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 (Amendment No. )
☑ | Filed by the Registrant | ☐ | Filed by a Party other than the Registrant |
CHECK THE APPROPRIATE BOX: | ||
☐ | Preliminary Proxy Statement | |
☐ | Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
☑ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
☐ | Soliciting Material Under Rule 14a-12 |
Caterpillar Inc.
(Name of Registrant as Specified In Its
Charter)
(Name of Person(s) Filing Proxy
Statement, if Other Than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX): | |||
☑ | No fee required. | ||
☐ | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. | ||
1) Title of each class of securities to which transaction applies: | |||
2) Aggregate number of securities to which transaction applies: | |||
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
4) Proposed maximum aggregate value of transaction: | |||
5) Total fee paid: | |||
☐ | Fee paid previously with preliminary materials: | ||
☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. | ||
1) Amount previously paid: | |||
2) Form, Schedule or Registration Statement No.: | |||
3) Filing Party: | |||
4) Date Filed: |
2016 | Proxy Statement and Notice of Annual Meeting of Stockholders of Caterpillar Inc. |
June 8,
2016, 8 a.m. local time Electro-Motive Diesel |
Caterpillars reputation is one of our greatest assets. We all share the responsibility to protect it every day. We have earned our solid reputation by developing, building and delivering great products and services, and by acting according to the highest ethical standards. | |
Integrity | |
Integrity is the foundation of all we do. It is a constant. Those with whom we work, live and serve can rely on us. | |
Excellence | |
The power of quality. We set and achieve ambitious goals. The quality of our products and services reflects the power and heritage of Caterpillar. | |
Teamwork | |
We help each other succeed. We are a team, sharing our unique talents to help those with whom we work, live and serve. | |
Commitment | |
We embrace our responsibilities. Individually and collectively we make meaningful commitments first to each other, and then to those with whom we work, live and serve. | |
Sustainability | |
We are committed to building a better world. Sustainability is part of who we are and what we do every single day. | |
We are sending you these proxy materials in connection with Caterpillars solicitation of proxies, on behalf of its Board of Directors, for the 2016 Annual Meeting of Stockholders (Annual Meeting). Distribution of these materials is scheduled to begin on May 2, 2016. Please submit your vote and proxy by telephone, mobile device, Internet, or, if you received your materials by mail, you can also complete and return your proxy or voting instruction form by mail.
On behalf of the Board of Directors, thank you for your investment in Caterpillar. As Caterpillars Presiding Director, I help guide the Board in its independent oversight of the Company and work to ensure the Board and management are aligned with the Companys strategy. I want to share the Boards current areas of focus with you.
Business Strategy and Operational Oversight
Many of Caterpillars customers continue to face challenging business environments, which has resulted in lower sales of our machines and engines. While the management team has little control over external factors affecting industry sales volumes, the Board is helping to ensure the Company continues to make improvements to those items it can control, such as manufacturing efficiencies, inventory levels, market position, product quality and safety. The Board has reviewed and endorses the business strategies described in the accompanying CEO letter.
The Board also supports the major restructuring actions management promptly initiated in response to the prolonged business downturn. These actions have helped Caterpillar maintain a strong balance sheet, allowing for continued investment in innovation and digital technologies, and are expected to substantially lower annual operating costs, with much of the savings expected to be realized in 2016. The necessary cost reductions are being thoughtfully implemented such that impacted employees are treated fairly and our manufacturing capacity will not be constrained when industry conditions improve.
Leadership and Executive Compensation
The Board has actively reshaped itself and the executive team to meet the Companys evolving needs. Since 2011, a majority of the Boards composition has changed and new leaders have taken charge of each of the Companys business segments. Executive compensation programs were recently restructured to better align employee incentives with business goals and to ensure executive pay reflects both Company and individual performance. We have the right team in place to manage operations successfully today and prepare Caterpillar for the next business upturn.
Corporate Governance and Compliance
The Board stays mindful of and responsive to corporate governance developments. We are also responsible for the oversight and review of the Companys safety initiatives and compliance programs and consider these to be best-in-class. Caterpillar has recently increased emphasis on sustainability, social responsibility and human rights. We are proud Caterpillar was named to the Dow Jones Sustainability Index again in 2015 recognizing the Companys leadership across a broad range of social, environmental, human rights and corporate governance measures.
The Board of Directors is honored to represent your interests. We encourage you to vote your shares at the Annual Meeting.
Very truly
yours, |
DEAR FELLOW STOCKHOLDERS,
Our Company is financially strong and successfully managing through a period of weak global economic growth and depressed commodity prices. These external factors are affecting sales and revenues, but our core businesses the machines and engines critical to providing the energy, transportation and infrastructure needs of a growing world population are well positioned for the long-term. We are, for the most part, a market leader in each of our major product categories. This is an enviable position in good times and absolutely essential in times like this when the industries the Company serves are down. With the stability of market leadership, the competitive advantage of an unparalleled worldwide distribution network, excellent operational execution and sound Board-endorsed strategies, we are delivering the products and services that will keep us the leader in the industries we serve tomorrow, just as we are today. In fact, in 2015 our market position for machines increased for the fifth year in a row.
Investing in the Future
Were continuing rapid deployment of Lean manufacturing from top to bottom in our operations, addressing the root causes of delays, defects and inefficiencies. This is already showing good results in quality, gross margins and productivity. Research and development spending levels are being maintained as we lead the technology transformation that will increase efficiency, productivity and sustainability across the industries Caterpillar serves. Our factories are modern and prepared to take full advantage of the recovery when it comes.
Serving our Customers
Every part of our strategy is dedicated to serving our customers, to help them make more money with our products than with our competitors. There are many aspects to this, but Ill focus on two primary ones here. First, we are in the midst of a multi-year initiative to further strengthen the capabilities of Cat dealers that are the front-line of customer service and support around the world. Multiple projects are underway, from pricing consistency to expanded e-business. Second, our continuing commitment to digital technology advancements will create even more value for our customers, reducing downtime and lowering owning and operating costs by preventing failures and increasing fuel economy and operator efficiency.
Prepared for the Challenges and Opportunities Ahead
Caterpillar has been through many down cycles in our 90-year history and I believe we will, as we have in the past, emerge stronger and able to compete very effectively around the world. In 2016 we will stay focused on serving our customers, on reducing costs to align with demand and developing the products of the future. As you read the accompanying proxy statement, youll see our Board of Directors has deep expertise in manufacturing, services, leadership, government and relevant industries. Not only are our products made of iron, so is our will to adapt and succeed in whatever environment we face.
For additional information about our Companys performance and strategy, please see the Chairmans Message in the 2015 Year in Review at reports.caterpillar.com.
I look forward to discussing this more with you at the Annual Meeting.
Sincerely, |
This summary does not contain all of the information you should consider. You should read the complete proxy statement before voting.
Time & Date: | 8:00 a.m. - June 8, 2016 |
Place: | Electro-Motive Diesel, Muncie, IN 47302 |
Record Date: | Stockholders as of the close of business on April 11, 2016 |
Admission: | Please follow the instructions contained in the Admission Procedure on page 61 |
PROPOSAL |
BOARDS VOTING |
PAGE |
||||
1 | Election of twelve Directors named in this Proxy Statement | FOR each Nominee | 5 | |||
2 | Ratification of our Independent Registered Public Accounting Firm | FOR | 19 | |||
3 | Advisory Vote to approve Executive Compensation | FOR | 21 | |||
4 | Stockholder Proposal Lobbying Report | AGAINST | 50 | |||
5 | Stockholder Proposal Written Consent | AGAINST | 51 | |||
6 | Stockholder Proposal Independent Board Chairman | AGAINST | 53 |
DIRECTOR | CAT COMMITTEES | ||||||
NOMINEE AND PRINCIPAL OCCUPATION |
INDEPENDENT |
AGE |
SINCE |
OTHER PUBLIC COMPANY BOARDS |
AC |
CC |
PPGC |
David L.
Calhoun |
Yes |
58 |
2011 |
Nielsen
Holdings PLC |
|||
Daniel M.
Dickinson |
Yes |
54 |
2006 |
None |
|||
Juan
Gallardo |
Yes |
68 |
1998 |
Grupo Aeroportuario del
Pacifico, |
|||
Jesse J. Greene,
Jr. |
Yes |
71 |
2011 |
None |
|||
Jon M. Huntsman,
Jr. |
Yes |
56 |
2012 |
Chevron Corporation |
|||
Dennis A.
Muilenburg |
Yes |
52 |
2011 |
The Boeing Company |
|||
Douglas R.
Oberhelman |
No |
63 |
2010 |
Exxon Mobil Corporation |
|||
William A.
Osborn |
Yes |
68 |
2000 |
Abbott
Laboratories |
|||
Debra L.
Reed |
Yes |
59 |
2015 |
Halliburton
Company |
|||
Edward B. Rust, Jr., Presiding
Director |
Yes |
65 |
2003 |
Helmerich & Payne,
Inc. |
|||
Susan C.
Schwab |
Yes |
61 |
2009 |
FedEx Corporation |
|||
Miles D.
White |
Yes |
61 |
2011 |
Abbott Laboratories |
AC: Audit Committee | CC: Compensation Committee | PPGC: Public Policy and Governance Committee |
2 | | |
2016 Proxy Statement |
Our commitment to good corporate governance stems from our belief that a strong governance framework creates long-term value for our stockholders, strengthens Board and management accountability and builds trust in the Company and its brand. Our governance framework includes the following highlights:
BOARD AND GOVERNANCE INFORMATION | BOARD AND GOVERNANCE INFORMATION | ||||
Size of Board | 12 | Average Director Tenure | 8 years | ||
Number of Independent Directors | 11 | Supermajority Voting Threshold for Mergers | No | ||
Average Age of Directors | 62 | Proxy Access | Yes | ||
Board Meetings Held in 2015 | 7 | Stockholder Action by Written Consent | No | ||
Annual Election of Directors | Yes | Stockholder Called Special Meetings | Yes | ||
Mandatory Retirement Age | 72 | Poison Pill | No | ||
Women and Minority Board Members | 33% | Code of Conduct for Directors, Officers and Employees | Yes | ||
Majority Voting in Director Elections | Yes | Stock Ownership Guidelines for Directors and Executive Officers | Yes | ||
Separate Chair and CEO | No | Anti-Hedging and Pledging Policies | Yes | ||
Presiding Director | Yes | Compensation Recoupment Policy | Yes |
Additionally, we took the following actions in 2015:
● | Added a director who is a current CEO with experience in the power, oil and gas industries |
● | Increased diversity on the Board |
● | Adopted a proxy access bylaw |
● | Adopted a human rights policy |
GAINED MARKET POSITION | ROBUST COST MANAGEMENT | STRONG BALANCE SHEET | ||||
Increased machine market position for the fifth year in a row. |
~$1.5 Billion Restructuring plan announced in September 2015 expected to lower operating costs by ~$1.5 Billion annually when fully implemented by the end of 2018. |
$6.5 billion Despite significant restructuring costs, we ended 2015 with Machinery, Energy & Transportation (ME&T) debt-to-capital ratio within the target range at 39.1%, and $6.5 billion of enterprise cash on the balance sheet. |
||||
CAPITAL RETURNED TO STOCKHOLDERS ($ in billions) |
||||||
$15.5
Billion 2011-2015 Cumulative Total |
||||||
■ Dividends Paid ■ Stock Repurchases |
||||||
*1Q 2013 Dividend Paid in 2012 ($0.340B) |
2016 Proxy Statement |
| | 3 |
100 NE Adams Street
Peoria,
Illinois 61629
Phone (309) 675-1000
www.caterpillar.com
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: | June 8, 2016 | |
Time: | 8:00 a.m. | |
Place: | Electro-Motive Diesel | |
3500 South Cowan Rd. | ||
Muncie, IN 47302 | ||
Record Date: | April 11, 2016 |
MEETING AGENDA: |
|||
●Elect twelve
director nominees named in this Proxy Statement
●Ratify our
independent registered public accounting firm for 2016
●Approve, by
non-binding vote, executive compensation
●Vote on
stockholder proposals
●Any other business that properly comes before the
meeting | |||
PLEASE VOTE YOUR SHARES | ||||||||||||
We encourage stockholders to vote promptly, as this will save the expense of additional proxy solicitation. You may vote in the following ways: |
||||||||||||
By Internet |
By Mobile Device | By Telephone |
By Mail |
|||||||||
vote online at
|
scan this QR code |
call the number |
mail your signed |
|||||||||
By Order of the Board of Directors
Christopher M. Reitz
Corporate
Secretary
May 2, 2016
Important
Notice Regarding the Availability of Proxy Materials |
||
This Notice of Annual Meeting and Proxy Statement and the 2015 Annual Report on Form 10-K are available at www.eproxyaccess.com/cat2016. |
||
4 | | |
2016 Proxy Statement |
PROPOSAL 1 ELECTION OF DIRECTORS
PROPOSAL SNAPSHOT | |||
●What am I voting on? | |||
Stockholders are being asked to elect twelve director nominees named in this Proxy Statement for a one-year term. | |||
☑ | Voting Recommendation: | ||
FOR the election of each of the Boards director nominees. |
BOARD SIZE |
GENDER AND |
DIRECTOR |
DIRECTOR |
|||||
75% OF DIRECTORS ARE |
||||||||
100% Attendance for 2015 |
||||
* Ms. Reed became a director of the Company in June 2015 and has attended all Board and Compensation Committee meetings held during her tenure.
The Boards policy is that directors should attend the annual stockholder meeting. All directors attended the 2015 stockholder meeting. The independent directors generally meet in executive session as part of each regularly scheduled Board meeting, with the Presiding Director serving as Chairman.
2016 Proxy Statement |
| | 5 |
✓ Reduced
Board size by four directors
✓ Six new directors elected
✓
Full rotation of Board committee chairs
DIVERSITY OF SKILLS AND EXPERTISE
Our independent Board nominees offer a diverse range of skills and experience in relevant areas.
As shown by the yellow highlighted areas in the map below, our independent directors have international experience that aligns with Caterpillars global presence.
6 | | |
2016 Proxy Statement |
The Board has nominated the following individuals to stand for election for a one-year term expiring at the annual meeting of stockholders in 2017.
DIRECTOR CANDIDATE BIOGRAPHIES AND QUALIFICATIONS
Directors have been in their current positions for the past five years unless otherwise noted. Information is as of April 1, 2016.
DAVID L. CALHOUN |
|||
Senior Managing Director and |
Other current directorships (2) | Age 58 | ||
●Nielsen Holdings
PLC
●The Boeing
Company |
|||
Other directorships within the last five years | Director Since 2011 | ||
●Medtronic,
Inc |
|||
Caterpillar Committee | Independent | ||
●Compensation |
Key Qualifications and Skills: | |||
Mr. Calhoun was previously Executive Chair of Nielsen Holdings N.V. (2014-2015). Prior to his position at Blackstone, Mr. Calhoun served as Chairman of the Executive Board and Chief Executive Officer of The Nielsen Company B.V. (2006-2013) and Vice Chairman of General Electric Company and President and Chief Executive Officer of GE Infrastructure (2005-2006). The Board believes that Mr.
Calhoun provides valuable insight and perspective into general strategic
and business matters, stemming from his extensive executive and management
experience with Blackstone, Nielsen and GE. Mr. Calhoun also has
significant manufacturing and high-technology industry expertise as
evidenced by his leadership of GEs aircraft engines and transportation
businesses. |
DANIEL M. DICKINSON |
|||
Managing Partner of HCI
|
Other current directorships (0) | Age 54 | ||
●None |
|||
Other directorships within the last five years | Director Since 2006 | ||
●Mistras Group,
Inc.
●Progressive Waste
Solutions Ltd. |
|||
Caterpillar Committee | Independent | ||
●Audit |
Key Qualifications and Skills: | |||
The Board believes that Mr. Dickinsons experience in mergers and acquisitions, private equity business and role as an investment banker provides important insights for evaluating investment opportunities. His significant financial expertise and experience, both in the U.S. and internationally, contributes to the Boards understanding and ability to analyze complex issues. His experience as a former director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company. |
JUAN GALLARDO |
|||
Chairman and former CEO |
Other current directorships (3) | Age 68 | ||
●Grupo Aeroportuario
del Pacifico, S.A.B. de C.V.
●Grupo Financiero
Santander Mexico, S.A.B. de C.V.
●Organización
CULTIBA, S.A.B. de C.V. |
|||
Other directorships within the last five years | Director Since 1998 | ||
●Lafarge
SA |
|||
Caterpillar Committee | Independent | ||
●Public Policy and
Governance |
Key Qualifications and Skills: | |||
Mr. Gallardo is the Chairman of Organización CULTIBA and was its Chief Executive Officer until his retirement from that role in 2016. Mr. Gallardo resides in Mexico where Caterpillar has a significant manufacturing presence. The Board believes that Mr. Gallardos international business experience, particularly in Latin America and South America, are important for the Companys understanding of these key markets. His extensive background in trade-related issues also contributes to the Boards expertise. In addition, his experience as a chief executive officer and director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company. |
2016 Proxy Statement |
| | 7 |
JESSE J. GREENE, JR. |
|||
Instructor at Columbia
|
Other current directorships (0) | Age 71 | ||
None |
|||
Other directorships within the last five years | Director Since 2011 | ||
None |
|||
Caterpillar Committee | Independent | ||
●Compensation |
Key Qualifications and Skills: | |||
Mr. Greene is currently an instructor at Columbia Business School in New York City where he teaches corporate governance, risk management and other business topics at the graduate and executive education levels. He was formerly Vice President of Financial Management and Chief Financial Risk Officer of International Business Machines Corporation (computer and office equipment). The Board believes that Mr. Greenes risk management and information technology experience provides a unique skill set to the Board. His experience as a chief financial risk officer and executive of a large, publicly-traded multinational corporation enables him to provide meaningful input and guidance to the Board and the Company. |
JON M. HUNTSMAN, JR. |
|||
Former United
States |
Other current directorships (3) | Age 56 | ||
●Chevron
Corporation
●Ford Motor
Company
●Hilton Worldwide
Holdings Inc. |
|||
Other directorships within the last five years | Director Since 2012 | ||
●Huntsman
Corporation |
|||
Caterpillar Committee | Independent | ||
●Public Policy and
Governance |
Key Qualifications and Skills: | |||
Caterpillar has a significant manufacturing presence and dealer network in China. The Board believes that Mr. Huntsmans extensive knowledge of Asia and international affairs, operational experience gained as governor of Utah and experience as a director of other large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company. |
DENNIS A. MUILENBURG |
|||
Chairman, President
and |
Other current directorships (1) | Age 52 | ||
●The Boeing
Company |
|||
Other directorships within the last five years | Director Since 2011 | ||
None |
|||
Caterpillar Committee | Independent | ||
●Audit |
Key Qualifications and Skills: | |||
Prior to his current position, Mr. Muilenburg was Vice Chairman, President and Chief Operating Officer of The Boeing Company (2013-2015). Prior to that, he was Executive Vice President of The Boeing Company and President and Chief Executive Officer of Boeing Defense, Space & Security (2009-2013). The Board believes that Mr. Muilenburg provides valuable insight to the Board on strategic and business matters, stemming from his experience with large-scale product development programs and his worldwide supply chain and manufacturing expertise. |
8 | | |
2016 Proxy Statement |
DOUGLAS R. OBERHELMAN |
|||
Chairman and
Chief Executive |
Other current directorships (1) | Age 63 | ||
●Exxon Mobil Corporation |
|||
Other directorships within the last five years | Director Since 2010 | ||
●Eli Lilly and Company |
|||
Caterpillar Committee | Management | ||
None |
Key Qualifications and Skills: | |||
Prior to his current position, Mr. Oberhelman served as Vice Chairman and Chief Executive Officer-Elect and as a Group President of Caterpillar Inc. The Board believes that Mr.
Oberhelmans extensive experience and knowledge of the Company, gained
from 40 years of service in a wide range of Caterpillar leadership
positions enables him to provide meaningful input and guidance to the
Board and the Company. |
WILLIAM A. OSBORN |
|||
Former Chairman and CEO
of |
Other current directorships (2) | Age 68 | ||
●Abbott Laboratories
●General Dynamics Corporation |
|||
Other directorships within the last five years | Director Since 2000 | ||
●Tribune Company |
|||
Caterpillar Committee | Independent | ||
●Audit, Chair |
Key Qualifications and Skills: | |||
The Board believes that Mr. Osborns financial expertise and experience is valuable to the Board. In addition, his experience as a chief executive officer and director of other large, publicly-traded corporations enables him to provide meaningful input and guidance to the Board and the Company. |
DEBRA L. REED |
|||
Chairman of the Board
and |
Other current directorships (2) | Age 59 | ||
●Halliburton Company
●Sempra Energy |
|||
Other directorships within the last five years | Director Since 2015 | ||
●Avery Dennison Corporation |
|||
Caterpillar Committee | Independent | ||
●Compensation |
Key Qualifications and Skills: | |||
Prior to her current position, Ms. Reed was Executive Vice President of Sempra. The power, oil and gas industries are key end-user markets for Caterpillar products. The Board believes that Ms. Reeds background provides valuable insights into trends in these industries. In addition, her experience as a chief executive officer and director of other large, publicly-traded corporations enables her to provide meaningful input and guidance to the Board and the Company. |
2016 Proxy Statement |
| | 9 |
EDWARD B. RUST, JR. |
|||
Chairman of State
Farm |
Other current directorships (2) | Age 65 | ||
●Helmerich & Payne, Inc.
●McGraw-Hill Financial, Inc. |
|||
Other directorships within the last five years | Director Since 2003 | ||
None |
|||
Caterpillar Committee | Independent Presiding Director | ||
●Public Policy and Governance,
Chair |
Key Qualifications and Skills: | |||
Previously Mr. Rust served as Chief Executive Officer of State Farm Mutual Automobile Insurance Company and as Chairman, President and Chief Executive Officer of State Farm Fire and Casualty Company, State Farm Life Insurance Company and other principal State Farm affiliates. He also previously served as President of State Farm Mutual Automobile Insurance Company and Trustee and President of State Farm Mutual Fund Trust and State Farm Variable Product Trust. The Board believes that Mr. Rusts financial and business experience is valuable to the Board. His role as a past Chairman of the U.S. Chamber of Commerce, chief executive officer of a major national corporation and experience as a director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company. In addition, his extensive involvement in education improvement compliments the Companys culture of social responsibility. |
SUSAN C. SCHWAB |
|||
Professor at the
University |
Other current directorships (3) | Age 61 | ||
●FedEx Corporation
●Marriott International, Inc.
●The Boeing Company |
|||
Other directorships within the last five years | Director Since 2009 | ||
None |
|||
Caterpillar Committee | Independent | ||
●Public Policy and
Governance |
Key Qualifications and Skills: | |||
Prior to her current positions, Ambassador Schwab held various positions including United States Trade Representative (member of the Presidents cabinet) and Deputy United States Trade Representative. The Board believes that Ambassador Schwab brings extensive knowledge, insight and experience on international trade issues to the Board. Her educational experience and role as the U.S. Trade Representative provide important insights for the Companys global business model and long-standing support of open trade. In addition, her experience as a director of large, publicly-traded multinational corporations enables her to provide meaningful input and guidance to the Board and the Company. |
MILES D. WHITE |
|||
Chairman and Chief
Executive |
Other current directorships (2) | Age 61 | ||
●Abbott Laboratories
●McDonalds Corporation |
|||
Other directorships within the last five years | Director Since 2011 | ||
None |
|||
Caterpillar Committee | Independent | ||
●Compensation, Chair |
Key Qualifications and Skills: | |||
The Board believes that Mr. Whites experience as the chief executive officer of a large, complex multinational company provides important insight to the Board. His skills include knowledge of cross-border operations, strategy and business development, risk assessment, finance, leadership development and succession planning, and corporate governance matters. In addition to his role as an executive officer, his experience as a director of other large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company. |
10 | | |
2016 Proxy Statement |
Compensation for non-employee directors for 2015 was comprised of the following components:
Cash Retainer: | $150,000 | ||||
Restricted Stock Units (1 year vesting) | $125,000 | ||||
Committee Chairman Stipend: | Presiding Director | $25,000 | |||
Audit | $20,000 | ||||
Compensation | $20,000 |
Directors are required to own Caterpillar common stock equal to five times their annual cash retainer. Directors have a five-year period from the date of their election or appointment to meet the target ownership guidelines.
Directors may defer 50 percent or more of their annual cash retainer and stipend into an interest-bearing account or an account representing phantom shares of Caterpillar stock.
Directors that joined the Board prior to 2008 also participate in a Charitable Award Program, under which a donation of up to $500,000 will be made by the Company, in the directors name, to charitable organizations selected by the director and $500,000 to the Caterpillar Foundation. Directors derive no financial benefit from the program.
DIRECTOR COMPENSATION FOR 2015 | |||||||||||||||||||
DIRECTOR | FEES EARNED OR PAID IN CASH |
RESTRICTED STOCK UNITS1 |
ALL
OTHER COMPENSATION2 |
TOTAL | |||||||||||||||
David L. Calhoun | $ | 150,000 | $ | 124,998 | $ | 5,000 | $ | 279,998 | |||||||||||
Daniel M. Dickinson | $ | 150,000 | $ | 124,998 | $ | 35,441 | $ | 310,439 | |||||||||||
Juan Gallardo | $ | 150,000 | $ | 124,998 | $ | 12,170 | $ | 287,168 | |||||||||||
Jesse J. Greene, Jr. | $ | 150,000 | $ | 124,998 | $ | 9,000 | $ | 283,998 | |||||||||||
Jon M. Huntsman, Jr. | $ | 150,000 | $ | 124,998 | $ | | $ | 274,998 | |||||||||||
Dennis A. Muilenburg | $ | 150,000 | $ | 124,998 | $ | | $ | 274,998 | |||||||||||
William A. Osborn | $ | 170,000 | $ | 124,998 | $ | 17,170 | $ | 312,168 | |||||||||||
Debra L. Reed | $ | 87,500 | $ | 72,996 | $ | 2,000 | $ | 162,496 | |||||||||||
Edward B. Rust, Jr. | $ | 175,000 | $ | 124,998 | $ | 21,465 | $ | 321,463 | |||||||||||
Susan C. Schwab | $ | 150,000 | $ | 124,998 | $ | 12,000 | $ | 286,998 | |||||||||||
Miles D. White | $ | 170,000 | $ | 124,998 | $ | 10,000 | $ | 304,998 |
1 As of December 31, 2015, the number of vested and non-vested
options (NQs), RSUs and Phantom Shares held by each individual serving as a
non-employee director during 2015 was: Mr. Calhoun: 9,842 (which consists of
1,506 RSUs and 8,336 Phantom Shares); Mr. Dickinson: 26,113 (which consists of
2,916 SARs, 1,506 RSUs and 21,691 Phantom Shares); Mr. Gallardo: 38,314 (which
consists of 12,833 SARs, 1,506 RSUs and 23,975 Phantom Shares); Mr. Greene:
1,506 RSUs; Mr. Huntsman: 1,506 RSUs; Mr. Muilenburg: 1,506 RSUs; Mr. Osborn:
1,828 (which consists of 1,506 RSUs and 322 Phantom Shares); Ms. Reed: 2,151
(which consists of 825 RSUs and 1,326 Phantom Shares); Mr. Rust: 43,400 (which
consists of 12,833 SARs, 1,506 RSUs and 29,061 Phantom Shares); Ms. Schwab:
8,780 (which consists of 1,506 RSUs and 7,274 Phantom Shares); and Mr. White:
5,385 (which consists of 1,506 RSUs and 3,879 Phantom Shares). Mr. Calhoun, Mr.
Dickinson, Mr. Gallardo, Ms. Reed, Ms. Schwab and Mr. Rust deferred 100 percent
of their 2015 retainer fee into phantom stock in the Directors Deferred
Compensation Plan. Mr. White deferred 50 percent of his 2015 retainer fee into
phantom stock in the Directors Deferred Compensation Plan.
2 All Other Compensation represents amounts paid in connection
with the Caterpillar Foundations Directors Charitable Award Program and the
Caterpillar Political Action Committee Charitable Matching Program (CATPACs
PACMATCH program) and administrative fees associated with the Directors
Charitable Award Program. All outside directors are eligible to participate in
the Caterpillar Foundation Matching Gift Program and eligible directors may
participate in the CATPACs PACMATCH program annually. The Caterpillar
Foundation will match contributions to eligible two year or four year colleges
or universities, arts and cultural institutions and public policy or
environmental organizations, up to a maximum of $2,000 per eligible organization
per calendar year. As part of CATPACs PACMATCH program, Caterpillar Inc. will
contribute to two charities on behalf of eligible members of the Board of
Directors. The annual CATPACs PACMATCH contribution limit is $5,000 so the
match, per person, would not exceed $5,000. The amounts listed represent the
matching contributions as follows: Mr. Calhoun $5,000, Mr. Dickinson $5,000, Mr.
Greene $9,000, Mr. Osborn $5,000, Ms. Reed $2,000, Mr. Rust $13,500, Ms. Schwab
$12,000 and Mr. White $10,000. For directors eligible to participate in the
Directors Charitable Award Program, the amounts represented include the
insurance premium and administrative fees. The premium and administrative fees
are as follows: Mr. Dickinson $30,441, Mr. Gallardo $12,170, Mr. Osborn $12,170
and Mr. Rust $7,965.
2016 Proxy Statement |
| | 11 |
BOARD ELECTION AND LEADERSHIP STRUCTURE
Directors are elected at each annual meeting to serve for a one-year term. In uncontested elections, directors are elected by a majority of the votes cast for such director. If an incumbent director does not receive a greater number of for votes than against votes, then such director must tender his or her resignation to the Board. In contested elections, directors are elected by a plurality vote. Directors must retire at the end of the calendar year in which they reach the age of 72.
The Board has elected the Chief Executive Officer as the Chairman of the Board. The Board believes that having a single person as both Chairman of the Board and CEO ensures that the Company is represented by a single voice to dealers, stockholders, employees and other stakeholders. The independent members of the Board have further elected the Chairman of the Public Policy and Governance Committee (PPGC) as the Presiding Director.
DUTIES AND RESPONSIBILITIES OF PRESIDING DIRECTOR
● | Presides at all meetings of the Board at which the Chairman of the Board is not present. |
● | Encourages and facilitates active participation of all directors. |
● | Serves as a liaison between the independent directors and the Chairman of the Board. |
● | Approves Board meeting materials for distribution. |
● | Approves Board meeting schedules and agendas. |
● | Has the authority to call meetings of the directors. |
● | Leads the Boards annual evaluation of the Chairman of the Board and Chief Executive Officer. |
● | Monitors and coordinates with management on corporate governance issues and developments. |
CORPORATE GOVERNANCE GUIDELINES AND CODE OF CONDUCT
Our Board has adopted Guidelines on Corporate Governance Issues (Corporate Governance Guidelines), which are available on our website at www.caterpillar.com/governance. The guidelines reflect the Boards commitment to oversee the effectiveness of policy and decision-making both at the Board and management level, with a view to enhancing stockholder value over the long-term. Caterpillars code of conduct is called Our Values in Action. Integrity, Excellence, Teamwork, Commitment and Sustainability are the core values identified in the code and are the foundation for Caterpillars corporate existence. Our Values in Action apply to all members of the Board and to management and employees worldwide. These values embody the high ethical standards that Caterpillar has upheld since its formation in 1925. Our Values in Action is available on our website at www.caterpillar.com/code.
12 | | |
2016 Proxy Statement |
The Board has three standing committees: Audit; Compensation; and Public Policy and Governance. Each committee meets periodically throughout the year, reports its actions and recommendations to the Board, receives reports from management, annually evaluates its performance and has the authority to retain outside advisors at its discretion. The current primary responsibilities of each committee are summarized below and set forth in more detail in each committees written charter, which can be found on Caterpillars website at www.caterpillar.com/governance. All committee members are independent under Company, NYSE and SEC standards applicable to Board and committee service, and the Board has determined that each member of the Audit Committee is an audit committee financial expert as defined under SEC rules.
AUDIT COMMITTEE |
Committee
Members: Number of Meetings | |
COMMITTEE ROLES AND RESPONSIBILITIES | |
● | Selects and oversees the independent auditors |
● | Oversees our financial reporting activities, including our financial statements, annual report and accounting standards and principles |
● | Discusses with management the Companys risk assessment and risk management framework |
● | Approves audit and non-audit services provided by the independent auditors |
● | Reviews the organization, scope and effectiveness of the Companys internal audit function, disclosures and internal controls |
● | Sets parameters for and monitors the Companys hedging and derivatives practices |
● | Provides oversight for the Companys ethics and compliance programs |
● | Monitors the Companys litigation and tax compliance |
|
COMPENSATION COMMITTEE |
Committee
Members: Number of Meetings | |
COMMITTEE ROLES AND RESPONSIBILITIES | |
● | Recommends the CEOs compensation to the Board and establishes the compensation of other executive officers |
● | Establishes, oversees and administers the Companys equity compensation and employee benefit plans |
● | Reviews incentive compensation arrangements to ensure that incentive pay does not encourage unnecessary risk-taking and reviews and discusses the relationship between risk management policies and practices, corporate strategy and executive compensation |
● | Recommends to the Board the compensation of directors |
● | Provides oversight of the Companys diversity and immigration practices and employee relations |
● | Furnishes an annual Compensation Committee Report on executive compensation and approves the Compensation Discussion and Analysis section in the Companys proxy statement |
|
2016 Proxy Statement |
| | 13 |
PUBLIC POLICY AND GOVERNANCE COMMITTEE |
Committee
Members: Number of meetings | |
COMMITTEE ROLES AND RESPONSIBILITIES | |
● |
Makes recommendations to the Board regarding the size and composition of the Board and its committees, and the criteria to be used for the selection of candidates to serve on the Board |
● |
Discusses and evaluates the qualifications of potential and incumbent directors and recommends the slate of director candidates to be nominated for election at the Annual Meeting |
● |
Leads the Board in its annual self-evaluation process |
● |
Oversees the Companys officer succession planning |
● |
Oversees the Companys environmental, health and safety activities and sustainability |
● |
Oversees the corporate governance structure |
● |
Oversees matters of domestic and international public policy affecting the Companys business, such as trade policy and international trade negotiations and major global legislative and regulatory developments |
● |
Annually reviews the Companys charitable and political contributions and policies |
● |
Oversees investor and community relations |
|
BOARDS ROLE IN RISK OVERSIGHT
The Board has oversight for risk management with a focus on the most significant risks facing the Company, including strategic, operational, financial and legal compliance risks. The Boards risk oversight process builds upon managements risk assessment and mitigation processes, which include an enterprise risk management program, regular internal management disclosure and compliance committee meetings, code of business conduct, quality standards and processes, an ethics and compliance office and comprehensive internal audit processes. The Boards risk oversight role also includes the selection and oversight of the independent auditors. The Board implements its risk oversight function both as a full Board and through delegation to Board committees, which meet regularly and report back to the full Board. The Board has delegated the oversight of specific risks to Board committees that align with their functional responsibilities.
14 | | |
2016 Proxy Statement |
DIRECTOR NOMINATIONS AND EVALUATIONS
PROCESS FOR NOMINATING AND EVALUATING DIRECTORS |
The Public Policy and Governance Committee (PPGC) solicits and receives recommendations for potential director candidates from the Board, management and other sources. In its assessment of each potential candidate, the PPGC considers each candidates integrity, honesty, judgment, independence, accountability, willingness to express independent thought, understanding of the Companys business and other factors that the PPGC determines are pertinent in light of the current needs of the Board. Candidates must have successful leadership experience and stature in their primary fields, with a background that demonstrates an understanding of business affairs as well as the complexities of a large, publicly held company. In addition, candidates must have a demonstrated ability to think strategically and make decisions with a forward-looking focus and the ability to assimilate relevant information on a broad range of complex topics. Moreover, candidates must have the ability to devote the time necessary to meet director responsibilities and serve on no more than four public company boards in addition to the Companys Board.
DIRECTOR RECRUITMENT PROCESS
PPGC |
Board of Directors |
Stockholders |
||||||||||||
Candidate from
Stockholders, |
Discusses |
Discusses PPGC |
Vote on Nominees |
|||||||||||
Reviews | ||||||||||||||
Qualifications & expertise |
||||||||||||||
Board needs |
Analyzes | |||||||||||||
Regulatory requirements |
Independence | |||||||||||||
Cognitive diversity |
Selects Nominees | |||||||||||||
Interviews | ||||||||||||||
Recommends Nominees | ||||||||||||||
The following table summarizes certain key characteristics of the Companys businesses and the associated qualifications, skills and experience that the PPGC believes should be represented on the Board.
BUSINESS CHARACTERISTICS | QUALIFICATIONS, SKILLS AND EXPERIENCE | |
●The Company is a global manufacturer with products sold
around the world. |
●Manufacturing or logistics experience
●Broad international exposure | |
●Technology and customer and product support services are
becoming increasingly important. |
●Technology experience
●Customer and product support
experience | |
●The Companys businesses undertake numerous transactions
in many countries and in many currencies. |
●Diversity of race, ethnicity, gender, cultural
background or professional experience
●High level of financial literacy
●Mergers and acquisitions experience | |
●Demand for many of the Companys products is tied to
conditions in the global commodity, energy, construction and
transportation markets. |
●Experience in the evaluation of global economic
conditions
●Knowledge of commodity, energy, construction or
transportation markets | |
●The Companys businesses are impacted by regulatory
requirements and policies of various governmental entities around the
world. |
●Governmental and international trade
expertise | |
●The Boards responsibilities include understanding and
overseeing the various risks facing the Company and ensuring that
appropriate policies and procedures are in place to effectively manage
risk. |
●Risk oversight/management expertise
●Relevant executive
experience |
The Board values diversity of talents, skills, abilities and experiences and believes that Board diversity of all types provides significant benefits to the Company. Although the Board has no specific diversity policy, the PPGC considers the diversity of the Board and potential director candidates in selecting new director candidates.
2016 Proxy Statement |
| | 15 |
NOMINATIONS FROM STOCKHOLDERS |
The PPGC considers unsolicited inquiries and director nominees recommended by stockholders in the same manner as nominees from all other sources. Recommendations should be sent to the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. Stockholders may nominate a director candidate to serve on the Board by following the procedures described in our bylaws. Deadlines for stockholder nominations for Caterpillars 2017 annual meeting of stockholders are included in the Stockholder Proposals and Director Nominations for the 2017 Annual Meeting section on page 57.
DIRECTOR INDEPENDENCE DETERMINATIONS
The Companys Corporate Governance Guidelines establish that no more than two non-independent directors may serve on the Board at any point in time. A director is independent if he or she has no direct or indirect material relationship with the Company or with senior management of the Company and their respective affiliates. Annually, the Board makes an affirmative determination regarding the independence of each director based upon the recommendation of the PPGC and in accordance with the standards in the Companys Corporate Governance Guidelines, which are available on our website at www.caterpillar.com/governance.
Applying these standards, the Board determined that each of the directors met the independence standards except Mr. Oberhelman, who is a current employee of the Company.
Stockholders, employees and other Caterpillar stakeholders may communicate with any of our directors, our Board as a group, our independent directors as a group or any Board committee as a group by email or regular mail:
BY EMAIL
send an email
to
Directors@CAT.com
BY MAIL
mail to Caterpillar Inc.
c/o
Corporate Secretary
100 NE Adams Street
Peoria, Illinois
61629
All communications regarding personal grievances, administrative matters, the conduct of the Companys ordinary business operations, billing issues, product or service related inquiries, order requests and similar issues will be directed to the appropriate individual within the Company. The Presiding Director has instructed the Corporate Secretary to consult with him if he is unsure who should receive the communication. If a legitimate communication is sent, you will receive a written acknowledgement from the Corporate Secretarys office confirming receipt of your communication.
Contacting Caterpillar. While the Board oversees management, it does not participate in day-to-day management functions or business operations. If you wish to submit questions or comments relating to these matters, please use the Contact Us form on our website at www.caterpillar.com/contact, which will help you to direct your message to the appropriate area of our Company.
16 | | |
2016 Proxy Statement |
We conduct an annual governance review and stockholder outreach throughout the year to ensure that management and the Board understand and consider the issues that matter most to our stockholders and to help ensure our corporate governance practices continue to evolve and reflect the insights and perspectives of our many stakeholders.
● |
Board of Directors |
● |
Senior Management |
● |
Investor Relations |
● |
Corporate Secretary |
● |
Investor conferences |
● |
One-on-one meetings |
● |
Earnings calls |
● |
Investor and analyst calls |
Third parties regularly recognize our employees innovation, leadership and workplace satisfaction. We are pleased to highlight some of these 2015 awards here.
SOCIAL RESPONSIBILITY AND SUSTAINABILITY | |
● |
Vision for America Award - Keep America Beautiful |
● |
Dow Jones Sustainability Index - World and North America |
● |
Most Responsible Enterprise Award at the 11th Global Corporate Social Responsibility Forum, honoring our sustainability commitments in China |
● |
Innovation Iron Award from Compact Equipment |
● |
Accenture Award for Circular Economy Multinational |
● |
Brave New Corporate Funders - Inside Philanthropy |
● |
United Way Worldwides Global Corporate Leadership Program |
CORPORATE REPUTATION AND LEADERSHIP | |
● |
Worlds Most Admired Companies - Fortune Magazine |
● |
40 Best Companies for Leaders - Chief Executive Magazine |
● |
Top 50 Employer - Woman Engineer Magazine |
● |
New York Stock Exchange Corporate Governance Leadership Awards, finalist |
● |
Americas Best Employers - Forbes Magazine |
● |
Top 25 Noteworthy Companies - DiversityInc |
● |
Top 10 Companies for Global Diversity - DiversityInc |
● |
Top 10 Companies for Employee Resource Groups - DiversityInc |
● |
Corporate Award Recipient - Executive Leadership Council |
● |
Top 5 Best Companies to Work For in Brazil - Época Magazine |
● |
Top 10 Best Companies For Workers With Disabilities - São Paulo State Department for the Rights of People with Disabilities |
● |
U.S. Military Friendly® Employer |
● |
Effie Award for Marketing Effectiveness |
● |
Top 100 undergraduate employers - Caterpillar UK |
2016 Proxy Statement |
| | 17 |
Caterpillar has set aspirational goals for its operations and product stewardship. We believe these standards affirm our determination to lead our industry to a more sustainable future. You can track our progress towards achieving these goals by visiting our website www.caterpillar.com/sustainability.
We currently disclose on our website www.caterpillar.com/contributions a description of our oversight process for political contributions, an itemized list of corporate and employee PAC contributions to federal and state political candidates and a list of trade associations to which we provided more than $50,000.
Caterpillars Board has adopted a written process governing the approval of transactions that are expected to exceed $120,000 in any calendar year and that involve both the Company and any director, executive officer or their immediate family members. Under the process, all such transactions must be approved in advance by the PPGC.
Prior to entering into such a transaction, the director or officer must submit the details of the proposed transaction to the Companys Chief Legal Officer, including whether the related person or his or her immediate family member has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of an entity involved in the transaction). The Chief Legal Officer will then submit the matter to the PPGC for its consideration.
Based on information provided by the directors, the executive officers and the Chief Legal Officer, the PPGC determined that there are no related party transactions required to be disclosed in this proxy statement.
18 | | |
2016 Proxy Statement |
PROPOSAL 2 RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PROPOSAL SNAPSHOT | |||
●What am I voting
on? | |||
The Board seeks an indication from stockholders of their approval or disapproval of the Audit Committees appointment of PricewaterhouseCoopers as the Companys independent auditors for 2016. | |||
☑ | Voting Recommendation: | ||
FOR the ratification of our independent registered public accounting firm. |
PricewaterhouseCoopers has been our independent auditor since 1925. If the appointment of PricewaterhouseCoopers is not approved by the stockholders, the Audit Committee will consider whether it is appropriate to select another independent auditor.
Representatives of PricewaterhouseCoopers will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. The representatives will also be available to respond to questions at the meeting.
AUDIT FEES AND APPROVAL PROCESS
The Audit Committee pre-approves all audit and non-audit services to be performed by the independent auditors in compliance with the Sarbanes-Oxley Act and the SEC rules regarding auditor independence. The policies and procedures are detailed as to the particular service and do not delegate the Audit Committees responsibility to management. The policies and procedures address any service provided by the independent auditors and any audit or audit-related services to be provided by any other audit service provider. The pre-approval process includes an annual and interim component.
Annually, not later than February of each year, management and the independent auditors jointly submit a service matrix of the types of audit and non-audit services that management may wish to have the independent auditors perform for the year. The service matrix categorizes the types of services by audit, audit-related, tax and all other services. Management and the independent auditors jointly submit an annual pre-approval limits request. The request lists aggregate pre-approval limits by service category. The request also lists known or anticipated services and associated fees. The Audit Committee approves or rejects the pre-approval limits and each of the listed services on the service matrix.
During the course of the year, the Audit Committee chairman has the authority to pre-approve requests for services that were not approved in the annual pre-approval process. However, all services, regardless of fee amounts, are subject to restrictions on the services allowable under the Sarbanes-Oxley Act and SEC rules regarding auditor independence. In addition, all fees are subject to ongoing monitoring by the Audit Committee.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEE INFORMATION
Fees for professional services provided by our independent auditors included the following (in millions):
2015 | 2014 | |||
Audit Fees1 | $32.0 | $32.7 | ||
Audit-Related Fees2 | 1.3 | 1.2 | ||
Tax Compliance Fees3 | 0.4 | 0.6 | ||
Tax Planning And Consulting Fees4 | 0.2 | 0.2 | ||
All Other Fees5 | 19.8 | 23.5 | ||
TOTAL | $53.7 | $58.2 |
2016 Proxy Statement |
| | 19 |
1 Audit Fees principally includes audit and review of
financial statements (including internal control over financial reporting),
statutory and subsidiary audits, SEC registration statements, comfort letters
and consents.
2 Audit-Related Fees
principally includes attestation services requested by management, accounting
consultations, pre- or post- implementation reviews of processes or systems and
audits of employee benefit plan financial statements. Total fees paid directly
by the benefit plans, and not by the Company, were $1.0 million in 2015 and $0.9
million in 2014 and are not included in the amounts shown
above.
3 Tax Compliance Fees includes, among other things, statutory
tax return preparation and review and advice on the impact of changes in local
tax laws.
4 Tax Planning and
Consulting Fees includes, among other things, tax planning and advice and
assistance with respect to transfer pricing issues.
5 On April 2,
2014, Booz & Company combined with PricewaterhouseCoopers, our independent
registered public accounting firm, and was renamed Strategy&. As of the date
of the combination, Strategy& was providing strategy consulting services to
the Company, however the Company stopped engaging Strategy& during 2015.
Included in All Other Fees are fees of $23.5 million for strategy consulting
services provided by Strategy& to the Company for the period from April 2,
2014 through December 31, 2014 and $19.5 million for 2015.
ANONYMOUS REPORTING OF ACCOUNTING CONCERNS
The Audit Committee has established a means for the anonymous reporting (where permitted by law) of (i) suspected or actual violations of the code of conduct, our enterprise policies or applicable laws, including those related to accounting practices, internal controls or auditing matters and procedures; (ii) theft or fraud of any amount; (iii) insider trading; (iv) performance and execution of contracts; (v) conflicts of interest; (vi) violations of securities and antitrust laws; and (vii) violations of the Foreign Corrupt Practices Act.
Any employee, supplier, customer, stockholder or other interested party can submit a report via the following methods:
● |
Direct Telephone: 309-494-4393 (English only) |
● |
Call Collect Helpline: 770-582-5275 (language translation available) |
● |
Confidential Fax: 309-494-4818 |
● |
Email: BusinessPractices@CAT.com |
● |
Internet: www.caterpillar.com/obp |
Management is responsible for the Companys internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Companys consolidated financial statements and internal control over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board (PCAOB).
The Audit Committee has discussed with the Companys independent auditors the overall scope and execution of the independent audit and has reviewed and discussed the audited financial statements with management. The Audit Committee also discussed with the independent auditors other matters required by PCAOB auditing standards.
The independent auditors provided to the Audit Committee the written communications required by applicable standards of the PCAOB regarding the independent accountants communications with the Audit Committee concerning independence, and the Audit Committee discussed the independent auditors independence with management and the auditors. The Audit Committee concluded that the independent auditors independence had not been impaired.
Based on the reviews and discussion referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2015.
By the members of the Audit Committee consisting of:
Daniel M. Dickinson | William A. Osborn | Dennis A. Muilenburg |
(Chairman) |
20 | | |
2016 Proxy Statement |
PROPOSAL 3 ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
PROPOSAL SNAPSHOT | |||
●What am I voting
on?
Stockholders are being asked to
approve, on an advisory basis, the compensation of named executive
officers as disclosed in this proxy
statement. ☑ Voting Recommendation: FOR proposal | |||
On an annual basis, and in compliance with Section 14A of the Securities Exchange Act of 1934, stockholders are being asked to vote on the following advisory resolution:
RESOLVED, that the compensation of Caterpillars named executive officers as described under Compensation Discussion and Analysis, the compensation tables and the narrative discussion associated with the compensation tables in Caterpillars proxy statement for its 2016 Annual Meeting of Stockholders is hereby APPROVED.
This vote is advisory and therefore not binding on Caterpillar, the Compensation Committee (Committee) or the Board. The Board and the Committee value the opinion of Caterpillars stockholders, and to the extent there is any significant vote against Caterpillars named executive officer compensation, the Board will consider the reasons for such a vote, and the Committee will evaluate whether any actions are necessary to address those concerns.
2016 Proxy Statement |
| | 21 |
COMPENSATION DISCUSSION & ANALYSIS
I. | Principles of aligning pay and performance |
II. | Stockholder outreach and response to 2015 Say on Pay vote |
III. | Business performance in context |
IV. | Compensation program structure for 2015 and 2016 |
V. | Pay outcome demonstrates alignment with Company performance |
VI. | Strong compensation governance practices and policies |
I. PRINCIPLES OF ALIGNING PAY AND PERFORMANCE |
The Compensation Committee (the Committee) believes the executive compensation program at Caterpillar should be structured to align the interests of executives and stockholders to encourage value creation over both the short and long term. 2015 was another difficult year for Caterpillar and its stockholders. As a result, the CEO and other NEOs did not receive an annual incentive payment. In addition, the payout for the 3-year long-term incentive plan (2013-2015) paid 30 percent of target. These reductions based on 2015 performance are reflected in the 2015 proxy compensation tables.
Following last years Say on Pay vote, management and the Committee engaged with stockholders and undertook a careful analysis of the value drivers at Caterpillar to improve the alignment between pay and performance. The Committee believes that the changes made to the program going forward will better align executive compensation with stockholder interests and encourage value creation at Caterpillar.
II. STOCKHOLDER OUTREACH AND RESPONSE TO 2015 SAY ON PAY VOTE |
At the Companys 2015 annual meeting, the advisory vote on compensation received support from 65 percent of shares voted. In the three years prior to 2015, stockholder support averaged more than 95 percent. As a result of the decline in support for Say on Pay, management and the Committee conducted a robust stockholder engagement effort, reaching out to stockholders representing nearly half of the shares outstanding. The purpose of the outreach was to better understand stockholder perspectives and evaluate concerns regarding the Companys executive compensation program.
The Company found the added stockholder engagement to be helpful and intends to continue it going forward. Stockholder feedback over the past year was focused on the following themes:
1. | Pay for performance alignment and the consistency of performance goals, |
2. | Incentive compensation components and design and |
3. | Mix and structure of performance metrics. |
22 | | |
2016 Proxy Statement |
As a result of the feedback from stockholders, some changes were made in 2015. The remainder were made for 2016 going forward. Although many of these changes are discussed here, the full impact of these decisions will be reflected in 2016 pay and next years proxy statement.
SUMMARY OF KEY MESSAGES AND ACTIONS RELATED TO STOCKHOLDER OUTREACH AND RESPONSE TO 2015 SAY ON PAY VOTE
Pay for Performance Alignment and the Consistency of Performance Goals
WHAT WE HEARD | WHAT WE DID | |
●Compensation not consistent with Total Shareholder
Return (TSR) ●Performance goals not considered adequately
rigorous ●Limit awards for below median relative
performance |
2015
●The CEO and other NEOs did not receive an annual
incentive payment for 2015 based
primarily on severe market downturns in mining, energy and oil and gas and
the Committees assessment of the Companys declining financial
performance.
●CEO compensation level was targeted at the median of the
peer group (as defined on page 35), but the CEOs actual compensation was below the peer group
median.
●Majority of CEO pay was at risk and based on the
Companys short and long-term performance (at target, 85 percent of CEO pay
was at risk in 2015). | |
2016
●Annual incentive plan metrics reflect measurable and
challenging financial performance factors and a mix of pre-defined
operational factors that the Committee deems critical for the Companys
annual and long-term performance.
●Eliminated the potential for above target annual
incentive payouts in years when the Companys performance is expected to
be lower than prior year actual results.
●Reduced NEOs annual incentive opportunity when
operating profit is lower than the previous year. Each NEOs annual
incentive opportunity will be reduced in proportion to the amount the
performance target is lowered from the prior year. For example, if the performance target is reduced
10 percent from the prior year, each NEOs annual incentive
opportunity (expressed as a percentage of base salary) will be reduced by
10 percent.
●Decreased the maximum payout range for NEOs from 200
percent of target to 150 percent of target. In years when the corporate performance goal is higher than prior
years actual performance, the payout range will now have a maximum payout
of 150 percent of the target award.
●Based on 2015s disappointing performance, the 2016
long-term incentive grant for the CEO and NEOs was reduced to the 25th
percentile of the peer group. This
decision was based on the Companys 1, 3 and 5-year relative TSR
performance versus the peer group, the S&P Industrials, and
competitors that the Committee has determined compete directly with the
Company. NEO grants were further adjusted by the Committee to reflect
individual performance taking into consideration the consistency of their
performance against goals and their strategic goal performance as assessed
by the CEO. |
Incentive Compensation Components and Design
WHAT WE HEARD | WHAT WE DID | |
●Greater portion of long-term compensation should be
performance-vested equity |
2015
●Replaced long-term performance-based cash awards with
Performance Restricted Stock Units (PRSUs). | |
2016
●Increased PRSUs from one-third to 50 percent of the total
long-term incentive grant
and proportionately reduced the use of
stock options from two-thirds of the total to 50 percent. |
2016 Proxy Statement |
| | 23 |
Mix and Structure of Performance Metrics
WHAT WE HEARD | WHAT WE DID | |
●Changing long-term incentive metrics from year to year
makes goals and results difficult to evaluate
●Performance metrics and results should be
disclosed ●Relative performance metrics typically preferable to
absolute metrics ●PRSU performance period should be more than one
year ●PRSU hurdle should not have both a one-year hurdle and
three-year hurdle |
2015
●Eliminated Earnings Per Share (EPS) as a performance
metric in the long-term incentive plan (2015) and in the annual incentive
plan (2016).
●Moved to a consistent long-term incentive plan
design.
●PRSUs only vest if the Company meets or exceeds a Return
on Equity (ROE) hurdle.
●Added disclosure of performance metrics and Company
performance for award cycles. | |
2016
●Defined a mix of short-term performance metrics that
align with the Companys cyclical business and support long-term strategy
which is focused on efficient operations and strong competitive
positioning.
●Annual incentive opportunity measured by total Company
operating profit with the target-setting process considering Operating
Profit After Capital Charge (OPACC).
●Added annual incentive
operational metrics related to cost reduction, machine PINS (market
position), aftermarket parts sales, Cat Financial ROE and inventory
performance.
●Sized the long-term incentive grant (to the 25th
percentile as reflected on page 23) based on peer group median and
relative 1, 3 and 5-year TSR to the peer group, the S&P Industrials
and competitors that the Committee has determined compete directly with
the Company.
●Eliminated the retesting feature beginning with PRSUs
granted in 2016. PRSUs are now subject to a 3-year cumulative ROE
performance hurdle based on total average ROE performance at the end of
the 3-year period. |
III. BUSINESS PERFORMANCE IN CONTEXT |
BUSINESS ENVIRONMENT AND MANAGEMENTS RESPONSE
Financial results were negatively impacted by severe weakness in mining, the steep drop in oil prices and difficulties in emerging market economies, particularly China and Brazil. These economic factors weighed on sales, profit and TSR. In the opinion of the Committee, managements response to these difficult market conditions was both aggressive and effective. Management has taken significant restructuring and operating actions to reduce costs and maintain variable margins, gain market position and expand the Companys service businesses to preserve value for Caterpillar stockholders and dealers and maintain ample liquidity for the future.
STOCKHOLDERS
Low commodity prices and weakness in emerging economies have been negative for stock prices in general, and Caterpillar in particular. As a result, Caterpillars TSR in 2015 was in the bottom quartile of the S&P Industrials and the compensation peer group. That was despite about $2 billion of share repurchases, a 10 percent increase in the quarterly dividend and a dividend yield near 5 percent.
TOTAL SHAREHOLDER RETURN | |||
1 YEAR | 3 YEAR | 5 YEAR | |
Caterpillar Inc. | -23% | -6% | -4% |
Direct Competitors Median | -24% | -2% | -2% |
Compensation Peer Group Median | -10% | 11% | 8% |
S&P Industrials Median | -7% | 14% | 11% |
Table represents Total Shareholder Return for the Company and the median of the comparator groups that the Committee considers. They include the Compensation peer group (reference page 35), the S&P Industrials and the Companys competitor peer group (reference page 36).
24 | | |
2016 Proxy Statement |
2015 OPERATIONAL PERFORMANCE
Dealing with peaks and troughs is a key part of the Companys strategy. Managing the cost structure and maintaining a strong balance sheet throughout business cycles are important elements. That was certainly important in 2015 with sales and revenues down nearly 15 percent from 2014.
● |
Cost Structure The Company continued to lower costs in 2015 and in September announced substantial new restructuring and cost reduction actions. These actions are expected to lower annual operating costs by about $1.5 billion and should reduce the manufacturing footprint about 10 percent when complete in 2018. The Company acted quickly at the end of 2015 and as a result, we expect to recognize about half of the $1.5 billion of operating cost reduction in 2016. |
● |
Strong Balance Sheet and Cash Flow In 2015, Machinery, Energy & Transportation (ME&T) operating cash flow was $5.2 billion, enterprise cash on hand at the end of the year was $6.5 billion and the ME&T debt-to-capital ratio was 39.1 percent, well within the targeted range of 30 to 45 percent. The Companys captive finance company, Cat Financial, remained healthy and strong in 2015. Key portfolio metrics, such as past dues and credit losses, were near historic averages despite weakness in many of the industries served, and are an indication of how well the finance business is managed. In fact, past dues improved slightly from year-end 2014 to year-end 2015. |
● |
Operational Performance 2015 was the fifth consecutive year of improved market position for Cat machines, the quality of our machines and engines continued at high levels, inventory declined over 20 percent and employee safety improved again in 2015. Safety is a high priority and has improved substantially over the past 10 years, including in 2015. We believe the Companys safety is at world-class levels for similar manufacturing companies. |
INVESTING FOR THE LONG TERM
Despite difficult economic conditions across Caterpillars businesses, the Company remains focused on investment for the long term. Broadly, the Companys strategy is based on the Caterpillar Business Model and is focused on helping customers be more successful with Caterpillar than with our competitors.
The Caterpillar Business Model is based on:
● |
Gaining market position by delivering high value products and services that provide customers with the lowest owning and operating costs. |
● |
The resulting growth in field population drives aftermarket sales, which tend to be relatively stable through the ups and downs of the new equipment business cycle and that has helped sustain the Company for over 90 years. This model, along with the Companys unparalleled distribution network including 175 dealers around the world, has helped maintain our leadership. |
The Company has continued to commit resources to support the Caterpillar Business Model and drive long-term stockholder value:
● |
Investment in Research and Development (R&D) Spending has been relatively stable at historically high levels for the past few years despite challenging economic conditions. In 2015, spending increased $30 million from 2014 and, as a percent of sales and revenues, 2015 was the highest in over a decade. The continued investment in R&D has resulted in an excellent product lineup with improving fuel economy, highly productive machines and engines and intelligent fleets. It has been an important driver in improving the Companys equipment market position and aftermarket service opportunity. |
● |
Lean Manufacturing and Engineered Value Chains This strategic initiative was launched to substantially improve operations, drive velocity and lower costs. Since the launch of the Lean initiative in 2013, product quality has improved, delivery times have improved and annual material costs have improved by over $1 billion. |
● |
Across the Table This collaborative initiative between Caterpillar and Cat dealers includes ten interrelated work streams designed to improve how we jointly serve customers and improve dealer performance. It is expected that Across the Table will improve market position, aftermarket sales and dealer profitability. |
● |
Digital Strategy The Company is accelerating investment in its digital vision by increasing investment in sensors, control and communications technology and data analytics. In addition, we are partnering with innovative companies outside Caterpillar to bring the best available technologies to the Cat operating environment. |
2016 Proxy Statement |
| | 25 |
IV. COMPENSATION PROGRAM STRUCTURE FOR 2015 AND 2016 |
The executive compensation program is based on a mix of variable and fixed compensation with a focus on performance-based annual and long-term incentives. It includes:
● |
Base Salary
Competitive pay to attract and retain talented
executives; |
● |
Annual Incentive
An opportunity to earn annual cash awards based on the Companys
financial performance and strategic business
initiatives; |
● |
Long-Term Incentive A mix of performance-based restricted stock units and stock options to align management with long-term stockholder interests. |
V. PAY OUTCOME DEMONSTRATES ALIGNMENT WITH COMPANY PERFORMANCE |
2015
● |
No annual incentive was paid to
the CEO or NEOs in 2015. Despite managements strong response, the market
downturn took its toll on stockholders and, therefore the
NEOs. |
● |
The long-term cash plan for the
2013-2015 cycle paid at 30 percent of target. |
● |
Stock options in 2013, 2014 and 2015 were granted at strike prices of $89.75, $96.31 and $83.00, respectively. The exercise price exceeds current market value. As valued on the date of grant, stock options represented approximately 70 percent and 55 percent of CEO and NEO total compensation, respectively. |
2016
● |
The Companys TSR was in the
bottom quartile of the peer group in 2015. Therefore, CEO and NEO equity
grants under the long-term incentive program for 2016 were reduced to the
25th percentile of the peer group. NEOs may be further adjusted by the
Committee to reflect individual performance taking into consideration the
consistency of their performance against goals and their strategic goal
performance as assessed by the CEO. |
● |
The NEOs’ annual incentive
opportunity for 2016 will be reduced by 20.9 percent, in proportion to the
reduction in operating profit at target versus 2015 actual. There will be
no upside opportunity beyond target level. |
● |
Based on performance to date, the
long-term cash plan for the 2014-2016 cycle is tracking to pay out at
40 percent of target. |
VI. STRONG COMPENSATION GOVERNANCE PRACTICES AND POLICIES |
The Committee engages in an ongoing review of the Companys executive compensation programs to evaluate whether the structure supports the Companys compensation philosophy and objectives, and is closely aligned to the Companys business objectives. In connection with this ongoing review, and based on feedback received through stockholder outreach, the Committee continues to implement and maintain what the Committee believes to be best practices for executive compensation, each of which reinforces the Companys compensation philosophy.
Robust stock ownership |
✓ | Caterpillar stock ownership requirements include 6x base salary for the CEO and 3x base salary for other NEOs; shares to be held until after retirement. |
✓ |
Beginning with the 2015 grant, the Company implemented post-retirement holding requirements that require the CEO to maintain the target ownership for one year following retirement and six months following retirement for the other NEOs. | |
Benchmark process | ✓ |
The Committee reviews the external marketplace to best reflect current market practices in setting market-based pay levels and in making compensation decisions, focusing on the median of the peer group. |
26 | | |
2016 Proxy Statement |
No individual change
in |
✓ |
The Company does not have any individual change in control agreements with its NEOs. In addition, the Company does not use employment contracts with its NEOs. |
✓ |
Under the Companys annual and long-term incentive plans, a termination of employment, in addition to a change in control, is required to trigger benefits a double-trigger change in control. | |
Clawback policy |
✓ |
The Company may seek reimbursement of bonus and incentive compensation or cancel unvested or deferred awards based on the misconduct of an executive officer that causes the Company to restate all or a portion of its financial statements. |
Prohibition on
hedging, |
✓ |
The Company prohibits NEOs, directors and employees from engaging in any transactions involving the Companys securities that hedge or offset any decreases in the market value of such securities, including put or call options, pledges, any other form of hedging transactions, margin purchases of the Companys stock or short sales. |
✓ |
Additionally, the Companys Board has adopted a written process governing the approval of transactions that are expected to exceed $120,000 in any calendar year and that involve both the Company and any director, executive officer or their immediate family members. Pursuant to this process, all such related party transactions must be approved in advance by the Public Policy and Governance Committee of the Board. | |
No tax gross-ups |
✓ |
The Company does not pay tax gross-ups for payments relating to a change in control or with respect to perquisites, with the exception of certain benefits relating to international assignment or relocation. |
Equity grant policies |
✓ |
The Company does not backdate, re-price or grant equity awards retroactively. |
✓ |
The grant date for annual equity awards is the first Monday in March. | |
Independent
compensation |
✓ |
The Committee retains an independent compensation consultant. |
✓ |
The Committee regularly meets with the consultant without management present. |
2016 Proxy Statement |
| | 27 |
COMPENSATION DISCUSSION & ANALYSIS IN DETAIL
NAMED EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION OBJECTIVES |
The objectives of the Companys executive compensation program are to attract and retain talented executive officers and to incentivize NEOs to improve Company performance and provide strategic leadership over the long term. The majority of targeted annual compensation is equity-based, vests over multiple years and is tied directly to long-term value creation for stockholders.
We are committed to developing and implementing an executive compensation program that directly aligns the interests of the NEOs with the long-term interests of stockholders.
NAMED EXECUTIVE OFFICERS FOR 2015
This CD&A discusses the compensation of the following NEOs.
Douglas R. Oberhelman |
Robert B. Charter | |||
Bradley M.
Halverson |
Edward J.
Rapp | |||
D. James Umpleby
III |
NEO compensation is delivered in three primary forms: base salary, annual incentives and long-term incentives, with a focus on variable compensation tied to Company performance. Approximately 85 percent of the CEOs targeted annual total compensation is variable, at-risk compensation, with 50 percent of long-term incentives in the form of performance-based restricted stock units beginning in 2016.
COMPONENTS OF EXECUTIVE COMPENSATION |
NEOs receive a mix of fixed and variable compensation with a focus on components that are performance-based. This section describes each component and demonstrates that approximately 85 percent of NEO compensation is targeted to be variable and tied to Company performance.
BASE SALARY
Base salary is the only fixed component of the Companys NEOs cash compensation. The Committee targets the base salary midpoint at the size-adjusted median level of the peer group. An NEOs base salary is related to the individuals level of responsibility and historic performance with reference to the market median. Annual increases, if any, are based on achievement of individual and Company objectives, contributions to Caterpillars performance and leadership accomplishments and a comparison of executive base salaries to those in comparable positions at peer companies.
The CEOs base salary has not increased since 2012 and remains in line with the median base salary of CEOs in the Companys peer group. Other NEOs base salaries are below the peer group median except for Mr. Rapps base salary. Mr. Rapp is one of the longest tenured NEOs and has had multiple years of exceptional performance.
28 | | |
2016 Proxy Statement |
ANNUAL INCENTIVE
2015 ANNUAL INCENTIVE AWARD
The 2015 annual incentive was designed to provide NEOs with an annual cash payout based on the short-term performance of the Company and their respective business units. The annual incentive places the majority of each NEOs annual cash compensation at risk and is designed to align the interests of executives and stockholders.
The CEO and other NEOs did not receive an annual incentive payment for 2015 based primarily on severe market downturns in mining, energy and oil and gas and the Committees assessment of the Companys declining financial performance.
CHANGES TO DETERMINATION OF
ANNUAL INCENTIVE AWARD (EXAMPLE: 2016)
As summarized below, the Committee has enhanced the annual incentive award following extensive stockholder engagement. Beginning in 2016, if the targeted operating profit performance level for the year is set below the prior years actual results, the target award opportunity for all NEOs will be reduced proportionately and payouts, if any, will be capped at the target level as described below. For example, in 2016, the CEOs annual incentive award will be based on Company financial and operating performance metrics and will have performance adjustments as described below:
METRICS AND WEIGHTING
EXAMPLE: 2016 CEO
annual |
Determined by ➔ |
Financial Metric 70% Operating |
Operating
Performance 10% Cost Reduction |
2016 CEO and NEO Performance
Adjustments ●20.9% reduction in annual
incentive award opportunity
●No upside opportunity above
target level for 2016
●Threshold performance set at 87%
of target |
For all NEOs, the largest portion of their annual incentive award opportunity (ranging from 50 percent to 90 percent of the award) will be based on the profitability of the total enterprise and an NEOs respective business segment. For this component, the Committee reviews the Companys OPACC performance and business plan in establishing an operating profit performance target for the year.
● |
Once the operating profit
performance target has been set, it is used to determine whether the
current year is an up year or down year versus the prior years
operating profit actual results. |
● |
If the operating profit target is above the prior years actual operating profit results (up year), the threshold performance level will be set at no less than 87 percent of the operating profit target. Performance at threshold will result in a payout of 50 percent of the target award opportunity for the year. Performance below threshold will result in no annual incentive payout. Achievement of the target level operating profit performance goal will result in a payout of 100 percent of the target award opportunity. The payout for achievement of the maximum performance level will be capped at 150 percent of the target award opportunity, down from 200 percent in prior years. |
2016 Proxy Statement |
| | 29 |
● |
If the operating profit goal is
below the prior years actual operating profit results (down year), the
target incentive award opportunity for each NEO for that year will be
reduced. The reduction in incentive award opportunity will be in
proportion to the decline in the operating profit target relative to the
prior years actual operating profit results. In addition, in a down
year, there will be no upside opportunity beyond the target level. For
down years, the threshold performance level will also be set at no less
than 87 percent of the operating profit target which will correspond with
a payout factor of 50 percent of the reduced target award opportunity.
Performance below threshold will result in no annual incentive
payout. |
● |
In addition to operating profit performance, a portion of each NEOs annual incentive will be based on operational performance metrics related to their responsibilities, such as cost reduction, machine PINS (market position), aftermarket parts sales, Cat Financial ROE and inventory performance. |
LONG-TERM
INCENTIVE
HISTORICAL PERSPECTIVE
In years before 2015, long-term incentive compensation design was based on two components a rolling 3-year cash plan and market-based stock option grants. As described below, starting in 2015, the Committee revised the long-term incentive plan, eliminating the cash portion and replacing it with PRSUs.
While the Committee believes PRSUs are better aligned with stockholder interests going forward, NEOs pay in 2015 includes results of the legacy 2013-2015 performance-based cash plan, as well as PRSUs granted in 2015. Next years NEO compensation will include results from the 2014-2016 performance-based cash plan which will be the final year for maturing 3-year cash plans.
The Committee recognizes that there have been numerous changes to the long-term incentive plan design over the past four cycles. Stockholder outreach over the past year has confirmed that simple, easy to understand plans that align with stockholder interests and are stable year to year are preferred. Consequently, no further changes are expected at this time.
The Committees objective in providing long-term incentive compensation is to align the interests of the Companys NEOs with the interests of the Companys stockholders. Stock options reward increasing stockholder value and PRSUs only vest upon attainment of an ROE hurdle. The Committee believes that ROE is an appropriate vesting hurdle because it is an effective measure of capital allocation and value received by stockholders. In addition, long-term incentive awards, as a significant portion of total direct compensation, and stock ownership guidelines are structured to align management with risk management principles and to maintain focus on the Companys long-term success.
LONG-TERM AWARD SIZING
The Committee bases long-term incentive grants for NEOs by starting with the peer group median of long-term incentive awards, then adjusts award sizing from the peer group median based on relative performance and current business conditions. The Committee considers financial results; 1, 3 and 5-year TSR; operational performance; market conditions and strategy execution when sizing awards. Individual adjustments may be made by the Committee to reflect individual performance, taking into consideration the consistency of performance against goals and strategic goal performance as assessed by the CEO.
30 | | |
2016 Proxy Statement |
LONG-TERM AWARD FORM OF PAYMENT
Starting in 2015 and continuing in 2016, long-term incentive compensation is awarded with two forms of equity PRSUs and stock options. In the 2015 plan, 33 percent of the award value was in PRSUs and 67 percent stock options. Based on feedback from stockholder engagement over the past year, the Committee changed the weighting in 2016 to 50 percent PRSUs and 50 percent stock options.
At Target Grant
Equity
Awards |
Performance-Based |
DESIGN AND STATUS OF LONG-TERM PLANS
2013 2015 CYCLE
This 3-year cycle concluded in 2015 with a weighted-average performance factor well below target at 0.30. The plan for this 3-year cycle was based on two components ME&T Return on Assets (ROA) and relative TSR (versus S&P 500). As a result of substantial declines in mining activity and generally weak conditions in many of the industries the Company serves, performance for both metrics was well below target. The ROA metric result was below target, but was above the minimum performance threshold. Relative TSR was in the 11th percentile of the S&P 500 and, as a result, was below the minimum required for a payout.
Performance-Based Cash Award (1/3) / Stock Options (2/3)
● |
Initial grant size based on peer group market data. |
● |
Performance-based cash award based on metrics ROA and relative TSR demonstrates strong alignment with Company performance outcomes. |
● |
Designed to ensure managements long-term focus on effective use of Company assets to generate returns. |
● |
Relative TSR aligns management with stockholder returns on a relative basis. |
● |
Stock options vest over a 3-year period and have a 10-year term. |
● |
Stock option grant price was $89.75 and the exercise price exceeds current market value. |
WEIGHTING | 0.3 THRESHOLD | 1.0 TARGET | 2.0 MAXIMUM | RESULT | FACTOR | |
ME&T ROA | 50% | 4.0% | 8.3% | 10.2% | 5.9% | 0.60 |
Relative TSR vs. S&P 500 | 50% | 25th Percentile | 55th Percentile | 75th Percentile | 11th Percentile | 0.00 |
Overall Weighted Factor: | 0.30 |
2016 Proxy Statement |
| | 31 |
PAYOUTS FOR NEOs FROM THE 2013 2015 CYCLE (Included in the 2015 Summary Compensation Table)
● |
Douglas R. Oberhelman |
$822,804 |
● |
Bradley M. Halverson |
$244,440 |
● |
Robert B. Charter |
$190,994 |
● |
Edward J. Rapp |
$292,114 |
● |
D. James Umpleby III |
$247,726 |
2014 2016 CYCLE
This 3-year cycle will conclude in 2016 and is currently tracking, after two years, at a weighted-average performance factor well below target at 0.40, and is not reflected in 2015 NEO compensation. The plan for this 3-year cycle was based on two components EPS and relative TSR (versus S&P Industrials). As in the 2013-2015 cycle, declines in mining activity and economic conditions in many of the industries the Company serves are well below expectations. As a result, performance for both metrics, after completing the first two years of the 3-year cycle, are well below target. Should this 3-year cycle pay out, the results would be included in NEO compensation in 2016.
Performance-Based Cash Award (1/3) / Stock Options (2/3)
● |
Initial grant size based on peer group market data. |
● |
Performance-based cash award based on metrics EPS and relative TSR designed to ensure managements long-term focus on profitability and stockholder returns. |
● |
Relative TSR aligns management with stockholder returns on a relative basis. |
● | Stock options vest over a 3-year period and have a 10-year term. |
● |
Stock option grant price was $96.31 and the exercise price exceeds current market value. |
The 20142016 factor to date includes 2014 and 2015 actual results and the 2016 profit outlook as provided on January 28, 2016.
WEIGHTING | 0.3 THRESHOLD | 1.0 TARGET | 2.0 MAXIMUM | RESULTS/OUTLOOK | FACTOR | |
EPS | 75% | $3.50 | $5.85 | $7.02 | $4.29 | 0.54 |
Relative TSR vs. S&P Industrials | 25% | 25th Percentile | 55th Percentile | 75th Percentile | 17th Percentile | 0.00 |
Overall Weighted Factor: | 0.40 |
2015 2017 CYCLE
In 2015, the cash portion of long-term incentive was replaced with PRSUs. For the 2015 grant, one-third of the PRSUs is eligible to vest annually based on three annual 18 percent ROE hurdles. In addition, PRSUs that do not vest based on the annual performance hurdle have the opportunity to vest based on the achievement of an average 18 percent ROE performance hurdle over the 3-year performance period. In setting this ROE hurdle percentage, the Committee considered the Companys history, current business conditions and the long-term forecast. The Companys long-term forecast takes into account many financial and operational factors, including share repurchases.
For 2015, the Company did not achieve the ROE performance hurdle and accordingly none of the PRSUs vested based on 2015 actual ROE performance. However, the value of the PRSUs is included in 2015 NEO compensation. In light of the first year results and the Companys current outlook for 2016, provided on January 28, 2016, the degree of difficulty in achieving the 3-year hurdle has increased significantly. The annual vesting opportunity was eliminated in the 2016-2018 plan.
PRSUs with an ROE Performance Hurdle (1/3) / Stock Options (2/3)
● |
Initial grant size based on peer group market data with adjustments for individual performance. As shown in the Summary Compensation Table (on page 40), granted in 2015, based on 2014 performance, two Group President awards were above median and two Group President awards were below median, with awards ranging from the 40th to the 65th percentile. |
● |
Aligns management with profitability goals by measuring and rewarding profitability relative to stockholders investment in the business. |
● |
Aligns management with stockholder returns on a relative basis. |
32 | | |
2016 Proxy Statement |
● | Stock options vest over a 3-year period and have a 10-year term. |
● | Stock option grant price was $83.00 and the exercise price exceeds current market value. |
● | These grants are included in NEO compensation in 2015 (reference Executive Compensation Tables beginning on page 40). |
2016 2018 CYCLE
The plan was modified in 2016 based on feedback from stockholder outreach that was conducted over the past year and to reflect the cyclicality of the Companys business and long-term business drivers.
● | The plan design has moved to 50 percent PRSUs with a 3-year ROE hurdle and 50 percent stock options. |
● | Reduced the 2016 long-term incentive grant for the CEO and NEOs to the 25th percentile of the peer group following a review of the Companys 1, 3 and 5-year relative TSR performance versus peers, the S&P Industrials and competitors that the Committee has determined compete directly with the Company. NEO grants were further adjusted to reflect individual performance. The 2016 grant date fair value for the CEO on the date of the grant was $10.80 million, as compared to the 2015 grant date fair value on the date of the grant of $12.99 million. |
● | PRSUs cliff vest at the end of the 3-year period based on average ROE over the full 3-year performance period; the retesting feature has been eliminated. |
● | Aligns management with profitability goals by measuring and rewarding profitability relative to stockholders investment in the business. |
● | Aligns management with stockholder returns on a relative basis. |
● | Stock option grant price was $74.77 and was based on the closing price on the first Monday of March 2016. |
NEO PERFORMANCE GOALS AND RESULTS FOR 2015
Douglas R. Oberhelman
Goals: |
Deliver against the enterprise-wide financial plan for the Company. Reinforce Caterpillars long-term focus on growth by investing in new products and services to improve strategic competitiveness. Strengthen operational execution of the Company by improving market position, cost management, product quality and employee safety through the continuing cyclical decline in key end markets. | |
Results: |
Caterpillar TSR in 2015 was in the bottom quartile of the S&P Industrials and the compensation peer group. Results fell short of the financial plan as the Company continued to face declining demand. Sales and Revenues for 2015 were $47 billion, a decline of $3 billion from the plan, while profit after tax excluding restructuring costs was only down approximately $100 million. Substantial restructuring actions were also taken to improve the cost structure in the future. The Company continued with R&D investment at high levels and increased investment and focus on digital technology solutions designed to deliver better value to customers through equipment connectivity and data analytics. Market position was slightly below planned levels (but improved for the fifth consecutive year), product quality continued at high levels and safety improved in 2015. | |
Bradley M. Halverson | ||
Goals: |
Maintain a strong financial position for the Company through the continuing cyclical decline in key end markets, deliver targeted ROE for the Companys captive finance company, Caterpillar Financial Services, and manage credit metrics within sustained long-term target ranges. | |
Results: |
Sales and Revenues were lower than expected in 2015. However, ME&T operating cash flow of $5.2 billion was slightly better than planned, and the ME&T debt-to-capital ratio of 39.1 percent was within the targeted range of 30 percent to 45 percent. Financial Products Division ROE was higher than target and Cat Financial credit metrics were near historic averages despite difficult conditions in the Companys key end markets. |
2016 Proxy Statement |
| | 33 |
Edward J. Rapp
Goals: |
For Resource Industries (RI): deliver against the RI financial plan, deploy the Operating and Execution Model, accelerate restructuring activities as a result of the prolonged downturn in the mining industry and improve operational performance by improving market position, quality and safety. | |
Results: |
Sales were 4 percent below plan, but operating profit exceeded planned levels. Inventory turns achieved targeted levels. The Operating and Execution Model has resulted in detailed action plans to improve OPACC over the next few years. Restructuring activities were carried out with a comprehensive reorganization of the business, reduced manufacturing footprint and lower costs and headcount. Operational metrics improved market position, employee safety and quality were all better in 2015. | |
D. James Umpleby III | ||
Goals: |
For Energy & Transportation (E&T): deliver against the E&T financial plan, improve operational performance and accelerate future profitable growth. | |
Results: |
Financial results were below plan. Operating profit was close to planned levels despite a 7 percent decline in sales. Inventory turns were below targeted levels. Return on sales (ROS) was the second highest in E&T history and four of the six divisions within E&T achieved record ROS. Also, E&T delivered solid improvements in product quality, safety and material costs in 2015; and, continued to focus on future profitable growth through the introduction of new products and through acquisitions and strategic alliances, specifically in the areas of digital technologies, Power Generation and Transportation. | |
Robert B. Charter | ||
Goals: |
For Customer & Dealer Support (C&DS): deliver against the C&DS financial plan, execute the Across the Table initiative with our dealers to improve performance and drive the enterprise digital strategy. | |
Results: |
Financial results were below plan. Sales were 9 percent below plan and operating profit fell 10 percent below planned levels. Inventory turns were below targeted levels. C&DS achieved significant operational improvement in parts distribution operations, parts availability and on-time supplier delivery. Execution continued on plan for the Across the Table work streams. Significant progress was made on advancing the Companys digital strategy including progress on strategic alliances to expand analytics capabilities. |
THE COMPENSATION PROCESS |
THE COMPENSATION COMMITTEE
The Committee is responsible for the executive compensation program design and decision-making process for NEO compensation. The Committee regularly reviews executive compensation practices, including the methodologies for setting NEO total compensation, the goals of the program and the underlying compensation philosophy. The Committee also considers the recommendations and market data provided by its independent compensation consultant and makes decisions, as it deems appropriate, on executive compensation based on its assessment of performance and achievement of Company goals. The Committee also exercises its judgment as to what is in the best interests of the Company and its stockholders. The responsibilities of the Committee are described more fully in its charter, which is available at www.caterpillar.com/governance.
INDEPENDENT COMPENSATION CONSULTANT
The Committee retained Meridian Compensation Partners, LLC as its independent compensation consultant. Meridian provides executive and director compensation consulting services to the Committee, including advice regarding the design and implementation of compensation programs, market information, regulatory updates and analyses and trends on
34 | | |
2016 Proxy Statement |
executive base salary, short-term incentives, long-term incentives, benefits and perquisites. Interactions between Meridian and management are generally limited to discussions on behalf of the Committee or as required to compile information at the Committees direction. During 2015, Meridian did not provide any other services to the Company. Based on these factors, its own evaluation of Meridians independence pursuant to the requirements approved and adopted by the SEC and NYSE, and information provided by Meridian, the Committee has determined that the work performed by Meridian does not raise any conflicts of interest.
BENCHMARKING COMPENSATION TO PEERS
Peer Group Selection The Committee regularly assesses the market competitiveness of the Companys executive compensation programs based on peer group data. The 2015 peer group was established based on the following criteria:
● | Total revenue and market capitalization of the peer company relative to Caterpillar |
● | Global presence with a significant portion of non-U.S. revenue |
The peer group used for 2015 compensation decisions is shown below, which was changed from the 2014 peer group by the removal of Dell, Inc. as it ceased to be a public company:
2015 PEER GROUP* | ||
3M Company | E.I. du Pont de Nemours and Company | Illinois Tool Works Inc. |
Alcoa Inc. | Emerson Electric Co. | Intel Corporation |
Archer-Daniels-Midland Company | FedEx Corporation | Johnson Controls, Inc. |
The Boeing Company | Fluor Corporation | Parker-Hannifin Corporation |
Cisco Systems, Inc. | Ford Motor Company | The Procter & Gamble Company |
Coca-Cola Company | General Dynamics Corporation | Raytheon Company |
Cummins Inc. | General Electric Company | United Technologies Corporation |
Deere & Company | Halliburton Company | |
Honeywell International Inc. |
* The 2016 peer group has been modified to add Paccar Inc. and remove Parker-Hannifin Corporation and United Technologies Corporation.
Benchmarking to Similarly Sized Firms and Adjusting for Large Variances To account for differences in the size of the peer group companies, market data is statistically adjusted (using a regression analysis) by the Committees independent compensation consultant allowing for a comparison of the compensation levels to similarly sized companies. Each element of the Companys NEOs compensation is then targeted to the median of the peer group. To the extent an NEOs total actual compensation exceeds the peer group median, it is due to outstanding performance, critical skills, experience and tenure. If an NEOs compensation is below the median, it is generally due to underperformance against relevant metrics or an individual who is newer in the role.
2016 Direct Competitor Peer Group Selection for Performance Comparisons For 2016, the Committee also assessed the market competitiveness of the Companys executive compensation programs against a group of competitors that it deems to compete directly with the Company. The Committee noted that although the Companys peer group described above is an appropriate benchmark for executive compensation at other similarly sized companies, the peer group data does not always provide useful comparisons to other companies that might be experiencing similar business conditions. To that end, and consistent with its pay-for-performance philosophy, in 2016, the Committee further sought to compare the Companys business performance with that of our competitors by establishing a Competitor Peer Group.
The Committee formed the 2016 Direct Competitor Peer Group by selecting seven of the Companys competitors that, in the opinion of the Committee, compete in the same markets as the Company, or offer similar products and services as the Company, or serve the same, or similar, industries or end-users as the Company.
2016 Proxy Statement |
| | 35 |
The competitor peer group used for 2016 performance comparisons is shown below:
2016 COMPETITOR GROUP |
Deere & Company |
Joy Global Inc. |
Cummins Inc. |
Komatsu Ltd. |
Volvo AB |
Sany Heavy Equipment International Holdings Company Limited |
Hitachi Ltd. |
ROLE OF EXECUTIVE OFFICERS IN DETERMINING EXECUTIVE COMPENSATION
CHAIRMAN AND CEO PERFORMANCE REVIEW
The Board, excluding the CEO, all of whom are independent directors, conducts the CEOs performance evaluation. Prior to the Boards evaluation of the CEOs performance and its approval of CEO compensation, the Committee makes a preliminary compensation recommendation to the Board based on the Committees initial evaluation and performance review of the CEO. In February 2016, the Board reviewed the Committees assessment of Mr. Oberhelmans performance and ratified the decision not to award an annual incentive payment.
OTHER NEO PERFORMANCE CONSIDERATIONS
For each NEO, the CEO presents a performance evaluation and makes compensation recommendations to the Committee. In February 2016, the CEO met with the Committee to share his evaluations of each NEO and as discussed above, the Committee determined not to award any annual incentive payment to the NEOs for 2015 performance.
COMPENSATION DETERMINATION: PERFORMANCE THAT REFLECTS ALIGNMENT WITH BUSINESS ENVIRONMENT
The Committee, with the support of management and the independent compensation consultant, considers the Companys financial and market performance in the context of global market conditions when making executive compensation decisions including the payouts under the annual incentive plan.
CONSIDERATIONS WHEN DETERMINING COMPENSATION
In setting compensation levels for the year, the Committee considered many factors, including:
● | Long-term stockholder value creation |
● | The cyclical nature of the business |
● | Enhancements made to Company strategy |
● | Performance relative to financial guidance provided throughout the year |
● | Operational and business unit performance |
● | Performance relative to peers and competitors |
● | Historic absolute and relative performance |
● | Key areas management can influence over the short and long term |
EXECUTIVE COMPENSATION AND RISK MANAGEMENT
The Committee assesses the Companys risk profile relative to the executive compensation program and confirms that NEOs are not incentivized to focus on short-term stock performance or take excessive risk in managing the business. In particular, long-term incentive awards, as a significant portion of total direct compensation and stock ownership guidelines, are structured to align management with principles of risk management and to maintain focus on the long term.
36 | | |
2016 Proxy Statement |
OTHER COMPENSATION, BENEFITS AND CONSIDERATIONS |
RETIREMENT OF EDWARD J. RAPP
Mr. Rapp will be retiring from the Company in 2016 and will be stepping down as the Group President with responsibility for Resource Industries as of April 1, 2016. He will remain on special assignment until his retirement on June 30, 2016.
TRANSFER AND RELOCATION PAYMENT FOR ROBERT B. CHARTER
The Committee approved a transfer and relocation payment in connection with Mr. Charters appointment to Group President of the Company and his transfer from Singapore to the United States due to his required relocation to Peoria, Illinois. As a result, in 2015, Mr. Charter received a payment of $300,000. In approving this payment, the Committee considered that the transfer and relocation were expected to result in adverse income tax consequences to Mr. Charter, an Australian citizen, who was at the time, an International Service Employee (ISE) in Singapore. Providing this payment was more cost effective to the Company than placing Mr. Charter as an ISE in Peoria, which customarily includes housing, mobility premiums, home leave and tax allowances. This ensures employees are in the same approximate financial position as they would have been absent an international assignment.
POST-TERMINATION AND CHANGE IN CONTROL BENEFITS
The Companys change in control provisions are subject to a double trigger, and when both a change in control and involuntary termination of employment without cause occur, provide accelerated vesting and maximum payouts under the incentive plans.
Except for customary provisions in employee benefit plans and as required by applicable law, the NEOs do not have any pre-existing executive severance packages or contracts; however, the Committee will consider the particular facts and circumstances of an NEOs separation to determine whether payment of any severance or other benefit to such NEO is appropriate. Change in control benefits are provided under the Companys long-term and annual incentive plans and represent customary provisions for these types of plans and have no direct correlation with other compensation decisions. There is no cash severance or other benefits for termination related to change in control beyond what is provided for under the long-term and annual incentive plans. Additional information is disclosed in the Potential Payments Upon Termination or Change in Control section on page 47 of this proxy statement.
In the event of a qualifying termination of employment following a change in control, maximum payouts are provided under the long-term incentive plan and annual incentive plan.
● | The long-term plan allows for the maximum performance level to be paid under each open plan cycle of the long-term cash plan, subject to a maximum of $20 million in any single year. |
● | All unvested stock options, stock appreciation rights, PRSUs and restricted stock units vest immediately. |
● | Stock options and stock appreciation rights remain exercisable over the normal life of the grant. |
● | The annual incentive plan allows for the target award opportunity, prorated based on the individuals time of employment from the beginning of the performance period through the later of: (1) the change in control or (2) termination of employment, subject to a maximum of $15 million in any single year. |
RETIREMENT AND OTHER BENEFITS
In addition to the annual and long-term components of compensation, NEOs participate in health and welfare benefit plans generally available to employees to provide competitive benefits.
The defined contribution and defined benefit retirement plans available to the NEOs are also available to many U.S. Caterpillar management and salaried employees. Under the defined benefit pension plans, the benefit is calculated based on years of service and final average monthly earnings. All of the NEOs participate in the U.S. retirement plans described in the table
2016 Proxy Statement |
| | 37 |
below, except that Mr. Umpleby participates in the Solar Turbines Incorporated sponsored non-qualified defined benefit pension plan, which is similar to the SERP described below, and Mr. Charter participates in the Companys Australian-based defined benefit programs.
PLAN TYPE | TITLE | DESCRIPTION | |||
PENSION |
Retirement Income |
Defined benefit pension plan under which benefit amounts are not offset for any Social Security benefits. RIP was closed to new entrants, effective January 1, 2011. All U.S.-based NEOs participate in this plan and, subject to the Companys right to amend or terminate the plan, continue to earn benefits under RIP until the earlier of separation or December 31, 2019. |
|||
Supplemental
Retirement |
Non-qualified defined benefit pension plan that works in tandem with RIP. SERP provides additional pension benefits if the NEOs benefit is limited due to the compensation and annual benefit limits imposed on RIP by the tax code. SERP also pays a benefit that would otherwise have been paid under RIP but for (1) the NEOs deferral of compensation under SDCP, SEIP or DEIP and (2) exclusions of lump sum discretionary awards and variable base pay from RIP earnings. As with RIP, SERP was closed to new entrants effective January 1, 2011. Subject to the Companys right to amend or terminate the plan, all U.S.-based NEOs continue to earn SERP benefits until the earlier of separation or December 31, 2019. |
||||
SAVINGS |
Caterpillar 401(k) |
All U.S.-based NEOs are eligible to participate in the Caterpillar 401(k) Savings Plan under which the Company matches 50 percent of the first 6 percent of pay contributed to the savings plan. |
|||
Supplemental Deferred
|
All U.S.-based NEOs are eligible to participate in SDCP, which provides the opportunity to make deferrals of base salary in excess of the limits imposed on the 401(k) Savings Plan by the Internal Revenue Code and to elect deferrals from the annual incentive plan and long-term cash plan awards. Under the terms of SDCP, supplemental base pay deferrals earn matching contributions at a rate of 3 percent of the deferred amount, supplemental annual incentive plan deferrals earn matching contributions at a rate of 50 percent of the first 6 percent of annual incentive plan deferrals and excess base pay deferrals are matched 50 percent. |
||||
Supplemental |
All U.S.-based NEOs were previously eligible to participate in SEIP and DEIP. These plans were frozen in March 2007. Compensation deferred into SEIP and DEIP prior to January 1, 2005, remains in SEIP and DEIP. |
||||
CHANGE IN PENSION VALUES IN 2015
The Summary Compensation Table (SCT) includes a reportable amount for Change in Pension Value. This number reflects the change between the present value of each NEOs total accumulated pension benefit between December 31, 2014 and December 31, 2015.
The change in pension values are driven by three main elements:
● | Pensionable Earnings Changes in the pensionable earnings of the NEOs. Earnings used to determine the pension benefit for the NEOs consist of base salary and annual incentive pay. If an NEOs compensation increases through time because of a role with heightened responsibilities and/or through outstanding performance, a larger pension benefit will accrue. This is the largest contributor to the change in pension value for 2015. Additional information is disclosed in the 2015 Pension Benefits section on page 45. |
● | Actuarial Assumptions Changes in mortality assumptions. The Society of Actuaries released new mortality tables in 2014 that reflect longer life expectancies. An increase in life expectancy assumptions results in an increase in the present value of each NEOs pension. These new assumptions are reflected in the present value of each NEOs pension as of 2015. |
● | Interest Rates Prevailing market interest rates are used to calculate the discount rate as required by Financial Accounting Standards Board rules. In 2015, the interest rates applied to the Companys pension calculations increased and the discount rate used for the pension was increased to reflect the change in market interest rates. A change in the discount rate does not reflect the actual pension payments that will be made to NEOs upon retirement. Rather, an increase in the discount rate decreases the present value of each NEOs pension value, resulting in an amount reportable as a change in pension value in the SCT. The discount rate used for 2015 was 4.2 percent and the discount rate used for 2014 was 3.9 percent. |
38 | | |
2016 Proxy Statement |
LIMITED PERQUISITES
The Company provides NEOs a limited number of perquisites that the Committee believes are reasonable and consistent with the overall compensation program and those commonly provided in the marketplace. The Committee annually reviews the levels of perquisites provided to the NEOs which include home security systems, parking and limited personal use of the Company aircraft and ground transportation. These perquisites are provided to attract and retain talented executive officers, for security purposes and to allow the NEOs to devote additional time to Caterpillar business. Costs associated with these perquisites are included in the 2015 All Other Compensation Table on page 41.
CLAWBACK POLICY
Under the Companys compensation clawback policy, the Board may require reimbursement of any bonus or incentive compensation awarded to an officer or cancel unvested restricted or deferred stock awards previously granted to the officer if all of the following apply:
● |
The amount of the bonus, incentive compensation or stock award was calculated based on the achievement of certain financial results that were subsequently the subject of a restatement. |
● |
The officer engaged in intentional misconduct that caused or partially caused the need for the restatement. |
● |
The amount of the bonus, incentive compensation or stock award that would have been awarded to the officer had the financial results been properly reported would have been lower than the amount actually awarded. |
TAX IMPLICATIONS: DEDUCTIBILITY OF NEO COMPENSATION
Under Section 162(m) of the Internal Revenue Code, generally NEO compensation over $1.0 million for any year is not deductible for United States income tax purposes. However, performance-based compensation is exempt from the deduction limit if certain requirements are met. One of the goals of the Committee is to structure compensation to take advantage of this exemption under Section 162(m) to the extent practicable. However, the Committee may elect to provide compensation outside those requirements when necessary to achieve its compensation objectives.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the CD&A included in this proxy statement with management and is satisfied that the CD&A fairly and completely represents the philosophy, intent and actions of the Committee with regard to executive compensation. Based on such review and discussion, we recommend to the Board that the CD&A be included in this proxy statement and the Companys Annual Report on Form 10-K for filing with the SEC.
By the members of the Compensation Committee consisting of:
Miles D.
White (Chairman) |
David L. Calhoun | Jesse J. Greene, Jr. | Debra L. Reed |
2016 Proxy Statement |
| | 39 |
In years before 2015, long-term incentive compensation design was based on two components a rolling 3-year cash plan and market based stock option grants. Beginning in 2015, the Committee revised the long-term incentive plan, eliminating the cash portion and replacing it with stock-settled PRSUs.
While the Committee believes PRSUs are better aligned with stockholder interests going forward, NEOs pay in 2015 includes results of the legacy 2013-2015 performance-based cash plan as well as PRSUs granted in 2015. SEC executive compensation disclosure rules require the grant date fair value of PRSUs to be reported in the year of grant in the Stock Awards column below, rather than after the completion of the 3-year performance period that commenced in 2015. Because the payment for the 2013-2015 performance-based cash plan is also included in the Non-Equity Incentive Plan Compensation column, the Summary Compensation Table in effect double counts the NEOs long-term incentive compensation for 2015. Next years NEO compensation will include results from the 2014-2016 cash plan which will be the final year for this legacy performance-based cash plan.
2015 SUMMARY COMPENSATION TABLE
NAME
AND |
YEAR |
SALARY |
BONUS1 | STOCK AWARDS2 |
OPTION |
NON-EQUITY |
CHANGE IN |
ALL
OTHER |
SEC TOTAL |
SEC
TOTAL WITHOUT CHANGE IN PENSION VALUE7 |
|||||||||||||||||||||||||||||||
Douglas R. Oberhelman Chairman & CEO |
2015 | $ | 1,600,008 | $ | | $ | 3,031,479 | $ | 9,959,588 | $ | 822,804 | $ | 2,091,814 | $ | 398,144 | $ | 17,903,837 | $ | 15,812,023 | ||||||||||||||||||||||
2014 | $ | 1,600,008 | $ | | $ | | $ | 8,377,481 | $ | 4,913,288 | $ | 1,998,805 | $ | 241,866 | $ | 17,131,448 | $ | 15,132,643 | |||||||||||||||||||||||
2013 | $ | 1,600,008 | $ | | $ | | $ | 7,966,091 | $ | 2,241,766 | $ | 2,964,405 | $ | 217,299 | $ | 14,989,569 | $ | 12,025,164 | |||||||||||||||||||||||
Bradley M. Halverson Group President & CFO |
2015 | $ | 786,312 | $ | | $ | 1,127,963 | $ | 3,705,673 | $ | 244,440 | $ | 2,293,173 | $ | 90,933 | $ | 8,248,494 | $ | 5,955,321 | ||||||||||||||||||||||
2014 | $ | 755,202 | $ | | $ | | $ | 2,392,921 | $ | 1,501,537 | $ | 595,014 | $ | 42,294 | $ | 5,286,968 | $ | 4,691,954 | |||||||||||||||||||||||
2013 | $ | 661,872 | $ | | $ | | $ | 2,266,520 | $ | 747,012 | $ | 348,392 | $ | 46,107 | $ | 4,069,903 | $ | 3,721,511 | |||||||||||||||||||||||
Robert B. Charter8 Group President |
2015 | $ | 729,768 | $ | 300,000 | $ | 1,046,232 | $ | 3,437,148 | $ | 190,994 | $ | 845,918 | 9 | $ | 541,566 | $ | 7,091,626 | $ | 6,245,708 | |||||||||||||||||||||
Edward J. Rapp Group President |
2015 | $ | 913,935 | $ | | $ | 1,264,698 | $ | 4,154,987 | $ | 292,114 | $ | 1,927,253 | $ | 1,554,073 | $ | 10,107,060 | $ | 8,179,807 | ||||||||||||||||||||||
2014 | $ | 872,424 | $ | 50,000 | $ | | $ | 2,560,624 | $ | 1,961,564 | $ | 565,770 | $ | 944,315 | $ | 6,954,697 | $ | 6,388,927 | |||||||||||||||||||||||
2013 | $ | 847,008 | $ | | $ | | $ | 2,266,520 | $ | 883,667 | $ | 1,129,584 | $ | 296,280 | $ | 5,423,059 | $ | 4,293,475 | |||||||||||||||||||||||
D. James Umpleby
III Group President |
2015 | $ | 815,805 | $ | | $ | 1,264,698 | $ | 4,154,987 | $ | 247,726 | $ | 2,582,073 | $ | 83,085 | $ | 9,148,374 | $ | 6,566,301 | ||||||||||||||||||||||
2014 | $ | 755,202 | $ | | $ | | $ | 2,527,089 | $ | 1,847,136 | $ | 1,484,122 | $ | 57,772 | $ | 6,671,321 | $ | 5,187,199 | |||||||||||||||||||||||
2013 | $ | 661,872 | $ | | $ | | $ | 2,266,520 | $ | 964,041 | $ | 4,181,546 | $ | 52,857 | $ | 8,126,836 | $ | 3,945,290 |
40 | | |
2016 Proxy Statement |
2015 ALL OTHER COMPENSATION TABLE
NAME | MATCHING |
MATCHING |
CORPORATE AIRCRAFT/ TRANSPORTATION1 |
HOME SECURITY2 |
OTHER3 | TOTAL ALL
OTHER COMPENSATION |
||||||||||||||||||||||||
Douglas R. Oberhelman | $ | 8,100 | $ | 160,050 | $ | 143,806 | $ | 86,188 | $ | | $ | 398,144 | ||||||||||||||||||
Bradley M. Halverson | $ | 8,733 | $ | 53,912 | $ | 1,200 | $ | 27,088 | $ | | $ | 90,933 | ||||||||||||||||||
Robert B. Charter | $ | 4,301 | $ | | $ | |
$ |
|
$ | 537,265 | $ | 541,566 | ||||||||||||||||||
Edward J. Rapp | $ | 7,950 | $ | 70,333 | $ | 27,280 | $ | 2,872 | $ | 1,445,638 | $ | 1,554,073 | ||||||||||||||||||
D. James Umpleby III | $ | 8,820 | $ | 65,164 | $ | | $ | 9,101 | $ | | $ | 83,085 |
1 The value of personal aircraft usage reported above is based
on Caterpillars incremental cost per flight hour, including the weighted
average variable operating cost of fuel, oil, aircraft maintenance, landing and
parking fees, related ground transportation, catering and other smaller variable
costs. Mr. Oberhelman and the Company have a time-sharing lease
agreement, pursuant to which certain costs associated with personal flights are
reimbursed by Mr. Oberhelman to the Company in accordance with the
agreement.
2
Amounts reported for home security
represent the cost provided by an outside security provider for hardware and
monitoring service. The incremental cost associated with the home security
services is determined based upon the amounts paid to the outside service
provider.
3
Mr. Charter and Mr. Rapp were
previously International Service Employees (ISEs) based in Singapore. The amount
shown includes foreign service allowances typically paid by the Company on
behalf of ISEs, including allowances paid for moving expenses, housing, mobility
premium, home leave, foreign and U.S. taxes. Company paid taxes, relating to
their ISE assignment, of $394,127 for Mr. Charter and $1,338,213 for Mr. Rapp
were included in this amount, pursuant to the Companys tax equalization policy
for ISEs. These allowances are intended to ensure the Companys ISEs are in the
same approximate financial position as they would have been if they lived in
their home country during the time of their international service. These ISE
related expenses were valued on the basis of the aggregate incremental cost to
the Company and represent the amount accrued for payment or paid to the service
provider or the NEO, as applicable.
2016 Proxy Statement |
| | 41 |
GRANTS OF PLAN-BASED AWARDS IN 2015
ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS1 |
ALL
OTHER STOCK AWARDS: NUMBER OF SHARES OF STOCK OR UNITS (#) |
ALL OTHER OPTION AWARDS: NUMBER OF SECURITIES UNDERLYING OPTIONS2 (#) |
EXERCISE OR BASE PRICE OF OPTION AWARDS ($/SHARE) |
GRANT DATE FAIR VALUE OF STOCK AND OPTION AWARDS ($)3 |
||||||||||||||||||||
NAME | GRANT DATE |
THRESHOLD (#) |
TARGET (#) |
MAXIMUM (#) |
||||||||||||||||||||
Douglas R. Oberhelman | 02/27/2015 | 13,044 | 39,131 | | | | $ | | $ | 3,031,479 | ||||||||||||||
03/02/2015 | | | | | 413,776 | $ | 83.00 | $ | 9,959,588 | |||||||||||||||
Bradley M. Halverson | 02/27/2015 | 4,853 | 14,560 | | | | $ | | $ | 1,127,963 | ||||||||||||||
03/02/2015 | | | | | 153,954 | $ | 83.00 | $ | 3,705,673 | |||||||||||||||
Robert B. Charter | 02/27/2015 | 4,502 | 13,505 | | | | $ | | $ | 1,046,232 | ||||||||||||||
03/02/2015 | | | | | 142,798 | $ | 83.00 | $ | 3,437,148 | |||||||||||||||
Edward J. Rapp | 02/27/2015 | 5,442 | 16,325 | | | | $ | | $ | 1,264,698 | ||||||||||||||
03/02/2015 | | | | | 172,621 | $ | 83.00 | $ | 4,154,987 | |||||||||||||||
D. James Umpleby III | 02/27/2015 | 5,442 | 16,325 | | | | $ | | $ | 1,264,698 | ||||||||||||||
03/02/2015 | | | | | 172,621 | $ | 83.00 | $ | 4,154,987 |
1 PRSUs were granted on February 27, 2015, for the 2015-2017
performance cycle. PRSUs vest over a 3-year performance cycle with one-third
scheduled to vest on each anniversary of the grant date, subject to the
achievement of an ROE performance hurdle for the prior calendar year. Any PRSUs
that do not vest based on the annual performance cycle will remain eligible for
vesting on the third anniversary of the grant date, subject to the Companys
achievement of an average ROE performance hurdle during the 3-year performance
cycle. The amounts reported in the threshold column reflect the minimum number
of PRSUs that would vest if the ROE performance hurdle is achieved in only one
annual performance cycle. The amounts reported in the target column reflect the
number of PRSUs that would vest
if the Companys average ROE
performance during the 3-year performance cycle meets or exceeds the ROE
performance hurdle.
2
Amounts reported represent stock
options granted under the LTIP. The exercise price for all stock options granted
to the NEOs is the closing price of Caterpillar stock on the grant date ($83.00). All stock options granted to the NEOs will vest in one-third increments on
each of the first through third year anniversaries of the date of grant. The
actual realizable value of the options will depend on the fair market value of
Caterpillar stock at the time of exercise.
3 The amounts shown do
not reflect realized compensation by the NEO. As reported in this column, the
value of PRSUs granted in 2015 under the LTIP are based on the aggregate grant
date fair value computed in accordance with FASB ASC Topic 718, assuming the
highest level of performance is achieved for the PRSUs, which at the time of the
grant reflected the probable level of achievement.
42 | | |
2016 Proxy Statement |
OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR END
OPTION AWARDS |
STOCK AWARDS | ||||||||||||||||||||||||||||||
NUMBER OF
SECURITIES |
MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED3 |
EQUITY INCENTIVE |
|||||||||||||||||||||||||||||
NAME |
GRANT DATE |
EXERCISABLE |
UNEXERCISABLE |
SAR / OPTION EXERCISE PRICE |
SAR / OPTION EXPIRATION DATE1 |
NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED2 |
NUMBER OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED4 |
MARKET OR PAYOUT VALUE OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED5 |
|||||||||||||||||||||||
Douglas R. | 02/17/2006 | 110,000 | | $ | 72.05 | 02/17/2016 | | $ | | | $ | | |||||||||||||||||||
Oberhelman | 03/02/2007 | 125,884 | | $ | 63.04 | 03/02/2017 | | $ | | | $ | | |||||||||||||||||||
03/03/2008 | 115,484 | | $ | 73.20 | 03/03/2018 | | $ | | | $ | | ||||||||||||||||||||
03/02/2009 | 166,252 | | $ | 22.17 | 03/02/2019 | | $ | | | $ | | ||||||||||||||||||||
03/01/2010 | 272,282 | | $ | 57.85 | 03/01/2020 | | $ | | | $ | | ||||||||||||||||||||
03/07/2011 | 226,224 | | $ | 102.13 | 03/07/2021 | | $ | | | $ | | ||||||||||||||||||||
03/05/2012 | 275,000 | | $ | 110.09 | 03/05/2022 | | $ | | | $ | | ||||||||||||||||||||
03/04/2013 | | 281,090 | $ | 89.75 | 03/04/2023 | | $ | | | $ | | ||||||||||||||||||||
03/03/2014 | | 283,790 | $ | 96.31 | 03/03/2024 | | $ | | | $ | | ||||||||||||||||||||
03/02/2015 | | 413,776 | $ | 83.00 | 03/02/2025 | | $ | | | $ | | ||||||||||||||||||||
02/27/2015 | | | $ | | | | $ | | 39,131 | 6 | $ | 2,659,343 | |||||||||||||||||||
Bradley M. | 03/03/2008 | 9,306 | | $ | 73.20 | 03/03/2018 | | $ | | | $ | | |||||||||||||||||||
Halverson | 03/01/2010 | 9,449 | | $ | 57.85 | 03/01/2020 | | $ | | | $ | | |||||||||||||||||||
03/07/2011 | 22,696 | | $ | 102.13 | 03/07/2021 | | $ | | | $ | | ||||||||||||||||||||
03/05/2012 | 21,416 | | $ | 110.09 | 03/05/2022 | | $ | | | $ | | ||||||||||||||||||||
03/04/2013 | | 79,976 | $ | 89.75 | 03/04/2023 | | $ | | | $ | | ||||||||||||||||||||
03/03/2014 | | 81,061 | $ | 96.31 | 03/03/2024 | | $ | | | $ | | ||||||||||||||||||||
03/02/2015 | | 153,954 | $ | 83.00 | 03/02/2025 | | $ | | | $ | | ||||||||||||||||||||
| | | $ | | | 1,666 | 7 | $ | 113,221 | | $ | | |||||||||||||||||||
02/27/2015 | | | $ | | | | $ | | 14,560 | 6 | $ | 989,498 | |||||||||||||||||||
Robert B. | 03/07/2011 | 23,379 | | $ | 102.13 | 03/07/2021 | | $ | | | $ | | |||||||||||||||||||
Charter | 03/05/2012 | 20,534 | | $ | 110.09 | 03/05/2022 | | $ | | | $ | | |||||||||||||||||||
03/04/2013 | | 25,369 | $ | 89.75 | 03/04/2023 | | $ | | | $ | | ||||||||||||||||||||
03/03/2014 | | 27,045 | $ | 96.31 | 03/03/2024 | | $ | | | $ | | ||||||||||||||||||||
03/02/2015 | | 142,798 | $ | 83.00 | 03/02/2025 | | $ | | | $ | | ||||||||||||||||||||
02/27/2015 | | | $ | | | | $ | | 13,505 | 6 | $ | 917,800 | |||||||||||||||||||
Edward J. | 02/17/2006 | 48,000 | | $ | 72.05 | 02/17/2016 | | $ | | | $ | | |||||||||||||||||||
Rapp | 03/02/2007 | 47,044 | | $ | 63.04 | 03/02/2017 | | $ | | | $ | | |||||||||||||||||||
03/03/2008 | 109,898 | | $ | 73.20 | 03/03/2018 | | $ | | | $ | | ||||||||||||||||||||
03/02/2009 | 148,722 | | $ | 22.17 | 03/02/2019 | | $ | | | $ | | ||||||||||||||||||||
03/01/2010 | 145,765 | | $ | 57.85 | 03/01/2020 | | $ | | | $ | | ||||||||||||||||||||
03/07/2011 | 56,228 | | $ | 102.13 | 03/07/2021 | | $ | | | $ | | ||||||||||||||||||||
03/05/2012 | 60,515 | | $ | 110.09 | 03/05/2022 | | $ | | | $ | | ||||||||||||||||||||
03/04/2013 | | 79,976 | $ | 89.75 | 03/04/2023 | | $ | | | $ | | ||||||||||||||||||||
03/03/2014 | | 86,742 | $ | 96.31 | 03/03/2024 | | $ | | | $ | | ||||||||||||||||||||
03/02/2015 | | 172,621 | $ | 83.00 | 03/02/2025 | | $ | | | $ | | ||||||||||||||||||||
| | | $ | | | 1,998 | 8 | $ | 135,784 | | $ | | |||||||||||||||||||
02/27/2015 | | | $ | | | | $ | | 16,325 | 6 | $ | 1,109,447 |
2016 Proxy Statement |
| | 43 |
OPTION AWARDS | STOCK AWARDS | ||||||||||||||||||||||||||||||
NUMBER OF SECURITIES UNDERLYING UNEXERCISED SARs/OPTIONS |
MARKET |
EQUITY
INCENTIVE PLAN AWARDS: |
|||||||||||||||||||||||||||||
NAME | GRANT DATE |
EXERCISABLE |
UNEXERCISABLE |
SAR
/ |
SAR
/ OPTION EXPIRATION DATE1 |
NUMBER OF |
NUMBER OF |
MARKET OR PAYOUT VALUE OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED5 |
|||||||||||||||||||||||
D. James | 02/17/2006 | 7,150 | | $ | 72.05 | 02/17/2016 | | $ | | | $ | | |||||||||||||||||||
Umpleby III | 03/02/2007 | 3,341 | | $ | 63.04 | 03/02/2017 | | $ | | | $ | | |||||||||||||||||||
03/03/2008 | 4,661 | | $ | 73.20 | 03/03/2018 | | $ | | | $ | | ||||||||||||||||||||
03/02/2009 | 6,619 | | $ | 22.17 | 03/02/2019 | | $ | | | $ | | ||||||||||||||||||||
03/01/2010 | 6,781 | | $ | 57.85 | 03/01/2020 | | $ | | | $ | | ||||||||||||||||||||
03/07/2011 | 22,696 | | $ | 102.13 | 03/07/2021 | | $ | | | $ | | ||||||||||||||||||||
03/05/2012 | 21,416 | | $ | 110.09 | 03/05/2022 | | $ | | | $ | | ||||||||||||||||||||
03/04/2013 | | 79,976 | $ | 89.75 | 03/04/2023 | | $ | | | $ | | ||||||||||||||||||||
03/03/2014 | | 85,606 | $ | 96.31 | 03/03/2024 | | $ | | | $ | | ||||||||||||||||||||
03/02/2015 | | 172,621 | $ | 83.00 | 03/02/2025 | | $ | | | $ | | ||||||||||||||||||||
| | | $ | | | 1,666 | 9 | $ | 113,221 | | $ | | |||||||||||||||||||
02/27/2015 | | | $ | | | $ | | 16,325 | 6 | $ | 1,109,447 |
1 Stock options granted in 2013 and 2014 are exercisable three
years after the grant date. Stock options granted in 2015 are exercisable in
one-third increments on each of the first through third year anniversaries of
the date of grant. Stock options expire 10 years from the grant date for an
active employee.
2
The amounts shown include the
portion of any prior RSU grants that were not vested as of December 31, 2015.
3 The market value of the non-vested RSUs is calculated using
the closing price of Caterpillar common stock on December 31, 2015 ($67.96 per
share).
4
The amounts shown include the
portion of any prior PRSU grants that were not vested as of December 31,
2015.
5 The market value of the non-vested PRSUs is calculated using
the closing price of Caterpillar common stock on December 31, 2015 ($67.96 per
share).
6
Represents the PRSUs that are
scheduled to vest in one-third increments on February 27, 2016, February 27,
2017 and February 27, 2018 based on the Companys achievement of an annual ROE
performance hurdle or, PRSUs that do not vest based on the annual performance
hurdle, but may vest based on the achievement of an average ROE performance
hurdle over the 3-year performance cycle. For 2015, the Company did not achieve
the ROE performance hurdle and, accordingly, none of the PRSUs vested based on
2015 performance. The number of PRSUs reported in this table assumes the
aggregate ROE performance hurdle is achieved for the 3-year performance
cycle.
7 This amount includes 833 RSUs scheduled to vest on May 1, 2016
and 833 RSUs scheduled to vest on May 1, 2017.
8 This amount includes
833 RSUs scheduled to vest on May 1, 2016, 332 RSUs scheduled to vest on May 2,
2016 and 833 RSUs scheduled to vest on May 1, 2017.
9 This amount
includes 833 RSUs scheduled to vest on May 1, 2016 and 833 RSUs scheduled to
vest on May 1, 2017.
2015 OPTION EXERCISES AND STOCK VESTED
OPTION AWARDS1 | STOCK AWARDS2 | |||||||||||||||||
NAME | NUMBER OF SHARES ACQUIRED ON EXERCISE |
VALUE REALIZED ON EXERCISE |
NUMBER OF SHARES ACQUIRED ON VESTING |
VALUE REALIZED ON VESTING | ||||||||||||||
Douglas R. Oberhelman | | $ | | | $ | | ||||||||||||
Bradley M. Halverson | 11,867 | $ | 915,922 | 834 | $ | 72,992 | ||||||||||||
Robert B. Charter | | $ | | | $ | | ||||||||||||
Edward J. Rapp | | $ | | 1,559 | $ | 133,501 | ||||||||||||
D. James Umpleby III | | $ | | 834 | $ | 72,992 |
1 Upon exercise
of the stock appreciation rights
shares are surrendered to satisfy the income tax withholding requirement. The
amounts shown are net amounts after surrendering shares for income
tax.
2 Upon vesting of the RSUs, shares are surrendered to satisfy
income tax withholding requirements. The amounts shown are gross amounts absent
netting for shares surrendered.
44 | | |
2016 Proxy Statement |
NAME | PLAN NAME1 | NUMBER OF YEARS OF CREDITED SERVICE2 |
PRESENT VALUE
OF ACCUMULATED BENEFIT3 | ||||||
Douglas R. Oberhelman | RIP | 35.00 | $ | 2,982,817 | |||||
SERP | 35.00 | $ | 22,557,058 | ||||||
Bradley M. Halverson | RIP | 27.83 | $ | 1,833,801 | |||||
SERP | 27.83 | $ | 4,118,102 | ||||||
Robert B. Charter | CatSuper Plan | 26.67 | $ | 3,218,440 | |||||
Edward J. Rapp | RIP | 35.00 | $ | 2,641,850 | |||||
SERP | 35.00 | $ | 9,291,016 | ||||||
D. James Umpleby III | RIP | 25.00 | $ | 1,669,706 | |||||
Solar MRO | 25.00 | $ | 10,187,255 |
2016 Proxy Statement |
| | 45 |
2015 NONQUALIFIED DEFERRED COMPENSATION
NAME | PLAN NAME | EXECUTIVE CONTRIBUTIONS IN 20151 |
REGISTRANT CONTRIBUTIONS IN 20152 |
AGGREGATE |
AGGREGATE BALANCE AT 12/31/154 | ||||||||||||||||||
Douglas R. Oberhelman | SDCP | $ | 320,100 | $ | 160,050 | $ | (797,275 | ) | $ | 2,948,856 | |||||||||||||
SEIP | $ | | $ | | $ | (203,695 | ) | $ | 693,124 | ||||||||||||||
DEIP | $ | | $ | | $ | (375,004 | ) | $ | 1,412,140 | ||||||||||||||
Bradley M. Halverson | SDCP | $ | 107,823 | $ | 53,912 | $ | (232,643 | ) | $ | 873,008 | |||||||||||||
SEIP | $ | | $ | | $ | (947 | ) | $ | 3,222 | ||||||||||||||
DEIP | $ | | $ | | $ | (17,923 | ) | $ | 60,994 | ||||||||||||||
Robert B. Charter5 | SDCP | $ | | $ | | $ | | $ | | ||||||||||||||
Edward J. Rapp | SDCP | $ | 140,665 | $ | 70,333 | $ | (507,452 | ) | $ | 2,578,357 | |||||||||||||
SEIP | $ | | $ | | $ | (14,449 | ) | $ | 49,169 | ||||||||||||||
DEIP | $ | | $ | | $ | (96,095 | ) | $ | 767,451 | ||||||||||||||
D. James Umpleby III | SDCP | $ | 130,329 | $ | 65,164 | $ | (169,757 | ) | $ | 1,850,259 | |||||||||||||
SEIP | $ | | $ | | $ | (229 | ) | $ | 30,239 | ||||||||||||||
DEIP | $ | | $ | | $ | (49,921 | ) | $ | 2,359,598 |
1 The Supplemental Deferred Compensation Plan (SDCP) is a
non-qualified deferred compensation plan created in March of 2007 with a
retroactive effective date of January 1, 2005, which effectively replaced the
Supplemental Employees Investment Plan (SEIP) and Deferred Employees
Investment Plan (DEIP).
2 SDCP allows eligible U.S. employees, including all NEOs, to
voluntarily defer a portion of their base salary and AIP pay into the plan and
receive a Company matching contribution. SPP pay may also be deferred, but does
not qualify for any Company matching contributions. Amounts deferred by
executives in 2015 for base salary, AIP pay and/or SPP payouts are included in
the 2015 Summary Compensation Table. Matching contributions in non-qualified
deferred compensation plans made by Caterpillar in 2015 are also included in the
2015 All Other Compensation Table under the Matching Contributions SDCP
column. SDCP participants may elect a lump sum payment, or an installment
distribution payable for up to 15 years after separation.
3 Aggregate earnings comprise interest, dividends, capital gains
and appreciation/depreciation of investment results. The investment choices
available to the participant mirror those of the Companys 401(k)
plan.
4 Amounts in this column were previously reported in the
Summary Compensation Table for the years 20132015 as follows: Mr. Oberhelman
$1,022,586; Mr. Halverson $359,410; Mr. Rapp $451,556; and Mr. Umpleby
$382,412.
5 Mr. Charter began participation in SDCP on January 1,
2016.
46 | | |
2016 Proxy Statement |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Except for customary provisions in employee compensation plans and as required by law, there are no pre-existing severance or change in control agreements with the NEOs.
The following is a summary of the compensation that would become payable under the existing compensation plans if an NEOs employment had terminated on December 31, 2015 in each of the following scenarios:
● | Voluntary Separation, including retirement that does not qualify as Long-Service Separation |
● | Long-Service Separation (separation after age 55 with 5 or more years of Company service effective with the 2011 equity grant, and age 55 with 10 or more years of service for prior year grants) |
● | Termination for Cause |
● | Termination without Cause or for Good Reason within one year following a change in control (Termination following CIC) |
EQUITY AWARDS | ||
Voluntary Separation |
●Stock Options and SARs: Vested awards are exercisable
until the earlier of the expiration date or 60 days from the separation
date; unvested awards are forfeited
●PRSUs and RSUs:
Forfeited | |
Long-Service Separation |
●Stock Options and SARs granted
prior to 2016: Vest and are exercisable until the earlier of the
expiration date or 60 months from the separation date
●Stock Options and SARs granted in 2016 or after: Vest
and become immediately exercisable for the remaining term of the
award
●RSUs: Accelerated vesting; Chairmans RSU Awards granted
prior to May 2014 are not eligible for Long-Service Separation
treatment ●PRSUs: Remain outstanding and vest if
and to the extent performance goals are achieved | |
Termination for Cause |
●Stock Options and SARs: Vested and unvested awards are
forfeited
●PRSUs and RSUs:
Forfeited | |
Termination following CIC |
●Stock Options and SARs: Vest and become immediately
exercisable for remaining term of the award
●PRSUs and RSUs: Accelerated
vesting of outstanding awards | |
ANNUAL INCENTIVE PLAN | ||
Voluntary Separation |
●Payment is
forfeited | |
Long-Service Separation |
●Payment for a pro-rated service
period based on actual results | |
Termination for Cause |
●Payment is
forfeited | |
Termination following CIC |
●Payment for a pro-rated service
period assuming achievement of target
opportunity | |
STRATEGIC PERFORMANCE PLAN | ||
Voluntary Separation |
●Payment is
forfeited | |
Long-Service Separation |
●Payment for a pro-rated service
period based on actual results | |
Termination for Cause |
●Payment is
forfeited | |
Termination following CIC |
●Payment for entire performance
period assuming achievement of maximum
opportunity |
2016 Proxy Statement |
| | 47 |
DEFERRED COMPENSATION |
The 2015 Nonqualified Deferred Compensation table on page 46 describes unfunded, non-qualified deferred compensation plans that permit the deferral of salary, bonus and short-term cash performance awards by NEOs. These plans also provide for matching contributions by the Company. NEOs are eligible to receive the amount in their deferred compensation accounts following termination under any termination scenario unless the NEO elected to further defer the payment as permitted by the plans.
SEVERANCE PAY |
The Company is not obligated to provide any special severance payments to any NEOs.
RETIREMENT OF EDWARD J. RAPP
Mr. Rapp will be retiring from the Company in 2016 and will be stepping down as the Group President with responsibility for Resource Industries as of April 1, 2016. He will remain on special assignment receiving his current salary until his retirement on June 30, 2016.
TERMS & POTENTIAL PAYMENTS CHANGE IN CONTROL
The following tabular information quantifies certain payments that would become payable under existing plans and arrangements if the NEOs employment had terminated on December 31, 2015. The information is provided relative to the NEOs compensation and service levels as of the date specified. If applicable, they are based on the Companys closing stock price on December 31, 2015.
48 | | |
2016 Proxy Statement |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
EQUITY AWARDS | INCENTIVE | ||||||||||||||||||||||||
NAME | TERMINATION SCENARIO | STOCK OPTIONS/ SARs1 |
PRSUs/ RSUs2 | SHORT-TERM
INCENTIVE3 |
LONG-TERM INCENTIVE4 |
POST TERMINATION BENEFITS |
TOTAL | ||||||||||||||||||
Douglas R. Oberhelman | Voluntary Separation | $ | | $ | | $ | | $ | | | $ | | |||||||||||||
Long-Service Separation | $ | | $ | 2,659,343 | $ | 2,800,014 | $ | 2,850,143 | | $ | 8,309,500 | ||||||||||||||
Termination for Cause | $ | | $ | | $ | | $ | | | $ | | ||||||||||||||
Termination following CIC | $ | | $ | 2,659,343 | $ | 5,600,028 | $ | 8,550,000 | | $ | 16,809,371 | ||||||||||||||
Bradley M. Halverson | Voluntary Separation | $ | | $ | | $ | | $ | | | $ | | |||||||||||||
Long-Service Separation | $ | | $ | 1,102,719 | $ | 904,259 | $ | 766,705 | | $ | 2,773,683 | ||||||||||||||
Termination for Cause | $ | | $ | | $ | | $ | | | $ | | ||||||||||||||
Termination following CIC | $ | | $ | 1,102,719 | $ | 1,808,518 | $ | 2,300,000 | | $ | 5,211,237 | ||||||||||||||
Robert B. Charter | Voluntary Separation | $ | | $ | | $ | | $ | | | $ | | |||||||||||||
Long-Service Separation | $ | | $ | 917,800 | $ | 839,233 | $ | 766,705 | | $ | 2,523,738 | ||||||||||||||
Termination for Cause | $ | | $ | | $ | | $ | | | $ | | ||||||||||||||
Termination following CIC | $ | | $ | 917,800 | $ | 1,678,466 | $ | 2,300,000 | | $ | 4,896,266 | ||||||||||||||
Edward J. Rapp | Voluntary Separation | $ | | $ | | $ | | $ | | | $ | | |||||||||||||
Long-Service Separation | $ | | $ | 1,245,231 | $ | 1,051,025 | $ | 766,705 | | $ | 3,062,961 | ||||||||||||||
Termination for Cause | $ | | $ | | $ | |