UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14A (RULE 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) | ||
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100 NE Adams Street
Peoria, Illinois 61629
May 1, 2014
Dear Fellow Stockholder:
I am pleased to invite you to attend Caterpillar’s annual meeting of stockholders on June 11, 2014. The meeting will be held at the Crossroads Arena, 2800 S. Harper Road, Corinth, MS 38834 beginning at 8:00 a.m. We hope that you will attend the meeting, but whether or not you are planning to attend, we encourage you to vote your shares. As always, every stockholder’s vote is important.
This booklet includes a formal notice of the meeting and the proxy statement which, among other things, provides information on Caterpillar’s corporate governance, executive compensation programs and the matters to be voted on at the meeting. The booklet also contains information about our business and 2013 financial performance. Our company continues to perform well and I encourage you to review the financial information contained in Appendix C.
If you wish to attend the meeting, you will need to request an admission ticket in advance. Procedures for requesting an admission ticket are described on page 62.
I thank you for your commitment to Caterpillar and urge you to vote your shares.
Sincerely yours, | ||
 | ||
Douglas R. Oberhelman Chairman and Chief Executive Officer | ||
100 NE Adams Street
Peoria, Illinois 61629
Notice of Annual Meeting of Stockholders
of Caterpillar Inc.
Date: June 11, 2014
Time: 8:00 a.m.
Place: The Crossroads Arena, 2800 S. Harper Road, Corinth, MS 38834
The items of business are:
▪ | Elect as Directors the twelve nominees identified in this proxy statement, each for a term of one year. |
▪ | Ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2014. |
▪ | Approve, on a non-binding advisory basis, the compensation of our named executive officers. |
▪ | Approve the Caterpillar Inc. 2014 Long-Term Incentive Plan. |
▪ | Approve the Caterpillar Inc. Executive Short-Term Incentive Plan. |
▪ | Vote on three stockholder proposals described in this proxy statement, if properly presented at the meeting. |
▪ | Conduct any other business properly brought before the meeting or any adjournment or postponement of the meeting. |
We initiated delivery of the proxy materials to stockholders on or about May 1, 2014. Stockholders at the close of business on April 14, 2014 will be entitled to notice of and to vote at the annual meeting and any adjournment or postponement. A list of registered stockholders is available at the Company’s headquarters in Peoria, Illinois.
By order of the Board of Directors | ||
 | ||
Christopher M. Reitz Corporate Secretary May 1, 2014 | ||
If you wish to attend the meeting, you will need to request an admission ticket in advance. Procedures for requesting an admission ticket are described on page 62.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 11, 2014: This Notice of Annual Meeting and Proxy Statement and the 2013 General and Financial Information are available at www.eproxyaccess.com/cat2014.
TABLE OF CONTENTS | ||
2013 Business Highlights | ||
Corporate Governance Highlights | ||
Executive Compensation Highlights | ||
Meeting Agenda and Vote Recommendations | ||
Corporate Governance Guidelines | ||
Code of Conduct | ||
Board Composition and Leadership Structure | ||
Board’s Role in Risk Oversight | ||
Board Meetings and Committees | ||
Director Nominations and Evaluations | ||
Director Independence Determinations | ||
Communication with the Board | ||
Investor Outreach | ||
Sustainability | ||
Political Contributions | ||
Talent Management and Succession Planning | ||
Related Party Transactions | ||
Audit Fees and Approval Process | ||
Audit Committee Report | ||
Compensation Discussion and Analysis | ||
Compensation Human Resources Committee Report | ||
Executive Compensation Tables | ||
Potential Payments Upon Termination or Change in Control | ||
Director Compensation | ||
Compensation Risk | ||
Proposal 1 - | Election of Directors | |
Proposal 2 - | Ratification of our Independent Registered Public Accounting Firm | |
Proposal 3 - | Advisory Vote on Executive Compensation | |
Proposal 4 - | Approval of Caterpillar Inc. 2014 Long-Term Incentive Plan | |
Proposal 5 - | Approval of Caterpillar Inc. Executive Short-Term Incentive Plan | |
Proposal 6 - | Review of Global Corporate Standards | |
Proposal 7 - | Sales to Sudan | |
Proposal 8 - | Cumulative Voting | |
Persons Owning More than Five Percent of Caterpillar Common Stock | ||
Security Ownership of Executive Officers and Directors | ||
Section 16(a) Beneficial Ownership Reporting Compliance | ||
Matters Raised at the Annual Meeting not Included in this Statement | ||
Stockholder Proposals and Director Nominations for the 2015 Annual Meeting | ||
Access to Form 10-K | ||
Frequently Asked Questions Regarding Meeting Attendance and Voting | ||
Admission and Ticket Request Procedure | ||
PROXY SUMMARY | ||||
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information you should consider. You should read the complete proxy statement and appendices before voting.
2013 Business Highlights | ||||
Strong Operating Performance. Despite a challenging sales environment, we had record operating cash flows for our Machinery and Power Systems (M&PS) businesses of $9.0 billion in 2013. Our balance sheet ended the year stronger than it began with our M&PS debt-to-capital ratio dropping to 29.7 percent.
Cash Returns to Stockholders. In June of 2013 we increased our quarterly dividend by 15 percent to $0.60 per share, marking 20 consecutive years that we have paid higher dividends to our stockholders. We also repurchased $2.0 billion of our common stock in 2013.
Market Position Strength. For the third year in a row, we expanded our competitive lead in the global market place for construction and mining machines.
Corporate Governance Highlights | ||||
BOARD STRUCTURE AND LEADERSHIP | SUSTAINABILITY | |
Our Chief Executive Officer also serves as the Chairman of the Board and we have an independent director who is elected by the Board to serve as the Presiding Director, with broad authority and responsibility over Board governance and operations. Eleven of our twelve director nominees are independent. See “Board Composition and Leadership Structure” on page 5 for more information. | We seek to provide products and solutions that make productive and efficient use of natural resources and reduce unnecessary impacts on the environment and the communities where we work and live. Our operational goals include a focus on energy conservation, reductions in greenhouse gas emissions and water and by-product materials management. See “Sustainability” on page 10 for more information. | |
INVESTOR OUTREACH | CODE OF CONDUCT | |
We conduct an annual governance review and engage investors throughout the year to ensure that management and the Board understand and consider the issues that matter most to our stockholders. After considering feedback received from investors over the past year, the Board amended Caterpillar’s bylaws to provide for a majority vote standard in uncontested director elections. See “Investor Outreach” on page 10 for more information. | Our code of conduct is called “Our Values in Action” and is the foundation of our corporate existence. Our Values in Action apply to all members of the Board and to all management and employees worldwide and embodies the high ethical standards that Caterpillar has upheld since its formation in 1925. See “Code of Conduct” on page 5 for more information. | |
BOARD RISK OVERSIGHT | |
Our Board has oversight for risk management with a focus on the most significant risks facing the Company, including strategic, operational, financial, legal and compliance risks. See “Board’s Role in Risk Oversight” on page 6 for more information. | |
Executive Compensation Highlights | ||||
Our executive compensation programs are designed to align the actions of our Executive Officers with the long-term interests of our stockholders based on two fundamental principles: Pay for Performance and Pay at Risk. To that end, we structure the majority of our executive compensation around four objectives which we believe reflect our Pay for Performance and Pay at Risk philosophy:
1. | Base salary is targeted to be the lowest percentage of total direct compensation. |
2. | Short-term incentive compensation is based on performance. |
3. | Long-term incentive compensation is based on Company performance. |
4. | Equity is a significant percentage of compensation. |
The table below includes some, but not all, of the information included in the Summary Compensation Table.
NEO | Salary | Long and Short- Term Cash Incentives | Stock and Stock Option Awards | Total of All Columns | ||||||||||
Douglas R. Oberhelman, Chairman & CEO | $ | 1,600,008 | $ | 2,241,766 | $ | 7,966,091 | $ | 11,807,865 | ||||||
Bradley M. Halverson, Group President & CFO | $ | 661,872 | $ | 747,012 | $ | 2,266,520 | $ | 3,675,404 | ||||||
Stuart L. Levenick, Group President | $ | 914,565 | $ | 1,220,080 | $ | 2,557,997 | $ | 4,692,642 | ||||||
Edward J. Rapp, Group President | $ | 847,008 | $ | 883,667 | $ | 2,266,520 | $ | 3,997,195 | ||||||
D. James Umpleby III, Group President | $ | 661,872 | $ | 964,041 | $ | 2,266,520 | $ | 3,892,433 | ||||||
Gerard R. Vittecoq, Group President* | $ | 509,026 | $ | 620,789 | $ | 4,880,335 | $ | 6,010,150 | ||||||
Steven H. Wunning, Group President | $ | 898,128 | $ | 452,433 | $ | 2,266,520 | $ | 3,617,081 | ||||||
* Mr. Vittecoq retired effective May 31, 2013.
Meeting Agenda and Vote Recommendations | ||||
Company Proposals | Board Recommendation |
Election of Directors | FOR each Nominee |
Ratification of our Independent Registered Public Accounting Firm | FOR |
Advisory Vote on Executive Compensation | FOR |
Approval of the Caterpillar Inc. 2014 Long-Term Incentive Plan | FOR |
Approval of the Caterpillar Inc. Executive Short-Term Incentive Plan | FOR |
Stockholder Proposals | |
Review of Global Corporate Standards | AGAINST |
Sales to Sudan | AGAINST |
Cumulative Voting | AGAINST |
Transact other business that properly comes before the meeting | |
Election of Directors (Proposal 1) |
You will find important information in “Proposal 1 - Election of Directors” on page 39 about the qualifications and experience of each of the director nominees whom you are being asked to elect. The Public Policy and Governance Committee performs an annual assessment to determine that our directors have the skills and experience to effectively oversee the Company. All of our directors have proven track records of leadership, sound judgment, integrity and a commitment to the success of our Company. |
Nominee | Age | Director Since | Principal Occupation | Independent |
David L. Calhoun | 57 | 2011 | Senior Managing Director of The Blackstone Group, L.P. | Yes |
Daniel M. Dickinson | 52 | 2006 | Managing Partner of HCI Equity Partners | Yes |
Juan Gallardo | 66 | 1998 | Chairman of Organización CULTIBA, S.A.B. de C.V. | Yes |
Jesse J. Greene, Jr. | 69 | 2011 | Instructor at Columbia Business School and former Vice President of Financial Management and Chief Financial Risk Officer of International Business Machines Corporation | Yes |
Jon M. Huntsman, Jr. | 54 | 2012 | Former United States Ambassador to China and former Governor of Utah | Yes |
Peter A. Magowan | 72 | 1993 | Former President and Managing General Partner of the San Francisco Giants and former Chairman and CEO of Safeway Inc. | Yes |
Dennis A. Muilenburg | 50 | 2011 | Vice Chairman, President and Chief Operating Officer of The Boeing Company | Yes |
Douglas R. Oberhelman | 61 | 2010 | Chairman and CEO of Caterpillar Inc. | No |
William A. Osborn | 66 | 2000 | Former Chairman and CEO of The Northern Trust Corporation | Yes |
Edward B. Rust, Jr. | 63 | 2003 | Chairman, CEO and President of State Farm Mutual Automobile Insurance Company | Yes |
Susan C. Schwab | 59 | 2009 | Professor at the University of Maryland School of Public Policy and a Strategic Advisor for Mayer Brown LLP; former United States Trade Representative | Yes |
Miles D. White | 59 | 2011 | Chairman and CEO of Abbott Laboratories | Yes |
Ratification of our Independent Registered Public Accounting Firm (Proposal 2) | ||||||||
As a matter of good corporate governance, we are asking our stockholders to ratify the selection of PricewaterhouseCoopers as our independent registered public accounting firm for 2014. Set forth below is a summary of their fees for services provided in 2013 and 2012. | ||||||||
(in millions) | ||||||||
2013 | 2012 | |||||||
Audit and Audit Related Fees | $ | 33.6 | $ | 34.7 | ||||
Tax Fees and Other | 1.4 | 3.4 | ||||||
TOTAL | $ | 35.0 | $ | 38.1 | ||||
Additional information regarding “Proposal 2 - Ratification of our Independent Registered Public Accounting Firm” appears on page 42. | ||||||||
Advisory Vote on Executive Compensation (Proposal 3) |
Our stockholders have the opportunity to cast a non-binding, advisory vote on the compensation of our named executive officers. Last year stockholders overwhelmingly supported our compensation program. In evaluating this proposal, we recommend that you review our Compensation Discussion and Analysis, which explains how and why the Compensation and Human Resources Committee arrived at its executive compensation actions and decisions for 2013. Additional information regarding “Proposal 3 - Advisory Vote on Executive Compensation” appears on page 42. |
Approval of the Caterpillar Inc. 2014 Long-Term Incentive Plan (Proposal 4) |
We are asking our stockholders to approve the Caterpillar Inc. 2014 Long-Term Incentive Plan (2014 LTIP), which will facilitate the issuance of stock-based and other performance awards to our officers and others. The 2014 LTIP will only become effective upon stockholder approval and no awards will be made under the 2014 LTIP prior to that time. We recommend that you review the important information described in “Proposal 4 - Approval of the Caterpillar Inc. 2014 Long-Term Incentive Plan” on page 43 for more information on the 2014 LTIP. |
Approval of the Caterpillar Inc. Executive Short-Term Incentive Plan (Proposal 5) |
We are asking our stockholders to approve an amendment and restatement of the Caterpillar Inc. Executive Short-Term Incentive Plan, which will facilitate the issuance of tax deductible annual bonuses to our officers. We recommend that you review the important information described in “Proposal 5 - Approval of the Caterpillar Inc. Executive Short-Term Incentive Plan” on page 50 for more information on the ESTIP. |
Stockholder Proposals (Proposals 6 - 8) |
You will be asked to consider three stockholder proposals involving (i) a Review of Global Corporate Standards, (ii) Sales to Sudan and (iii) Cumulative Voting. |
Even if you plan to attend our annual meeting in person, please cast your vote as soon as possible by: | |
 | using the Internet at www.caterpillar.com/proxymaterials |
 | scanning this QR code to vote with your mobile device |
 | calling the number included on your proxy card or notice |
 | mailing your signed proxy or voting instruction form |
PROXY STATEMENT | ||||
The Board of Directors (Board) of Caterpillar Inc. (Caterpillar, Company, we or us) is providing the notice, proxy statement and proxy card (Proxy Materials) in connection with the Company’s solicitation of proxies to be voted at the 2014 annual meeting of stockholders (Annual Meeting) to be held on June 11, 2014, at the Crossroads Arena, 2800 S. Harper Road, Corinth, MS 38834 at 8:00 a.m., and at any adjournment or postponement of the meeting.
Voting your shares is an important way to participate in the governance of your Company. If your Caterpillar shares are held for you in a brokerage, bank or other institutional account, you are considered the beneficial owner of those shares. Your broker is not permitted to vote on your behalf on the election of directors and other matters to be considered at the Annual Meeting (except ratification of the selection of our auditors for 2014), unless you provide specific instructions by completing and returning the voting instruction form or following the instructions provided to you for voting your shares via telephone, mobile device or the Internet. For your vote to be counted, you must communicate your voting decisions to your broker, bank or other financial institution before the date of the Annual Meeting. If you have any questions about the proxy voting process, please contact the broker, bank or other financial institution where you hold your shares. See “Frequently Asked Questions Regarding Meeting Attendance and Voting” on page 58 for information on how to vote your shares.
Proxy Materials or a Notice of Internet Availability were first sent to stockholders on or about May 1, 2014. If you received a Notice of Internet Availability and would like to receive a paper copy of the proxy materials, please follow the instructions included in the Notice of Internet Availability. If you received a paper copy of the proxy materials and would like to register to receive a Notice of Internet Availability in the future, you can do so by any of the following methods:
• | Internet - Go to www.eproxyaccess.com/cat2014 and follow the registration instructions. |
• | Telephone - From within the United States or Canada, call us free of charge at 1-866-580-7648. From locations outside the United States or Canada, please call +1-215-521-1342. |
• | Email - Send us an email at cat@eproxyaccess.com. Include the control number from your paper copy as the subject line and indicate that you wish to receive a Notice of Internet Availability and whether your request is for this meeting only or for all future meetings. |
CORPORATE GOVERNANCE INFORMATION | ||||
Corporate Governance Guidelines | ||||
Our Board has adopted Guidelines on Corporate Governance Issues (Corporate Governance Guidelines), which are available on our website at www.caterpillar.com/governance. The Corporate Governance Guidelines reflect the Board’s 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.
Code of Conduct | ||||
Caterpillar’s 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 Caterpillar’s 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.
The Audit Committee has established a means for the anonymous reporting (where permitted by law) of 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; theft or fraud of any amount; insider trading; performance and execution of contracts; conflicts of interest; violations of securities and antitrust laws; and 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 |
Board Composition and Leadership Structure | ||||
Presently, our Board consists of twelve directors. The 2014 director nominees consist of one nominee who serves as a member of management and eleven non-employee nominees. The non-employee director nominees are skilled and experienced leaders in business, education, government and public policy. They currently serve or have served as chief executives and members of senior management of large public and private for profit companies; as leaders of numerous nonprofit organizations; as U.S. federal and state government officials; and as members of academia. In these roles, the non-employee director nominees have been called upon to ask hard questions of management and provide advice on complex issues. Biographical information and qualifications of our director nominees are included under “Proposal 1 - Election of Directors” on page 39.
Directors are elected at each annual meeting to serve for a one-year term and until their respective successors are duly elected and qualified, subject to their earlier death, resignation or removal. 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 year in which they reach the age of 72. If any nominee is unavailable for election, proxy holders will vote for another nominee proposed by the Board or, as an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting.
The Board has elected the Chief Executive Officer as the Chairman of the Board. The Board has further elected the Chairman of the Public Policy and Governance Committee (PPGC) as the Presiding Director. The Presiding Director’s duties and responsibilities include: (i) presiding at all meetings of the Board at which the Chairman is not present; (ii) serving as a liaison between the Chairman and the independent directors; (iii) approving information sent to the Board; (iv) approving meeting agendas for the Board; (v) approving meeting schedules to assure that there is sufficient time for discussion of all agenda items; (vi) authority to call meetings of the independent directors; and (vii) if requested by major stockholders, ensuring that he is available for consultation and direct communication. All directors play an active role in overseeing the Company’s business both at the Board and committee levels.
The Board believes that this leadership structure - a combined Chairman of the Board and Chief Executive Officer (CEO), a Presiding Director, active and strong non-employee directors and committees led entirely by independent directors - is the most effective for the Company at this time. The Company’s business is complex and its products are sold in more than 180 countries around the world. Because the CEO is closest to the many facets of the business, the Board believes the CEO is in the best position to lead most effectively and to serve in the critical role of Chairman of the Board. In addition, having a Chairman who also serves as the CEO allows timely communication with the Board on critical business matters given the complexity and global reach of our business. Further, most of the Company’s products are sold through an extensive network of independent dealers around the world. Our dealership business model has historically required our CEO to have strong relationships with the leaders of our dealers. 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.
Board’s 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 Board’s risk oversight process builds upon management’s risk assessment and mitigation processes, which include an enterprise risk management program, regular internal management disclosure committee meetings, code of business conduct, quality standards and processes, an ethics and compliance office and comprehensive internal and external audit processes. 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. Throughout the year, the Board and the committees to which it has delegated responsibility dedicate a portion of their meetings to review and discuss specific risk topics in greater detail. Strategic and operational risks are regularly discussed at Board meetings. The Board has delegated responsibility for the oversight of specific risks to Board committees as follows:
Audit Committee | • Policies and processes relating to the financial statements, financial reporting, accounting and internal and external auditing functions of the Company • Enterprise risk management and the Company’s ethics and compliance program • Cyber security, litigation and tax related matters • Hedging and derivatives practices |
Compensation and Human Resources Committee | • Compensation philosophy and programs • Global workforce matters |
Public Policy and Governance Committee | • Governance structure and processes and related person transactions • Health and safety and environmental risks • Political and charitable activities and reputational risks |
The Board believes that its leadership structure, discussed above, supports the risk oversight function of the Board.
Board Meetings and Committees | ||||
The Board held seven meetings during 2013. The independent directors generally meet in executive session as part of each regularly scheduled Board meeting, with the Presiding Director serving as Chairman. Each director attended at least 75 percent of the total meetings of the Board and committee on which he or she served. Absent unavoidable conflict, directors are expected to attend the Annual Meeting. All directors attended the 2013 Annual Meeting.
During 2013, the Board had four standing committees: Audit, Compensation, Governance and Public Policy. Effective January 1, 2014, the standing committees were restructured into three - Audit, Compensation and Human Resources 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 in its discretion. The current primary responsibilities of each committee are summarized below and set forth in more detail in each committee’s written charter, which can be found on Caterpillar’s 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 |
• Selects and oversees the independent auditor • Oversees our financial reporting activities, including our financial statements, annual report and the accounting standards and principles • Discusses with management the Company’s risk assessment and risk management framework • Approves audit and non-audit services provided by the independent auditor • Reviews the organization, scope and effectiveness of our internal audit function and our disclosure and internal controls • Sets parameters for, and monitors the Company’s hedging and derivatives practices • Provides oversight for the Company’s ethics and compliance programs • Monitors the Company’s litigation and tax compliance |
Number of Meetings in 2013: 12 |
Compensation and Human Resources Committee |
• Recommends the CEO’s compensation to the Board and establishes the compensation of other executive officers • Establishes, oversees and administers the Company’s 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 Company’s 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 Company’s proxy statement |
Number of Meetings in 2013: 8 |
Public Policy and Governance Committee |
• 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 Company’s officer succession planning • Oversees the Company’s environmental, health and safety activities, including the Company’s sustainable development initiatives • Oversees the corporate governance structure • Oversees matters of domestic and international public policy affecting the Company’s business, such as trade policy and international trade negotiations and major global legislative and regulatory developments • Annually reviews the Company’s charitable and political contributions and policies • Oversees investor and community relations |
Number of meetings in 2013: Governance - 6; Public Policy - 6 |
Committee Membership (as of January 1, 2014) | |||||
Audit | Compensation & Human Resources | Public Policy & Governance | |||
David L. Calhoun |  | ||||
Daniel M. Dickinson | | ||||
Juan Gallardo | | ||||
Jesse J. Greene, Jr. | | ||||
Jon M. Huntsman, Jr. | | ||||
Peter A. Magowan | |  = Chairman | |||
Dennis A. Muilenburg | | = Member | |||
Douglas R. Oberhelman | |||||
William A. Osborn | | ||||
Edward B. Rust, Jr. | | ||||
Susan C. Schwab | | ||||
Miles D. White | | ||||
Director Nominations and Evaluations | ||||
Process for Nominating and Evaluating Directors
Each director is responsible for overseeing the Company’s business consistent with his or her fiduciary duty to stockholders. This responsibility requires highly skilled individuals with various qualities, attributes and professional experience. The Board and the PPGC consider the qualifications of incumbent directors and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs.
The PPGC solicits and receives recommendations for potential director candidates from the Board and management. In its assessment of each potential candidate, the PPGC considers each candidate’s integrity, honesty, judgment, independence, accountability, willingness to express independent thought, understanding of the Company’s 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 five public company boards in addition to the Company’s Board.
The following table summarizes certain key characteristics of the Company’s 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’s businesses involve complex acquisitions and financial transactions in many countries and in many currencies. | • High level of financial literacy • Mergers and acquisitions experience |
• The Company is a global manufacturer with products sold in over 180 countries around the world. | • Manufacturing or logistics experience • Broad international exposure • Relevant executive experience • Diversity of race, ethnicity, gender, cultural background or professional experience |
• Demand for many of the Company’s 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 Company’s businesses require compliance with a variety of regulatory requirements across a number of countries and is impacted by the policies of various governmental entities. | • Governmental and international trade expertise |
• The Board’s 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 |
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 may also consider the diversity of the Board and potential director candidates in selecting new director candidates.
Stockholder Nominations
The PPGC also considers unsolicited inquiries and director nominees recommended by stockholders. 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 Caterpillar’s 2015 annual meeting of stockholders are included in the “Stockholder Proposals and Director Nominations for the 2015 Annual Meeting” section on page 58.
Director Independence Determinations | ||||
The Company’s 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 Company’s 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.
Communication with the Board | ||||
You may communicate with any of our directors, our Board as a group, our non-management directors as a group or any Board committee as a group by sending an email to Directors@CAT.com or by mail to Caterpillar Inc. c/o Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. The Board has delegated to the Corporate Secretary, or his designee, responsibility for determining, in his discretion, whether the communication is appropriate for consideration. According to the policy adopted by the Board, the Corporate Secretary is required to direct all communications regarding personal grievances, administrative matters, the conduct of the Company’s ordinary business operations, billing issues, product or service related inquiries, order requests and similar issues to the appropriate individual within the Company. All other communications are to be submitted to the Board as a group, to the particular director to whom it is directed or, if appropriate, to the Presiding Director or committee the Corporate Secretary believes to be the most appropriate recipient. If a legitimate communication is sent, you will receive a written acknowledgement from the Corporate Secretary’s office confirming receipt of your communication.
Investor Outreach | ||||
We conduct an annual governance review and investor outreach throughout the year to ensure that management and the Board understand and consider the issues that matter most to our stockholders. During 2013, the Company conducted proactive investor outreach programs, including attending 11 investor conferences as well as other meetings with the investment community and meeting one-on-one or in small groups with more than 300 investors. Additionally, the Company periodically engages investors to discuss specific matters of importance to stockholders. We value our dialogue with our stockholders and believe our annual outreach efforts, which are in addition to the other communication channels available to our stockholders, help ensure our corporate governance practices continue to evolve and reflect the insights and perspectives of our many stakeholders.
After considering feedback received from investors in 2013, the Board amended the Company’s bylaws to adopt a majority vote standard for uncontested director elections.
Sustainability | ||||
We seek to provide work environments, products, services and solutions that make productive and efficient use of natural resources and reduce unnecessary impacts on the environment and the communities where we work and live. Our sustainability practices are focused on ways to maximize the life cycle benefits of our products while minimizing the economic, social and environmental costs of ownership. To this end, we are building engines that are more fuel efficient and have lower emissions, collaborating with customers to increase jobsite efficiency and growing our remanufacturing business, which keeps nonrenewable resources in circulation for multiple lifecycles. In addition, our operational goals include a focus on energy conservation and resources, greenhouse gas emissions reductions, water management and by-product materials management. Our annual Sustainability Report highlights our progress towards these goals and our ongoing commitment to sustainability. To learn more about the Company’s sustainability efforts, please view our Sustainability Report by visiting reports.caterpillar.com.
Political Contributions | ||||
We currently disclose on our website www.caterpillar.com/contributions a description of our oversight process for political contributions and an itemized list of corporate and employee PAC contributions to federal and state political candidates.
Talent Management and Succession Planning | ||||
The Board is actively engaged and involved in talent management. This includes a detailed review of the Company’s global leadership and succession plans with a focus on key positions at the senior officer level.
In addition, the committees of the Board regularly discuss the talent pipeline for specific critical roles. High potential leaders are given exposure and visibility to Board members through formal presentations and informal events. More broadly, the Committees of the Board are regularly updated on key talent indicators for the overall workforce, including diversity, recruiting and development programs.
Related Party Transactions | ||||
Caterpillar’s 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 Company’s 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.
Audit Fees and Approval Process | ||||
Pre-Approval Process
The Audit Committee pre-approves all audit and non-audit services to be performed by the auditors. It has policies and procedures in place designed to ensure that the Company complies with the requirements for pre-approval set forth in the Sarbanes-Oxley Act and the SEC rules regarding auditor independence. These policies and procedures provide a mechanism whereby management can request and secure pre-approval of audit and non-audit services in an orderly manner with minimal disruption to normal business operations. The policies and procedures are detailed as to the particular service and do not delegate the Audit Committee’s responsibility to management. These policies and procedures address any service provided by the 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.
Annual Pre-Approval Process
Annually, not later than the Audit Committee meeting held in February of each year, management and the auditors jointly submit a service matrix of the types of audit and non-audit services that management may wish to have the 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 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.
Interim Pre-Approval Process
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 auditors included the following (in millions):
2013 | 2012 | ||||||||
Audit Fees 1 | $ | 32.4 | $ | 31.9 | |||||
Audit-Related Fees 2 | 1.2 | 2.8 | |||||||
Tax Compliance Fees 3 | 0.9 | 1.7 | |||||||
Tax Planning and Consulting Fees 4 | 0.3 | 1.5 | |||||||
All Other Fees 5 | 0.2 | 0.2 | |||||||
TOTAL | $ | 35.0 | $ | 38.1 | |||||
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 agreed upon procedures for securitizations, attestation services requested by management, accounting consultations, pre- or post- implementation reviews of processes or systems, financial due diligence and audits of employee benefit plan financial statements. Total fees paid directly by the benefit plans, and not by the Company, were $0.7 in 2013 and 2012 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 | “All Other Fees” principally includes subscriptions to knowledge tools, attendance at training classes/seminars and other advisory services. | ||||||||
Audit Committee Report | ||||
The Audit Committee is comprised entirely of independent directors (as defined for members of an audit committee in SEC rules and the NYSE listing standards) and operates under a written charter adopted by the Board, a copy of which is available on our website at www.caterpillar.com/governance. Management is responsible for the Company’s internal controls and the financial reporting process. The auditors are responsible for performing an independent audit of the Company’s 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 is responsible for monitoring these processes. In this regard, the Audit Committee meets periodically with management, the internal auditors and external auditors. The Audit Committee has the authority to conduct or authorize investigations into any matters within the scope of its responsibilities and the authority to retain outside counsel, experts and other advisors as it determines appropriate to assist it in conducting any investigations. The Audit Committee is responsible for selecting and, if appropriate, replacing the current auditors, PricewaterhouseCoopers LLP.
The Audit Committee has discussed with the Company’s auditors the overall scope and execution of the independent audit and has reviewed and discussed the audited financial statements with management. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States. Discussions about the Company’s audited financial statements included the auditors’ judgments about the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee also discussed with the auditors other matters required by PCAOB auditing standards. Management, the internal auditors and the auditors also made presentations to the Audit Committee throughout the year on specific topics of interest, including the Company’s: (i) enterprise risk assessment process; (ii) information technology systems and controls; (iii) income tax strategy and risks; (iv) derivatives policy and usage; (v) benefit plan fund management; (vi) 2013 integrated audit plan; (vii) updates on completion of the audit plan; (viii) critical accounting policies; (ix) assessment of the impact of new accounting guidance; (x) compliance with the internal controls required under Section 404 of the Sarbanes-Oxley Act; (xi) ethics and compliance program; (xii) risk management initiatives and controls for various acquisitions and business units; (xiii) strategy and management of the implementation of new systems; (xiv) cyber security and (xv) intellectual property.
The auditors provided to the Audit Committee the written communications required by applicable standards of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and the Audit Committee discussed the auditors’ independence with management and the auditors. The Audit Committee concluded that the auditors’ independence had not been impaired.
Based on: (i) the Audit Committee’s discussions with management and the auditors; (ii) the Audit Committee’s review of the representations of management; and (iii) the report of the auditors to the Audit Committee, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
By the members of the Audit Committee consisting of: | ||
William A. Osborn (Chairman) | ||
Daniel M. Dickinson | ||
Peter A. Magowan | ||
Dennis A. Muilenburg | ||
EXECUTIVE COMPENSATION INFORMATION | ||||
Compensation Discussion and Analysis (CD&A) | ||||
Executive Summary
Business Performance
As illustrated above, our sales and revenues in 2013 were $55.656 billion, a decrease of 16 percent from $65.875 billion in 2012. The decline in sales and revenues was primarily driven by a decrease in sales of new machines for mining. Profit was $3.789 billion, a decrease of 33 percent from $5.681 billion in 2012. This resulted in Profit Per Share-diluted (PPS) of $5.75 in 2013, which was down 32 percent from $8.48 in 2012. Despite this challenging environment, the Company reported record Machinery and Power Systems (M&PS) operating cash flow of $9.0 billion in 2013, and our M&PS debt-to-capital ratio was 29.7 percent down from 37.4 percent at year-end 2012. Strong cash flow enabled us to repurchase $2.0 billion of Caterpillar common stock in 2013 and increase the quarterly dividend by 15 percent in June 2013, from $0.52 to $0.60 per share.
Compensation Philosophy and Objectives
The objective of the Company’s executive compensation program is to attract, retain and motivate talented executive officers who will improve the Company’s performance and provide strategic leadership. Additionally, the Compensation and Human Resources Committee of the Board of Directors (the Compensation Committee or Committee) designs compensation programs to align the actions of our Named Executive Officers (NEOs) with the long-term interests of our stockholders based on two fundamental concepts: Pay for Performance and Pay at Risk.
Pay for Performance:
• | As shown in the chart above, in line with Caterpillar’s pay for performance philosophy, Total Direct Compensation for the CEO decreased by 32 percent from $17,392,496 in 2012 to $11,807,865 in 2013. |
• | CEO Non-Equity Incentive Plan Compensation in 2013, which reflects cash payments made under the Executive Short-Term Incentive Plan (ESTIP) and Long-Term Cash Performance Plan (LTCPP), decreased by 56 percent from $5,049,988 in 2012 to $2,241,766 in 2013. |
• | The grant date fair market value of stock options awarded to the CEO was $7,966,091 in 2013, compared with $10,780,000 in 2012, a reduction of 26 percent. |
• | On December 31, 2013, the closing price of Caterpillar’s common stock as reported on the New York Stock Exchange (NYSE) was below the option exercise price for the stock options granted to the CEO in each of 2011 and 2012, which are due to vest in 2014 and 2015 respectively. |
• | As shown in the “2013 Summary Compensation Table” on page 28, total compensation for the CEO decreased by 33 percent from $22,374,744 in 2012 to $14,989,569 in 2013. |
Pay at Risk:
As illustrated below, for NEOs in position throughout 2013, on average over 80 percent of compensation was variable or “at risk” and tied to Caterpillar’s performance:
The Company’s executive compensation design includes four principles that drive our Pay for Performance and Pay at Risk philosophy:
1. | Base salary is targeted to be the lowest percentage of total direct compensation. Our NEOs have responsibility for overall Company performance so a significant amount of their compensation should be contingent on performance. To achieve this objective, base salary is targeted to be the lowest percentage of their compensation, compared with incentive pay and equity. |
2. | Short-term incentive compensation is based on performance. Short-term incentive compensation awarded under the ESTIP is based on the achievement of annual performance goals at the corporate and business unit levels. This drives accountability and rewards exceptional results. Payouts are subject to a threshold performance “trigger” and are not guaranteed. |
3. | Long-term incentive compensation is based on Company performance. We expect our executives to focus on the Company’s continued success. LTCPP awards are tied to the Company’s performance over a longer period of time. Executives have a higher ratio of long-term to short-term incentive compensation. Payouts are subject to a threshold performance “trigger” and are not guaranteed. |
4. | Equity is a significant percentage of compensation. Profitable growth is an important priority for the Company and our stockholders. To align the actions of our executives with the expectations of our stockholders and long-term Company performance, equity represents a significant percentage of their compensation. |
Compensation Practices and Policies
The Committee engages in an ongoing review of the Company’s executive compensation programs to ensure they support the compensation philosophy and objectives. In connection with this ongoing review, the Committee continues to implement and maintain what the Committee believes to be best practices for executive compensation. These best practices include the following, each of which reinforces our compensation philosophy:
• | Stock ownership requirements - Caterpillar stock ownership requirements for NEOs, discussed on page 23, are a minimum of 50 percent of the average number of shares or units granted to the NEO during the last five years, which as of year-end 2013, equated to over six times base salary for our CEO. Each of our NEOs has exceeded the company’s stock ownership requirements. |
• | Benchmark process - The Committee reviews the external marketplace in order to set market-based pay levels and considers market practices when making compensation decisions. |
• | Independent compensation consultant - The Committee retains an independent compensation consultant. |
• | No individual change in control agreements - The Company does not have any individual change in control agreements with its NEOs. Under the Company’s short-term and long-term incentive plans, a termination of employment, in addition to a change in control, is required to trigger benefits. |
• | Compensation recoupment policy - The Company may seek the 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, pledging and related transactions - The Company prohibits NEOs, directors and employees from engaging in transactions involving Company 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 Company stock or short sales. |
• | 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 international relocation benefits. |
• | 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 and the first business day in May for the Chairman’s Awards. |
Say-on-Pay Consideration
In June 2013, the Company held a stockholder advisory vote on the compensation of our NEOs (Say-on-Pay). Our stockholders overwhelmingly approved the compensation of our NEOs, with over 95 percent of stockholder votes cast in favor of our Say-on-Pay resolution. The Compensation Committee reviewed these voting results and considered other factors in evaluating the Company’s executive compensation programs as discussed in this Compensation Discussion and Analysis, including the Committee’s assessment of the alignment of our compensation programs with the long-term interests of our stockholders and the relationship between our risk management policies and the incentive compensation we provide to our NEOs. In addition, the Committee considered executive compensation practices at other companies in our peer group (discussed below) to benchmark the types and amount of compensation the Company provides. After considering all of these factors, the Committee reaffirmed the elements of our executive compensation programs and the Company’s Pay for Performance and Pay at Risk philosophy and did not make any changes to our executive compensation programs in response to the Say-on-Pay vote.
Overview of Compensation Practices
The Compensation & Human Resources Committee
The Compensation 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, business unit and individual goals. The Committee also exercises its judgment as to what is in the best interest of the Company and its stockholders. The responsibilities of the Compensation Committee are described more fully in its charter, which is available at www.caterpillar.com/governance.
Named Executive Officers
The Company’s NEOs for 2013 were:
Executive | Title in 2013 |
Douglas R. Oberhelman | Chairman and Chief Executive Officer (CEO) |
Bradley M. Halverson | Group President, Corporate Services and Chief Financial Officer (CFO) |
Stuart L. Levenick | Group President, Customer & Dealer Support |
Edward J. Rapp | Group President, Construction Industries |
D. James Umpleby III | Group President, Energy & Power Systems |
Gerard R. Vittecoq | Group President, Lean Manufacturing (retired May 31, 2013) |
Steven H. Wunning | Group President, Resource Industries |
Independent Compensation Consultant
The Compensation Committee retained Meridian Compensation Partners, LLC (Meridian) as its independent compensation consultant. Meridian provides executive and director compensation consulting services to the Committee, including advice regarding the design and implementation of such compensation programs, market information, regulatory updates and analyses and trends on 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 Committee’s direction. During 2013, Meridian did not provide any other services to the Company. Based on these factors, its own evaluation of Meridian’s independence pursuant to the requirements approved and adopted by the SEC & NYSE, and information provided by Meridian, the Committee has determined that the work performed by Meridian does not raise any conflicts of interest.
Benchmarking
The Compensation Committee assesses the market competitiveness of our executive compensation program based on peer group data. The Compensation Committee relies on Meridian to compile and analyze peer group compensation data for the purposes of this assessment. In 2012, as part of its ongoing review of the Company’s executive compensation program, the Compensation Committee instructed Meridian to re-evaluate the Company’s peer group. Based on this review, Meridian recommended a revised peer group for 2013 compensation decisions 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 |
• | Relevance of the peer company’s industry, including consideration of direct industry and talent competitors |
Accordingly, for 2013 compensation decisions, the Compensation Committee revised the Company’s peer group to align with key financial metrics of the Company and reflect a greater focus on companies in the industrial and manufacturing sectors.
In revising the peer group, the Committee approved the following deletions from the Company’s peer group: Altria Group Inc., American Express Company, The Dow Chemical Company, International Business Machines Corporation, Johnson & Johnson, Lockheed Martin Corporation, PACCAR Inc., PepsiCo Inc., Pfizer Inc., Siemens Aktiengesellschaft, United Parcel Service Inc., Valero Energy Corporation and Weyerhaeuser Company and the following additions to the Company’s peer group: Cisco Systems, Inc., The Coca-Cola Company, E.I. du Pont de Nemours and Company, Emerson Electric Co., Fluor Corporation, Halliburton Company, Illinois Tool Works Inc., Intel Corporation, Parker-Hannifin Corporation and Raytheon Company.
The revised peer group used for 2013 compensation decisions is shown below:
2013 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* | |
• Dell Inc. | • Honeywell International Inc. | |
*Indicates a new peer group member
To account for differences in the size of our peer group companies, market data provided by Meridian is statistically adjusted (regressed) allowing for a comparison of our compensation levels to similarly sized companies.
Components of Caterpillar’s 2013 Compensation Program
Component | Description | Pay for Performance / Pay at Risk | |
Annual Cash Compensation | Base Salary | Competitive pay to attract and retain talented executives. | Base salary is targeted to be the smallest percentage of NEO compensation which reinforces our Pay at Risk philosophy. Increases are generally market and performance-driven. |
ESTIP | Annual incentive plan designed to provide NEOs with an opportunity to earn an annual cash incentive based on Company and business unit financial performance as well as the achievement of strategic business unit goals. | Variable component of pay intended to motivate and reward achievement of annual objectives. Goals are focused on shorter-term critical issues that are indicative of improved year-over-year performance. Payouts are not guaranteed, and no payouts are made if performance thresholds are not achieved. | |
Long-Term Incentive Compensation | Equity Awards | Non-qualified stock options that expire ten years after the grant and become exercisable three years from the grant date. | Stock options reward increasing stockholder value. Equity awards further align the interests of our NEOs with those of our stockholders. |
LTCPP | Three-year performance program with cash payouts based on achieving strategic objectives. Payout amounts are targeted as a percentage of base salary, with a threshold, target and maximum level payout based on performance. | LTCPP is tied to longer-term Company performance and aligns executive actions with stockholder expectations. Payouts are not guaranteed, and no payouts are made if performance thresholds are not achieved. | |
Other Benefits | Health and Welfare Benefit Plans, Perquisites | Executives are eligible to participate in health and welfare benefit plans generally available to other employees in the countries in which they are located and receive a limited number of perquisites commonly provided in the marketplace. | These programs provide competitive benefits that help attract and retain executive talent. |
Annual Cash Compensation
Base Salary
Base salary is the only fixed component of our executive officers’ total cash compensation. The Committee targets the base salary midpoint at the size-adjusted median level of the peer group, with the minimum base salary at 80 percent of the midpoint and the maximum base salary at 120 percent of the midpoint. An executive officer’s base salary within that range is related to the individual’s level of responsibility and performance. Merit increases are based on the achievement of individual and Company objectives, contribution to Caterpillar’s performance and leadership accomplishments.
Following a review of compensation data with respect to the 2013 peer group, no changes were made to the CEO or group president base salary ranges in 2013.
2013 Salary Adjustments
Mr. Halverson and Mr. Umpleby were promoted to the position of group president effective January 1, 2013. At the time, each of their salaries was increased to $661,872, which was the minimum of the group president salary range.
In 2013, the annualized base salaries of the CEO and other NEOs were not adjusted, except for Mr. Levenick and Mr. Vittecoq. The Committee approved these adjustments in view of Company and individual performance in 2012.
Executive | 2012 Salary (Annualized) | 2013 Salary (Annualized) | ||||
Stuart L. Levenick | $ | 881,508 | $ | 925,584 | ||
Gerard R. Vittecoq* | $ | 1,195,938 | $ | 1,253,589 | ||
*Mr. Vittecoq’s salary was paid in Swiss Francs and was converted to U.S. dollars based on the exchange rate in effect on December 31, 2013. | ||||||
Executive Short-Term Incentive Compensation - ESTIP
The ESTIP is designed to provide NEOs with an opportunity to earn an annual cash incentive based on Company and business unit financial performance as well as the achievement of strategic business unit goals. The objective of ESTIP is to provide executives with the opportunity to earn cash compensation tied to the short-term performance of the Company and their business units and reward NEOs for achieving corporate and business unit objectives.
The 2013 ESTIP design provided that a bonus pool would only be funded if the Company achieved a minimum Profit Per Share (PPS) performance “trigger” of $3.50. The Committee established a target incentive opportunity for each NEO, with the actual award payable based on achieving performance measures as well as other factors considered relevant by the Committee. The 2013 ESTIP design enabled the Committee to retain negative discretion to establish bonuses at levels the Committee deemed appropriate to reflect the performance of the Company, each NEO and other factors the Committee considered relevant, while preserving the ability to deduct the bonuses to the extent permitted under Section 162(m) of the Internal Revenue Code.
Under the 2013 ESTIP, the Committee established threshold, target and maximum performance levels for the Company Performance Measure and each Business Unit Performance Measure based on recommendations from management, Meridian and a review of historical and forecasted results. If the threshold performance levels were not achieved, there would be no payout under the 2013 ESTIP. The results of each performance measure are expressed as a payout factor based on the percentage of the target performance level. For the 2013 ESTIP performance levels:
• | greater than threshold but less than target results in a payout factor range of 30 percent to 99.99 percent of the executive’s target opportunity |
• | performance at or greater than target results in a payout range of 100 percent up to a maximum of 200 percent of the executive’s target opportunity |
ESTIP Formula
Target Incentive as a Percent of Base Salary: The Committee set the target incentive, expressed as a percentage of base salary for NEOs, based on the target annual bonus opportunities for similar positions in our peer group after considering the total annual cash compensation for comparable positions. Based on the peer group review for 2013, the Committee approved a target incentive for the CEO at 175 percent of base salary, an increase from 150 percent of base salary in 2012. For group presidents, the target incentive remained at 100 percent of base salary, which was unchanged from 2012.
Company Performance Measure: The Committee established corporate Operating Profit After Capital Charge (OPACC) as the Company Performance Measure for NEOs in 2013. OPACC is designed to measure how productively and efficiently the Company's assets are being utilized by examining the relationship between the value of the Company's assets and the operating profit that those assets generate. An increase in OPACC means that the Company’s management is utilizing assets more efficiently to generate stockholder value, which the Committee views as key to Caterpillar’s long-term success. Under the 2013 ESTIP, OPACC is calculated as Machinery & Power Systems (M&PS) operating profit excluding short-term incentive compensation expense, less the capital charge. In calculating OPACC, the capital charge equals average monthly M&PS net accountable assets multiplied by a pre-tax capital charge rate of 17 percent, which the Committee believed to be a challenging rate. OPACC metrics may reflect a negative number even as the Company operates profitably. For 2013, the Committee set the OPACC target performance level at $2.079 billion.
For the CEO, the Committee determined that Mr. Oberhelman’s ESTIP should be based entirely on the Company Performance Measure of Corporate OPACC. Mr. Vittecoq’s ESTIP was also based entirely on Corporate OPACC given his responsibility for a corporate-wide manufacturing efficiency project. He retired from the Company on May 31, 2013.
For the other NEOs, the Committee made the following determinations in weighting the Company Performance Measure:
Executive | Weight | Committee Determinations |
Bradley M. Halverson | 80% | Mr. Halverson was primarily responsible for corporate level financial and corporate services resulting in a higher weighting of the corporate measure. |
Stuart L. Levenick | 25% | Mr. Levenick was primarily responsible for customer and dealer support business units resulting in a higher weighting on business unit measures. |
Edward J. Rapp | 25% | Mr. Rapp was primarily responsible for construction industries business units resulting in a higher weighting on business unit measures. |
D. James Umpleby III | 25% | Mr. Umpleby was primarily responsible for energy and power systems business units resulting in a higher weighting on business unit measures. |
Steven H. Wunning | N/A | To align Mr. Wunning’s ESTIP directly with the resource industries business units, the Committee approved that his ESTIP measures would be based entirely on business unit measures. |
Company Performance Measure Results
The Company’s 2013 OPACC of negative $158 million exceeded the threshold performance level, resulting in a Company Performance Measure payout factor of 43.21 percent. Mr. Oberhelman’s payout was based 100 percent on the Company Performance Measure resulting in an ESTIP award of $1,209,886 which represented a 43 percent reduction from his 2012 ESTIP award. Mr. Vittecoq’s payout was also based 100 percent on the Company Performance Measure resulting in a prorated ESTIP award of $217,949.
Business Unit Performance Measures: For 2013, group presidents were held accountable for a related set of end-to-end businesses they manage. Based on the corporate strategic goals of achieving Superior Financial Results and being the Global Leader in the markets it serves, the CEO recommended specific Business Unit Performance Measures to the Committee for each group president. At its February 2013 meeting, the Committee considered the recommendations and approved the measures described below to incentivize the group presidents to drive the Company’s strategic goals throughout the organization.
The Committee set targets for these measures at or above the business plan that were designed to be reasonably achievable with strong management performance. Maximum performance levels were designed to be difficult to achieve in light of historical performance and the Company’s business forecast at the time the measures were approved. The Business Unit Performance Measures were also weighted according to the Company’s business priorities and the responsibilities of each group president.
Description of Business Unit Performance Measures
Business Unit Performance Measure | Corporate Strategy | Description |
Operating Profit After Capital Charge (OPACC) | Superior Financial Results | The Committee approved OPACC as a measure for group presidents to incent each group to achieve the Company’s strategic goal of increasing OPACC throughout the organization. |
Construction Industries OPACC: Based on the Construction Industries reportable segment. | ||
Customer & Dealer Support OPACC: Based on the 'All Other' operating segment, specifically limited to those businesses providing component manufacturing, remanufacturing and logistics services. | ||
Power Systems OPACC: Based on the Power Systems reportable segment. | ||
Resource Industries OPACC: Based on the Resource Industries reportable segment. | ||
Percent of Industry Sales (PINS) | Global Leader | The Committee approved PINS as a performance measure to focus on the Company’s strategic goal of being the global leader. PINS is used to measure improvements in the Company’s competitive position in the markets it serves by comparing dealer sales (including deliveries to dealer rental operations) of equipment to industry sales. Certain products and geographic areas are excluded from this measure due to availability of accurate data or recent acquisitions. Products were given different weights based on NEO responsibilities and relationship to the corporate strategy. |
Customer & Dealer Support Group Enterprise Parts (Orders) Sales | Global Leader | The Committee approved this measure because increasing Caterpillar branded parts sales is an important aspect of the corporate strategy. This measure represents the percentage of Caterpillar branded parts (orders) sales at actual price levels compared to target. |
Cat Branded Parts (Orders) Sales vs. Total Cat Branded Parts Opportunity (POPS-C) | Global Leader | The Committee approved this measure because increasing Caterpillar branded parts sales is an important aspect of the corporate strategy. POPS-C is defined as Caterpillar branded parts sales achieved divided by the total parts sales opportunity on the population of Caterpillar products (M&PS) in the field. |
Financial Products Division Return on Equity (ROE) | Superior Financial Results | The Committee approved this measure to drive accountability and performance for Caterpillar’s Financial Products reportable segment. For ESTIP, ROE is calculated by dividing the full year profit (after tax) by the average of the monthly accountable equity balances, excluding the impact of interest costs and equity changes associated with differences in planned vs. actual dividends. Dividends are payments of retained earnings from Caterpillar Financial Services Corporation, the Company’s wholly owned finance subsidiary, to Caterpillar. |
Business Unit Performance Measure Results
Bradley M. Halverson: Mr. Halverson’s Business Unit Performance Measure was Financial Products Division ROE with a target of 13.26 percent, weighted 20 percent. Financial Products Division ROE for 2013 of 16.1451 percent exceeded the maximum level, and resulted in a payout factor of 200 percent. Mr. Halverson’s combined weighted average payout factor based on Corporate and Business Unit Performance Measures was 74.57 percent, resulting in an ESTIP award of $493,545.
Stuart L. Levenick: Mr. Levenick’s Business Unit Performance Measures included Customer & Dealer Support OPACC with a target of $405 million, weighted 25 percent. Customer & Dealer Support OPACC of $645 million for 2013 exceeded the maximum performance level. PINS measures for Building Construction Products (BCP), Earthmoving, Excavation and Mining Divisions, Customer & Dealer Support Group Enterprise Parts (Orders) Sales and POPS-C were the other Business Unit Performance Measures. The results of his Business Unit Performance Measures resulted in a payout factor of 102.97 percent. Mr. Levenick’s combined weighted average payout factor based on Corporate and Business Unit Performance Measures was 88.03 percent, resulting in an ESTIP award of $805,225.
Edward J. Rapp: Mr. Rapp’s Business Unit Performance Measures included Construction Industries OPACC with a target of $399 million, weighted 50 percent. Construction Industries OPACC of negative $108 million for 2013 exceeded the threshold level. PINS measures for the Earthmoving Division, Excavation Division and BCP business unit were the other Business Unit Performance Measures. The results of his Business Unit Performance Measures resulted in a payout factor of 62.71 percent. Mr. Rapp’s combined weighted average payout factor based on Corporate and Business Unit Performance Measures was 57.84 percent, resulting in an ESTIP award of $489,880.
D. James Umpleby III: Mr. Umpleby’s Business Unit Performance Measure was Power Systems OPACC with a target of $1.968 billion, weighted 75 percent. Power Systems OPACC of $2.097 billion for 2013 exceeded the target level and resulted in a payout factor of 118.67 percent. Mr. Umpleby’s combined weighted average payout factor based on Corporate and Business Unit Performance Measures was 99.80 percent, resulting in an ESTIP award of $660,574.
Steven H. Wunning: Mr. Wunning’s Business Unit Performance Measures included Resource Industries OPACC with a target of $1.939 billion, weighted 90 percent. Resource Industries OPACC of negative $361 million for 2013 was below the threshold level. A PINS measure for the Mining Division was the other Business Unit Performance Measure. Mr. Wunning’s combined weighted average payout factor based on his Business Unit Performance Measures was 4.0 percent, resulting in an ESTIP award of $35,926.
In determining the ESTIP awards for each of the NEOs, the Committee also considered performance relative to the achievement of Company and individual objectives, as discussed below under “2013 Performance Considerations.” Based on this analysis, the Committee approved the following additional amounts payable under the ESTIP: $45,000 to Mr. Halverson; $40,500 to Mr. Levenick; $45,000 to Mr. Rapp; $95,000 to Mr. Umpleby and $40,500 to Mr. Wunning.
Long-Term Incentive Compensation
Consistent with market practice, the Committee has adopted a portfolio approach to long-term executive compensation, where multiple long-term incentive compensation vehicles are used in combination. The Committee reviews this approach annually, and maintained this structure for 2013. Caterpillar’s 2013 long-term incentive plan provides for equity grants and cash performance awards. Providing a portion of long-term incentives in the form of cash also allows the Committee to manage the share run rate and preserve the available pool of shares authorized for issuance under the 2006 Long-Term Incentive Plan (LTIP).
Annual Equity Awards
For 2013, the Committee approved market-based equity awards for our NEOs based on benchmarking against our peer group. The dollar value target was determined by calculating the median long-term incentive compensation amount based on our peer group and subtracting the present value of the target LTCPP opportunity. The Committee made these awards in the form of stock options to reinforce its compensation philosophy of linking executive officer actions to long-term Company performance and stockholder appreciation.
At the February 2013 meeting, after discussion and review of the CEO’s recommendations in view of company and individual performance in 2012, the Committee approved positive adjustments to the awards for some NEOs in the range of 10 to 20 percent. No adjustment was made to the market-based award for the CEO.
Chairman’s Restricted Stock Award Program
Pursuant to the Chairman’s Restricted Stock Award Program (Chairman’s Award), the Committee may also approve discretionary awards of time-vested Restricted Stock Units (RSUs) to NEOs, other than the CEO, as a way to recognize increased responsibilities or significant accomplishments that may not be reflected in the performance objectives under ESTIP or LTCPP. Grant recommendations submitted by the Chairman are reviewed and then approved, adjusted or rejected by the Committee. RSUs awarded under this program are subject to a five-year vesting schedule with one-third vesting on the third, fourth and fifth anniversaries of the grant date, and are limited to no more than 15,000 RSUs to any one employee in a calendar year. For 2013, no RSUs were awarded to NEOs under the Chairman’s Award Program.
2013 Equity Awards
Executive | Equity Award (Stock Options) | |||
Value 1 | # | |||
Douglas R. Oberhelman | $ | 7,966,091 | 281,090 | |
Bradley M. Halverson | $ | 2,266,520 | 79,976 | |
Stuart L. Levenick | $ | 2,557,997 | 90,261 | |
Edward J. Rapp | $ | 2,266,520 | 79,976 | |
D. James Umpleby III | $ | 2,266,520 | 79,976 | |
Gerard R. Vittecoq | $ | 2,703,721 | 95,403 | |
Steven H. Wunning | $ | 2,266,520 | 79,976 | |
1Grant date fair market value determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation - Stock Compensation (FASB ASC Topic 718). | ||||
Stock Ownership Requirements
The Committee establishes stock ownership requirements for all NEOs receiving equity compensation. NEOs are required to own shares or share equivalents of Caterpillar stock equal to a minimum of 50 percent of the average number of shares or units granted to the NEO during the last five years. NEOs’ vested unexercised awards are not considered in determining whether these requirements are met. Failure to meet these requirements results in automatic grant reductions equal to the percentage shortfall in meeting the ownership requirement. Exceptions in the case of compelling circumstances must be approved by the Committee. Currently, all NEOs exceed the stock ownership requirements.
A review of stock ownership requirements for NEOs was conducted with the assistance of Meridian during 2013, resulting in the following changes starting with the 2015 equity grants:
• | To align with the common practice of companies in our peer group, stock ownership requirements will be calculated as a multiple of base salary for NEOs. |
• | Based on benchmarking against our peer group, the ownership requirement for the CEO will be set at six times base salary, and the ownership requirement for other NEOs will be set at three times base salary. |
• | Failure to meet these requirements will result in an executive being unable to sell shares until the requirement is met. |
• | The CEO will be required to meet the stock ownership requirement until one-year post-retirement, with other NEOs required to meet the requirement until six months post-retirement. |
Long-Term Cash Performance Plan (LTCPP)
As part of its portfolio approach, the Committee approves cash awards under the LTCPP, which are tied to long-term Company performance over a three-year performance cycle. Each year, the Committee establishes a target opportunity for NEOs. The Committee also specifies two performance measures for the cycle and approves payout factors based on performance at the threshold, target and maximum levels. The LTCPP is different from the ESTIP because each measure within LTCPP triggers independently, but the threshold performance level must be met in order to receive a payout for that particular measure. Although increasingly larger payments are awarded when the target and maximum performance levels are achieved, the LTCPP payout amount can vary greatly from one year to the next based on achievement of goals during the prior three-year period. The LTCPP target for 2013, expressed as a percentage of base salary was 170 percent for the CEO and 110 percent for the group presidents, which remained unchanged from the LTCPP targets established in 2012.
The Committee has the discretion to reduce individual LTCPP awards, but individual NEO increases are not permitted. No adjustments were made to the 2013 LTCPP payouts to the NEOs. In addition, individual payouts are capped at $5.0 million.
2011-2013 LTCPP Cycle: At its February 2011 meeting, the Committee established relative Total Shareholder Return (TSR), measured against the S&P 500 and M&PS Return on Assets (ROA) as the performance measures for the 2011-2013 cycle. The results for the ROA measure excluded the impact of the Bucyrus acquisition. Payouts were based on a range, expressed as a percentage of an NEO’s target opportunity. For performance at the threshold level up to target, the payout range was 30 percent to 99.99 percent of target; for target to maximum performance, the payout range was 100 percent to 200 percent of target; and for maximum and greater performance, the payout was 200 percent of target.
The following chart summarizes the 2011-2013 cycle, including the performance-based results:
Performance Measure | Weight | Performance Levels | Results | Payout Factor | Weighted Factor | ||
Threshold | Target | Max. | |||||
ROA | 50% | 6% | 12% | 16% | 10.2% | 79.30% | 39.65% |
Relative TSR (Measured against S&P 500) | 50% | 40th percentile | 60th percentile | 90th percentile | Below 40th percentile | 0% | |
The following performance-based payouts resulted from the 2011-2013 LTCPP:
Executive | Performance-Based Payout (2011-2013 LTCPP) | |
Douglas R. Oberhelman | $1,031,880 | |
Bradley M. Halverson | $208,467 | |
Stuart L. Levenick | $374,355 | |
Edward J. Rapp | $348,787 | |
D. James Umpleby III | $208,467 | |
Gerard R. Vittecoq | $402,840 | |
Steven H. Wunning | $376,007 | |
2012-2014 & 2013-2015 LTCPP Cycles: The 2012-2014 LTCPP cycle approved by the Committee at its February 2012 meeting and the 2013-2015 LTCPP cycle approved by the Committee at its February 2013 meeting, also include ROA and TSR measured against companies within the S&P 500, each weighted 50 percent. The Committee approved the same range of payouts as the 2011-2013 LTCPP cycle and established performance levels to focus management on improved performance. The target level was designed to be reasonably achievable with strong management performance, while the maximum level was designed to be difficult to achieve.
Following a comprehensive review of the LTIP completed at the request of the Committee, with the assistance of Meridian, management recommended to the Committee that the 2014-2016 long-term cash cycle performance measures be (i) Profit Per Share (PPS), weighted 75 percent and (ii) TSR measured against the companies within the S&P Industrials, weighted 25 percent. At the February 2014 Compensation Committee meeting, the Committee approved these changes to further focus NEOs and other plan participants on profitability, linked to the Company’s enterprise strategy. The Committee approved a higher weighting for the PPS measure to reward participants under the plan based on the successful execution of this strategy. The Committee approved the change to measure TSR against companies within the S&P Industrials to further align the measurement of Caterpillar’s performance with comparable companies. Additionally, the Committee approved a change to set the target opportunity for NEOs for the 2014-2016 cycle as a dollar amount, rather than as a percentage of base salary. The dollar amount target opportunity was determined based on benchmarking against the Company’s peer group with the present value set at approximately one-third of the market-based long-term incentive for NEOs in 2014, increasing the portion of the long-term incentive awards tied to this performance-based plan.
2013 Performance Considerations
Chairman and CEO Performance Considerations
The Board, excluding the CEO, all of whom are independent directors, conducts the CEO’s performance evaluation which is based on objective and subjective criteria including:
• | Caterpillar’s financial performance. |
• | The accomplishment of Caterpillar’s long-term strategic objectives. |
• | The achievement of individual goals set at the beginning of each year. |
• | The development of Caterpillar’s top management team. |
Prior to the Board’s evaluation of the CEO’s performance and its approval of his compensation, the Committee evaluates CEO compensation using the benchmarking information discussed above and also conducts an initial performance review. The Committee makes a preliminary compensation recommendation to the Board based on this initial evaluation and performance review. In February 2014, the Board reviewed the Committee’s assessment of Mr. Oberhelman’s performance and approved his annual incentive compensation. In making these determinations, the Board noted that the most critical results for Mr. Oberhelman’s 2013 performance were:
• | Sales and revenues and earnings targets established at the beginning of 2013 were not met. |
• | The Company’s management of fixed and variable costs was deemed to be excellent. |
• | M&PS operating cash flows were a record $9 billion. |
• | Inventories were dramatically reduced; however, inventory turnover goals were not met. |
• | The balance sheet further improved, supporting a 15 percent increase in the quarterly dividend and the repurchase of $2 billion of Caterpillar common stock in 2013. |
• | The market share of Caterpillar branded machines increased; however, POPS-C was below internal plans. |
• | Safety and quality metrics generally exceeded targets. |
• | Continued progress was made in hybrid technology, fuel efficiency, autonomy and technology enabled solutions. |
• | The diversity and development of the extended leadership team was expanded. |
• | The Company continues to be a leading voice on public policy issues. |
• | A focused study on improving the effectiveness of the Company’s dealership network and distribution methods was viewed as well-handled and the Company’s relationship with its dealers is considered strong. |
Other NEO Performance Considerations
The CEO presents a performance evaluation and recommends compensation adjustments to the Committee based on objective and subjective criteria for each NEO. In February 2014, the CEO met with the Committee to share his evaluations of the other NEOs and discuss performance-based compensation adjustments. The Committee approved the other NEOs’ annual incentive compensation and proposed adjustments based on 2013 performance and the benchmarking information discussed above. In making these determinations, the Committee considered the most critical results for each of the NEOs in 2013 with respect to their business units, which included many of the factors described in the CEOs evaluation above, as well as financial performance measures such as accountable profit, OPACC, operating cash flow, return on equity and return on sales; and non-financial measures including PINS, POPS-C, as delivered quality and reliability and safety results; in addition to the successful launch of NPI programs, cost management, inventory reduction and diversity and inclusion initiatives.
Post-Termination and Change in Control Benefits
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 NEO's separation to determine whether payment of any severance or other benefit to such NEO is appropriate. As required under Swiss law, Mr. Vittecoq had an employment contract, which provided for certain post-termination benefits. Change in control benefits are provided under our long-term and short-term plans and represent customary provisions for these types of plans and have no direct correlation with other compensation decisions. These change in control provisions generally provide accelerated vesting and maximum payout under the incentive plans, but are subject to a “double trigger,” whereby both a change in control and involuntary termination of employment without cause are needed to trigger such provisions. There is no cash severance or other benefits for termination related to change in control beyond what is provided for under LTIP and ESTIP. Additional information is disclosed in the “Potential Payments Upon Termination or Change in Control” section on page 34 of this proxy statement.
In the event of a qualifying termination of employment following a change in control, maximum payouts are provided for amounts payable under the LTIP and ESTIP.
• | LTIP allows for the maximum performance level to be paid under each open plan cycle of the LTCPP. |
• | All unvested stock options, stock appreciation rights, restricted stock and restricted stock units vest immediately. |
• | Options and stock appreciation rights remain exercisable over the normal life of the grant. |
• | ESTIP allows for the maximum award opportunity, prorated based on the individual's 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 $4.0 million in any single year. |
In connection with Mr. Vittecoq’s retirement, the Committee approved the accelerated vesting of Mr. Vittecoq’s 2013 equity grant and approximately 3,000 shares of restricted stock units, representing all of the outstanding awards previously granted to Mr. Vittecoq pursuant to the Chairman’s Award Program. In providing this approval, the Committee considered Mr. Vittecoq’s years of service with the Company, including his leadership, and focus on improving product quality and a culture of safety by driving the integration of the Caterpillar Production System around the world. In addition, the Committee awarded him a one-time payment of 3,328,822 Swiss Francs, which translated into approximately $3,739,241 as of December 31, 2013. Mr. Vittecoq was on the Swiss payroll, which does not have a supplemental pension plan. As a result, this payment was intended to place Mr. Vittecoq in the same position that he would have occupied had he, like the other NEOs, had the opportunity to participate in the Company's supplemental pension plan.
Retirement and Other Benefits
The defined contribution and defined benefit retirement plans available to the NEOs (excluding Mr. Vittecoq) 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, excluding Mr. Vittecoq, participate in the U.S. retirement plans described in the table below, except that Mr. Umpleby participates in Solar Turbines Incorporated sponsored defined benefit pension plans, which are similar to the pension plans described below. Mr. Vittecoq participated in Caprevi, Prevoyance Caterpillar (Swiss retirement plan) and the Swiss Employees’ Investment Plan (Swiss retention plan), which are available to all other Swiss management-level employees.
Plan Type | Title | Description |
Pension | Retirement Income Plan (RIP) | 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 Company's right to amend or terminate the plan, continue to earn benefits under RIP until the earlier of separation or December 31, 2019. |
Supplemental Retirement Plan (SERP) | Non-qualified defined benefit pension plan that works in tandem with RIP. SERP provides additional pension benefits if the NEO's 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 NEO's 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 Company's 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) Savings Plan | 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 six percent of pay contributed to the savings plan. |
Supplemental Deferred Compensation Plan (SDCP) | 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 of ESTIP and LTCPP awards. Under the terms of SDCP, supplemental base pay deferrals earn matching contributions at a rate of three percent of the deferred amount, supplemental ESTIP deferrals earn matching contributions at a rate of 50 percent of the first six percent of ESTIP deferrals and excess base pay deferrals are matched 50 percent. | |
Supplemental (SEIP) and Deferred (DEIP) Employees’ Investment Plan | 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. | |
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 “2013 All Other Compensation Table” on page 29.
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. Substantially all 2013 NEO compensation is intended to qualify as performance-based compensation under Section 162(m) or otherwise not exceed $1.0 million, except RSUs granted under the Chairman’s Award program, if any, and the CEO’s base salary.
Compensation Recoupment Policy
Under the Company’s compensation recoupment policy, the Board will 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. |
Compensation and Human Resources Committee Report | ||||
The Compensation and Human Resources 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 Company’s Annual Report on Form 10-K for filing with the SEC.
By the members of the Compensation and Human Resources Committee consisting of: | ||||
Miles D. White (Chairman) | ||||
David L. Calhoun | ||||
Jesse J. Greene, Jr. | ||||
Executive Compensation Tables | ||||
2013 Summary Compensation Table | ||||||||||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards 1 | Non-Equity Incentive Plan Compensation 2 | Change in Pension Value and Nonqualified Deferred Compensation Earnings 3 | All Other Compensation 4 | Total | |||||||||||||||||
Douglas R. Oberhelman | 2013 | $ | 1,600,008 | $ | — | $ | — | $ | 7,966,091 | $ | 2,241,766 | $ | 2,964,405 | $ | 217,299 | $ | 14,989,569 | |||||||||
Chairman & CEO | 2012 | $ | 1,562,508 | $ | — | $ | — | $ | 10,780,000 | $ | 5,049,988 | $ | 4,636,668 | $ | 345,580 | $ | 22,374,744 | |||||||||
2011 | $ | 1,429,506 | $ | — | $ | — | $ | 8,309,208 | $ | 4,934,935 | $ | 2,080,873 | $ | 147,501 | $ | 16,902,023 | ||||||||||
Bradley M. Halverson 8 | 2013 | $ | 661,872 | $ | — | $ | — | $ | 2,266,520 | $ | 747,012 | $ | 348,392 | $ | 46,107 | $ | 4,069,903 | |||||||||
Group President & CFO | ||||||||||||||||||||||||||
Stuart L. Levenick | 2013 | $ | 914,565 | $ | — | $ | — | $ | 2,557,997 | $ | 1,220,080 | $ | 452,798 | $ | 118,909 | $ | 5,264,349 | |||||||||
Group President | 2012 | $ | 865,182 | $ | — | $ | 128,275 | $ | 2,290,221 | $ | 1,849,220 | $ | 1,418,318 | $ | 122,305 | $ | 6,673,521 | |||||||||
2011 | $ | 794,652 | $ | 100,000 | $ | 57,585 | $ | 2,065,254 | $ | 2,088,945 | $ | 956,381 | $ | 122,743 | $ | 6,185,560 | ||||||||||
Edward J. Rapp | 2013 | $ | 847,008 | $ | — | $ | — | $ | 2,266,520 | $ | 883,667 | $ | 1,129,584 | $ | 296,280 | $ | 5,423,059 | |||||||||
Group President | 2012 | $ | 827,757 | $ | — | $ | 256,550 | $ | 2,372,188 | $ | 1,961,748 | $ | 1,396,792 | $ | 103,173 | $ | 6,918,208 | |||||||||
2011 | $ | 723,504 | $ | 186,211 | $ | 115,170 | $ | 2,065,254 | $ | 1,880,108 | $ | 789,978 | $ | 90,713 | $ | 5,850,938 | ||||||||||
D. James Umpleby III 8 | 2013 | $ | 661,872 | $ | — | $ | — | $ | 2,266,520 | $ | 964,041 | $ | 4,181,546 | $ | 52,857 | $ | 8,126,836 | |||||||||
Group President | ||||||||||||||||||||||||||
Gerard R. Vittecoq 5, 6, 7 | 2013 | $ | 509,026 | $ | — | $ | 258,060 | $ | 4,622,275 | $ | 620,789 | $ | 119,268 | $ | 3,780,527 | $ | 9,909,945 | |||||||||
Group President | 2012 | $ | 1,145,790 | $ | — | $ | 256,550 | $ | 2,372,188 | $ | 3,111,768 | $ | 391,297 | $ | 68,423 | $ | 7,346,016 | |||||||||
2011 | $ | 1,035,476 | $ | 226,549 | $ | 57,585 | $ | 2,065,254 | $ | 3,067,049 | $ | 1,388,869 | $ | 66,928 | $ | 7,907,710 | ||||||||||
Steven H. Wunning | 2013 | $ | 898,128 | $ | — | $ | — | $ | 2,266,520 | $ | 452,433 | $ | 733,741 | $ | 132,831 | $ | 4,483,653 | |||||||||
Group President | 2012 | $ | 881,496 | $ | — | $ | 256,550 | $ | 2,372,188 | $ | 2,120,882 | $ | 1,546,564 | $ | 166,564 | $ | 7,344,244 | |||||||||
2011 | $ | 806,199 | $ | 170,000 | $ | 86,378 | $ | 2,159,283 | $ | 2,264,944 | $ | 695,886 | $ | 107,833 | $ | 6,290,523 | ||||||||||
1 | The amounts reported in this column represent stock options granted under the LTIP that are valued based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Assumptions made in the calculation of these amounts are included in Note 2 “Stock based compensation” to the Company’s consolidated financial statements for the fiscal year ended December 31, 2013, included in the Company’s Form 10-K filed with the SEC on February 18, 2014. | |||||||||||||||||||||||||
2 | The amounts in this column reflect cash payments made to NEOs under the 2013 ESTIP in 2014 with respect to 2013 performance and under the LTCPP with respect to performance over a three year performance cycle from 2011 through 2013 as follows: Mr. Oberhelman $1,209,886/ESTIP and $1,031,880/LTCPP; Mr. Halverson $538,545/ESTIP and $208,467/LTCPP; Mr. Levenick $845,725/ESTIP and $374,355/LTCPP; Mr. Rapp $534,880/ESTIP and $348,787/LTCPP; Mr. Umpleby $755,574/ESTIP and $208,467/LTCPP; Mr. Vittecoq $217,949/ESTIP and $402,840/LTCPP; and Mr. Wunning $76,426/ESTIP and $376,007/LTCPP. All amounts reported for Mr. Vittecoq were paid in Swiss Francs and have been converted to U.S. dollars as disclosed in footnote 5 below. | |||||||||||||||||||||||||
3 | Because NEOs do not receive “preferred” or “above market” earnings on compensation deferred into SDCP, SEIP and/or DEIP, the amount shown represents only the change between the actuarial present value of each officer’s total accumulated pension benefit between December 31, 2012 and December 31, 2013. The amount assumes the pension benefit is payable at each NEO’s earliest unreduced retirement age based upon the officer’s current pensionable earnings. The change in Mr. Umpleby’s Pension Value of $4,181,546 was primarily due to Mr. Umpleby not being eligible for a benefit under the provisions of the non-qualified Solar Managerial Retirement Objective Plan as of December 31, 2012. Mr. Umpleby’s December 31, 2012 benefit was calculated as a deferred vested pension benefit from the qualified Solar Retirement Plan only. In 2013, Mr. Umpleby reached eligibility for an early retirement pension benefit in the Solar Retirement Plan and also became eligible for a benefit under the Solar Managerial Retirement Objective Plan. The change in pension benefit value was magnified by the comparison between his Solar Retirement Plan benefit only at December 31, 2012, and his Solar Retirement Plan benefit combined with his newly-eligible Solar Managerial Retirement Objective Plan benefit at December 31, 2013. | |||||||||||||||||||||||||
4 | All Other Compensation for 2013 consists of the following items detailed in a separate table appearing on page 29: Matching contributions to the Company’s 401(k) plan, matching contributions to SDCP/EIP, personal corporate aircraft usage, home security, post termination benefits paid to Mr. Vittecoq and ISE Allowances. | |||||||||||||||||||||||||
5 | All amounts reported for Mr. Vittecoq were paid in Swiss Francs and have been converted to U.S. dollars using the exchange rate in effect on December 31, 2013 (1 Swiss Franc = 1.12329 U.S. Dollars). | |||||||||||||||||||||||||
6 | Mr. Vittecoq retired effective June 1, 2013. | |||||||||||||||||||||||||
7 | Amounts in the Stock Awards column of $258,060 and Option Awards column of $1,918,554 represent the incremental fair value associated with the modification of Mr. Vittecoq’s outstanding RSUs under the Chairman’s Award Program, and 2013 stock option grants in connection with the accelerated vesting at retirement for both the RSUs and stock options awards, and does not reflect new equity grants to Mr. Vittecoq. Mr. Vittecoq was granted $2,703,721 of stock options in March of 2013. | |||||||||||||||||||||||||
8 | Mr. Halverson and Mr. Umpleby became NEOs in 2013 so historical information for 2012 and 2011 is not presented. | |||||||||||||||||||||||||
2013 All Other Compensation Table | ||||||||||||||||||||
Name | Year | Matching Contributions 401(k) | Matching Contributions SDCP/EIP | Corporate Aircraft/ Transportation 2 | Home Security 3 | Other 4 | Total All Other Compensation | |||||||||||||
Douglas R. Oberhelman | 2013 | $ | 7,900 | $ | 104,315 | $ | 96,594 | $ | 4,926 | $ | 3,564 | $ | 217,299 | |||||||
2012 | $ | 7,760 | $ | 136,797 | $ | 105,006 | $ | 94,397 | $ | 1,620 | $ | 345,580 | ||||||||
2011 | $ | 6,840 | $ | 48,980 | $ | 69,307 | $ | 20,754 | $ | 1,620 | $ | 147,501 | ||||||||
Bradley M. Halverson | 2013 | $ | 7938 | $ | 25810 | $ | 192 | $ | 10925 | $ | 1242 | $ | 46107 | |||||||
Stuart L. Levenick | 2013 | $ | 7,981 | $ | 40,749 | $ | 59,842 | $ | 6,773 | $ | 3,564 | $ | 118,909 | |||||||
2012 | $ | 7,169 | $ | 55,038 | $ | 56,323 | $ | 2,155 | $ | 1,620 | $ | 122,305 | ||||||||
2011 | $ | 7,350 | $ | 43,315 | $ | 69,430 | $ | 1,028 | $ | 1,620 | $ | 122,743 | ||||||||
Edward J. Rapp | 2013 | $ | 7,750 | $ | 45,767 | $ | 17,430 | $ | 13,805 | $ | 211,528 | $ | 296,280 | |||||||
2012 | $ | 7,953 | $ | 51,847 | $ | 41,648 | $ | 825 | $ | 900 | $ | 103,173 | ||||||||
2011 | $ | 6,797 | $ | 35,816 | $ | 46,375 | $ | 825 | $ | 900 | $ | 90,713 | ||||||||
D. James Umpleby III | 2013 | $ | 7,650 | $ | 26,116 | $ | 14,614 | $ | 2,155 | $ | 2,322 | $ | 52,857 | |||||||
Gerard R. Vittecoq | 2013 | $ | N/A | 1 | $ | 22,505 | $ | 18,781 | $ | — | $ | 3,739,241 | $ | 3,780,527 | ||||||
2012 | $ | N/A | 1 | $ | 54,998 | $ | 13,425 | $ | — | $ | — | $ | 68,423 | |||||||
2011 | $ | N/A | 1 | $ | 49,703 | $ | 17,225 | $ | — | $ | — | $ | 66,928 | |||||||
Steven H. Wunning | 2013 | $ | 8,913 | $ | 48,003 | $ | 72,351 | $ | — | $ | 3,564 | $ | 132,831 | |||||||
2012 | $ | 7,149 | $ | 60,674 | $ | 96,221 | $ | — | $ | 2,520 | $ | 166,564 | ||||||||
2011 | $ | 6,438 | $ | 43,661 | $ | 56,114 | $ | — | $ | 1,620 | $ | 107,833 | ||||||||
1 | Mr. Vittecoq participated in a non-U.S. Employee Investment Plan and retired from the Company effective June 1, 2013. | |||||||||||||||||||
2 | Several of our NEOs serve as board members for other corporations at the request of the Company, and the personal usage noted above primarily consists of NEO flights to attend these outside board meetings. Under the rules of the SEC, use of aircraft for this purpose is deemed to be personal, even though Caterpillar considers these flights beneficial to the Company and for a business purpose. CEO approval is required for all personal use. The value of personal aircraft usage reported above is based on Caterpillar’s 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. Occasionally, a spouse or other guest may accompany the NEO, and if the Company aircraft is already scheduled for business purposes and can accommodate additional passengers, no additional variable operating cost is incurred. Mr. Oberhelman and the Company have a time-sharing lease agreement, pursuant to which certain costs associated with those flights are reimbursed by Mr. Oberhelman to the Company in accordance with the agreement. | |||||||||||||||||||
3 | 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. | |||||||||||||||||||
4 | The amount shown includes the premium cost of Company provided basic life insurance under a Group Variable Universal Life policy. The coverage amount is two times base salary, capped at $500,000. The premium cost is as follows: Mr. Oberhelman $3,564; Mr. Halverson $1,242; Mr. Levenick $3,564; Mr. Rapp $2,322; Mr. Umpleby $2,322; and Mr. Wunning $3,564. Mr. Vittecoq is not covered under a Company sponsored life insurance product. Mr. Vittecoq received a post separation cash lump sum payment of $3,739,241. As more fully described on page 35, this payment was intended to place Mr. Vittecoq in the same position as if he had the opportunity to participate in the Company’s supplemental pension plan. Mr. Rapp is currently on an International Service Assignment (ISE) based in Singapore. The amount shown includes $209,206 of foreign service allowances typically paid by the Company on behalf of ISEs, including allowances paid to Mr. Rapp for moving expenses, mobility premium, home leave, and foreign and U.S. taxes. Company paid U.S. tax of $18,122 was included in this amount. These allowances are intended to ensure that our ISEs are in the same approximate financial position as they would have been if they lived in the U.S. during the time of their international service. | |||||||||||||||||||
Grants of Plan-Based Awards in 2013 | |||||||||||||||||||||
Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards 1 | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options 4 | Exercise or Base Price of Option Awards ($/share) | Grant Date Fair Value of Stock and Option Awards ($) 5 | |||||||||||||||
Threshold | Target | Maximum | |||||||||||||||||||
Douglas R. Oberhelman | LTCPP 2 | $ | 816,004 | $ | 2,720,014 | $ | 5,000,000 | — | — | — | — | ||||||||||
ESTIP 3 | $ | 840,004 | $ | 2,800,014 | $ | 4,000,000 | — | — | — | — | |||||||||||
03/04/2013 | — | — | — | — | 281,090 | $ | 89.75 | $ | 7,966,091 | ||||||||||||
Bradley M. Halverson | LTCPP 2 | $ | 218,418 | $ | 728,059 | $ | 1,456,118 | — | — | — | — | ||||||||||
ESTIP 3 | $ | 198,562 | $ | 661,872 | $ | 1,323,744 | — | — | — | — | |||||||||||
03/04/2013 | — | — | — | — | 79,976 | $ | 89.75 | $ | 2,266,520 | ||||||||||||
Stuart L. Levenick | LTCPP 2 | $ | 304,231 | $ | 1,014,102 | $ | 2,028,204 | — | — | — | — | ||||||||||
ESTIP 3 | $ | 274,370 | $ | 914,565 | $ | 1,829,130 | — | — | — | — | |||||||||||
03/04/2013 | — | — | — | — | 90,261 | $ | 89.75 | $ | 2,557,997 | ||||||||||||
Edward J. Rapp | LTCPP 2 | $ | 279,513 | $ | 931,709 | $ | 1,863,418 | — | — | — | — | ||||||||||
ESTIP 3 | $ | 254,102 | $ | 847,008 | $ | 1,694,016 | — | — | — | — | |||||||||||
03/04/2013 | — | — | — | — | 79,976 | $ | 89.75 | $ | 2,266,520 | ||||||||||||
D. James Umpleby III | LTCPP 2 | $ | 218,418 | $ | 728,059 | $ | 1,456,118 | — | — | — | — | ||||||||||
ESTIP 3 | $ | 198,562 | $ | 661,872 | $ | 1,323,744 | — | — | — | — | |||||||||||
03/04/2013 | — | — | — | — | 79,976 | $ | 89.75 | $ | 2,266,520 | ||||||||||||
Gerard R. Vittecoq | LTCPP 2 | $ | 412,100 | $ | 1,373,667 | $ | 2,747,333 | — | — | — | — | ||||||||||
ESTIP 3 | $ | 371,754 | $ | 1,239,179 | $ | 2,478,359 | — | — | — | — | |||||||||||
03/04/2013 | — | — | — | — | 95,403 | $ | 89.75 | $ | 2,703,721 | ||||||||||||
6 | — | — | — | 3,000 | — | — | $ | 258,060 | |||||||||||||
7 | — | — | — | — | 95,403 | $ | 89.75 | $ | 1,918,554 | ||||||||||||
Steven H. Wunning | LTCPP 2 | $ | 296,382 | $ | 987,941 | $ | 1,975,882 | — | — | — | — | ||||||||||
ESTIP 3 | $ | 269,438 | $ | 898,128 | $ | 1,796,256 | — | — | — | — | |||||||||||
03/04/2013 | — | — | — | — | 79,976 | $ | 89.75 | $ | 2,266,520 | ||||||||||||
1 | The amounts reported in this column represent estimated potential awards under the LTCPP and 2013 ESTIP. | ||||||||||||||||||||
2 | The LTCPP estimates are based upon a predetermined percentage of an executive’s base salary throughout the three-year performance cycle, and actual payouts will be determined based on Caterpillar’s achievement of specified performance levels (total shareholder return and return on assets) over the three-year performance cycle. The threshold amount is earned if at least 30 percent of the targeted performance level is achieved. The target amount is earned if at least 100 percent of the targeted performance level is achieved. The maximum award is earned if at least 200 percent or greater of the targeted performance level is achieved. Base salary levels for 2013 were used to calculate the estimated dollar value of future payments for the 2013 to 2015 performance cycle that would not otherwise be payable until 2016, after the close of the cycle. The amount reported for Mr. Vittecoq represents his full award opportunity granted to him at the beginning of 2013. In connection with Mr. Vittecoq’s 2013 retirement, Mr. Vittecoq will receive a prorated payout for the 2013 to 2015 performance cycle for the time he was an active employee during the performance cycle. | ||||||||||||||||||||
3 | The 2013 ESTIP estimates are based upon the executive’s base salary for 2013. The actual payout was based on the achievement of a corporate Operating Profit After Capital Charge (OPACC) performance metric for the CEO and Mr. Vittecoq, and a combination of a corporate OPACC performance metric and/or specific business unit performance measures for each other NEO. Please refer to page 21 of the CD&A for a detailed explanation of the various business unit metrics. Prior to any ESTIP payout, a performance trigger of $3.50 profit per share must be achieved for all NEOs. For the 2013 ESTIP, the threshold amount was earned if at least 30 percent of the targeted performance level was achieved. The target amount was earned if at least 100 percent of the targeted performance level was achieved. The maximum award was earned if at least 200 percent or greater of the targeted performance level was achieved, with a plan cap set at $4.0 million. The cash payouts for the 2013 plan year are included in the column “Non-Equity Incentive Plan Compensation” of the “2013 Summary Compensation Table.” In connection with Mr. Vittecoq’s 2013 retirement, Mr. Vittecoq received a prorated payout for the 2013 ESTIP for the time he was an active employee during the performance period. | ||||||||||||||||||||
4 | 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 ($89.75). All stock options granted to the NEOs will vest three years from the grant date. The actual realizable value of the options will depend on the fair market value of Caterpillar stock at the time of exercise. | ||||||||||||||||||||
5 | The amounts shown do not reflect realized compensation by the NEO. The amounts shown represent the value of the stock option awards granted to the NEOs based upon the grant date fair market value of the award as determined in accordance with FASB ASC Topic 718. | ||||||||||||||||||||
6 | This amount represents the number of RSUs that were impacted by the modification of outstanding RSUs under the Chairman’s Award Program in connection with Mr. Vittecoq’s retirement, and does not reflect a new equity grant. The vesting terms were modified to reflect accelerated vesting upon retirement of 3,000 RSUs awarded to Mr. Vittecoq under the Chairman’s Award Program. | ||||||||||||||||||||
7 | This amount represents the number of stock options that were impacted by the modification of outstanding stock options in connection with Mr. Vittecoq’s retirement, and does not reflect a new equity grant. The vesting terms were modified to reflect accelerated vesting upon retirement of 95,403 stock options awarded to Mr. Vittecoq in March of 2013. | ||||||||||||||||||||
Outstanding Equity Awards at 2013 Fiscal Year-End | ||||||||||||||||
Name | Grant Date | Vesting Date | Option Awards | Stock Awards | ||||||||||||
Number of Securities Underlying Unexercised SARs/Options | SAR / Option Exercise Price | SAR / Option Expiration Date 1 | Number of Shares or Units of Stock That Have Not Vested 2 | Market Value of Shares or Units of Stock That Have Not Vested 3 | ||||||||||||
Exercisable | Unexercisable | |||||||||||||||
Douglas R. Oberhelman | 06/08/2004 | 12/31/2004 | 140,000 | — | $ | 38.6275 | 06/08/2014 | — | $ | — | ||||||
02/18/2005 | 02/18/2005 | 140,000 | — | $ | 45.6425 | 02/18/2015 | — | $ | — | |||||||
02/17/2006 | 02/17/2009 | 110,000 | — | $ | 72.0500 | 02/17/2016 | — | $ | — | |||||||
03/02/2007 | 03/02/2010 | 125,884 | — | $ | 63.0400 | 03/02/2017 | — | $ | — | |||||||
03/03/2008 | 03/03/2011 | 115,484 | — | $ | 73.2000 | 03/03/2018 | ̵ | |||||||||