2021 Annual Meeting Proxy Statement

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)

 

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Caterpillar Inc.

 

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We are sending you these proxy materials in connection with Caterpillar’s solicitation of proxies, on behalf of its Board of Directors, for the 2021 Annual Meeting of Shareholders (Annual Meeting). Distribution of these materials is scheduled to begin on April 30, 2021. Please submit your vote or proxy by telephone, mobile device, internet, or, if you received your materials by mail, you can complete and return your proxy or voting instruction form by mail.

 

 2021 PROXY STATEMENT 3

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DEAR FELLOW SHAREHOLDERS,

 

 

 

D. JAMES UMPLEBY III

Chairman and Chief Executive Officer

“AS WE CONTINUE TO EXECUTE OUR STRATEGY FOR LONG-TERM PROFITABLE GROWTH, WE ALSO FOCUS ON WINNING THE RIGHT WAY FOR OUR CUSTOMERS, OUR EMPLOYEES AND OUR COMMUNITIES AROUND THE WORLD.

 

On behalf of the Board of Directors and our entire company, I cordially invite you to attend the Annual Meeting of Shareholders on June 9, 2021, at 8 a.m. Central Time. This year’s meeting will be virtual to adhere to the recommendations of public health officials during the COVID-19 pandemic. The virtual format will once again allow shareholders to participate in the meeting while ensuring everyone’s health and safety.

In addition to receiving an update on the company’s performance, you will have the opportunity to vote on several items related to our business. Please refer to page 62 for information on how to participate in this year’s shareholder meeting.

We encourage you to review this proxy statement to learn more about your board of directors, our governance practices, compensation programs and philosophy, and other key items. Your vote is important. Please vote your shares by virtually attending the annual meeting, by voting online separately, via your mobile phone, by telephone, or by mail.

I would like to recognize two retiring directors, Juan Gallardo and Bill Osborn. Juan has served as a director since 1998 and Bill has been a director since 2000. The board of directors extends our sincere appreciation for their exemplary service.

We also welcome our newest board members. Gerald Johnson, executive vice president of Global Manufacturing at General Motors, joined the board March 1, 2021. David MacLennan, board chair and chief executive officer of Cargill, was elected to the board on April 14, 2021.

Thank you for your ongoing investment in and support of Caterpillar as we continue to execute our enterprise strategy for long-term profitable growth and shareholder value.

Sincerely,

 

 

D. James Umpleby III
Chairman and Chief Executive Officer

 

 2021 PROXY STATEMENT 5

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PROXY SUMMARY

This summary does not contain all of the information you should consider when casting your vote. You should read the complete proxy statement before voting.

ANNUAL MEETING OF SHAREHOLDERS

TIME & DATE

PLACE

RECORD DATE

ADMISSION

8:00 a.m. Central Time
June 9, 2021

Virtual Meeting
www.meetingcenter.io/226744779
Password: CAT2021

The close of business
on April 12, 2021

To attend and to register for the Virtual Meeting, please follow instructions on page 62

SHAREHOLDER VOTING MATTERS

Proposal

Board’s Voting

Recommendation

Page

Reference

1

Election of 11 Directors Named in this Proxy Statement

FOR Each Nominee

10

2

Ratification of our Independent Registered Public Accounting Firm

FOR

24

3

Advisory Vote to Approve Executive Compensation

FOR

27

4

Shareholder Proposal - Report on Climate Policy

AGAINST

48

5

Shareholder Proposal - Report on Diversity & Inclusion

AGAINST

50

6

Shareholder Proposal - Transition to a Public Benefit Company

AGAINST

52

7

Shareholder Proposal - Shareholder Action by Written Consent

AGAINST

55

 

 2021 PROXY STATEMENT 6

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OUR DIRECTOR NOMINEES

Nominee and Principal Occupation

Independent

Age

Director

Since

Other Public Company Boards

Caterpillar

Committees

AC

CHRC

PPGC

Kelly A. Ayotte
Former U.S. Senator representing
New Hampshire

Yes

52

2017

The Blackstone Group Inc.
Boston Properties, Inc.
News Corporation

 

 

David L. Calhoun
Presiding Director of Caterpillar Inc.
President and CEO
of The Boeing Company

Yes

63

2011

The Boeing Company

 

 

 

 

Daniel M. Dickinson
Managing Partner of HCI Equity Partners

Yes

59

2006

None

 

 

Gerald Johnson
Executive Vice President, Global Manufacturing of General
Motors Company

Yes

58

2021

None

 

 

David W. MacLennan
Board Chair and CEO of
Cargill, Inc.

Yes

61

2021

Ecolab Inc.

 

 

Debra L. Reed-Klages
Former Chairman and CEO of Sempra Energy

Yes

64

2015

Chevron Corporation
Lockheed Martin Corporation

 

 

Edward B. Rust, Jr.
Former Chairman and CEO of State Farm Mutual Automobile Insurance Company

Yes

70

2003

Helmerich & Payne, Inc.
S&P Global Inc.

 

 

Susan C. Schwab
Professor Emerita at the University of Maryland School of Public Policy and Strategic Advisor for Mayer Brown LLP;
former United States Trade Representative

Yes

66

2009

FedEx Corporation
Marriott International, Inc.

 

 

 

D. James Umpleby III
Chairman and CEO of Caterpillar Inc.

No

63

2017

Chevron Corporation

 

 

 

Miles D. White
Executive Chairman of the Board, Abbott Laboratories

Yes

66

2011

Abbott Laboratories
McDonald’s Corporation

 

 

Rayford Wilkins, Jr.
Former CEO of Diversified Businesses
at AT&T Inc.

Yes

69

2017

Morgan Stanley
Valero Energy Corporation

 

 

AC: Audit Committee       CHRC: Compensation and Human Resources Committee       PPGC: Public Policy and Governance Committee

 

Chair

Member

 

 2021 PROXY STATEMENT 7

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GOVERNANCE HIGHLIGHTS

Our commitment to good corporate governance stems from our belief that a strong governance framework creates long-term value for our shareholders, strengthens Board and management accountability and builds trust in the Company and its brand. Our governance framework includes, but is not limited to, the following highlights:

Board and Governance Information

 

Board and Governance Information

 

Size of Board

11

Code of Conduct for Directors, Officers and Employees

Yes

Number of Independent Directors

10

Supermajority Voting Threshold for Mergers

No

Average Age of Directors

63

Proxy Access

Yes

Average Director Tenure (in years)

8

Shareholder Action by Written Consent

No

Annual Election of Directors

Yes

Shareholder Ability to Call Special Meetings

Yes

Mandatory Retirement Age

74

Poison Pill

No

Gender and Diversity

45%

Stock Ownership Guidelines for Directors and Executive Officers

Yes

Majority Voting in Director Elections

Yes

Anti-Hedging and Pledging Policies

Yes

Independent Presiding Director

Yes

Clawback Policy

Yes

2020 PERFORMANCE HIGHLIGHTS

OPERATING PROFIT MARGIN

PROFIT PER SHARE

STRONG BALANCE SHEET

10.9%

$5.46

$3.4 billion

Delivered operating margin of 10.9%

and adjusted operating margin of

11.8%*, which was within our 2019

Investor Day target range.

Profit per share was $5.46 in 2020, down

from $10.74 in 2019. Adjusted profit per share** was $6.56 in 2020, compared with $11.40 in 2019.

Returned $3.4 billion to Shareholders through dividends and repurchases. The enterprise cash balance at the end of 2020 was $9.4 billion.

 

 

*

Adjusted operating margin is a non-GAAP measure and a reconciliation to the most directly comparable GAAP measure is included on page 60.

**

Adjusted Profit Per Share is a non-GAAP measure and a reconciliation to the most directly comparable GAAP measure is included on page 60.

 

 

 2021 PROXY STATEMENT 8

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510 Lake Cook Road, Suite 100
Deerfield, IL 60015
Phone (224) 551-4160
www.caterpillar.com

 

NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS

In light of the COVID-19 pandemic, the Board of Directors, after careful consideration, has decided to hold this year's Annual Meeting exclusively online. If you plan to participate in the virtual meeting, please see the information below as well as the attendance and registration instructions on page 62. There will be no physical location for the Annual Meeting this year.

MEETING INFORMATION

JUNE 9, 2021

8:00 a.m. Central Time

Website: www.meetingcenter.io/226744779

Password: CAT2021

MEETING AGENDA

1.

Elect 11 director nominees named in this Proxy Statement

2.

Ratify our independent registered public accounting firm for 2021

3.

Approve, by non-binding vote, executive compensation

4.

Vote on shareholder proposals

5.

Address any other business that properly comes before the meeting

RECORD DATE

April 12, 2021

 

By Order of the Board of Directors

Nicole M. Puza

Corporate Secretary
April 30, 2021

PLEASE VOTE YOUR SHARES:

We encourage shareholders to vote promptly, as this will save the expense of additional proxy solicitation.

You may vote in the following ways:

BY INTERNET

BY MOBILE DEVICE

BY TELEPHONE

BY MAIL

vote online at
www.caterpillar.com/proxymaterials

scan this QR code to vote with
your mobile device

call the number included on
your proxy card or notice

mail your signed proxy or voting
instruction form

Important Notice Regarding the Availability of Proxy Materials for the Annual Shareholder meeting to be held on June 9, 2021.

A link to the list of shareholders of record will be made available to shareholders during the meeting at www.meetingcenter.io/226744779. This Notice of Annual Meeting and Proxy Statement and the 2020 Annual Report on Form 10-K are available at www.investorvote/CAT.

 

 2021 PROXY STATEMENT 9

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DIRECTORS & GOVERNANCE

PROPOSAL 1 – ELECTION OF DIRECTORS

What am I voting on?

Shareholders are being asked to elect the 11 director nominees named in this Proxy Statement for a one-year term.

Board Voting Recommendation:

FOR  the election of each of the Board’s director nominees.

OVERVIEW OF OUR BOARD

BOARD ATTENDANCE - 2020

     

Board

7

7

6

7

7

7

7

7

6

7

7

7

 

97%

Audit

11

 

 

11

 

11

 

11

 

 

 

 

 

Compensation &
Human Resources

5

 

 

 

 

 

5

 

 

 

5

5

 

Attendance for
incumbent directors for
2020*

 

Public Policy &
Governance

7

7

6

 

7

 

 

1**

6

 

 

 

 

*

Attendance was less than 100% due to non-attendance at a special meeting to consider two tenders of resignation, as required by Caterpillar’s Values in Action to avoid even the appearance of a conflict of interest.

**

The Board of Directors approved certain committee membership changes effective January 26. 2020. As part of those changes, Mr. Rust left the Public Policy & Governance Committee and joined the Audit Committee. Mr. Rust attended all of his former and newly assigned committee meetings held in 2020.

 

 

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The Board’s policy is to encourage and expect that all directors attend each Annual Meeting of Shareholders. All then-serving directors attended the 2020 Annual Meeting. The independent directors generally meet in executive session as part of each regularly scheduled Board meeting. The Board's independent Presiding Director, David L. Calhoun, presided over the Board's executive sessions in 2020.

BOARD EVOLUTION SINCE 2016

Five new directors elected

Rotation of Board committee chairs

Presiding Director elected

Expanded qualifications and diversity represented on Board

DIVERSITY OF SKILLS AND EXPERTISE

Our Board nominees offer a diverse range of skills and experience in relevant areas.

SUMMARY OF INDIVIDUAL DIRECTOR SKILLS, CORE COMPETENCIES AND ATTRIBUTES

     
                           

Caterpillar Board
Tenure (Years)

4

10

15

0

0

6

18

12

4

10

4

8 years
Average Tenure

Board of Directors Experience (other Boards)

 

91%

Audit Committee Financial Expert

 

 

 

100% of
AC Members

CEO / Leadership

100%

Business Development and Strategy

 

91%

Government / Regulatory Affairs

 

 

 

73%

Customer and Product Support Services

 

 

 

73%

Finance & Accounting

 

 

 

73%

Risk Management

 

 

82%

Technology

 

 

82%

Global Experience

 

91%

Manufacturing / Logistics

 

 

 

 

 

55%

Gender and/or Diversity

 

 

 

 

 

 

45%

Age

52

63

59

58

61

64

70

66

63

66

69

63 years
Average Age

                         

 

 2021 PROXY STATEMENT 11

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DIRECTOR CONTINUOUS EDUCATION AND DEVELOPMENT

The Company places a high importance on the continuous development of its Board. Directors have opportunities for ongoing education and development through participation in meetings, subscriptions to relevant publications and attendance at activities and professional development training offered by associations such as the National Association of Corporate Directors and Lead Director Network. Directors receive specialized presentations from experts in the Company's various businesses in the course of their service. Since the last annual shareholder meeting, these presentations have included updates on the COVID-19 pandemic, including the health and safety of our employees; digital strategy, including connected assets; parts logistics and distribution; enterprise component strategy and integrated aftermarket strategy; rental; remanufacturing; expanded offerings; competitive positioning and new technology; customer support; regular updates concerning the operations of certain businesses within our operating segments; Lean manufacturing; talent management; cybersecurity; and the Cat® dealer network. These opportunities allow directors to be well informed and to expand their knowledge of trends and issues relevant to their role. Directors are also given development and education opportunities through speaking or meeting directly with members of management and other employees, Company dealers and customers to better understand the Company's operations and business and also through attending industry trade shows such as CONEXPO.

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 compliance committee meetings, a code of conduct that applies to all employees, executives and directors, quality standards and processes, an ethics and compliance program and comprehensive internal audit processes. The Board’s risk oversight role also includes the selection and oversight of the independent auditors. The Board implements its risk oversight function both as a Board and through delegation to Board committees, which meet regularly and report back to the Board. The Board has delegated the oversight of specific risks to Board committees that align with their functional responsibilities.

The Audit Committee (AC) assists the Board in overseeing the enterprise risk management program and evaluates and monitors risks related to the Company’s financial reporting requirements, system of internal controls, the internal audit program, the independent auditor, the compliance program and the information security program. The AC assesses cybersecurity and information technology risks and the controls implemented to monitor and mitigate these risks. The Chief Information Officer attends all bimonthly AC meetings and provides cybersecurity updates to the AC and Board. The Compensation and Human Resources Committee (CHRC) monitors and assesses risks associated with the Company’s employment and compensation policies and practices. The Public Policy and Governance Committee (PPGC) oversees various governance matters and risks related to public policy and environmental, health and safety activities, including climate and sustainability, that affect the Company.

DIRECTOR NOMINATIONS AND EVALUATIONS

PROCESS FOR NOMINATING AND EVALUATING DIRECTORS

The PPGC solicits and receives recommendations for potential director candidates from shareholders, management, directors, professional search firms and other sources. In its assessment of each potential candidate, the PPGC considers each candidate’s professional experience, 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 demonstrated an 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. In evaluating director candidates, the PPGC also considers key skills and experience related to the Company's strategy for long-term profitable growth, which identifies services, expanded offerings and operational excellence as primary focus areas. Moreover, candidates must have the ability to devote the time necessary to meet a director’s responsibilities and serve on no more than four public company boards in addition to Caterpillar.

The Board values diversity of talents, skills, abilities and experiences and believes that Board diversity of all types enhances the performance of the Board and provides significant benefits to the Company. Accordingly, the PPGC takes into account the diversity of the Board in selecting new director candidates.

 

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DIRECTOR RECRUITMENT PROCESS

CANDIDATE

RECOMMENDATIONS

PPGC

BOARD OF DIRECTORS

SHAREHOLDERS

from Shareholders, Management, Directors, professional search firms and other sources

 

Discusses & Reviews

Qualifications and Expertise

Enterprise Strategy

Board Needs

Diversity

Interviews

Recommends Nominees

 

Discusses PPGC Recommendations

Analyzes Independence

Selects Nominees

 

Vote on Nominees at Annual Meeting

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 is a global manufacturer with products sold around the world.

 

Manufacturing or logistics operations experience

Broad international exposure

Technology and customer and product support services are important.

 

Technology experience

Customer and product support experience

The Company's businesses undertake numerous transactions in many countries and in many currencies.

 

Diversity of race, ethnicity, gender, cultural background or professional experience

High level of financial literacy

Mergers and acquisitions experience

Demand for many of the 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 are impacted by regulatory requirements and policies of various governmental entities around the world.

 

Governmental and international trade experience

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

Relevant executive and leadership experience

Cybersecurity experience

 

 

 

 

NOMINATIONS FROM SHAREHOLDERS

The PPGC considers unsolicited inquiries and director nominees recommended by shareholders in the same manner as nominees from all other sources. Recommendations should be sent to the Corporate Secretary, 510 Lake Cook Road, Suite 100, Deerfield, IL 60015. Shareholders may nominate a director candidate to serve on the Board by following the procedures described in our bylaws. Deadlines for shareholder nominations for Caterpillar’s 2022 Annual Meeting of Shareholders are included in the “Shareholder Proposals and Director Nominations for the 2022 Annual Meeting” section on page 58.

The number of persons comprising the Caterpillar Board of Directors is currently established as 11. All of the Board's nominees have consented to being named in this proxy statement and to serve if elected. If any of the Board’s nominees should become unavailable to serve as a Director prior to the Annual Meeting, the size of the Board and number of Board nominees will be reduced accordingly.

 

 2021 PROXY STATEMENT 13

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DIRECTOR CANDIDATE BIOGRAPHIES AND QUALIFICATIONS

Directors have been in their current positions for the past five years unless otherwise noted. Information is as of April 14, 2021. The Board has nominated the following individuals to stand for election for a one-year term expiring at the Annual Meeting of Shareholders in 2022.

 

 

KELLY A. AYOTTE

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

Former U.S. Senator representing New Hampshire

 

Age 52

Director since: 2017

INDEPENDENT

The Blackstone Group Inc.

Boston Properties, Inc.

News Corporation

Public Policy and Governance

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

Bloom Energy Corporation

 

 

Former Senator Ayotte provides the Board with leadership experience and in-depth knowledge in the areas of public policy, government and law from her experience as U.S. Senator, Attorney General, Deputy Attorney General and Chief of the Homicide Prosecution Unit for New Hampshire. She offers valuable insights on important public policy issues from her service on the Senate Commerce, Science and Transportation Committee and financial experience from her service on the Senate Budget Committee. In addition to the directorships mentioned above, former Senator Ayotte currently serves on three nonprofit boards that focus on human rights and other global issues.

 

 

DAVID L. CALHOUN

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

President and CEO of The Boeing Company (aircraft and defense)

 

Age 63

Director since: 2011

INDEPENDENT

Presiding Director

The Boeing Company

Public Policy and Governance, Chair

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

Gates Industrial Corporation plc

Nielsen Holdings plc

 

Mr. Calhoun has been President and CEO of The Boeing Company since 2020. Prior to leading Boeing, Calhoun served as senior managing director and head of portfolio operations at The Blackstone Group from 2014. Previously, he also served as executive chairman of the board for Nielsen Holdings from January 2014 to January 2016 and served as Nielsen CEO for seven years beginning in 2006. Mr. Calhoun began his career at The General Electric Company (GE), where he rose to vice chairman of the company and president and chief executive officer of GE Infrastructure, its largest business unit. During his 26 years at GE, he held a number of operating, finance and marketing roles, and led multiple business units, including GE Transportation and GE Aircraft Engines. He provides valuable insight and perspective to the Board on strategic and business matters, stemming from his extensive operational, executive and management experience with Blackstone and Nielsen and his previous roles at GE. He provides valuable insight and perspective to the Board on strategic and business matters, stemming from his extensive operational, executive and management experience. The Board elected Mr. Calhoun as Presiding Director in 2018.

 

 

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DANIEL M. DICKINSON

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

Managing Partner of HCI Equity Partners (private equity firm)

 

Age 59

Director since: 2006

INDEPENDENT

None

Audit, Chair

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

None

 

Mr. Dickinson has served as Managing Partner of HCI Equity Partners since 2001. His experience in mergers and acquisitions, private equity business and investment banking provides important insights for evaluating investment opportunities. Mr. Dickinson’s significant financial experience, both in the U.S. and internationally, contributes to the Board’s understanding and ability to analyze complex issues. His experience as a former director of a large, publicly-traded multinational corporation enables him to provide meaningful input and guidance to the Board.

 

 

GERALD JOHNSON

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

Executive Vice President, Global Manufacturing of
General Motors Company (manufacturing)

 

Age 58

Director since: 2021

INDEPENDENT

None

Public Policy and Governance

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

None

       

 

Mr. Johnson has served as Executive Vice President, Global Manufacturing of General Motors Company (GM) since April 2019. Prior to that he served as Vice President North America Manufacturing and Labor Relations from August 2017 – March 2019 and Vice President Global Operational Excellence from July 2014 to July 2017. He leads GM’s Global Manufacturing, Manufacturing Engineering and Labor Relations organizations. He provides valuable insight and perspective to the Board on strategic and business matters stemming from his extensive knowledge of global manufacturing operations, strategy and business development, customer and product support and technology. Mr. Johnson was brought to the attention of the Board through a professional search firm.

 

 

DAVID W. MACLENNAN

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

Board Chair and CEO of
Cargill, Inc. (food and agriculture)

 

Age 61

Director since: 2021

INDEPENDENT

Ecolab Inc.

Audit

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

None

 

Mr. MacLennan has served as Chief Executive Officer of Cargill, Inc. since December 2013 and Board Chair since September 2015. Mr. MacLennan has held several executive positions since beginning his career at Cargill in 1991. He provides valuable insight and perspective to the Board stemming from his extensive leadership in global manufacturing operations, risk management, government and regulatory affairs, and technology. Mr. MacLennan was brought to the attention of the Board through his experience as a chief executive officer of a large multinational corporation with operations relevant to the Company’s business and vetted by an independent professional search firm.

 

 2021 PROXY STATEMENT 15

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DEBRA L. REED-KLAGES

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

Former Chairman and CEO of Sempra Energy (energy infrastructure and utilities)

 

Age 64

Director since: 2015

INDEPENDENT

Chevron Corporation

Lockheed Martin Corporation

Compensation and Human Resources, Chair

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

Halliburton Company

Oncor Electric Delivery Company LLC

Sempra Energy

 

Ms. Reed-Klages retired as Chairman of the Board and CEO of Sempra Energy in 2018, having served in these roles since 2012 and 2011, respectively. The power, oil and gas industries are key end-user markets for Caterpillar products and the Board believes Ms. Reed-Klages’ background provides valuable insights into trends in these industries. In addition, her experience as a CEO and director of other large, publicly-traded corporations enables her to provide meaningful input and guidance to the Board. Ms. Reed-Klages’ areas of expertise include commodity markets, sustainability and international operations.

 

 

EDWARD B. RUST, JR.

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

Former Chairman and CEO of State Farm Mutual Automobile Insurance Company (insurance)

 

Age 70

Director since: 2003

INDEPENDENT

Helmerich & Payne, Inc.

S&P Global Inc.

Audit

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

None

 

 

Mr. Rust retired as Chairman in 2016 and as CEO in 2015 of State Farm Mutual Automobile Insurance Company. His financial and business experience is valuable to the Board. His role as a past Chairman of the U.S. Chamber of Commerce, CEO of a major national corporation and experience as a director of other large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board, including with respect to public company governance and strategy. In addition, his extensive involvement in education improvement complements the Company’s culture of social responsibility.

 

 

SUSAN C. SCHWAB

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

Professor Emerita at the University of Maryland School of Public Policy and Strategic Advisor for Mayer Brown LLP (global law firm)

 

Age 66

Director since: 2009

INDEPENDENT

FedEx Corporation

Marriott International, Inc.

Public Policy and Governance

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

The Boeing Company

 

Ambassador Schwab has been Professor Emerita at the University of Maryland School of Public Policy since 2009 and Strategic Advisor for Mayer Brown LLP since 2010. She was a Professor at the University of Maryland between 2009 and 2020. Previously, she held various positions in government, including as U.S. Trade Representative (member of the President’s Cabinet) and as Assistant Secretary of Commerce. Ambassador Schwab brings extensive knowledge, insight and experience on international trade and commerce issues to the Board. Her educational experience and role as the U.S. Trade Representative provide important insights for the Company’s global business model and long-standing support of open trade. In addition, her experience as a director of other large, publicly-traded multinational corporations enables her to provide meaningful input and guidance to the Board, including on strategy and the evaluation of global economic conditions.

 

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D. JAMES UMPLEBY III

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

Chairman and CEO of
Caterpillar Inc.

 

Age 63

Director since: 2017

MANAGEMENT

Chevron Corporation

None

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

None

 

Mr. Umpleby has been CEO of Caterpillar since January 1, 2017, and was elected Chairman of the Board in 2018. He served as a Group President of Caterpillar from 2013 to 2016 with responsibility for Caterpillar’s Energy & Transportation segment and served as a Caterpillar Vice President and President of Solar Turbines from 2010 to 2012. Mr. Umpleby developed a deep knowledge of the Company and its end markets by serving in a wide range of leadership roles. He has extensive international experience and has worked in manufacturing, engineering, marketing, sales and services. Mr. Umpleby’s strategic planning and execution skills, along with his extensive industry experience, enables him to provide effective leadership of the Company and the Board.

 

 

MILES D. WHITE

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

Executive Chairman of the Board, Abbott Laboratories (medical devices and biotechnology)

 

Age 66

Director since: 2011

INDEPENDENT

Abbott Laboratories

McDonald’s Corporation

Compensation and Human Resources

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

None

 

Mr. White serves as Executive Chairman of the Board of Abbott Laboratories. Mr. White, who joined Abbott in 1984, served as Abbott’s Chairman and CEO from 1999 to 2020. His experience leading a large, complex multinational company provides important insight to the Board. Mr. White’s skills include knowledge of cross-border operations, strategy and business development, risk assessment, finance, leadership development and succession planning and corporate governance matters. In addition to his role with Abbott Laboratories, Mr. White’s experience as a director of other large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board.

 

 

RAYFORD WILKINS, JR.

OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

Former CEO of Diversified Businesses at AT&T Inc. (telecommunications)

 

Age 69

Director since: 2017

INDEPENDENT

Morgan Stanley

Valero Energy Corporation

Compensation and Human Resources

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

None

 

Mr. Wilkins retired as CEO of Diversified Businesses at AT&T Inc. in 2012. His expertise and oversight experience in the information technology arena is valuable to the Board. In addition, Mr. Wilkins’ experience as a CEO and director of other large, publicly-traded corporations enables him to provide meaningful input and guidance to the Board, including with respect to corporate finance and customer and product support.

 

 2021 PROXY STATEMENT 17

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DIRECTOR COMPENSATION

The following table sets forth information concerning the compensation for our non-employee directors during the year ended December 31, 2020. Mr. Umpleby, who served as Chairman and CEO during 2020, did not receive separate compensation for his service on the Board.

Compensation for non-employee directors for 2020 was comprised of the following components:

 

 

 

Restricted Stock Units (1 Year Vesting)

$

150,000

Cash Retainer

$

150,000

Cash Stipends:

 

 

Presiding Director

$

50,000

Audit Committee Chairman

$

30,000

Compensation and Human Resources Committee Chairman

$

25,000

Public Policy and Governance Committee Chairman

$

20,000

 

 

 

 

Directors are required to own Caterpillar common stock equal to five times their annual cash retainer. Directors have a five-year period from the date of their election or appointment to meet the target ownership guidelines. All Directors are in compliance with these guidelines. In addition, under the Company's Directors' Deferred Compensation Plan, directors may defer 50 percent or more of their annual cash retainer and stipend into an interest-bearing account or an account representing phantom shares of Caterpillar stock, and effective for grants made on or after January 1, 2019, directors may defer 50 percent or more of any stock-based compensation (other than options and stock appreciation rights) upon vesting into an account representing phantom shares of Caterpillar stock. Directors that joined the Board prior to April 1, 2008, also are able to participate in a Charitable Award Program, under which a donation of up to $500,000 will be made by the Company in the director’s name to charitable organizations selected by the director and a donation of up to $500,000 also will be made by the Company in the director’s name to the Caterpillar Foundation. Directors derive no financial benefit from the Charitable Award Program.

 

 2021 PROXY STATEMENT 18

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DIRECTOR COMPENSATION FOR 2020

Director

Fees Earned or

Paid in Cash

 

Restricted

Stock Units(1)

 

All Other

Compensation(2)

 

Total

Kelly A. Ayotte

$

150,000

$

150,058

$

$

300,058

David L. Calhoun

$

220,000

$

150,058

$

$

370,058

Daniel M. Dickinson

$

180,000

$

150,058

$

18,709

$

348,767

Juan Gallardo

$

150,000

$

150,058

$

15,231

$

315,289

Dennis A. Muilenburg(3)

$

12,500

$

$

$

12,500

William A. Osborn

$

150,000

$

150,058

$

15,231

$

315,289

Debra L. Reed-Klages

$

150,000

$

150,058

$

52,000

$

352,058

Edward B. Rust, Jr.

$

150,000

$

150,058

$

18,491

$

318,549

Susan C. Schwab

$

150,000

$

150,058

$

27,000

$

327,058

Miles D. White

$

175,000

$

150,058

$

6,050

$

331,108

Rayford Wilkins, Jr.

$

150,000

$

150,058

$

5,000

$

305,058

(1)

As of December 31, 2020, the number of RSUs (including accrued dividend equivalent units) and Phantom Shares held by those serving as non-employee directors during 2020 was: Ms. Ayotte: 2,585 (which consists of 1,202 RSUs, and 1,383 Phantom Shares); Mr. Calhoun: 19,917 (which consists of 1,202 RSUs, and 18,715 Phantom Shares); Mr. Dickinson: 29,885 (which consists of 1,202 RSUs and 28,683 Phantom Shares); Mr. Gallardo: 36,281 (which consists of 1,202 RSUs and 35,079 Phantom Shares); Mr. Osborn: 1,691 (which consists of 1,202 RSUs and 489 Phantom Shares); Ms. Reed-Klages: 9,662 (which consists of 1,202 RSUs, and 8,460 Phantom Shares); Mr. Rust: 38,965 (which consists of 1,202 RSUs and 37,763 Phantom Shares); Ms. Schwab: 17,675 (which consists of 1,202 RSUs, and 16,473 Phantom Shares); Mr. White: 13,570 (which consists of 1,202 RSUs and 12,368 Phantom Shares); and Mr. Wilkins: 1,202 (which consists of 1,202 RSUs). Mr. Calhoun, Mr. Gallardo, Ms. Schwab and Mr. White elected to defer 100 percent of their Cash Retainer and Cash Stipend (as applicable) into Phantom Shares of Caterpillar stock in the Directors’ Deferred Compensation Plan which are included in the Phantom Shares totals. Ms. Ayotte, Mr. Calhoun, Ms Reed-Klages, and Ms. Schwab elected to defer a portion of their equity award that vested on March 4, 2020 into the Directors’ Deferred Compensation Plan. Such deferrals are also included in the Phantom Share totals above. Ms. Ayotte elected to defer 50 percent, while Mr. Calhoun, Ms Reed-Klages, and Ms. Schwab elected to defer 100 percent.

(2)

All Other Compensation represents amounts paid in connection with the Caterpillar Foundation’s Directors’ Charitable Award Program and the Caterpillar Political Action Committee Charitable Matching Program (CATPAC’s PACMATCH program) and administrative fees associated with the Director’s Charitable Award Program. All outside directors are also eligible to participate in the Caterpillar Foundation Matching Gift Program, and eligible directors may participate in the CATPAC’s PACMATCH program annually. In 2020, the Caterpillar Foundation matched contributions to eligible 501(c)(3) nonprofits and accredited U.S. public preK-12 schools or school districts to which contributions are tax deductible, up to a maximum of $2,000 per eligible organization per calendar year. Additionally in 2020, the Caterpillar Foundation also provided a 2:1 match program for a period of time as a result of COVID-19.

The amounts listed include Charitable Foundation matching gifts as follows: Ms. Reed-Klages $52,000, Mr. Rust $2,000, Ms. Schwab $22,000 and Mr. White $6,050.

As part of CATPAC’s PACMATCH program, Caterpillar Inc. will contribute to up to four charities on behalf of eligible members who contribute at the suggested giving level. The annual CATPAC contribution limit is $5,000. Mr. Rust, Ms. Schwab and Mr. Wilkins had contributions matched.

For directors eligible to participate in the Directors Charitable Award Program, the amounts listed include the insurance premium and administrative fees as follows: Mr. Dickinson $18,709, Mr. Gallardo $15,231, Mr. Osborn $15,231, and Mr. Rust $11,491.

(3)

Mr. Muilenburg resigned from the Board effective January 26, 2020.

BOARD ELECTION AND LEADERSHIP STRUCTURE

Directors are elected at each annual meeting to serve for a one-year term. In uncontested elections, directors are elected by a majority of the votes cast for such directorship. If an incumbent director does not receive a greater number of “for” votes than “against” votes, such director must tender his or her resignation to the Board. In contested elections, directors are elected by a plurality vote.

The mandatory retirement age for directors is 74. Each director who will have reached the age of 74, on or before the date of the next shareholders’ meeting, shall not stand for re-election at that annual meeting of the shareholders without an express waiver by the Board.

Under Caterpillar's bylaws, the directors annually elect a Chairman. The Board has no fixed policy on whether to have an executive or non-executive chairman and believes this determination should be made based on the best interests of the Company and its shareholders in light of the circumstances at the time. On the recommendation of the PPGC, the Board has elected D. James Umpleby III as its Chairman and David L. Calhoun as its Presiding Director.

In the role of Presiding Director, Mr. Calhoun provides strong independent oversight of management and serves as a liaison between the independent directors and the Chairman and CEO, as further described below. Mr. Calhoun also leads the Board's annual evaluation of Mr. Umpleby, and the independent members of the Board set Mr. Umpleby's compensation annually based on the recommendation of the Compensation and Human Resources Committee.

 

 2021 PROXY STATEMENT 19

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DUTIES AND RESPONSIBILITIES OF PRESIDING DIRECTOR

Preside at all meetings of the Board at which the Chairman & CEO is not present, including executive sessions of the independent directors.

Serve as a liaison between the Chairman & CEO and the independent directors.

Approve the type of information sent to the Board.

Provide input and approve meeting agendas for the Board.

Approve meeting schedules, in consultation with the Chairman & CEO and the independent directors, to assure that there is sufficient time for discussion of all agenda items.

Has the authority to call meetings of the independent directors.

If requested by major shareholders, is available, when appropriate, for consultation and direct communication.

Provide the Chairman & CEO with the results of his/her annual performance review in conjunction with the chairman of the Compensation and Human Resources Committee.

 

The Board believes it is important to maintain flexibility as to the Board’s leadership structure. The Board will continue to regularly review its leadership structure and exercise its discretion in adopting an appropriate and effective framework to assure effective governance and accountability, taking into consideration the needs of the Board and the Company.

CORPORATE GOVERNANCE GUIDELINES AND CODE OF CONDUCT

Our Board has adopted Guidelines on Corporate Governance Issues (Corporate Governance Guidelines), which are available on our website at www.caterpillar.com/governance. The guidelines reflect the Board’s commitment to oversee the effectiveness of policy and decision-making both at the Board and management level, with a view to enhance shareholder value over the long term.

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. 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 are available on our website at www.caterpillar.com/code.

BOARD EVALUATION PROCESS

The Board conducts an annual self-evaluation to determine whether the Board and its committees are functioning effectively. In 2020, the Chairman of the Public Policy and Governance Committee interviewed each Board member to solicit their feedback. The Public Policy and Governance Chairman then led a discussion during the Board’s executive session. Each of the committees of the Board followed a similar process and reported to the Board on the outcome of their self-evaluations. The self-evaluation provides the Board with actionable feedback to enhance its performance and effectiveness.

BOARD COMMITTEES

The Board has three standing committees: Audit, Compensation and Human Resources, and Public Policy and Governance. Each committee meets regularly throughout the year, reports its actions and recommendations to the Board, receives reports from management, annually evaluates its performance and has the authority to retain outside advisors at its discretion. The current primary responsibilities of each committee are summarized below and set forth in more detail in each 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 "financially literate" and an “audit committee financial expert” as defined under SEC rules.

 

 2021 PROXY STATEMENT 20

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AUDIT COMMITTEE

Committee Members:
Daniel M. Dickinson, Chair
David W. MacLennan
Edward B. Rust, Jr.

Number of Meetings in 2020: 11

COMMITTEE ROLES AND RESPONSIBILITIES

Selects and oversees independent auditors, including annual evaluation of the lead audit partner.

Oversees our financial reporting activities, including our financial statements, annual report and accounting standards and principles.

Reviews with management the Company’s risk assessment and risk management framework.

Approves audit and non-audit services provided by the independent auditors.

Reviews the organization, scope and effectiveness of the Company’s internal audit function, disclosures and internal controls.

Sets parameters for and monitors the Company’s hedging and derivatives practices.

Provides oversight for the Company’s compliance program and Code of Conduct.

Monitors any significant litigation, regulatory, and tax compliance matters.

Oversees information technology systems and related security.

Reviews with management cybersecurity risks and strategy to mitigate these risks.

 

COMPENSATION AND HUMAN RESOURCES COMMITTEE

Committee Members:
Debra L. Reed-Klages, Chair
Miles D, White
Rayford Wilkins, Jr.

Number of Meetings in 2020: 5

COMMITTEE ROLES AND RESPONSIBILITIES

Recommends the CEO’s compensation to the Board and establishes the compensation of other executive officers.

Establishes, approves and oversees 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 independent directors.

Provides oversight of the Company’s diversity and immigration practices and employee relations.

Furnishes an annual Committee Report on executive compensation and approves the Compensation Discussion and Analysis section in the Company’s proxy statement.

 

PUBLIC POLICY AND GOVERNANCE COMMITTEE

Committee Members:
David L. Calhoun, Chair
Kelly A. Ayotte
Gerald Johnson
Susan C. Schwab

Number of Meetings in 2020: 7

COMMITTEE ROLES AND RESPONSIBILITIES

Makes recommendations to the Board regarding the size and composition of the Board and its committees, and the criteria to be used for the selection of candidates to serve on the Board.

Discusses and evaluates the qualifications of potential and incumbent directors and recommends the director candidates to be nominated for election at the Annual Meeting.

Leads the Board in its annual self-evaluation process.

Oversees the Company’s senior executive succession planning.

Oversees the Company’s environmental, health and safety activities, including climate and sustainability.

Oversees the Company's corporate governance.

Reviews/advises on 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 contributions to the Caterpillar Foundation and political contributions and policies.

Oversees investor, customer, community and government relations.

 

 2021 PROXY STATEMENT 21

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DIRECTOR INDEPENDENCE DETERMINATIONS

The Company’s Guidelines on Corporate Governance Issues 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 Guidelines on Corporate Governance Issues, which are available on our website at www.caterpillar.com/governance.

Applying these standards, the Board determined that each of the director nominees, and all other directors who served during 2020, met the independence standards except Mr. Umpleby, who is a current employee of the Company.

 

COMMUNICATION WITH THE BOARD

Shareholders, employees and all other interested parties may communicate with any of our directors individually, our Board as a group, our independent directors as a group or any Board committee as a group by email or regular mail:

BY EMAIL

BY MAIL

send an email to
directors@cat.com

mail to Caterpillar Inc.
c/o Corporate Secretary
510 Lake Cook Road, Suite 100
Deerfield, IL 60015

 

CONTACTING CATERPILLAR

While the Board oversees management, it does not participate in day-to-day management functions or business operations. If you wish to submit questions or comments relating to these matters, please use the Contact Us form on our website at www.caterpillar.com/contact, which will help direct your message to the appropriate area of our Company.

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 will be directed to the appropriate individual within the Company. The Chairman of the Board has instructed the Corporate Secretary to consult with him if she is unsure who should receive the communication.

INVESTOR OUTREACH

We conduct an annual governance review and shareholder outreach throughout the year to ensure management and the Board understand and consider the issues that matter most to our shareholders and reflect the insights and perspectives of our many stakeholders.

WHO PARTICIPATES IN THE INVESTOR OUTREACH PROGRAM?

IN WHAT TYPES OF ENGAGEMENT DOES THE COMPANY PARTICIPATE?

Board of Directors

Senior Management

Investor Relations

Corporate Secretary

Investor conferences

One-on-one meetings

Earnings calls

Investor and analyst calls

 

 2021 PROXY STATEMENT 22

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POLITICAL CONTRIBUTIONS AND LOBBYING

The actions that governments take can impact the Company, our employees, customers and shareholders. It is important for government leaders to understand the impact of such actions. For this reason, the Company participates in the political process and advocates in a responsible and constructive manner on issues that advance the Company’s goals and protect shareholder value. To promote transparency and good corporate citizenship, the Company provides voluntary disclosure relating to its political contribution activities and its political action committee, its engagement in public policy issues and global issues of importance to the Company, including detailed information on the Company’s position with respect to such issues. This information is disclosed on our website at www.caterpillar.com/contributions and includes an itemized list of organizations and individuals that received political contributions from Caterpillar or the Caterpillar Political Action Committee. It also includes a summary of some of the public policy issues important to the Company that may cause us to engage in public advocacy. Caterpillar’s political and advocacy activities at the state, federal and international levels are managed by the Vice President, Global Government & Corporate Affairs, who coordinates and reviews with senior management the legislative and regulatory priorities that are significant to the Company’s business, as well as related advocacy activities. To ensure appropriate Board oversight of political activities, the Board’s Public Policy and Governance Committee reviews the Company’s policy on political activities and contributions and Caterpillar’s significant political activities, including corporate political contributions, political contribution activities of the Caterpillar Political Action Committee, trade association participation and Caterpillar’s legislative and regulatory priorities.

RELATED PARTY TRANSACTIONS

Caterpillar has a written policy governing the approval of transactions with the Company that are expected to exceed $120,000 in any calendar year in which any director, executive officer or their immediate family members will have a direct or indirect material interest. Under the policy, all such transactions must be approved in advance or ratified by the PPGC.

The director or officer must submit the details of the transaction to the Company’s Chief Legal Officer & General Counsel and the Corporate Secretary, 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 & General Counsel and the Corporate Secretary will then submit the matter to the PPGC for its consideration.

From time to time, related persons of Caterpillar may purchase products or services of the Company and its subsidiaries. In connection with these purchases, Caterpillar may provide marketing support directly or indirectly through independent dealers, consistent with sales under similar circumstances to unaffiliated third parties.

Mr. Joseph Creed’s brother-in-law is employed by the Company as a Product Supply Network Engineer and, consistent with the Company’s compensation policies applicable to other employees of similar title and responsibility, earned aggregate annual compensation of approximately $156,000 for fiscal 2020.

 

 2021 PROXY STATEMENT 23

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AUDIT

PROPOSAL 2 – RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

What am I voting on?

Shareholders are being asked to approve the ratification of the Audit Committee’s appointment of PricewaterhouseCoopers (PwC) as the Company’s independent auditor for 2021.

Board Voting Recommendation:

 FOR the ratification of our independent registered public accounting firm.

 

The Audit Committee (AC) is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent auditor. PwC has been Caterpillar's independent auditor since 1925. Through its extensive experience with the Company, PwC has gained institutional knowledge and a deep understanding of the Company's operations and business, accounting policies and practices and internal control over financial reporting. The AC believes that the retention of PwC to serve as the Company’s independent auditor is in the best interests of the Company and its shareholders. If the appointment of PwC is not approved by the shareholders, the AC will consider whether it is appropriate to select another independent auditor. Even if the appointment of PwC is ratified, the AC, in its discretion, may direct the appointment of a different independent auditor at any time during the year if it determines that such a change would be in the Company's best interests.

Representatives of PwC will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so.

AUDIT FEES AND APPROVAL PROCESS

The AC pre-approves all audit and non-audit services to be performed by the independent auditors in compliance with the Sarbanes-Oxley Act and the Securities and Exchange Commission (SEC) rules regarding auditor independence. The policies and procedures are detailed as to the particular service and do not delegate the AC’s responsibility to management. The policies and procedures address any service provided by theindependent auditors and any audit or audit-related services to be provided by any other audit service provider. The pre-approval process includes an annual and interim component.

Annually, not later than February of each year, management and the independent auditors jointly submit a service matrix of the types of audit and non-audit services that management may wish to have the independent auditor perform for the current year. The service matrix categorizes the types of services by audit, audit-related, tax and all other services. Management and the independent auditors jointly submit an annual pre-approval limits request. The request lists aggregate pre-approval limits by service category. The request also lists known or anticipated services and associated fees. The AC approves or rejects the pre-approval limits and each of the listed services on the service matrix.

During the course of the year, the AC 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 AC.

 

 

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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEE INFORMATION

Fees for professional services provided by our independent auditor included the following (in millions):

 

 

 

2020

2019

Audit Fees(1)

 

$

38.9

$

35.5

Audit-Related Fees(2)

 

 

0.8

 

0.6

Tax Compliance Fees(3)

 

 

0.1

 

0.1

Tax Planning and Consulting Fees(4)

 

 

0.1

 

0.1

All Other Fees(5)

 

 

0.1

 

0.1

TOTAL

 

$

40.0

$

36.4

(1)

“Audit Fees” principally includes audit and review of financial statements (including internal control over financial reporting), statutory and subsidiary audits, SEC registration statements, comfort letters and consents.

(2)

“Audit-Related Fees” principally includes attestation services requested by management, accounting consultations, pre- or post-implementation reviews of processes or systems and audits of employee benefit plan financial statements. Total fees paid directly by the benefit plans, and not by the Company, were $0.3 million in 2020 and $0.6 million in 2019 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” consists principally of license-based services for statutory audit monitoring and accounting and reporting literature research.

ANONYMOUS REPORTING OF ACCOUNTING AND OTHER CONCERNS

The AC has established a means for the anonymous and other reporting (where permitted by law) of (i) suspected or actual violations of the code of conduct, our enterprise policies or applicable laws, including those related to accounting practices, internal controls or auditing matters and procedures; (ii) theft or fraud of any amount; (iii) insider trading; (iv) issues with respect to the performance and execution of contracts; (v) conflicts of interest; (vi) violations of securities and antitrust laws; (vii) violations of prohibited harassment policy; and (viii) violations of any applicable anti-bribery law.

Any employee, supplier, customer, shareholder or other interested party can submit a report via the following methods:

Toll-free Helpline (US, Canada, and US Virgin Islands): 1-800-300-7898

Call Collect Helpline: 770-582-5275 (language translation available)

Email: BusinessPractices@cat.com

Internet: www.caterpillar.com/obp

AUDIT COMMITTEE REPORT

The AC operates under a written charter adopted by the Board of Directors, and each of its members meets the independence and financial literacy standards contained in the NYSE Listed Company rules, SEC rules and Caterpillar’s Guidelines on Corporate Governance Issues. The Board has determined that each member of the AC qualifies as an audit committee financial expert under SEC rules and has accounting or related financial management expertise.

Management is responsible for the Company’s internal controls and the financial reporting process. PwC, acting as independent auditor, is 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 AC has discussed with the Company’s independent auditor the overall scope and execution of the independent audit and has reviewed and discussed the audited financial statements with management. The AC also discussed with the independent auditors other matters required by PCAOB auditing standards and SEC rules.

 

 2021 PROXY STATEMENT 25

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The independent auditors provided to the AC the written communications required by applicable standards of the PCAOB regarding the independent accountant’s communications with the AC concerning independence, and the AC discussed the independent auditors’ independence with management and the auditors. The AC also considered whether the provision of other non-audit services by the Company’s independent auditors to the Company is compatible with maintaining independence.

The AC concluded that the independent auditors’ independence had not been impaired.

Based on the reviews and discussion referred to above, the AC 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, 2020.

By the members of the Audit Committee(1):

 

Daniel M. Dickinson, Chairman

David W. MacLennan(2)

William A. Osborn

Edward B. Rust, Jr.



(1)

The report was approved by the AC prior to changes in committee membership that were effective April 14, 2021.

(2)

Mr. MacLennan joined the AC on April 14, 2021 after the report was approved and is a current member of the AC.

 

 2021 PROXY STATEMENT 26

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COMPENSATION

PROPOSAL 3 – ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

What am I voting on?

Shareholders are being asked to approve, on an advisory basis, the compensation of named executive officers as disclosed in this proxy statement.

Board Voting Recommendation:

  FOR approval of executive compensation.

 

On an annual basis, and in compliance with Section 14A of the Securities Exchange Act of 1934, shareholders are being asked to vote on the following advisory resolution:

“RESOLVED, that the compensation of Caterpillar’s named executive officers as described under ‘Compensation Discussion and Analysis,’ the compensation tables and the narrative discussion associated with the compensation tables in Caterpillar’s proxy statement for its 2021 Annual Meeting of Shareholders is hereby APPROVED.”

At the Company's 2017 annual meeting of shareholders our shareholders indicated their preference to hold the non-binding shareholder vote to approve the compensation of our named executive officers each year. Accordingly, the Company currently intends to hold such votes annually. The next vote to approve the compensation of our named executives is expected to be held at the Company's 2022 Annual Meeting of Shareholders. This vote is advisory and therefore not binding on Caterpillar, the Compensation and Human Resources Committee (CHRC) or the Board. The Board and the CHRC value the opinion of Caterpillar’s shareholders, and to the extent there is any significant vote against Caterpillar’s named executive officer compensation, the Board will consider the reasons for such a vote, and the CHRC will evaluate whether any actions are necessary to address those concerns.

 

 2021 PROXY STATEMENT 27

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COMPENSATION DISCUSSION & ANALYSIS

EXECUTIVE SUMMARY

GOVERNANCE AND PAY FOR PERFORMANCE PHILOSOPHY

The Compensation and Human Resources Committee (CHRC) believes the executive compensation program at Caterpillar should be structured to align the interests of executives with those of our shareholders. These interests are met in rewarding value creation at all stages of the business cycle and providing an increasing percentage of performance-based compensation at higher levels of executive responsibility. This performance-based compensation should be both market competitive and internally equitable.

Changes made over the years to further align pay with performance have received favorable feedback from our shareholders, and support for our 2020 “say on pay” vote of 93 percent reflects this positive response.

In 2020, we continued our shareholder outreach on environmental, social, and governance, (including sustainability and climate) and executive compensation topics, with holders of approximately 41 percent of our outstanding shares. In these meetings, our shareholders generally expressed a continued positive view with respect to our executive compensation program.

SAY ON PAY SUPPORT

93%

95%

94%

2020

2019

2018

After considering feedback received from our shareholders through our outreach efforts and the 2020 “say on pay” results, the CHRC determined that the Company’s executive compensation philosophy, compensation objectives and compensation elements continued to be appropriate and did not make any material changes to the executive compensation program.

The CHRC conducts an ongoing review of the Company’s executive compensation program to evaluate whether the program supports the Company’s compensation philosophy and objectives and to monitor the program’s alignment with its strategic business objectives. In connection with this ongoing review, and based on feedback received through our shareholder outreach, the CHRC continues to implement and maintain what it believes are best practices for executive compensation and governance. Below is a summary of those practices:

WHAT WE DO

 

WHAT WE DON'T DO

Robust stock ownership requirements

 

No individual change-in-control agreements

Thorough annual benchmarking process

 

No tax gross-ups on change-in-control benefits

Rigorous CHRC oversight of incentive metrics, goals and pay/performance relationship

 

No backdating, repricing or granting of option awards retroactively

Clawback Policy

 

 

 

Limited executive perquisites

 

 

 

Strict anti-hedging and anti-pledging policies

 

 

 

Independent compensation consultant

 

 

 

 

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COMPENSATION PROGRAM STRUCTURE

We are committed to developing and implementing an executive compensation program that directly aligns the interests of our Named Executive Officers (NEOs) with the long-term interests of shareholders. To that end, the objectives of the Company’s executive compensation program are to attract, motivate and retain talented executive officers who will improve the company’s performance and provide long-term strategic leadership. The majority of targeted total compensation for our NEOs is equity-based, vests over multiple years and is tied directly to long-term value creation for shareholders. NEO compensation is composed of three primary components:

 

BASE SALARY

ANNUAL INCENTIVE PLAN (AIP)

LONG-TERM INCENTIVE

Competitive pay to attract and retain talented executives

 

An opportunity to earn an annual cash award based on the Company’s financial performance and strategic business objectives

 

A mix of performance-based restricted stock units (PRSUs) and stock options to align management’s interests with long-term shareholders' interests

 

Approximately 90 percent of our CEO’s 2020 total targeted compensation was variable and/or at-risk compensation, including 50 percent of long-term incentives in the form of PRSUs.

 

 

 

 

2020 CEO COMPENSATION ELEMENTS

 

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BUSINESS PERFORMANCE AND RESULTS

The COVID-19 pandemic caused a global recession in 2020, and it is uncertain when a sustained economic recovery may occur. The ultimate impact of the COVID-19 pandemic on Caterpillar’s financial and operational results will be determined by the length of time that the pandemic continues, its effect on the demand for our products and services and the supply chain, as well as the effect of governmental regulations imposed in response to the pandemic. The overall magnitude of the COVID-19 pandemic and the continued fluidity of the situation could materially and adversely impact our business, results of operations and/or financial condition.

Despite the challenges and uncertainty associated with the COVID-19 pandemic and a 22% decline in sales and revenues, Caterpillar delivered solid operational performance in 2020 and ended the year with our best safety performance on record for the second year in a row. We remained disciplined and focused on maintaining control of our structural costs, which helped us achieve an operating profit margin of 10.9%. Adjusted operating profit margin of 11.8% was within our 2019 Investor Day target range. We generated strong operating cash flow and were able to return $3.4 billion to shareholders through dividends and share repurchases, which represented 110% of Machinery, Energy & Transportation (ME&T) free cash flow. We also maintained our dividend in 2020 and paid dividends of $2.2 billion, continuing our status as a Dividend Aristocrat.

 

 

Our key financial and business results for 2020 included the following:

 

PROFITABLE GROWTH

 

SALES AND REVENUES

     

* Enterprise Operating Profit was used in determining performance under our Annual Incentive Plan for 2019.

** Adjusted Profit Per Share is a non-GAAP measure and a reconciliation to the most directly comparable GAAP measure is included on page 60.

   

STRONG BALANCE SHEET AND CASH FLOW

  Operating Cash Flow $6.3 billion

  Year-end enterprise cash balance $9.4 billion

TOTAL SHAREHOLDER RETURN

   
   
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IMPORTANT INFORMATION REGARDING 2020 COMPENSATION FOR NAMED EXECUTIVE OFFICERS

In February 2020, the CHRC established a 2020 AIP design with measures and goals substantially similar to 2019. However, in March 2020 before the AIP design was communicated to the NEOs, management recommended that no NEO receive an annual incentive payment for 2020 results due to the potential impact of COVID-19 on the Caterpillar Business. The CHRC agreed and recommended such action to the Board who approved it. As a result, the 2020 AIP design was cancelled before its implementation, and no annual incentive payments were made to the NEOs for 2020. The Company's AIP will resume in 2021 with design and measures substantially similar to 2019.

PAY OUTCOMES DEMONSTRATE ALIGNMENT WITH COMPANY PERFORMANCE

Consistent with the CHRC’s pay-for-performance philosophy, business results were reflected in the resulting pay decisions made for our CEO and the other NEOs in 2020. Compensation outcomes for 2020 included the following items:

BASE SALARY

Named Executive Officers (including the CEO) did not receive a base salary adjustment.

ANNUAL INCENTIVE

No payment of annual incentive awards for 2020.

LONG-TERM INCENTIVE

Based on the Company’s 1-, 3- and 5-year relative Total Shareholder Return (TSR) at the end of 2019, the 2020 equity grant to the CEO was set at 50th percentile of the compensation peer group and at or below the 60th percentile for the other NEOs.

 

 

 

 

CEO COMPENSATION

In March 2020, due to the potential impact of the COVID-19 pandemic on Caterpillar’s business, following a recommendation from management, the CHRC recommended and the Board approved that Mr. Umpleby’s base salary would not increase in 2020 and as AIP was cancelled before its implementation, it resulted in no annual incentive payment for 2020. Mr. Umpleby’s 2020 Long-Term Incentive grant was awarded at the 50th percentile of the Company’s peer group reflecting the Company’s prior years' TSR results and performance achievements.

 

 

*

Target Value Includes: Salary of $1,600,000; annual incentive of $2,800,000; and LTI grant of $11,800,000. Total Target Value: $16,200,000.

**

Actual Value Includes: Salary of $1,600,000; no annual incentive; and LTI grant of $11,800,000. Total Actual Value: $13,400,000.

 

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COMPENSATION DISCUSSION & ANALYSIS

THE COMPENSATION PROCESS

THE COMPENSATION AND HUMAN RESOURCES COMMITTEE (CHRC)

The CHRC is responsible for the executive compensation program design and decision-making process for NEO compensation. Regular reviews are conducted of the Company’s executive compensation practices, including the methodologies for setting NEO total compensation, the goals of the program and the underlying compensation philosophy. Recommendations and market data are provided by the independent compensation consultant to make decisions, as appropriate, regarding NEO compensation based on the assessment of performance and achievement of Company goals. The CHRC also exercises its judgment as to what is in the best interests of the Company and its shareholders.

 

The CHRC, with the support of management and its independent compensation consultant, considers many aspects of the Company’s financial and operational performance and other factors when making executive compensation decisions including, but not limited to:

Long-term shareholder value creation

The cyclical nature of the business

Performance relative to financial guidance provided throughout the year

Enterprise and Business Unit operational performance

Performance relative to peers and competitors

Historic absolute and relative performance

Key areas management can influence over the short- and long-term

Development and retention of top talent

Skills, experience and tenure of executive incumbents

Market values for comparably situated executives among our peer group as well as internal equity

INDEPENDENT COMPENSATION CONSULTANT

The CHRC retained Meridian Compensation Partners, LLC (“Meridian”) as its independent compensation consultant during 2020. Meridian provides executive and director compensation consulting services, including advice regarding the design and implementation of compensation programs, market information, regulatory updates and analyses and trends on executive compensation and benefits. Interactions between Meridian and management are generally limited to discussions on behalf of the CHRC or as required to fulfill requests at its direction. During 2020, Meridian did not provide any other services to the Company. Based on these factors, the CHRC's evaluation of Meridian’s independence pursuant to the requirements approved and adopted by the SEC and NYSE, and information provided by Meridian, the CHRC determined that the work performed by Meridian did not raise any conflicts of interest.

 

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BENCHMARKING COMPENSATION TO PEERS

2020 COMPENSATION PEER GROUP

The CHRC regularly assesses the market competitiveness of the Company’s executive compensation programs based on peer group data. The 2020 Compensation Peer Group was established based on the following criteria:

Total sales and revenues and market capitalization of the peer companies relative to Caterpillar;

Competitors and industry segment;

Companies considered potential sources for top talent;

Global presence with a significant portion of revenues coming from non-U.S. operations; and

Geographic footprint.

2020 Compensation Peer Group*

3M Company

Ford Motor Company

Archer-Daniels-Midland Company

General Electric Company

The Boeing Company

Halliburton Company

Cisco Systems, Inc.

Honeywell International Inc.

Cummins Inc.

Intel Corporation

Deere & Company

Johnson Controls, Inc.

Emerson Electric Co.

PACCAR Inc.

FedEx Corporation

United Technologies Corporation

Fluor Corporation

*In June 2020, the CHRC removed Fluor Corporation because it no longer met the Compensation Peer Group criteria after its decision to divest certain businesses. Also, as a result of United Technologies Corporation's reorganization into three separate public companies, Raytheon Technologies became part of the Compensation Peer Group in June 2020, as it is the only one of the three resulting companies that aligns with the Compensation Peer Group criteria. Otherwise, the 2020 Compensation Peer Group remained unchanged from the prior year.

BENCHMARKING METHODOLOGY

To account for differences in the size of the compensation peer group companies, market data is statistically adjusted allowing for a comparison of the compensation levels to similarly-sized companies. Market data provided by the independent consultant is sourced from the Aon Total Compensation Measurement Database, and size-adjusted to Caterpillar’s three-year average revenues using regression analysis. Each element of our NEOs’ compensation is then targeted to the median of the peer group and adjusted above or below based on performance. To the extent an NEO’s total actual compensation exceeds the peer group median, it is due to outstanding performance, critical skills and notable experience. If an NEO’s compensation is below the median, it is generally due to underperformance against relevant metrics or reflective of an individual who is newer in his or her role.

2020 COMPETITOR PEER GROUP

For 2020, the CHRC also assessed the Company's business performance against a group of competitors that it deems to compete directly with the Company. Although the Company’s peer group described above is an appropriate benchmark for executive compensation at other similarly sized companies, the peer group data does not always provide useful comparisons to other companies that might be experiencing similar business conditions. To that end, and consistent with the Company's pay-for-performance philosophy, the Company’s business performance is compared to its competitors by establishing a “Competitor Peer Group.”

The CHRC uses the Competitor Peer Group (along with the Compensation Peer Group and S&P 500 Industrials) to assess relative performance using TSR when awarding long-term incentive awards. However, the Competitor Peer Group is not used to benchmark compensation. The 2020 Competitor Peer Group, which has been the same for the past two years, was established based on the following criteria:

Compete in the same markets as the Company;

Offer similar products and services as the Company; or

Serve the same, or similar, industries and end users as the Company.

2020 Competitor Peer Group

 

Cummins Inc.

Komatsu Ltd.

Deere & Company

Sany Heavy Industry Co., Ltd.

Hitachi Construction Machinery Co., Ltd.

Volvo AB

 

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CEO PERFORMANCE EVALUATION AND COMPENSATION

The Board, excluding the CEO, all of whom are independent directors, annually conducts the CEO’s performance evaluation. Prior to the Board’s evaluation of the CEO’s performance and its approval of CEO compensation, the CHRC makes a preliminary compensation recommendation to the Board based on its initial evaluation and performance review of the CEO. The Board then makes its final determination for CEO compensation.

EXECUTIVE COMPENSATION AND RISK MANAGEMENT

Each year, the CHRC assesses the Company’s risk profile relative to the executive compensation program and confirms that its compensation programs and policies do not create or encourage excessive risks that are reasonably likely to have a material adverse impact on the Company. Also, the CHRC has concluded that the total compensation structure for senior leadership does not inappropriately emphasize short-term stock price performance at the expense of longer-term value creation. In particular, long-term incentive awards, as a significant portion of total compensation, and target ownership guidelines which NEOs are required to maintain pre- and post-retirement are structured to align management’s compensation with principles of risk management by maintaining a focus on the long-term performance of the Company.

TARGET OWNERSHIP GUIDELINES

The target ownership guidelines for the CEO is six times base salary and three times base salary for each of the other NEOs. NEOs have a five-year period from their first grant date after appointment to meet the target ownership guidelines. All NEOs are in compliance with these guidelines.

COMPONENTS OF EXECUTIVE COMPENSATION

NEOs receive a mix of fixed and variable compensation with a focus on long-term and performance-based components:

CEO

 

AVERAGE OF OTHER NEOS

 

BASE SALARY

Base salary is the only fixed component of NEO compensation. The CHRC targets base salaries at the size-adjusted median level of the peer group. Each NEO’s base salary is determined by the individual’s level of responsibility and historic performance with reference to the market median. Base salary increases, if any, are based on achievement of individual and Company objectives, contributions to Caterpillar’s performance and culture, leadership accomplishments and a comparison to those in comparable positions at peer companies.

In 2020, the base salaries for all NEOs, including the CEO, were frozen at their December 31, 2019 levels.

NEO BASE SALARY

Name

Dec 31, 2019

Dec 31, 2020

Umpleby

$1,600,000

$1,600,000

Bonfield

$832,000

$832,000

Ainsworth

$740,100

$740,100

Johnson

$820,500

$820,500

De Lange

$767,400

$767,400

 

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ANNUAL INCENTIVE

2020 ANNUAL INCENTIVE PLAN DESIGN

The Company’s Annual Incentive Plan (AIP) is designed to provide each NEO with the opportunity to earn an annual cash payout based on the short-term performance of the Company and each NEO’s respective businesses. The AIP places a significant percentage of each NEO’s annual cash compensation at risk and aligns the interests of executives with those of our shareholders. However as previously stated on page 31, the 2020 AIP design was cancelled before its implementation, and no annual incentive payments were made to the NEOs for 2020. The Company's AIP will resume in 2021 with design and measures substantially similar to 2019.

LONG-TERM INCENTIVE

2020 DESIGN AND SIZING OF GRANT

In 2020, the CHRC granted one-half of each NEO’s total long-term incentive (LTI) value in Performance-based Restricted Stock Units (PRSUs) and one-half in non-qualified stock options (stock options). The stock options vest equally in one-third increments beginning on the first anniversary of the grant date and expire after ten years from grant. Dividend Equivalent Units (DEUs) accrue on unvested PRSUs, but are settled only if the vesting requirements are met. The DEUs will settle in additional shares, rounded to the nearest whole unit.

For the 2020 PRSU grants, the CHRC selected Return on Equity (ROE) as the performance measure because it aligns the interest of the NEOs with those of our shareholders by measuring and rewarding profitability relative to shareholders’ investment in the business. The use of the ROE metric and the determination of the performance hurdle for each performance cycle are calibrated with historical performance of the compensation and competitor peer groups (as well as S&P 500 Industrials more broadly) and are intended to reward for the achievement of sustained, long-term returns throughout the cycles in the Company’s business. The CHRC believes that a strong focus on ROE reinforces effective capital management along with the need to deliver returns above the cost of capital even in a highly cyclical and often challenging macro-economic operating environment, thus aligning leadership priorities with long-term shareholder interests. The Company's ROE performance is annually reviewed including any one-time, non-operational or other special items that might impact the ROE result. Although certain items may significantly impact the Company’s reported financial results, they are not always indicative of the underlying operational performance of the Company or its management. To that end, in its evaluation of the Company’s ROE results, the CHRC may use its discretion to make adjustments to ROE to align compensation outcomes with the operating performance of the Company.

The CHRC’s process for sizing and awarding LTI grant values for NEOs is as follows:

1

Benchmark the median LTI value for the Company’s compensation peer group

2

Review and consider financial results: 1-, 3- and 5-year TSR (vs. the Compensation Peer Group and Competitor Peer Group and the S&P 500 Industrials); operational performance; market conditions; and strategy execution

3

Adjust award values to reflect individual performance including consistency of performance against goals, leadership contributions, time in role and other relevant factors

 

 

In February 2020, the CHRC reviewed the Company’s 1-, 3- and 5-year relative TSR and financial performance at the end of 2019. In 2019, the TSR methodology transitioned from point-to-point to averaging. The averaging method uses the average stock price for the beginning and ending months of the TSR calculation period. As TSR captures volatility in share price which may not fully reflect the Company's underlying performance, other factors such as strategy execution and consistency of performance against goals are considered when determining LTI awards. Therefore, the LTI award for the CEO was at 50th percentile of the benchmarked LTI values of the Company’s compensation peer group and at or below 60th percentile for the other NEOs.

 

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RELATIVE TSR PERFORMANCE (PERCENTILE RANKING VS. PEERS)

Performance Period

Compensation

Peer Group

Competitor

Peer Group

S&P 500

Industrials

1-Year

53rd

33rd

35th

3-Year

71st

67th

68th

5-Year

76th

50th

51st

Grant Sizing

50th Percentile

 

 

2018 – 2020 PERFORMANCE RESTRICTED STOCK UNITS (PRSUs)

For the 2018 – 2020 performance period, adjustments were made to the ROE to exclude the impact of certain restructuring costs, pension and OPEB mark-to-market losses resulting from plan remeasurements, U.S. tax reform and a deferred tax valuation allowance adjustment. In each case, the CHRC determined that these adjustments were an appropriate use of its discretion and in the best interests of the Company and its shareholders.

For the 2018 grant, the PRSUs cliff vested based on a three-year average adjusted ROE result of 38.7 percent, which exceeded the goal of 18 percent. The chart below describes the Company’s ROE performance and results for the 2018 – 2020 performance period:

2018-2020 PRSUs

 

OTHER COMPENSATION, BENEFITS AND CONSIDERATIONS

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 CHRC 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. Change in control benefits are provided under the Company’s long-term and annual incentive plans and represent customary provisions for these types of plans and have no direct correlation with other compensation decisions. There is no cash severance or other benefits for a termination related to change in control beyond what is provided under the long-term and annual incentive plans.

The Company’s change in control provisions are subject to a “double trigger” and, when both a change in control and involuntary termination of employment without cause occur, provide accelerated vesting and target payouts under the incentive plans, as described further below.

In the event of a qualifying termination of employment following a change in control, target payouts are provided under the incentive plans.

All unvested stock options, stock appreciation rights, performance-based restricted stock units and restricted stock units vest immediately.

Stock options and stock appreciation rights remain exercisable over the normal life of the grant.

The annual incentive plan allows for the target award opportunity, prorated based on the 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.

Additional information is disclosed in the “Potential Payments Upon Termination or Change in Control” section of this proxy statement.

 

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RETIREMENT AND OTHER BENEFITS

In addition to the annual and long-term components of compensation, NEOs participate in health and welfare benefit plans generally available to U.S.-based management and salaried employees to provide competitive benefits.

The defined contribution and defined benefit retirement plans available to the NEOs are also available to many U.S.-based 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 NEOs participate in one or more of the U.S. retirement plans described below:

 

 

Plan Type Title Description
RETIREMENT INCOME PLAN (RIP) Defined benefit pension plan under which benefit amounts are calculated based on years of service and final average monthly earnings and offer annuity payments. On December 31, 2014, the Solar Turbines Incorporated Retirement Plan merged with and into RIP and is a supplement to RIP as of January 1, 2015. As a result, all references herein to “Solar RP” shall refer to benefits accrued under the Solar Turbines Incorporated Retirement Plan supplement to RIP. Solar RP and RIP were closed to new entrants effective January 1, 2011. Benefits were frozen for most participants at that time; however, a group of “Sunset” participants accrued benefits until the earlier of their separation from service or December 31, 2019. Sunset participants were hired prior to January 1, 2003 and were age 40 or more as of December 31, 2010. Mr. Umpleby earned benefits under RIP through December 31, 2019.
SOLAR MANAGERIAL RETIREMENT OBJECTIVE PLAN (MRO) Non-qualified defined benefit pension plan that works in tandem with the Solar RP supplement to RIP. MRO pays an additional benefit that would otherwise have been paid under Solar RP if cash incentive awards were taken into account under Solar RP. MRO also provides additional pension benefits if the Solar RP benefit is limited due to certain compensation and annual benefit limits imposed on RIP by the tax code. Mr. Umpleby earned benefits under MRO through December 31, 2019.

CATERPILLAR 401(k) SAVINGS PLAN

(401(k) PLAN)

 

All NEOs participate in the 401(k) Plan under which the Company matches 100 percent of the first six percent of eligible pay contributed by the participant, and the Company makes an annual non-elective contribution equal to three percent, four percent or five percent of eligible pay based on the employee’s age and years of service with the Company.
SUPPLEMENTAL DEFERRED COMPENSATION PLAN (SDCP) All NEOs also participate in SDCP, which provides the opportunity to make deferrals of base salary in excess of the limits imposed on the 401(k) Plan by the Internal Revenue Code and to elect deferrals from the AIP. Under the terms of SDCP, participants are eligible to earn matching contributions and annual non-elective contributions based on formulas applicable to them in the 401(k) Plan.
SUPPLEMENTAL (SEIP) AND DEFERRED (DEIP) EMPLOYEES’ INVESTMENT PLAN All NEOs hired prior to March 25, 2007 were previously eligible to participate in SEIP and DEIP. These plans were closed in March 2007. Compensation deferred into SEIP and DEIP prior to January 1, 2005 remains in these plans.

 

 

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LIMITED PERQUISITES

The Company provides NEOs a limited number of perquisites that the CHRC believes are reasonable and consistent with the overall compensation program and those commonly provided in the marketplace. These perquisites are intended to provide for the security and safety of our executives as well as to allow additional time to devote to Caterpillar business. Perquisites include executive physicals, financial planning, home and personal security and limited personal use of company aircraft and ground transportation. The costs associated with these perquisites are included in the “2020 All Other Compensation Table.”

CLAWBACK PROVISION

Under the Company’s compensation clawback provision, the Board may require reimbursement of any bonus or incentive compensation awarded to an officer or cancel unvested restricted or deferred stock awards previously granted to the officer if all 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.

NO HEDGING OR PLEDGING

The Company's insider trading policy prohibits directors, officers and employees from engaging in hedging transactions, holding Company securities in a margin account or otherwise pledging Company securities.

TAX IMPLICATIONS: DEDUCTIBILITY OF NEO COMPENSATION

Under Section 162(m) of the Internal Revenue Code, generally NEO compensation over $1 million for any year is not deductible for United States income tax purposes. Historically, there was an exemption from this $1 million deduction limit for compensation payments that qualified as “performance-based” under applicable IRS regulations. With the enactment of the 2017 Tax Cuts and Jobs Act, the performance-based compensation exemption was eliminated under Section 162(m) of the Internal Revenue Code, except with respect to certain grandfathered arrangements. The CHRC believes that it must maintain flexibility in its approach to executive compensation in order to structure a program that it considers to be the most effective in attracting, motivating and retaining the Company’s key executives, and therefore, the deductibility of compensation is one of several factors considered when making executive compensation decisions.

COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT

The Compensation and Human Resources Committee (CHRC) has reviewed and discussed the Compensation Discussion & Analysis (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 CHRC 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 (1):

 

Miles D. White (Chairman)

Debra L. Reed-Klages

Rayford Wilkins, Jr.

 

(1)

The report was approved by the CHRC prior to the changes in membership that were effective April 14, 2021.

 

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2020 SUMMARY COMPENSATION TABLE

Name and

Principal Position

Year

 

Salary

 

 

Bonus

 

Stock

Awards(1)

 

Option

Awards(2)

Non-equity

Incentive Plan

Compensation(3)

Change in

Pension

Value and

Nonqualified

Deferred

Compensation

Earnings(4)

All Other

Compensation(5)

 

Total

Compensation

Total

Without

Change in

Pension

Value(6)

D. James Umpleby III
Chairman & CEO

2020

$

1,600,000

$

 

$

5,899,969

$

5,900,000

$

$

$

276,582

$

13,676,551

$

13,676,551

2019

$

1,575,000

$

 

$

5,450,022

$

6,704,943

$

2,336,000

$

18,161,210

$

291,954

$

34,519,129

$

16,357,919

2018

$

1,425,000

$

 

$

6,499,973

$

8,448,354

$

4,742,000

$

5,891,465

$

282,721

$

27,289,513

$

21,398,048

Andrew R. J. Bonfield
CFO

2020

$

832,000

$

 

$

1,800,053

$

1,800,009

$

$

$

152,520

$

4,584,582

$

4,584,582

2019

$

824,000

$

 

$

1,799,934

$

2,214,477

$

730,000

$

$

479,732

$

6,048,143

$

6,048,143

2018

$

266,667

$

 

800,000

$

4,450,025

$

993,465

$

585,000

$

$

86,030

$

7,181,187

$

7,181,187

William P. Ainsworth
Group President

2020

$

740,100

$

 

$

2,100,041

$

2,099,993

$

$

$

47,938

$

4,988,072

$

4,988,072

2019

$

754,250

$

 

$

1,799,934

$

2,214,477

$

744,000

$

$

30,499

$

5,543,160

$

5,543,160

Denise C. Johnson
Group President

2020

$

820,500

$

 

$

1,849,945

$

1,849,993

$

$

$

222,421

$

4,742,859

$

4,742,859

2019

$

808,875

$

 

$

1,799,934

$

2,214,477

$

840,000

$

$

243,684

$

5,906,970

$

5,906,970

2018

$

763,002

$

 

$

2,000,073

$

2,599,472

$

1,677,000

$

$

157,034

$

7,196,581

$

7,196,581

Bob De Lange
Group President

2020

$

767,400

$

 

$

1,849,945

$

1,849,993

$

$

$

213,557

$

4,680,895

$

4,680,895

2019

$

761,800

$

 

$

1,600,018

$

1,968,433

$

820,000

$

$

281,928

$

5,432,179

$

5,432,179

2018

$

725,001

$

 

$

2,149,984

$

2,794,444

$

1,180,000

$

$

453,190

$

7,302,619

$

7,302,619

(1)

The amounts reported in this column represent PRSUs granted in 2020 under the Caterpillar Inc. 2014 Long-Term Incentive Plan (LTIP) and are valued based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, assuming the highest level of performance is achieved for the PRSUs, which at the time of grant reflected the probable level of achievement. Assumptions made in the calculation of these amounts are included in Note 3 “Stock-based compensation” to the Company’s consolidated financial statements for the fiscal year ended December 31, 2020, included in the Company’s Form 10-K filed with the SEC on February 17, 2021.

(2)

The amounts reported in this column represent non-qualified 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 3 “Stock-based compensation” to the Company’s consolidated financial statements for the fiscal year ended December 31, 2020, included in the Company’s Form 10-K filed with the SEC on February 17, 2021.

(3)

As described on page 31, no annual incentive plan payments were made for 2020 due to the potential impact of the COVID-19 pandemic on Caterpillar’s business.

(4)

No NEO receives preferential or above market earnings on nonqualified deferred compensation. Amounts above reflect the actuarial present value of the NEO's change in accrued benefit under all defined benefit pension plans year over year using the pension plan measurement dates for financial statement reporting purposes. See Retirement and Other Benefits on page 37 for descriptions of the pension plans, and the 2020 Pension Benefits table and related footnotes on page 43 for the present value of each NEO's accumulated pension benefits and information regarding actuarial assumptions used.

(5)

All Other Compensation detail for 2020 is shown in a separate table appearing on the next page.

(6)

To demonstrate how year-over-year changes in pension value impact total compensation, as determined under SEC rules, we have included this column to show total compensation without pension value changes. The amounts reported in this column are calculated by subtracting the change in pension value reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column, from the amounts reported in the Total Compensation column. The amounts reported in this column differ from, and are not a substitute for, the amounts reported in the Total Compensation column.

 

 

 2021 PROXY STATEMENT 39

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2020 ALL OTHER COMPENSATION TABLE

Name

Company

Contributions

401(k)

Company

Contributions

SDCP

Corporate

Aircraft/

Transportation(1)

Personal

Security(2)

Other(3)

Total All

Other

Compensation

D. James Umpleby III

$

16,900

$

219,060

$

20,352

$

6,770

$

13,500

$

276,582

Andrew R. J. Bonfield

$

25,398

$

121,780

$

640

$

407

$

4,295

$

152,520

William P. Ainsworth

$

17,100

$

30,838

$

$

$

$

47,938

Denise C. Johnson

$

29,257

$

170,765

$

1,918

$

2,686

$

17,795

$

222,421

Bob De Lange

$

31,556

$

161,234

$

480

$

2,374

$

17,913

$

213,557

(1)

Values in this column, except as below, include the value of personal aircraft usage 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. Mr. Umpleby and the Company have a time-sharing lease agreement, pursuant to which certain costs associated with personal flights are reimbursed by Mr. Umpleby to the Company in accordance with the agreement. The 2020 amount for Mr. Umpleby includes $17,645 for personal aircraft usage. Values in this column also include the value of personal use of executive ground transportation service based on Caterpillar’s incremental cost per mile and trip hour, or as invoiced by a third party service provider. The 2020 amount listed includes personal transportation usage as follows: Mr. Umpleby $2,707, Mr. Bonfield $640, Ms. Johnson $1,918 and Mr. De Lange of $480.

(2)

Amounts reported for personal security represent the cost provided by outside security providers for installation, monitoring and maintenance of home security and smart home services and for reputation and identity theft protection. The incremental cost associated with the security services is determined based upon the amounts paid to these outside service providers.

(3) 

Values in this column include the cost for executive physicals and financial planning services. The incremental cost associated with these services is determined based upon the amounts paid to the approved service providers. Mr. De Lange was previously an International Service Employee (ISE), and the amount reported also includes tax preparation fees of $1,618 incurred in 2020 related to his ISE service. 

 

 2021 PROXY STATEMENT 40

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GRANTS OF PLAN-BASED AWARDS IN 2020

Name

Grant Date

Estimated Future Payouts

Under 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(2)

Exercise or Base Price

of Option Awards

($/Share)

Grant Date Fair

Value of Stock

and Option

Awards ($)(3)

Target (#)

D. James Umpleby III

3/2/2020

46,238

$

$

5,899,969

3/2/2020

227,103

$

127.60

$

5,900,000

Andrew R. J. Bonfield

3/2/2020

14,107

$

$

1,800,053

3/2/2020

69,286

$

127.60

$

1,800,009

William P. Ainsworth

3/2/2020

16,458

$

$

2,100,041

3/2/2020

80,833

$

127.60

$

2,099,993

Denise C. Johnson

3/2/2020

14,498

$

$

1,849,945

3/2/2020

71,210

$

127.60

$

1,849,993

Bob De Lange

3/2/2020

14,498

$

$

1,849,945

3/2/2020

71,210

$

127.60

$

1,849,993

(1)

The amounts reported in this column represent estimated potential awards under the LTIP. PRSUs were granted on March 2, 2020 under the LTIP for the 2020-2022 performance period. PRSUs vest at the end of the three-year performance period subject to the Company’s achievement of an average ROE performance hurdle during that period. There is no threshold or maximum payout opportunity with respect to these PRSUs.

(2)

Amounts reported represent stock options granted under the LTIP. The exercise price for all stock options granted to the NEOs is the closing price of Caterpillar stock on the grant date, March 2, 2020. All stock options granted to the NEOs will vest in one-third increments on March 2, 2021, March 2, 2022 and March 2, 2023.

(3)

The amounts shown do not reflect realized compensation by the NEO. As reported in this column, the value of PRSUs granted in 2020 under the LTIP are based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, assuming the highest level of performance is achieved for the PRSUs, which at the time of the grant reflected the probable level of achievement.

 

 2021 PROXY STATEMENT 41

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OUTSTANDING EQUITY AWARDS AT 2020 FISCAL YEAR END

Name

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

Market Value

of Shares or

Units of Stock

that have not

Vested

Equity Incentive Plan Awards

Grant Date

Exercisable

Unexercisable

Number of Unearned

Shares, Units or

other Rights that

have not Vested(2)

Market or Payout Value

of Unearned Shares,

Units or other Rights

that have not Vested(3)

D. James Umpleby III

3/5/2018

$

 

$

 46,337

(4) 

$

 8,434,261

3/5/2018

121,963

 60,981

$

 151.12

3/5/2028

 

$

 

$

3/4/2019

$

 

$

 41,483

(5) 

$

 7,550,736

3/4/2019

 54,539

 109,076

$

 138.35

3/4/2029

 

$

 

$

3/2/2020

$

 

$

 47,276

(5) 

$

 8,605,178

3/2/2020

 227,103

$

 127.60

3/2/2030

 

$

 

$

Andrew R. J. Bonfield

9/7/2018

$

 

$

 5,659

(4) 

$

 1,030,051

9/7/2018

 15,385

 7,692

$

 141.32

3/5/2028

 

$

 

$

3/4/2019

$

 

$

 13,700

(5) 

$

 2,493,674

3/4/2019

 18,013

 36,025

$

 138.35

3/4/2029

 

$

 

$

3/2/2020

$

 

$

 14,424

(5) 

$

 2,625,456

3/2/2020

 69,286

$

 127.60

3/2/2030

 

$

 

$

William P. Ainsworth

3/5/2018

$

 

$

 8,555

(4) 

$

 1,557,181

3/5/2018

 22,516

 11,258

$

 151.12

3/5/2028

 

$

 

$

3/4/2019

$

 

$

 13,700

(5) 

$

 2,493,674

3/4/2019

 18,013

 36,025

$

 138.35

3/4/2029

 

$

 

$

3/2/2020

$

 

$

 16,827

(5) 

$

 3,062,851

3/2/2020

 80,833

$

 127.60

3/2/2030

 

$

 

$

Denise C. Johnson

3/5/2018

$

 

$

 14,258

(4) 

$

 2,595,241

3/5/2018

 18,763

$

 151.12

3/5/2028

 

$

 

$

3/4/2019

$

 

$

 13,700

(5) 

$

 2,493,674

3/4/2019

 36,025

$

 138.35

3/4/2029

 

$

 

$

3/2/2020

$

 

$

 14,823

(5) 

$

 2,698,082

3/2/2020

 71,210

$

 127.60

3/2/2030

 

$

 

$

Bob De Lange

3/2/2015

 31,888

$

 83.00

3/2/2025

 

$