Edgar Filing: BARRETT BUSINESS SERVICES INC

BARRETT BUSINESS SERVICES, INC.

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 12, 2005

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You are invited to attend the annual meeting of stockholders of
Barrett Business Services, Inc., to be held at the University Club located at
1225 S.W. Sixth Avenue, Portland, Oregon 97204, on Thursday, May 12, 2005, at
2:00 p.m., Pacific Time.

Only stockholders of record at the close of business on March 25,
2005, will be entitled to vote at the meeting.

The meeting is being held to consider and act upon the following
matters:

1. Election of directors.

2. Such other business as may properly come before the meeting or
any adjournments thereof.

Please sign and date the accompanying proxy, and return it promptly
in the enclosed postage-paid envelope to avoid the expense of further
solicitation. If you attend the meeting, you may withdraw your proxy and vote
your shares in person.

By Order of the Board of Directors

/s/ Michael D. Mulholland
-------------------------
Michael D. Mulholland
Secretary

Portland, Oregon
April 12, 2005

BARRETT BUSINESS SERVICES, INC.
4724 S.W. Macadam Avenue
Portland, Oregon 97239
(503) 220-0988

PROXY STATEMENT
2005 ANNUAL MEETING OF STOCKHOLDERS

This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors (the "Board") of Barrett
Business Services, Inc. (the "Company"), to be voted at the annual meeting of
stockholders to be held on May 12, 2005, and any adjournments thereof. The proxy
statement and accompanying form of proxy were first mailed to stockholders on
approximately April 12, 2005.

VOTING, REVOCATION, AND SOLICITATION OF PROXIES

When a proxy in the accompanying form is properly executed and
returned, the shares represented will be voted at the meeting in accordance with
the instructions specified in the spaces provided in the proxy. If no
instructions are specified, the shares will be voted FOR Item 1 in the
accompanying Notice of Annual Meeting of Stockholders.

Any proxy given pursuant to this solicitation may be revoked by the
person giving the proxy at any time prior to its exercise by written notice to
the Secretary of the Company of such revocation, by a later-dated proxy received
by the Company, or by attending the meeting and voting in person. The mailing
address of the Company's principal executive offices is 4724 S.W. Macadam
Avenue, Portland, Oregon 97239.

The solicitation of proxies will be made primarily by mail, but
proxies may also be solicited personally or by telephone or facsimile by
directors and officers of the Company without additional compensation for such
services. Brokers and other persons holding shares in their names, or in the
names of nominees, will be reimbursed for their reasonable expenses in
forwarding soliciting materials to their principals and in obtaining
authorization for the execution of proxies. All costs of solicitation of proxies
will be borne by the Company.

OUTSTANDING VOTING SECURITIES

The close of business on March 25, 2005, has been fixed as the
record date for the determination of stockholders entitled to notice of and to
vote at the annual meeting. On the record date, the Company had outstanding
5,810,254 shares of Common Stock, $.01 par value ("Common Stock"), each share of
which is entitled to one vote at the meeting. Common Stock is the only
outstanding voting security of the Company. The presence, in person or by proxy,
of stockholders entitled to cast a majority of all votes entitled to be cast at
the meeting is required to constitute a quorum.

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ITEM 1 - ELECTION OF DIRECTORS

The directors of the Company are elected at the annual meeting of
stockholders in May to serve until the next annual meeting and until their
successors are elected and qualified. The Company's Bylaws authorize the Board
to set the number of positions on the Board within a range of three and nine;
the Board has presently established the number of positions at six. Vacancies on
the Board, including vacancies resulting from an increase in the number of
positions, may be filled by the Board for a term ending with the next annual
meeting of stockholders.

All of the nominees for election as directors are members of the
present Board. Mr. Justesen was appointed to the Board effective December 15,
2004, to fill the vacancy created by the resignation of Fores J. Beaudry
effective June 21, 2004. Mr. Justesen was recommended to the Board's Nominating
Committee as a potential candidate for election as a director by the Company's
chief executive officer. He was then evaluated by the Nominating Committee,
which recommended to the Board that he be appointed as a director.

A nominee will be elected if the nominee receives a plurality of the
votes cast by the shares entitled to vote in the election, provided that a
quorum is present at the meeting. A duly executed proxy will be voted FOR the
election of the nominees named below, unless authority to vote for a director is
withheld or a proxy of a broker or other nominee is expressly not voted on this
item. If for some unforeseen reason a nominee should become unavailable for
election, the number of directors constituting the Board may be reduced prior to
the annual meeting or the proxy may be voted for the election of such substitute
nominee as may be designated by the Board.

The following table sets forth information with respect to each
person nominated for election as a director, including their ages as of February
28, 2005, business experience during the past five years, and directorships in
other corporations.

Director
Name Principal Occupation(1) Age Since
---- ----------------------- --- -----
Thomas J. Carley Private investor 46 2000

James B. Hicks, Ph.D. Co-founder, director, and Chief Technology 58 2001
Officer of Virogenomics, Inc., a
biotechnology company

Jon L. Justesen Co-owner and Chief Executive Officer of 53 2004
Justesen Ranches located in eastern Oregon

Anthony Meeker Retired Managing Director of Victory Capital 65 1993
Management, Inc., Cleveland, Ohio, an
investment management firm

Nancy B. Sherertz Private investor 55 1998

William W. Sherertz President and Chief Executive Officer of the 59 1980
Company

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-------

(1) During the past five years, the principal occupation and other business
experience of each nominee has been as follows:

(a) Mr. Carley was President and Chief Financial Officer of Jensen
Securities, a securities and investment banking firm in Portland,
Oregon, for eight years until February 1998, when the company was
sold to D.A. Davidson & Co. Thereafter, he was a research analyst
covering technology companies and financial institutions at D.A.
Davidson & Co. until December 1999.

(b) Dr. Hicks is a co-founder of Virogenomics, Inc., a biotechnology
company, located in the Portland metropolitan area, where he has
been Chief Technology Officer since 2001 and a director since 1997.
He has also been a director of AVI BioPharma, Inc., since 1997. He
is a partner in HHL Consulting LLC, where he has been providing
consulting services to early stage technology companies regarding
management and operational issues since 2000. From 1995 to 1999, he
was co-founder and technical consultant for Sapient Health Network.
He also currently continues to serve as President of Hedral
Therapeutics, Inc., a biotechnology company, where he was Chief
Executive Officer, Chief Scientist and a director from 1994 to 1998.

(c) Mr. Justesen has managed Justesen Ranches in eastern Oregon since
1970. He also serves as President of Buck Hollow Ranch, Inc., and is
a private investor.

(d) Mr. Meeker retired in 2003 as a Managing Director of Victory Capital
Management, Inc. (formerly known as Key Asset Management, Inc.)
where he was employed for ten years. Mr. Meeker is Chairman of the
Board of First Federal Savings and Loan Association of McMinnville
and a director of Oregon Mutual Insurance Company. From 1987 to
1993, he was Treasurer of the State of Oregon.

(e) Ms. Sherertz was President and a director of the Company from 1975
to March 1993.

(f) Mr. Sherertz also serves as Chairman of the Board of Directors.

Ms. Sherertz and Mr. Sherertz were married to each other until 1994.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

The Board held four meetings in 2004. During 2004, each director
attended at least 75 percent of the total number of the meetings of the Board
and the meetings held by each committee of the Board on which he or she served
during his or her tenure on such committee or the Board.

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The Company does not have a policy regarding directors' attendance
at the Company's annual meeting of stockholders. All Board members, except for
Ms. Sherertz and Dr. Hicks, attended last year's annual meeting.

The Board has determined that Messrs. Carley, Hicks, Justesen, and
Meeker are independent directors as defined in Rule 4200(a)(15) of the listing
standards applicable to companies quoted on The Nasdaq Stock Market.

Audit and Compliance Committee

The Audit and Compliance Committee (the "Audit Committee") reviews
and pre-approves audit and legally-permitted non-audit services provided by the
Company's independent registered public accounting firm (the "independent
auditors"), makes decisions concerning the engagement or discharge of the
independent auditors, and reviews with management and the independent auditors
the results of their audit, the adequacy of internal accounting controls, and
the quality of financial reporting. The Audit Committee also develops and
oversees the Company's corporate governance principles and the Company's Code of
Business Conduct and Code of Ethics for Senior Financial Officers. The Audit
Committee held seven meetings in 2004.

The current members of the Audit Committee are Messrs. Carley
(chair), Hicks, and Meeker. Mr. Beaudry served on the Audit Committee until his
resignation from the Board effective June 21, 2004. The Board has determined
that Thomas J. Carley is qualified to be an "audit committee financial expert"
as defined by the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 (the "Exchange Act"). The Board has also
determined that each member of the Audit Committee, including Mr. Carley, meets
the financial literacy and independence requirements for audit committee
membership specified in applicable rules of the SEC under the Exchange Act and
in listing standards applicable to companies quoted on The Nasdaq Stock Market.
The Audit Committee's activities are governed by a written charter, which was
amended and restated by the Board as of March 19, 2004. A copy of the amended
and restated charter is available on the Company's website at
www.barrettbusiness.com.

Compensation Committee

The Compensation Committee reviews the compensation of executive
officers of the Company and makes recommendations to the Board regarding salary
levels and other forms of compensation to be paid to executive officers,
including decisions as to grants of options and other stock-based awards. The
current members of the Compensation Committee are Messrs. Meeker (chair) and
Hicks. Ms. Sherertz served on the Compensation Committee until her resignation
from the committee effective March 18, 2005, but she did not participate in the
Compensation Committee's deliberations regarding stock options. The Compensation
Committee held three meetings in 2004.

Compensation Committee Interlocks and Insider Participation

Messrs. Meeker and Hicks and Ms. Sherertz comprised the Compensation
Committee throughout 2004. Ms. Sherertz was President of the Company from 1975
to March 1993.

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Nominating Committee

The Nominating Committee evaluates and recommends candidates for
nomination by the Board in director elections and otherwise assists the Board in
determining and evaluating the composition of the Board and its committees. The
Nominating Committee also assists in identifying candidates for appointment as
officers of the Corporation. The current members of the Nominating Committee are
Messrs. Carley, Hicks (chair), and Meeker. The Nominating Committee held one
meeting in 2004.

The Board has determined that each current member of the Nominating
Committee is an independent director as defined in Rule 4200(a)(15) of the
listing standards applicable to companies quoted on The Nasdaq Stock Market. The
Nominating Committee is governed by a written charter, which is available on the
Company's website at www.barrettbusiness.com.

The Nominating Committee does not have any specific, minimum
qualifications for director candidates. In evaluating potential director
nominees, the Nominating Committee will consider:

* The candidate's ability to commit sufficient time to the
position;

* Professional and educational background that is relevant to
the financial, regulatory, and business environment in which
the Company operates;

* Demonstration of ethical behavior;

* Whether the candidate contributes to the goal of bringing
diverse perspectives, business experience, and expertise to
the Company's Board; and

* The need to satisfy independence and financial expertise
requirements relating to Board composition.

The Nominating Committee relies on its periodic evaluations of the
Board in determining whether to recommend nomination of current directors for
re-election. In the event the Nominating Committee is required to identify new
director candidates, because of a vacancy or a decision to expand the Board, the
Nominating Committee will poll current directors for suggested candidates. The
Nominating Committee has not hired a third-party search firm to date, but has
the authority to do so if it deems such action to be appropriate.

Once potential candidates are identified, the Nominating Committee
will conduct interviews with the candidates and perform such investigations into
the candidates' background as the Nominating Committee determines appropriate.

The Nominating Committee will consider director candidates suggested
by stockholders for nomination by the Board. Stockholders wishing to suggest a
candidate to the Nominating Committee should do so by sending the candidate's
name, biographical information, and qualifications to: Nominating Committee
Chair c/o Michael D. Mulholland, Secretary, Barrett Business Services, Inc.,
4724 S.W. Macadam Avenue, Portland, Oregon 97239.

-5-

Candidates suggested by stockholders will be evaluated by the same criteria and
process as candidates from other sources.

CODE OF ETHICS

The Company has adopted a Code of Ethics for Senior Financial
Officers ("Code of Ethics"), which is applicable to the Company's Chief
Executive Officer, principal financial officer, and principal accounting
officer. The Code of Ethics focuses on honest and ethical conduct, the adequacy
of disclosure in financial reports of the Company, and compliance with
applicable laws and regulations. The Code of Ethics is included as part of the
Company's Code of Business Conduct, which is generally applicable to all of the
Company's directors, officers, and employees. The Code of Business Conduct and
Code of Ethics for Senior Financial Officers is available on the Company's
website at www.barrettbusiness.com.

STOCK OWNERSHIP BY PRINCIPAL STOCKHOLDERS
AND MANAGEMENT

Beneficial Ownership Table

The following table gives information regarding the beneficial
ownership of Common Stock as of March 25, 2005, by each director and nominee for
director and certain named executive officers and by all directors and executive
officers of the Company as a group. In addition, it gives information about each
person or group known to the Company to own beneficially more than 5% of the
outstanding shares of Common Stock. Information as to beneficial stock ownership
is based on data furnished by the stockholder. Unless otherwise indicated, all
shares listed as beneficially owned are held with sole voting and dispositive
powers.

Amount and Nature Percent
of Beneficial of
Name of Beneficial Owner Ownership(2) Class
------------------------ ------------ -----
Heartland Advisors, Inc.(1)...................... 689,840(3) 11.9%
Thomas J. Carley................................. 25,675 *
James B. Hicks, Ph.D............................. 6,375 *
Jon L. Justesen.................................. 11,100 *
Anthony Meeker................................... 9,325 *
Michael D. Mulholland............................ 2,563 *
Nancy B. Sherertz(1)............................. 1,149,895(4) 19.8%
William W. Sherertz(1)........................... 1,904,139(5) 32.3%
Gregory R. Vaughn ............................... 36,665 *
All directors and executive officers as a group
(9 persons)...................................... 3,156,737 53.0%

--------
* Less than 1% of the outstanding shares of Common Stock.

(1) The addresses of persons owning beneficially more than 5% of the
outstanding Common Stock are as follows: Heartland Advisors, Inc., 789
North Water Street, Milwaukee,

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Wisconsin 53202; Nancy B. Sherertz, 4724 S.W. Macadam Avenue, Portland,
Oregon 97239; and William W. Sherertz, 4724 S.W. Macadam Avenue, Portland,
Oregon 97239.

(2) Includes options to purchase Common Stock which are presently exercisable
or will become exercisable by May 24, 2005 as follows: Mr. Carley, 2,875
shares; Dr. Hicks, 1,375 shares; Mr. Meeker, 7,875 shares; Mr. Mulholland,
2,063 shares; Ms. Sherertz, 5,875 shares; Mr. Sherertz, 85,134 shares; Mr.
Vaughn, 35,665 shares; and all directors and executive officers as a
group, 140,862 shares.

(3) Heartland Advisors, Inc., a registered investment advisor, and its
President and principal shareholder, William J. Nasgovitz, filed an
amendment to Schedule 13G on January 14, 2005, reporting shared voting
power as to 660,940 shares and shared dispositive power as to 689,840
shares (including the 660,940 shares).

(4) Ms. Sherertz disclaims beneficial ownership of an additional 3,310 shares
held by her minor children.

(5) Includes 9,167 shares held by his wife and 31,300 shares held by Mr.
Sherertz for his minor children, as to which he shares voting and
dispositive powers.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16 of the Exchange Act ("Section 16") requires that reports
of beneficial ownership of Common Stock and changes in such ownership be filed
with the SEC by Section 16 "reporting persons," including directors, executive
officers, and certain holders of more than 10% of the outstanding Common Stock.
To the Company's knowledge, all Section 16 reporting requirements applicable to
known reporting persons were complied with for transactions and stock holdings
during 2004, except as follows: James B. Hicks, director, one late filing
reporting one purchase; Nancy B. Sherertz, director and 10 percent owner, two
late filings reporting a total of three sales; William W. Sherertz, director,
officer and 10 percent owner, one late filing reporting one option grant; and
Michael D. Mulholland and Gregory R. Vaughn, officers, each with one late filing
reporting one option grant.

SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

As of the date of this proxy statement, the Audit Committee had not
yet selected an independent registered public accounting firm to examine the
financial statements of the Company for the fiscal year ending December 31,
2005. The Audit Committee and management are evaluating available alternatives,
including its current independent registered public accounting firm,
PricewaterhouseCoopers LLP.

PricewaterhouseCoopers LLP were the Company's independent registered
public accounting firm for the year ended December 31, 2004. The Company expects
representatives of PricewaterhouseCoopers LLP to be present at the 2005 annual
meeting of stockholders and to be available to respond to appropriate questions.
They will have the opportunity to make a statement at the annual meeting if they
desire to do so.

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MATTERS RELATING TO OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Fees Paid to Principal Independent Registered Public Accounting Firm

The following fees were billed by PricewaterhouseCoopers LLP for
professional services rendered to the Company in fiscal 2003 and 2004:

2003 2004
---- ----
Audit Fees(1) $163,500(4) $179,500
Audit Related -- --
Fees(2)
Tax Fees(3) 54,000 67,000
All Other Fees -- --

-------------

(1) Consists of fees for professional services rendered for the audit of the
Company's annual financial statements for fiscal 2003 and 2004 and for
review of financial statements included in quarterly reports on Form 10-Q
for those years.

(2) Refers to assurance and related services that are reasonably related to
the audit or review of a company's financial statements and that are not
included in audit fees.

(3) Consists of services rendered in connection with income tax consulting and
income tax return preparation.

(4) Actual audit fees paid for 2003 were $25,500 higher than the $138,000
estimated for that period and reported in the Company's proxy statement
for its 2004 annual meeting.

Pre-Approval Policy

The Company has adopted a policy requiring pre-approval by the Audit
Committee of all fees and services of the Company's independent registered
public accounting firm (the "independent auditors"), including all audit,
audit-related, tax, and other legally-permitted services. Under the policy, a
detailed description of each proposed service is submitted to the Audit
Committee jointly by the independent auditors and the Company's Chief Financial
Officer, together with a statement from the independent auditors that such
services are consistent with the SEC's rules on auditor independence. The policy
permits the Audit Committee to pre-approve lists of audit, audit-related, tax,
and other legally-permitted services. The maximum term of any preapproval is 12
months. Additional pre-approval is required for services not included in the
pre-approved categories and for services exceeding pre-approved fee levels. The
policy allows the Audit Committee to delegate its pre-approval authority to one
or more of its members provided that a full report of any pre-approval decision
is provided to the full Audit Committee at its next scheduled meeting. All audit
and permissible non-audit services provided by PricewaterhouseCoopers LLP in
2004 were pre-approved by the Audit Committee.

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AUDIT COMMITTEE REPORT

In discharging its responsibilities, the Audit Committee and its
individual members have met with management and with the Company's independent
registered public accounting firm (the "independent auditors"),
PricewaterhouseCoopers LLP, to review their audit process and the Company's
accounting functions. The Committee discussed and reviewed with the Company's
independent auditors all matters that the independent auditors were required to
communicate and discuss with the Committee under applicable auditing standards,
including those described in Statement on Auditing Standards No. 61, as amended,
regarding communications with audit committees. Committee members also discussed
and reviewed the results of the independent auditors' examination of the
financial statements, the quality and adequacy of the Company's internal
controls, and issues relating to the independent auditors' independence. The
Committee has obtained a formal written statement relating to independence
consistent with Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees," and discussed with the independent auditors
any relationships that may affect their objectivity and independence.

Based on its review and discussions with management and the
Company's independent auditors, the Audit Committee recommended to the Board
that the audited financial statements for the fiscal year ended December 31,
2004, be included in the Company's Annual Report on Form 10-K for filing with
the SEC.

AUDIT COMMITTEE

Thomas J. Carley, Chair
James B. Hicks, Ph.D.
Anthony Meeker

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth compensation for the years indicated
to the Company's chief executive officer and the Company's other executive
officers.

SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------------------ ------------

Other Securities
Annual Underlying All Other
Name and Principal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($)(1) (#) ($)
----------------------- ---- ------ ----- ----------- ------------- ------------

William W. Sherertz 2004 $241,667 $59,236 $151,567 18,440 --
President and 2003 200,000 14,752 50,684 63,024 --
Chief Executive Officer 2002 200,000 -- 50,625 161,719 $56,461(2)

Michael D. Mulholland 2004 $197,500 $48,410 -- 8,048 --
Vice President-Finance 2003 185,000 13,646 -- 15,000 --
And Secretary; Chief 2002 185,000 -- -- 80,000 --
Financial Officer

Gregory R. Vaughn 2004 $165,000 $40,444 -- 5,027 --
Vice President 2003 150,000 11,064 -- 15,000 --
------------ 2002 150,000 -- -- 45,000 --

(1) Amounts shown for Mr. Sherertz include $77,120, $21,663, and $21,630 for
2004, 2003, and 2002, respectively, for reimbursement of the payment of
life insurance premiums and $62,447, $17,021, and $16,995, respectively,
for reimbursement of Mr. Sherertz's personal income tax obligations with
respect to the foregoing amounts. For 2003 and 2002, these amounts have
been reclassified from their previous classification as annual bonus.
Amounts for Mr. Sherertz also include an annual car allowance of $12,000.

(2) Represents the actual dollar amount of insurance premiums paid by the
Company in 2002 as part of a split-dollar life insurance plan provided to
Mr. Sherertz. Mr. Sherertz's living trust is obligated to repay to the
Company all of the premiums that the Company has paid for this insurance
policy from the death benefits collected on the policy or, if earlier,
within 60 days after (x) termination of Mr. Sherertz's employment by the
Company, other than by reason of death, or (y) the bankruptcy or
dissolution of the Company. Mr. Sherertz's split dollar life insurance
arrangement with the Company was terminated in 2003 following enactment of
the Sarbanes-Oxley Act of 2002.

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Stock Option Data for Executive Officers

The following table provides information as to options to purchase
Common Stock granted under the Company's 2003 Stock Incentive Plan to the named
executive officers during 2004.

OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS

Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Grant Date
Granted(1) in Fiscal Price Expiration Present
Name (#) Year ($/Share) Date Value ($)(2)
---- --------- ---------- --------- ---------- -----------

William W. 18,440 47.2% $ 13.91 3/04/2014 $137,194
Sherertz

Michael D. 8,048 20.6 13.91 3/04/2014 59,877
Mulholland

Gregory R. 5,027 12.9 13.91 3/04/2014 37,401
Vaughn

------------

(1) Options generally become exercisable cumulatively in four equal annual
installments beginning one year after the date of grant; provided that the
option will become exercisable in full upon the officer's death,
disability or retirement, or in the event of a change in control of the
Company. A change in control is defined in the option agreements to
include (i) any occurrence which would be required to be reported as such
by the proxy disclosure rules of the SEC, (ii) the acquisition by a person
or group (other than the Company or one of its employee benefit plans) of
30% or more of the combined voting power of its voting securities, (iii)
with certain exceptions, the existing directors' ceasing to constitute a
majority of the Board, (iv) certain transactions involving the merger,
sale, or transfer of a majority of the assets of the Company, or (v)
approval by the stockholders of a plan of liquidation or dissolution of
the Company. The options include a feature which entitles an optionee who
tenders previously-acquired shares of Common Stock to pay all or part of
the exercise price of the option, to be granted a replacement option (a
"reload option") to purchase a number of shares equal to the number of
shares tendered with an exercise price equal to the fair market value of
the Common Stock on the date of grant. No SARs were granted by the Company
during 2004.

(2) The values shown have been calculated based on the Black-Scholes option
pricing model and do not reflect the effect of restrictions on
transferability or vesting. The values were calculated based on the
following assumptions: (i) expectations regarding volatility of

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61% were based on monthly stock price data for the Company; (ii) the
risk-free rate of return (3.63%) was assumed to be the Treasury Bond rate
whose maturity corresponds to the expected term (5.0 years) of the option
granted; and (iii) no dividends on the Common Stock will be paid during
the option term. The values which may ultimately be realized will depend
on the market value of the Common Stock during the periods during which
the options are exercisable, which may vary significantly from the
assumptions underlying the Black-Scholes model.

Information concerning exercises of stock options during 2004 and
the value of unexercised options held by the named executive officers at
December 31, 2004, is summarized in the table below.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)

Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired on Value Options at Fiscal Year-End (#) Fiscal Year-End(2)
Name Exercise (#) Realized ($) (Exercisable/Unexercisable) (Exercisable/Unexercisable)
---- ------------ ------------ ------------------------------ ---------------------------

William W. -- -- 68,024 / 158,440 $576,475 / $1,477,675
Sherertz

Michael D. 23,000 $247,675 24,327 / 62,824 262,783 / 590,248
Mulholland

Gregory R. -- -- 32,369 / 40,817 346,333 / 385,748
Vaughn
-----------------

(1) The named executive officers did not hold any SARs at December 31, 2004.

(2) The values shown have been calculated based on the last reported sale
price, $13.82, of the Common Stock reported on the National Market tier of
The Nasdaq Stock Market on December 31, 2004, and the per share exercise
price of unexercised in-the-money options.

Additional Equity Compensation Plan Information

The following table summarizes information regarding shares of the
Company's Common Stock that may be issued upon exercise of options, warrants,
and rights under the Company's existing equity compensation plans and
arrangements as of December 31, 2004. The only plan or arrangement under which
equity compensation could be awarded at December 31, 2004, was the Company's
2003 Stock Incentive Plan, including a related plan for California residents,
which was approved by stockholders in May 2003. Prior to 2003, grants of stock
options were made under the Company's 1993 Stock Incentive Plan, which had been
approved by stockholders. The information includes the number of shares covered
by, and the weighted average exercise price of, outstanding options, warrants,
and other rights under both plans, and the number of shares remaining available
for future grants excluding the shares to be issued upon exercise of outstanding
options.

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A. Number of C. Number of securities
securities to be B. Weighted- remaining available for
issued upon exercise average exercise future issuance under equity
of outstanding price of outstanding compensation plans
options, warrants, options, warrants, (excluding securities
Plan Category and rights and rights reflected in column A)
------------- ----------- ---------- -----------------------

Equity compensation
plans approved by
stockholders 578,069 $4.48 218,070

Equity compensation
plans or arrangements
not approved by
stockholders 0 N/A 0
------- ----- -------
Total 578,069 $4.48 218,070
======= ===== =======

Directors' Compensation

Beginning May 1, 2004, directors (other than directors who are
full-time employees of the Company, who do not receive directors' fees) are
entitled to receive an annual retainer of $12,000 payable in cash in monthly
installments of $1,000.

On May 12, 2004, each then non-employee director received an option
for 2,500 shares of Common Stock at an exercise price of $13.23 per share, the
fair market value on the date of grant. Under the terms of the Company's 2003
Stock Incentive Plan, each non-employee director who is elected or re-elected as
a director at the annual meeting of stockholders is automatically granted an
option for 1,000 shares of Common Stock on the meeting date at an exercise price
equal to the fair market value of the Common Stock on that date. Beginning in
May 2004, the Board approved the grant of options for an additional 1,500 shares
concurrent with the automatic annual grant.

Payment of the exercise price of options granted to non-employee
directors may be in cash or in previously-acquired shares of Common Stock. Each
option includes a reload option feature to the extent that previously-acquired
shares are used to pay the exercise price. Non-employee director options (other
than reload options) become exercisable in four equal annual installments
beginning one year after the date of grant. Reload options become exercisable
six months following the date of grant. All options granted to a non-employee
director will be exercisable in full upon the director's death, disability, or
retirement, or in the event of a change in control of the Company. The option
term will expire three months following the date upon which the holder ceases to
be a director other than by reason of death, disability, or retirement; in the
event of death or disability, the option will expire one year thereafter; in the
event of retirement, the option will expire five years thereafter.

-13-

Employment Agreement

Effective January 26, 1999, the Company entered into an employment
agreement with Michael D. Mulholland, Vice President-Finance and Secretary of
the Company. The agreement provides for a term of not less than two years as of
each anniversary date of the agreement and is subject to automatic extension for
an additional year annually unless either party notifies the other of an
election to terminate the agreement by December 27 of the prior year. In the
event of a change in control of the Company, the agreement will be renewed
automatically for a two-year period beginning with the day immediately preceding
the change in control. The employment agreement provides for an annual salary of
not less than $155,000, subject to annual review by the Board, together with
other compensation and benefits provided for in the Company's compensation
policy for executive officers adopted in 1995.

Pursuant to the employment agreement, if Mr. Mulholland's employment
is terminated by the Company following a change in control of the Company other
than by reason of death or disability or for cause, or by Mr. Mulholland within
90 days following a change in duties related to a change in control of the
Company, he will be entitled to receive a lump sum payment of an amount equal to
two times his then-current annual base salary, subject to reduction to the
extent that such amount would be subject to the excise tax imposed on benefits
that constitute excess parachute payments under Section 280G of the Internal
Revenue Code of 1986, as amended.

A change in control of the Company for purposes of the employment
agreement is defined as summarized in the notes to the first table under "Stock
Option Data for Executive Officers" above, except for a business combination
transaction in which the Company becomes a privately-held company and William W.
Sherertz continues as President and Chief Executive Officer. A change in duties
includes a significant change in the nature or scope of Mr. Mulholland's
position, responsibilities, authorities or duties, a significant diminution in
his eligibility to participate in compensation plans or benefits, a change in
the location of his employment by more than 30 miles, or a significant violation
of the Company's obligations under the agreement.

REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION

The Compensation Committee's goal in recommending levels of
executive compensation is to serve the interests of the Company's stockholders
by enabling the Company to attract, motivate, and retain the caliber of
management expertise necessary for successful implementation of the Company's
strategic goals.

Towards this goal, the Compensation Committee has adopted a
philosophy that combines goal-driven annual cash compensation packages with
equity incentives designed to build stock ownership among key employees. These
two key principles serve to align executives effectively with stockholder
interests by focusing management on financial goals necessary to enhance
stockholder value, as well as long-term growth, by strongly encouraging
significant ownership in the Company's stock.

-14-

Salaries. Base salaries for the Company's executive officers are
initially determined by evaluating the responsibilities of the position and the
experience of the individual, and by reference to the competitive marketplace
for management talent. Annual salary adjustments are determined by evaluating
the competitive marketplace, the performance of the Company, the performance of
the executive, particularly with respect to the individual's specific
contribution to the Company's success, and any increased responsibilities
assumed by the executive. In light of these factors, the Compensation Committee
determined to increase the annual salary levels of the Company's executive
officers as follows: Mr. Sherertz, a 25% increase to $250,000 effective March 1,
2004; Mr. Mulholland, an 8.1% increase to $200,000 effective March 1, 2004; and
Mr. Vaughn, a 10% increase to $165,000 effective January 1, 2004.

Annual Cash Incentive Bonuses. The Compensation Committee has
implemented a policy of providing annual cash incentive bonuses to the executive
officers of the Company. It is the Compensation Committee's belief that the
stewardship provided by the executive officers is best measured by the Company's
return on equity. Accordingly, target amounts for annual awards of cash
incentive bonuses for 2004 were based upon a formula with reference to the
Company's return on stockholders' equity for the year ended December 31, 2004,
and each executive's total salary for the year. Based on the Company's return on
equity of 24.51% for 2004, each executive officer, including the chief executive
officer, was awarded an annual cash incentive bonus in an amount equal to 24.51%
of his actual salary paid in 2004.

Long-Term Incentive Compensation. The Company strives to align
executive officer financial interests with long-term stockholder value through
stock option grants. See "Option Grants in Last Fiscal Year" above for details
of options granted to the named executive officers in 2004.

COMPENSATION COMMITTEE

Anthony Meeker, Chair
James B. Hicks, Ph.D.
Nancy B. Sherertz (through March 18, 2005)

-15-

STOCK PERFORMANCE GRAPH

The graph on the following page shows the cumulative total return at
the dates indicated for the period from December 31, 1999, until December 31,
2004, for the Common Stock, the Standard & Poor's 500 Stock Index (the "S&P
500"), and a group of the Company's current peers in the staffing industry (the
"2005 Peer Group"). The 2005 Peer Group is comprised of the same eight companies
included in the peer group used to prepare the performance graph set forth in
the company's proxy statement for its annual meeting in May 2004.

The stock performance graph has been prepared assuming that $100 was
invested on December 31, 1999, in the Common Stock, the S&P 500, and the 2005
Peer Group, and that dividends are reinvested. In accordance with the SEC's
proxy rules, the stockholder return for each company in the 2005 Peer Group
indices has been weighted on the basis of market capitalization as of the
beginning of each annual period shown. The stock price performance reflected in
the graph may not be indicative of future price performance.

-16-

Comparison of Five-Year Cumulative Total Returns
Performance Graph for
Barrett Business Services, Inc.

Produced on 03/24/2005 including data to 12/31/2004

[GRAPHIC OMITTED]

--------------------------------------------------------------------------------
Legend

CRSP Total Returns Index for: 12/1999 12/2000 12/2001 12/2002 12/2003 12/2004
----------------------------- ------- ------- ------- ------- ------- -------

Barrett Business Services, Inc. 100.00 53.8 55.8 49.7 195.9 208.6
S&P 500 Stocks 100.00 91.2 80.4 62.6 80.6 89.5
Self-Determined Peer Group 100.00 126.9 124.7 93.9 139.5 151.8

Companies in the Self-Determined Peer Group
ADMINISTAFF INC C D I CORP
GEVITY H R INC KELLY SERVICES INC
MANPOWER INC WIS REMEDYTEMP INC
ROBERT HALF INTERNATIONAL INC WESTAFF INC

Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/31/1999.
--------------------------------------------------------------------------------

-17-

TRANSACTIONS WITH MANAGEMENT

In December 2001, pursuant to the approval of all disinterested
outside directors, the Company agreed to loan Mr. Sherertz up to $60,000 between
December 2001 and June 2002 to assist Mr. Sherertz in meeting his debt service
obligations on a loan from the Company's principal bank, which was secured by
Mr. Sherertz's holdings of Common Stock and provided for quarterly payments of
interest only. In the spring of 2002, with the approval of all disinterested
outside directors, the Company agreed to extend its financial commitment to lend
to Mr. Sherertz amounts equal to an additional two quarterly interest payments
in July and September 2002. The Company's note receivable was in the aggregate
principal amount of $107,000 bearing interest at the same rate as the rate
charged to Mr. Sherertz by the bank (prime less 50 basis points). On August 2,
2004, Mr. Sherertz delivered to the Company 8,095 shares of Common Stock with a
total market value of $136,274 in satisfaction of all amounts owing to the
Company. In accordance with applicable law, no new loans will be made to Mr.
Sherertz under this or any other arrangement.

Beginning in October 2001, the Company has rented Mr. Sherertz's
personal residence in La Quinta, California, for marketing, customer relations,
and business meeting purposes. The seasonal rental rates were established by a
local real estate broker who handles similar properties in the La Quinta area.
The Company made payments to Mr. Sherertz in the aggregate amount of $102,000 in
2004 for rental of the property.

OTHER MATTERS

Management knows of no matters to be brought before the annual
meeting other than the election of directors. However, if any other business
properly comes before the meeting, the persons named in the accompanying form of
proxy will vote or refrain from voting on the matter in accordance with their
judgment pursuant to the discretionary authority given in the proxy.

STOCKHOLDER COMMUNICATIONS WITH THE BOARD

Communications by stockholders to the Board should be submitted by
e-mail to bod@bbsihq.com. All directors have access to this e-mail address.
Communications to individual directors or committees should be sent to the
attention of the intended recipient. The chair of the Audit Committee will be
primarily responsible for monitoring e-mails to the Board (or its members or
committees) and for forwarding messages as appropriate.

Stockholder communications sent by regular mail to the attention of
the Board of Directors (or to individual directors or committees) will be
forwarded as the chair of the Audit Committee deems appropriate. Communications
will not be forwarded if they do not appear to be within the scope of the
Board's (or such other intended recipient's) responsibilities or are otherwise
inappropriate or frivolous.

-18-

STOCKHOLDER PROPOSALS FOR ANNUAL MEETING IN 2005

Stockholder proposals submitted for inclusion in the proxy materials
for the annual meeting of stockholders to be held in 2006 must be received by
the Company by December 13, 2005. Any such proposal should comply with the SEC's
rules governing stockholder proposals submitted for inclusion in proxy
materials. Proposals should be addressed to Michael D. Mulholland, Secretary,
Barrett Business Services, Inc., 4724 S.W. Macadam Avenue, Portland, Oregon
97239.

For any proposal that is not submitted for inclusion in next year's
proxy materials, but instead is sought to be presented directly at the 2006
annual meeting of stockholders, management will be able to vote proxies in its
discretion if the Company: (1) receives notice of the proposal before the close
of business on February 26, 2006, and advises stockholders in the 2006 proxy
materials about the nature of the matter and how management intends to vote on
such matter; or (2) has not received notice of the proposal by the close of
business on February 26, 2006. Notices of intention to present proposals at the
2006 annual meeting should be forwarded to the address listed above.

April 12, 2005 BARRETT BUSINESS SERVICES, INC.

-19-

PROXY
BARRETT BUSINESS SERVICES, INC.
Annual Meeting of Stockholders--May 12, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints William W. Sherertz and Anthony Meeker as
proxies, each with power to act alone and with power of substitution, and hereby
authorizes them to represent and to vote, as provided on the reverse side, all
the shares of common stock of Barrett Business Services, Inc., which the
undersigned is entitled to vote, and, in their discretion, to vote upon such
other business as may properly come before the Annual Meeting of Stockholders to
be held on Thursday, May 12, 2005, at 2:00 p.m., or at any adjournment or
postponement thereof.

(Continued and to be marked, dated and signed on the other side)

Address Change/Comments (Mark the corresponding box on the reverse side)

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
/FOLD AND DETACH HERE/

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED "FOR" ITEM 1.

Please Mark Here
for Address Change or
ITEM 1. ELECTION OF WITHHELD Comments |_|
DIRECTORS FOR FOR ALL PLEASE SEE REVERSE
SIDE
Nominees: |_| |_|
01 Thomas J. Carley
02 James B. Hicks, Ph.D.
03 Jon L. Justesen
04 Anthony Meeker
05 Nancy B. Sherertz
06 William W. Sherertz

Withheld for the nominees you list below: I PLAN TO ATTEND THE MEETING |_|
(Write that nominee's name in the space
provided below.)

-----------------------------------------------

Please mark, sign, date and return the proxy card promptly using the enclosed
envelope.

The undersigned acknowledges receipt of the 2005 Notice of Annual Meeting and
accompanying Proxy Statement and revokes all prior proxies for said meeting.

______________________________ Dated: _________________, 2005
Signature(s)

NOTE: Please sign exactly as your name appears hereon. If shares are registered
in more than one name, the signatures of all such persons are required. A
corporation should sign in its full corporate name by a duly authorized officer,
stating such officer's title. Trustees, guardians, executors, and administrators
should sign in their official capacity giving their full title as such. A
partnership should sign in the partnership name by an authorized person, stating
such person's title and relationship to the partnership.

/ FOLD AND DETACH HERE /