative to
other goals, and in addition thereto, an Award Opportunity shall provide an
element based on a goal tied to total shareholder return ("TSR"), as defined by
the Committee and discussed in Article 5.4. Nonfinancial objectives may also be
included in a Participant's performance goals, and will not represent more than
20 percent of target Award Opportunities, as discussed in Article 5.1.
Notwithstanding the foregoing, no covered employee (as such term is defined in
Section 162(m)) may have any portion of his Final Award based on nonfinancial,
subjective performance goals.

  5.3 ADJUSTMENT OF PERFORMANCE GOALS. The Committee shall have the right to
adjust the performance goals (either up or down) during the Plan Year if it
determines that external changes or other unanticipated business conditions have
materially affected the fairness of the goals and unduly influenced the
Company's

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ability to meet them. Further, in the event of a Plan Year of less than twelve
(12) months, the Committee shall have the right to adjust the performance goals,
at its discretion, to protect the purpose and intent of the Plan.
Notwithstanding the foregoing, no such adjustment shall be made with respect to
an individual who is a covered employee (within the meaning of Section 162(m))
to the extent the same is considered an upward discretionary increase in the
amount of the Final Award for such individual (within the meaning of Section
162(m)).

  5.4 FINAL AWARD DETERMINATIONS. As soon as practicable after the end of each
Plan Year, Final Awards shall be computed for each Participant as determined by
the Committee. The Committee shall certify to what extent the performance goals
established pursuant to Article 5.2 and any other material terms of an award
were in fact satisfied. Then, two (2) independent computations will be made, as
follows:

    (a) Achievement of financial goals (other than TSR goals), as discussed in
  Article 5.2, shall be assessed via a quantitative formula established by the
  Committee. Individuals' award calculations will be based on varying Award
  Opportunities, as discussed in Article 5.1. Adjustment will be made to reflect
  nonfinancial objectives for eligible Participants, as described in 
  Article 5.2.

    (b) Achievement of TSR goals, as discussed in Article 5.2, shall be assessed
  via a quantitative formula established by the Committee. Individuals' award
  calculations will be based on one-half of the target Award Opportunity, as
  discussed in Article 5.1.

The greater of the resulting two calculations will be used to determine the
Final Award paid for the Plan Year. In determining the Final Award, the
Committee, in its sole discretion, may increase or decrease calculated amounts
to reflect factors regarding performance during the Plan Year which were not, in
the sole opinion of the Committee, appropriately reflected in the Final Award
calculation. Notwithstanding the foregoing, the Final Award to an individual who
is a covered employee (within the meaning of Section 162(m)) will not be subject
to upward discretionary adjustment by the Committee. Downward discretionary
adjustment for these individuals will be permitted to the extent that such
downward adjustments do not prevent the Final Awards to those individuals from
being deductible by the Company for federal income tax purposes under Section
162(m).

  5.5 INDIVIDUAL AWARD CAP. The maximum annual Final Award any individual may
receive in connection with the Plan is $1,000,000.

                                   ARTICLE 6

                            PAYMENT OF FINAL AWARDS

  As soon as practicable following the end of each Plan Year, Final Award
payments shall be paid in cash.

                                   ARTICLE 7

                           TERMINATION OF EMPLOYMENT

  7.1 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In the
event a Participant's employment is terminated by reason of death, total and
permanent disability (as determined by the Committee), or retirement, the Final
Award, determined in accordance with Article 5.4 herein, shall be reduced so
that it reflects only participation prior to termination. This reduction shall
be determined by multiplying said Final Award by a fraction, the numerator of
which is the months of participation through the date of termination rounded up
to whole months, and the denominator of which is twelve (12). The Final Award
thus determined plus all unpaid amounts, if any, from previous years shall be
paid as soon as practicable following the Committee's determinations under
Article 5.4 hereof for that Plan Year.

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  7.2 EMPLOYMENT TRANSFERS. If a Participant transfers from one division to
another division within the Company, the Final Award for the Participant's time
at the Participant's former division will be prorated for the number of whole
months rounded to the nearest whole month of the Plan Year the Participant was
at that division. The Final Award will be determined as soon as practicable
after the end of the Plan Year and will be based on the financial results at the
close of the Plan Year. The Final Award will be paid at the same time the other
Final Awards for that division are paid. If a Participant is eligible for a
Final Award in his new position, the Final Award will be based on the months
left in the Plan Year, on his new base salary level and Award Opportunities, as
determined by the Committee based upon the recommendation of the Chief Executive
Officer of the Company.

  7.3 DISPOSITION OF BUSINESS. If the Participant's division is disposed of
during the Plan Year, payment of the Participant's Final Award shall be
determined in accordance with the following alternatives:

    (a) If the acquiring party of the division offers employment to the
  Participant and assumes the obligations under the Plan, either directly or
  indirectly, and the Participant accepts such offer of employment, the Company
  shall not be obligated to pay the Final Award and such obligation shall be
  that of the acquiring party in accordance with the Final Award parameters; or

    (b) If the acquiring party does not assume the obligations under the Plan,
  whether or not the Participant is offered and accepts employment, then the
  Participant will receive a prorated Final Award for the portion of the Plan
  Year that the Participant was employed by the Company prior to the date of the
  consummation of the sale of the division, to be paid at the same time other
  Final Awards are paid under the Plan. The computation shall be made on the
  basis of the number of whole months rounded to the nearest whole month of the
  Plan Year that the Participant was in active service with the Company; or

    (c) If the acquiring party of the division offers employment to the
  Participant and assumes the obligations under the Plan, either directly or
  indirectly, and the Participant rejects such employment, the Participant shall
  be deemed to have voluntarily resigned as provided under Article 7.4 below.

  7.4 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event a Participant's
employment is terminated voluntarily by the employee or by the Company for
Cause, all of the Participant's rights to a Final Award for the Plan Year then
in progress shall be forfeited. If a Participant's termination is for any reason
other than as described in Article 7.3, death, disability, retirement, voluntary
resignation, or Cause, the Participant will receive a prorated bonus award for
the portion of the Plan Year that the Participant was employed by the Company,
computed as determined by the Committee, to be paid at the same time other Final
Awards are paid under the Plan.

                                   ARTICLE 8

                             RIGHTS OF PARTICIPANTS

  8.1 EMPLOYMENT. Nothing in this Plan shall interfere with or limit in any way
the right of the Company to terminate any Participant's employment at any time
for any reason, nor confer upon any Participant any right to continue in the
employ of the Company. For all purposes of the Plan, a Participant shall be
considered to be in the employment of the Company as long as he or she remains
employed on a full-time basis by the Company or any of its subsidiaries or is on
an authorized leave of absence approved by the Committee. Any question as to
whether and when there has been a termination of a Participant's employment, and
the reason for such termination, shall be determined solely by the Committee,
and its determination shall be final and conclusive.

  8.2 PARTICIPATION. No Participant or other employee shall at any time have a
right to be selected for participation in the Plan for any Plan Year, despite
having been selected for participation in a previous Plan Year.

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  8.3 NONTRANSFERABILITY. No right or interest of any Participant in this Plan
shall be assigned or transferable, or subject to any lien, directly, by
operation of law, or otherwise, including execution, levy, garnishment,
attachment, pledge, and bankruptcy.

                                   ARTICLE 9

                            BENEFICIARY DESIGNATION

  Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his death before he receives any
or all of such benefit. Each designation will revoke all prior designations by
the same Participant, shall be in a form prescribed by the Committee, and will
be effective only when filed by the Participant in writing with the Committee
during his lifetime. In the absence of any such designation, benefits remaining
unpaid at the Participant's death shall be paid to the Participant's estate.

                                   ARTICLE 10

                           AMENDMENT AND TERMINATION

  The Board may modify or amend, in whole or in part, any or all of the
provisions of this Plan, or suspend or terminate it entirely; provided, that no
such modification, amendment, suspension, or termination may, without the
consent of a Participant (or his beneficiary in the case of the death of the
Participant), reduce the right of a Participant (or his beneficiary as the case
may be) to a payment or distribution hereunder to which he is entitled with
respect to a Plan Year that has ended prior to such modification, amendment,
suspension, or termination.

                                   ARTICLE 11

                         GOVERNING LAW AND WITHHOLDING

  11.1 GOVERNING LAW. THE PLAN, AND ALL AWARDS HEREUNDER, SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

  11.2 WITHHOLDING TAXES. The Company shall have the right to deduct from all
payments under this Plan any Federal, state, or local taxes required by law to
be withheld with respect to such payments.

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