2019 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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TABLE OF CONTENTS

We are sending you these proxy materials in connection with Caterpillar’s solicitation of proxies, on behalf of its Board of Directors, for the 2019 Annual Meeting of Shareholders (Annual Meeting). Distribution of these materials is scheduled to begin on May 3, 2019. 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.

LETTER TO SHAREHOLDERS

5

PROXY SUMMARY

6

Annual Meeting of Shareholders

6

Shareholder Voting Matters

6

Our Director Nominees

7

Governance Highlights

8

2018 Performance Highlights

8

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

9

DIRECTORS & GOVERNANCE

10

 

    Election of Directors

 

10

Overview of our Board

10

Board Attendance

10

Board Evolution Since 2011

11

Diversity of Skills and Expertise

11

Director Continuous Education and Development

12

Board’s Role in Risk Oversight

12

Director Nominations and Evaluations

12

Director Candidate Biographies and Qualifications

14

Director Compensation

18

Board Election and Leadership Structure

19

Duties and Responsibilities of Presiding Director

19

Corporate Governance Guidelines and Code of Conduct

19

Board Evaluation Process

20

Board Committees

20

Director Independence Determinations

21

Communication with the Board

21

Investor Outreach

22

Sustainability

22

Political Contributions and Lobbying

23

Related Party Transactions

23

AUDIT

24

 

    Ratification of our Independent Registered Public Accounting Firm

 

24

Audit Fees and Approval Process

24

Independent Registered Public Accounting Firm Fee Information

25

Anonymous Reporting of Accounting and Other Concerns

25

Audit Committee Report

25

COMPENSATION

27

 

    Advisory Vote to Approve Executive Compensation

 

27

COMPENSATION DISCUSSION & ANALYSIS

28

Executive Summary

28

Compensation Discussion & Analysis

32

2018 Summary Compensation Table

45

2018 All Other Compensation Table

46

Grants of Plan-Based Awards in 2018

47

Outstanding Equity Awards at 2018 Fiscal Year End

48

2018 Option Exercises and Stock Vested

50

2018 Pension Benefits

51

2018 Nonqualified Deferred Compensation

52

Potential Payments Upon Termination or Change in Control

53

CEO Pay Ratio

55

SHAREHOLDER PROPOSALS

56

 

    Shareholder Proposal – Amend Proxy Access to Remove Resubmission Threshold

 

56

 

    Shareholder Proposal – Report on Activities in Conflict-Affected Areas

 

58

OTHER IMPORTANT INFORMATION

60

Matters Raised at the Annual Meeting Not Included in this Statement

60

Shareholder Proposals and Director Nominations for the 2020 Annual Meeting

60

Persons Owning More Than Five Percent of Caterpillar Common Stock

60

Security Ownership of Executive Officers and Directors

61

Section 16(a) Beneficial Ownership Reporting Compliance

61

Access to Form 10-K

62

Non-GAAP Financial Measures

62

Frequently Asked Questions Regarding Meeting Attendance and Voting

63

Admission and Ticket Request Procedure

66

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DEAR FELLOW SHAREHOLDERS,

 

D. JAMES UMPLEBY III

Chairman and Chief Executive Officer

 

“WITH OUR VALUES IN ACTION AS ITS FOUNDATION, THE GOAL OF OUR STRATEGY IS LONG-TERM PROFITABLE GROWTH WHILE ALSO FULFILLING CATERPILLAR'S PURPOSE—TO PROVIDE THE SOLUTIONS OUR CUSTOMERS USE TO BUILD A BETTER 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 12, 2019, at 8 a.m. at our Clayton, North Carolina facility. I look forward to welcoming you to our Building Construction Products campus, where we manufacture Caterpillar's line of small construction machines and attachments.

In addition to receiving an update on the performance of the company, we ask for your vote on several matters. Your vote is important. 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 important items. Please vote your shares either by attending the annual meeting or by voting online, via your mobile phone, by telephone or by mail.

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

 

Sincerely,

D. James Umpleby III
Chairman and Chief Executive Officer


 

2019 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. - June 12, 2019

Caterpillar Building

Construction Products

Clayton Campus

954 NC Highway 42 East

Clayton, NC 27527

The close of business

on April 15, 2019

Please follow the instructions contained in the Admission Procedure on page 66

SHAREHOLDER VOTING MATTERS

Proposal

Board’s Voting
Recommendation

Page
Reference

1

Election of 12 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 – Amend Proxy Access to Remove Resubmission Threshold

AGAINST

56

5

Shareholder Proposal – Report on Activities in Conflict-Affected Areas

AGAINST

58

2019 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

50

2017

News Corporation

Bloom Energy Corporation

Boston Properties, Inc.

 

 

David L. Calhoun

Presiding Director of Caterpillar Inc.

Senior Managing Director of The Blackstone Group L.P.

Yes

61

2011

The Boeing Company

Gates Industrial Corporation plc

 

 

 

Daniel M. Dickinson

Managing Partner of HCI Equity Partners

Yes

57

2006

None

 

 

Juan Gallardo

Former CEO of Organización CULTIBA,
S.A.B. de C.V.

Yes

71

1998

Grupo Aeroportuario del Pacifico, S.A.B. de C.V.

Grupo Financiero Santander Mexico, S.A.B. de C.V.

Organización CULTIBA, S.A.B. de C.V.

 

 

Dennis A. Muilenburg

Chairman, President and CEO
of The Boeing Company

Yes

55

2011

The Boeing Company

 

 

William A. Osborn

Former Chairman and CEO of Northern Trust Corporation and The Northern Trust Company

Yes

71

2000

Abbott Laboratories
General Dynamics Corporation

 

 

Debra L. Reed-Klages

Former Chairman and CEO of Sempra Energy

Yes

62

2015

Chevron Corporation

 

 

 

Edward B. Rust, Jr.

Former Chairman and CEO of State Farm Mutual Automobile Insurance Company

Yes

68

2003

Helmerich & Payne, Inc.

S&P Global Inc.

 

 

Susan C. Schwab

Professor at the University of Maryland
School of Public Policy and a Strategic
Advisor for Mayer Brown LLP;
former United States Trade Representative

Yes

64

2009

FedEx Corporation

Marriott International, Inc.

The Boeing Company

 

 

D. James Umpleby III

Chairman and CEO of Caterpillar Inc.

No

61

2017

Chevron Corporation

 

 

 

Miles D. White

Chairman and CEO of Abbott Laboratories

Yes

64

2011

Abbott Laboratories

McDonald’s Corporation

 

 

Rayford Wilkins, Jr.

Former CEO of Diversified Businesses
at AT&T Inc.

Yes

67

2017

Morgan Stanley
Valero Energy Corporation

 

 

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

 

  Chair

  Member

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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

12

Code of Conduct for Directors, Officers and Employees

Yes

Number of Independent Directors

11

Supermajority Voting Threshold for Mergers

No

Average Age of Directors

63

Proxy Access

Yes

Average Director Tenure (in years)

9

Shareholder Action by Written Consent

No

Annual Election of Directors

Yes

Shareholder Ability to Call Special Meetings

Yes

Mandatory Retirement Age

72

Poison Pill

No

Gender and Diversity

42%

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

2018 PERFORMANCE HIGHLIGHTS

     
  SALES AND REVENUES
  PROFIT PER SHARE
  STRONG BALANCE SHEET

$54.7 billion

$10.26

$7.9 billion

Sales and Revenues in 2018 were
$54.7 billion, up 20% from 2017 with improvement in all regions and across the three primary segments.

Caterpillar delivered record profit per share of $10.26, compared to $1.26 in 2017. Adjusted profit per share was $11.22, up 63% from $6.88 adjusted profit per share in 2017.*

Caterpillar ended 2018 with a cash balance of $7.9 billion. The Company repurchased $3.8 billion of common stock and paid $2 billion in dividends. Caterpillar has paid higher dividends for 25 consecutive years.

     

 

*

Adjusted profit per share is a non-GAAP financial measure. Additional information and a reconciliation to the most directly comparable GAAP measure is included on page 62.

2019 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

MEETING INFORMATION

JUNE 12, 2019

8:00 a.m.

Caterpillar Building Construction Products
Clayton Campus
954 NC Highway 42 East
Clayton, NC 27527

MEETING AGENDA

1.

Elect 12 director nominees named in this Proxy Statement

2.

Ratify our independent registered public accounting firm for 2019

3.

Approve, by non-binding vote, executive compensation

4.

Vote on shareholder proposals

5.

Any other business that properly comes before the meeting

RECORD DATE

April 15, 2019

 

By Order of the Board of Directors

Suzette M. Long

General Counsel and Corporate Secretary
May 3, 2019

 

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

This Notice of Annual Meeting and Proxy Statement and the 2018 Annual Report on Form 10-K are available at www.eproxyaccess.com/cat2019.

2019 PROXY STATEMENT    9


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DIRECTORS & GOVERNANCE

PROPOSAL 1 – ELECTION OF DIRECTORS

PROPOSAL SNAPSHOT

 

 

What am I voting on?

Shareholders are being asked to elect 12 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

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The Board’s policy is to encourage and expect that all directors attend each Annual Meeting of Shareholders. All directors attended the 2018 annual meeting. The independent directors generally meet in executive session as part of each regularly scheduled Board meeting. David Calhoun, who was Chairman of the Board through December 12, 2018, and became Presiding Director on December 12, 2018, presided over the Board's executive sessions in 2018.

BOARD EVOLUTION SINCE 2011

Seven new directors elected

Full rotation of Board committee chairs

Presiding Director elected

Reallocation of committee responsibilities

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

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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, subscription to relevant publications and attendance at activities and professional development training offered by associations such as the National Association of Corporate Directors and the 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 digital strategy, customer support and the operations of certain Energy & Transportation businesses. 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 opportunities through direct meetings with company dealers and customers and 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 and compliance committee meetings, a code of business 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 full Board and through delegation to Board committees, which meet regularly and report back to the full Board. The Board has delegated the oversight of specific risks to Board committees that align with their functional responsibilities.

The Audit Committee (AC) evaluates and monitors risks related to the Company’s financial reporting requirements, including the Company’s internal audit function and the independent auditor. The AC also assesses other risks faced by the Company including cybersecurity and information technology risks and the controls implemented to monitor and mitigate these risks. The Chief Information Officer regularly attends bimonthly AC meetings. 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 matters affecting 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 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 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 provides significant benefits to the Company. Although the Board has no specific diversity policy, the PPGC considers 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 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 extremely 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 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 located at 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 2020 Annual Meeting of Shareholders are included in the “Shareholder Proposals and Director Nominations for the 2020 Annual Meeting” section on page 60.

The number of persons comprising the Caterpillar Board of Directors is currently established as 12. 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.

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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 12, 2019. The Board has nominated the following individuals to stand for election for a one-year term expiring at the Annual Meeting of Shareholders in 2020.

 

 

KELLY A. AYOTTE

OTHER CURRENT DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

Former U.S. Senator representing New Hampshire

 

Age 50

Director since: 2017

INDEPENDENT

News Corporation

Bloom Energy Corporation

Boston Properties, Inc.

Public Policy and Governance

 

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

 

None

     
     

 

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 DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

Senior Managing Director and Head of Portfolio Operations of The Blackstone Group L.P. (private equity firm)

 

Age 61

Director since: 2011

INDEPENDENT

Presiding Director

The Boeing Company

Gates Industrial Corporation plc

Public Policy and Governance, Chair

 

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

 

Nielsen Holdings plc

     
     

 

Mr. Calhoun has been Senior Managing Director and Head of Portfolio Operations of The Blackstone Group L.P. since 2014 and served as Executive Chair of Nielsen Holdings N.V. (marketing and media information) from 2014 to 2015. Prior to his position at Blackstone, Mr. Calhoun served as Chairman of the Executive Board and CEO of The Nielsen Company B.V. from 2006 to 2013. 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 General Electric (GE). Mr. Calhoun also has significant manufacturing and advanced technology industry expertise as evidenced by his leadership of GE’s aircraft engines and transportation businesses. The Board elected Mr. Calhoun as Presiding Director in 2018.

 

 

DANIEL M. DICKINSON

OTHER CURRENT DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

Managing Partner of HCI Equity Partners (private equity firm)

 

Age 57

Director since: 2006

INDEPENDENT

None

Audit, Chair

 

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

 

MISTRAS Group, Inc.

     
     

 

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.

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JUAN GALLARDO

OTHER CURRENT DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

Former CEO of Organización CULTIBA, S.A.B. de C.V. (beverage industry)

 

Age 71

Director since: 1998

INDEPENDENT

Grupo Aeroportuario del Pacifico, S.A.B. de C.V.

Grupo Financiero Santander Mexico, S.A.B. de C.V.

Organización CULTIBA, S.A.B. de C.V.

Public Policy and Governance

 

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

 

LafargeHolcim Ltd.

   
   

 

Mr. Gallardo retired as the CEO of Organización CULTIBA, S.A.B. de C.V. in 2016. Mr. Gallardo resides in Mexico, where Caterpillar has a presence. The Board believes Mr. Gallardo’s international business experience, particularly in Latin America, is important for the Company’s understanding of these markets. His extensive background and active engagement in trade-related issues also contributes to the Board’s expertise. In addition, his experience as a CEO and director of other large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board in many areas, including risk oversight and strategy.

 

 

DENNIS A. MUILENBURG

OTHER CURRENT DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

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

 

Age 55

Director since: 2011

INDEPENDENT

The Boeing Company

Audit

 

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

 

None

     
     

 

Mr. Muilenburg has been Chairman since 2016, President since 2013 and CEO since 2015 of The Boeing Company. He served as Vice Chairman, President and Chief Operating Officer of The Boeing Company from 2013 to 2015. Prior to that, he was Executive Vice President of The Boeing Company and President and CEO of Boeing Defense, Space & Security from 2009 to 2013. Mr. Muilenburg provides valuable insight to the Board on strategic and business matters, stemming from his experience with large scale product development programs and his worldwide supply chain and manufacturing expertise. He also contributes financial and technology expertise, and his experience as CEO of a large, publicaly-traded multinational corporation enables him to provide key insights to the Board on issues such as risk management, corporate finance and cybersecurity.

 

 

WILLIAM A. OSBORN

OTHER CURRENT DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

Former Chairman and CEO of Northern Trust Corporation and The Northern Trust Company (financial services)

 

Age 71

Director since: 2000

INDEPENDENT

Abbott Laboratories

General Dynamics Corporation

Audit

 

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

 

None

     
     

 

Mr. Osborn retired as Chairman in 2009 and as CEO in 2008 of Northern Trust Corporation and The Northern Trust Company. He provides the Board with valuable financial expertise and experience. In addition, his experience as a CEO and director of other large, publicly-traded corporations enables him to provide meaningful input and guidance in many areas, including public company governance, corporate finance and risk oversight.

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DEBRA L. REED-KLAGES

OTHER CURRENT DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

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

 

Age 62

Director since: 2015

INDEPENDENT

Chevron Corporation

Compensation and Human Resources

   

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 DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

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

 

Age 68

Director since: 2003

INDEPENDENT

Helmerich & Payne, Inc.

S&P Global Inc.

Public Policy and Governance

 

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 DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

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

 

Age 64

Director since: 2009

INDEPENDENT

FedEx Corporation

Marriott International, Inc.

The Boeing Company

Public Policy and Governance

 

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

 

None

     
     

 

Ambassador Schwab has been Professor at the University of Maryland School of Public Policy since 2009 and Strategic Advisor for Mayer Brown LLP since 2010. She held various positions previously, including U.S. Trade Representative (member of the President’s Cabinet) and Assistant Secretary of Commerce. Ambassador Schwab brings extensive knowledge, insight and experience on international trade issues to the Board. Her educational experience and role as the U.S. Trade Representative provide important insights for the 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.

2019 PROXY STATEMENT    16


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D. JAMES UMPLEBY III

OTHER CURRENT DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

Chairman and CEO of Caterpillar Inc.

 

Age 61

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. 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. The Board elected Mr. Umpleby Chairman of the Board in 2018.

 

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 DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

Chairman and CEO of Abbott Laboratories (medical devices and biotechnology)

 

Age 64

Director since: 2011

INDEPENDENT

Abbott Laboratories

McDonald’s Corporation

Compensation and Human Resources, Chair

 

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

 

None

     
     

 

Mr. White has been Chairman and CEO of Abbott Laboratories since 1999. His experience as the CEO of 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 as a CEO, his 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 DIRECTORSHIPS:

CATERPILLAR BOARD COMMITTEE

 

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

 

Age 67

Director since: 2017

INDEPENDENT

Morgan Stanley

Valero Energy Corporation

Compensation and Human Resources

 

OTHER DIRECTORSHIPS WITHIN THE LAST FIVE YEARS:

 

América Móvil, S.A.B. de C.V.

     
     

 

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.

2019 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, 2018. Mr. Umpleby, who served as CEO during 2018 and, effective December 12, 2018, as Chairman of the Board, did not receive separate compensation for his service on the Board.

Compensation for non-employee directors for 2018 was comprised of the following components:

 

 

 

Cash Retainer

$

150,000

Restricted Stock Units (1 Year Vesting) for Non-Executive Chairman

$

400,000

Restricted Stock Units (1 Year Vesting) for Members

$

150,000

Cash Stipends:

 

 

Audit Committee Chairman

$

25,000

Compensation and Human Resources Committee Chairman

$

20,000

Public Policy and Governance Committee Chairman

$

15,000

 

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. 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. 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.

 

 

DIRECTOR COMPENSATION FOR 2018

Director

Fees Earned or

Paid in Cash

 

Restricted

Stock Units(1)

All Other

Compensation(2)

 

 

Total

Kelly A. Ayotte

$

150,000

 

$

150,062

 

$

 

$

300,062

David L. Calhoun

$

150,000

 

$

400,015

 

$

 

$

550,015

Daniel M. Dickinson

$

150,000

 

$

150,062

 

$

30,474

 

$

330,536

Juan Gallardo

$

150,000

 

$

150,062

 

$

14,713

 

$

314,775

Dennis A. Muilenburg

$

150,000

 

$

150,062

 

$

 

$

300,062

William A. Osborn

$

175,000

 

$

150,062

 

$

14,713

 

$

339,775

Debra L. Reed-Klages

$

150,000

 

$

150,062

 

$

4,000

 

$

304,062

Edward B. Rust, Jr.

$

165,000

 

$

150,062

 

$

23,980

 

$

339,042

Susan C. Schwab

$

150,000

 

$

150,062

 

$

11,160

 

$

311,222

Miles D. White

$

170,000

 

$

150,062

 

$

8,000

 

$

328,062

Rayford Wilkins, Jr.

$

150,000

 

$

150,062

 

$

 

$

300,062

(1)

As of December 31, 2018, the number of vested and non-vested RSUs (including accrued dividend equivalent units) and Phantom Shares held by those serving as non-employee directors during 2018 was: Ms. Ayotte: 1,777 (which consists of 1,011 RSUs and 766 Phantom Shares); Mr. Calhoun: 16,189 (which consists of 2,695 RSUs and 13,494 Phantom Shares); Mr. Dickinson: 28,050 (which consists of 1,011 RSUs and 27,039 Phantom Shares); Mr. Gallardo: 33,937 (which consists of 1,011 RSUs and 32,926 Phantom Shares); Mr. Muilenburg: 1,011 RSUs; Mr. Osborn: 2,131 (which consists of 1,011 RSUs and 1,120 Phantom Shares); Ms. Reed-Klages: 6,825 (which consists of 1,011 RSUs and 5,814 Phantom Shares); Mr. Rust: 36,609 (which consists of 1,011 RSUs and 35,598 Phantom Shares); Ms. Schwab: 13,341 (which consists of 1,011 RSUs and 12,330 Phantom Shares); Mr. White 10,204 (which consists of 1,011 RSUs and 9,193 Phantom Shares); and Mr. Wilkins: 1,011 RSUs. Ms. Ayotte deferred 50 percent while Mr. Calhoun, Mr. Gallardo, Ms. Reed-Klages, Ms. Schwab and Mr. White deferred 100 percent of their 2018 retainer fee into phantom shares of Caterpillar stock in the Directors' Deferred Compensation Plan.

(2)

All Other Compensation represents amounts paid in connection with the Caterpillar Foundation’s Directors’ Charitable Award Program and administrative fees associated with the Director’s Charitable Award Program. All outside directors are eligible to participate in the Caterpillar Foundation Matching Gift Program annually. The Caterpillar Foundation will match contributions to eligible two-year or four year colleges or universities, arts and cultural institutions, and public policy or environmental organizations, up to a maximum of $2,000 per eligible organization per calendar year. The amounts listed represent the matching contributions as follows: Ms. Reed-Klages $4,000; Mr. Rust $13,000; Ms. Schwab $11,160 and Mr. White $8,000. For directors eligible to participate in the Directors’ Charitable Award Program, the amounts represented include the insurance premium and administrative fees. The premium and administrative fees are as follows: Mr. Dickinson $30,474; Mr. Gallardo $14,713; Mr. Osborn $14,713; and Mr. Rust $10,980.

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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. Directors must retire at the end of the calendar year in which they reach the age of 72.

Under Caterpillar's bylaws, the directors annually elect a Chairman. The Board has no fixed policy on whether or not 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 elected D. James Umpleby III as its Chairman on December 12, 2018. Mr. Umpleby has served as CEO and a director since January 1, 2017. David L. Calhoun was elected Presiding Director on December 12, 2018. Mr. Calhoun had served as non-executive Chairman since April 1, 2017.

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.

DUTIES AND RESPONSIBILITIES OF PRESIDING DIRECTOR

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

Encourage and facilitate active participation of all directors.

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

Approve the type of information sent to the Board.

Approve Board meeting schedules and agendas.

Has the authority to call special meetings of the Board.

Lead the Board’s annual evaluation of the Chairman and CEO.

Monitor and coordinate with management on corporate governance issues and developments.

 

 

 

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 recommending 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 is available on our website at www.caterpillar.com/code.

2019 PROXY STATEMENT    19


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BOARD EVALUATION PROCESS

The Board conducts an annual self-evaluation to determine whether the Board and its committees are functioning effectively. In 2018, the Chairman of the Public Policy and Governance Committee contacted each Board member to solicit their feedback. The Public Policy and Governance Committee also developed a discussion outline to facilitate the self-evaluation performed at the Board’s year-end meeting. 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.

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 an “audit committee financial expert” as defined under SEC rules.

AUDIT COMMITTEE

Committee Members:
Daniel M. Dickinson, Chairman
Dennis A. Muilenburg
William A. Osborn

Number of Meetings in 2018: 10

COMMITTEE ROLES AND RESPONSIBILITIES

Selects and oversees the independent auditors.

Participates in selecting the independent auditors’ 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 ethics and compliance programs.

Monitors the Company’s litigation and tax compliance.

Oversees information technology systems and related security.

COMPENSATION AND HUMAN RESOURCES COMMITTEE

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

Number of Meetings in 2018: 6

COMMITTEE ROLES AND RESPONSIBILITIES

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

Establishes, oversees and administers the Company’s equity compensation and employee benefit plans.

Reviews incentive compensation arrangements to ensure that incentive pay does not encourage unnecessary risk-taking, and reviews and discusses the relationship between risk management policies and practices, corporate strategy and executive compensation.

Recommends to the Board the compensation of directors.

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

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

 

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PUBLIC POLICY AND GOVERNANCE COMMITTEE

Committee Members:
David L. Calhoun, Chairman
Kelly A. Ayotte
Juan Gallardo
Edward B. Rust, Jr.
Susan C. Schwab

Number of Meetings in 2018: 6

COMMITTEE ROLES AND RESPONSIBILITIES

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

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

Leads the Board in its annual self-evaluation process.

Oversees the Company’s officer succession planning.

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

Oversees the corporate governance structure.

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 and political contributions and policies.

Oversees investor and community relations.

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 met the independence standards except Mr. Umpleby, who is a current employee of the Company. In reaching this determination, the Board considered, with respect to Ms. Reed-Klages, ordinary course business between Sempra Energy and Caterpillar involving the purchase or sale of equipment engines and energy, subject to usual trade terms.

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 General Counsel and Corporate Secretary to consult with him if she is unsure who should receive the communication. If a permissible communication is sent, you will receive a written acknowledgement from the Corporate Secretary’s office confirming receipt of your communication.

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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

 

SUSTAINABILITY

Caterpillar has set aspirational goals for its operations and product stewardship. We believe these standards affirm our determination to lead our industry to a more sustainable future. You can track our progress toward achieving these goals by visiting our website www.caterpillar.com/sustainability.

 

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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 and shareholders, 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 legislative and regulatory priorities, the Company’s policy on political activities and contributions, and the Company’s political spending and trade association expenditures as well as the activities of Caterpillar’s Political Action Committee.

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 General Counsel and 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 General Counsel and 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.

For approximately four months in 2018, Joseph E. Creed served as interim Chief Financial Officer of the Company. Mr. 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 $162,000 for fiscal 2018. Mr. Creed’s father-in-law is a retired employee of the Company and in 2018 received approximately $146,000 for work done as a consultant with CGN & Associates, Inc, including work done for the account of the Company. Caterpillar employs CGN to provide a variety of consulting services, including supply chain optimization, and paid CGN approximately $26 million for its services in 2018. The foregoing relationships existed prior to Mr. Creed's appointment as interim CFO and, consistent with the Company's policy, were reviewed and approved or ratified by the PPGC.

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AUDIT

PROPOSAL 2 RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PROPOSAL SNAPSHOT

 

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 2019.

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. 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.

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. The representatives will also be available to respond to questions at the meeting.

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 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 the independent auditors and any audit or audit-related services to be provided by any other audit service provider. The pre-approval process includes an annual and interim component.

Annually, not later than February of each year, management and the independent auditors jointly submit a service matrix of the types of audit and non-audit services that management may wish to have the independent 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):

 

 

 

2018

2017

 

Audit Fees(1)

 

$

33.6

$

34.6

 

Audit-Related Fees(2)

 

 

1.6

 

1.8

 

Tax Compliance Fees(3)

 

 

0.5

 

0.4

 

Tax Planning And Consulting Fees(4)

 

 

0.1

 

0.1

 

All Other Fees(5)

 

 

0.2

 

0.1

 

TOTAL

 

$

36.0

$

37.0

 

(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 $0.6 million in each of 2018 and 2017 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:

Direct Telephone: 309-494-4393 (English only)

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

Confidential Fax: 309-494-4818

Email: BusinessPractices@cat.com

Internet: www.caterpillar.com/obp

AUDIT COMMITTEE REPORT

The AC operates under a written charter adopted by the Board of Directors and each of its members meets the independence standards contained in the NYSE Listed Company rules, SEC rules and Caterpillar’s Guidelines on Corporate Governance Issues.

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.

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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, 2018.

By the members of the Audit Committee:(1)

       

William A. Osborn (Chairman)

Daniel M. Dickinson

Dennis A. Muilenburg

Rayford Wilkins, Jr.

 



(1)

The report was approved by the AC prior to changes in committee membership that were effective April 12, 2019.

2019 PROXY STATEMENT    26


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COMPENSATION

PROPOSAL 3 – ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

PROPOSAL SNAPSHOT

 

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 2019 Annual Meeting of Shareholders is hereby APPROVED.”

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.

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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 and shareholders. Their interest lies 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 our 2018 “say on pay” vote of approximately 94 percent reflects this positive response.

In 2018, we continued our shareholder outreach on environmental, social, governance and compensation topics, reaching out to the holders of approximately 45 percent of our outstanding shares, to discuss various matters including governance, executive compensation, sustainability and operational performance. In these meetings, our shareholders generally expressed a continued positive view with respect to our executive compensation program.

SAY ON PAY SUPPORT

94%

96%

93%

2018

2017

2016

After considering feedback received from our shareholders through our outreach efforts and the 2018 “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.

There is 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 high-priority business objectives and strategy. 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

Robust 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 high-priority 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 89 percent of our CEO’s 2018 targeted total compensation was variable and/or at-risk compensation, including 50 percent of long-term incentives in the form of PRSUs.

 

 

 

 

2018 CEO COMPENSATION ELEMENTS

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BUSINESS PERFORMANCE AND RESULTS

Caterpillar delivered outstanding results in 2018. Many of our end markets improved, our team capitalized on the opportunity and we achieved excellent results. As demand improved during the year, we stayed disciplined and maintained control of our structural costs while continuing to introduce new products, further develop our digital capabilities, and execute the changes outlined in our strategy. In addition, we delivered the highest profit per share in the Company’s history and strong operating cash flow. As a result, the Company returned $5.8 billion of capital to shareholders, including $3.8 billion in share repurchases and raised the dividend by ten percent in 2018. This marked the 25th consecutive year we paid higher dividends to our shareholders, earning recognition as a member of the S&P 500 Dividend Aristocrats.

 

Our key financial and business results for 2018 included the following:

 

 

PROFITABLE GROWTH

 

SALES AND REVENUES

              
*

Enterprise Operating Profit is used in determining performance under our Annual Incentive Plan. Enterprise Operating Profit and Adjusted Profit Per Share are non-GAAP measures and a reconciliation to the most directly comparable GAAP measure is included on page 62.

 

STRONG BALANCE SHEET AND CASH FLOW

              

TOTAL SHAREHOLDER RETURN (TSR)

 

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PAY OUTCOMES DEMONSTRATE ALIGNMENT WITH COMPANY PERFORMANCE

Consistent with the CHRC’s pay-for-performance philosophy, these improvements in business results were reflected in the resulting pay decisions made for our CEO and the other NEOs in 2018. Compensation outcomes for 2018 included the following items:

BASE SALARY

Named Executive Officers (other than the CEO) received an average base salary adjustment of 5.7 percent.

ANNUAL INCENTIVE

Annual incentive awards for 2018 paid out, on average, at 183 percent of target.

LONG-TERM INCENTIVE

Based on the Company’s 1-, 3- and 5-year relative Total Shareholder Return at the end of 2017, the 2018 equity grants to the NEOs were set at 75th percentile of the compensation peer group (except as detailed below for CEO).

The 2016 – 2018 PRSU grant vested in 2019.

 

 

 

 

CEO COMPENSATION

In 2018, the CHRC recommended and the Board approved changes to Mr. Umpleby’s compensation, in part to recognize his exceptional performance results and leadership, and also to increase his base salary and annual target incentive to align his target compensation with the peer group median. Mr. Umpleby’s actual annual incentive award reflects the Company’s strong results in 2018. And, the 2018 Long-Term Incentive grant was set at the 80th percentile of the Company’s peer group reflecting his outstanding performance achievements in 2017 and the Company’s overall TSR results.

 

 

*

Target Value Includes: Salary of $1,500,000; annual incentive of $2,625,000; and LTI grant of $10,400,000. Target value: $14,525,000.

**

Actual Value Includes: Salary of $1,425,000 (due to proration); annual incentive of $4,742,000; and LTI grant of $13,000,000. Total actual value: $19,167,000.

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COMPENSATION DISCUSSION & ANALYSIS

2018 NAMED EXECUTIVE OFFICERS

D. James Umpleby III

Chairman and Chief
Executive Officer (CEO)

In 2018, Mr. Umpleby:

Led the Company to a record profit per share of $10.26 and a 63 percent increase in adjusted profit per share compared to 2017.

Increased Sales and Revenues 20 percent from 2017.

Increased Enterprise Operating Profit by 53 percent from 2017, with all three primary segments meeting or exceeding their targets.

Achieved strong cash generation allowing for significant capital deployment, including $3.8 billion in share repurchases. The quarterly dividend was increased ten percent and marked the 25th consecutive year of higher dividends to shareholders, earning recognition as a member of the S&P 500 Dividend Aristocrats. Caterpillar ended 2018 with an enterprise cash balance of $7.9 billion.

Continued relentless execution of the enterprise strategy for profitable growth using the Operating & Execution Model with a focus on Services, Expanded Offerings and Operational Excellence.

Andrew R. J. Bonfield

Chief Financial Officer (CFO)

In 2018, Mr. Bonfield:

Delivered record profit per share as sales improved in all regions and across the three primary segments.

Remained focused on the Company’s flexible cost structure.

Led the return of $5.8 billion in capital to shareholders through share repurchases and dividends, while maintaining a strong financial position and operating cash flow.

Continued to execute the Operating & Execution Model to deliver long-term profitable growth.

Bob De Lange

Group President, Services, Distribution & Digital

In 2018, Mr. De Lange:

Delivered strong growth in aftermarket services, customer services agreements and eCommerce in partnership with business units and dealers.

Connected approximately 250,000 assets in 2018, for a total connected population of 850,000.

Enhanced the customer service offering, resulting in a 30% increase in the number of Customer Services Agreements.

Invested in improved eCommerce capabilities, leading to an approximate 10% increase in aftermarket related eCommerce sales.

Denise C. Johnson

Group President,
Resource Industries

In 2018, Ms. Johnson:

Delivered profitable growth in Resource Industries with segment profit increasing 129 percent (more than $900 million) on 31 percent higher sales than 2017, while driving a lean and disciplined cost culture.

Accelerated adoption of autonomy solutions with key customers and delivered interoperability to retrofit competitive equipment, as well as doubled the number of autonomous sites and hauled 1.2 billion metric tons safely.

Deployed enterprise technology and expanded offerings in key markets with a battery-electric prototype for underground applications; an electric drive large mining truck and wheel loader; and specific products for emerging markets.

Continued necessary restructuring actions driving a flexible and competitive cost structure.

 

 

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Thomas A. Pellette

Group President,
Construction Industries

In 2018, Mr. Pellette:

Led Construction Industries (CI) to deliver record sales and profit. CI delivered 28 percent higher profit on 21 percent higher sales.

CI exceeded all full-year key financial commitments and developed a more competitive and flexible cost structure.

Executed the Operating & Execution Model with strong discipline, delivering further structural cost reductions.

Mr. Robert Charter

Group President, Customer
& Dealer Support

Mr. Charter served as Group President, Customer & Dealer Support until his retirement on June 1, 2018.

He was replaced by Bob De Lange, who is now leading the division under a new name: Services, Distribution and Digital, to reflect the emphasis on digital as a key enabler of business success and the Company’s priority to grow the aftermarket.

 

 

 

 

2018 CHIEF FINANCIAL OFFICER SUCCESSION

Mr. Bradley M. Halverson (1/1/2018 – 5/3/2018)

Mr. Joseph E. Creed (5/4/2018 – 8/31/2018)

Mr. Andrew R. J. Bonfield (9/1/2018 – Present)

 

Mr. Bradley M. Halverson

Group President & CFO

Mr. Halverson served as Group President & CFO until his retirement on May 3, 2018.

Mr. Joseph E. Creed

Interim CFO

During Mr. Creed's tenure as Interim CFO, he:

Exceeded the Company's financial targets and contributed to record profit per share.

Drove consistent governance of the Operating & Execution Model, with all divisions completing Executive Office Strategy Reviews.

Improved utilization and visualization of Caterpillar’s extensive data set to drive meaningful business discussions and provide insight to profit concentrations.

Delivered Business Market Assessment tool and enterprise resource allocation methodology.

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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 executive 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.

 

 

 

 

 

COMPENSATION CONSIDERATIONS

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 management talent

Skills, experience and tenure of executive incumbents

INDEPENDENT COMPENSATION CONSULTANT

The CHRC retained Meridian Compensation Partners, LLC (“Meridian”) as its independent compensation consultant during 2018. 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 2018, Meridian did not

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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.

 

 

BENCHMARKING COMPENSATION TO PEERS

2018 COMPENSATION PEER GROUP

The CHRC regularly assesses the market competitiveness of the Company’s executive compensation programs based on peer group data. The 2018 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.

2018 Compensation Peer Group*

3M Company

Fluor Corporation

Archer-Daniels-Midland Company

Ford Motor Company

The Boeing Company

General Electric Company

Cisco Systems, Inc.

Halliburton Company

Cummins Inc.

Honeywell International Inc.

Deere & Company

Intel Corporation

DowDuPont Inc.

Johnson Controls, Inc.

Emerson Electric Co.

PACCAR Inc.

FedEx Corporation

United Technologies Corporation

*The CHRC removed Alcoa from the prior benchmarking peer group.

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.

2018 COMPETITOR PEER GROUP

For 2018, 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 pay-for-performance, 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 2018 Compensation Peer Group) to assess relative performance when awarding long-term incentive awards. The 2018 Competitor Peer Group 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.

2018 Competitor Peer Group*

 

Cummins Inc.

Komatsu Ltd.

Deere & Company

Sany Heavy Equipment International Holdings Company Limited

Hitachi Construction Machinery Co., Ltd.

Volvo AB

*Joy Global Inc. was removed from the group due to its acquisition by Komatsu Ltd.

 

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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 stock 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. The stock ownership requirement for the CEO is six times base salary and three times base salary for each of the other NEOs, except two times base salary for the Interim CFO.

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 2018, Mr. Umpleby’s salary was increased from $1.2 million to $1.5 million, which was meant to bring his salary nearer to the peer group median. In setting Mr. Umpleby’s base salary, several factors were considered including market data of other CEOs relative to peer group medians and Mr. Umpleby’s strong performance as CEO.

Upon his appointment to the position of CFO, Mr. Bonfield, who had previously served for 15 years as a public company CFO with three organizations, had his salary set at $800,000, which was aligned with the peer group median. Effective April 1, 2018, adjustments were made for the other NEOs and salaries were set at or below the peer group median.

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NEO BASE SALARY

Name

2018(1)

Umpleby

$1,500,000

Bonfield(2)

$800,000

Halverson

$810,000

Creed

$381,000

Charter

$793,000

De Lange

$745,000

Johnson

$774,000

Pellette

$811,000

(1)

2018 salary effective April 1, 2018

(2)

Hired September 1, 2018

ANNUAL INCENTIVE

2018 ANNUAL INCENTIVE PLAN DESIGN

The Company’s Annual Incentive Plan (AIP) is designed to provide each NEO with an annual cash payout based on the short-term performance of the Company and each NEO’s respective businesses. The AIP places the majority of each NEO’s annual cash compensation at risk and aligns the interests of executives and shareholders.

Beginning in 2016, the CHRC modified the AIP design to more closely align pay outcomes with business performance by annually comparing the Company’s forecasted Enterprise Operating Profit to the prior year’s actual Enterprise Operating Profit. The comparison is conducted to determine whether the current year will be an “up year” (improved performance) or “down year” (weaker performance) versus the prior year’s actual Enterprise Operating Profit results. All NEOs, except Mr. Creed, participated in the AIP.

2018 ANNUAL INCENTIVE PLAN DESIGN

 

 

 

 

2018 ANNUAL INCENTIVE PERFORMANCE MEASURES AND RESULTS

In addition to Enterprise Operating Profit performance, a portion of each NEO’s annual incentive was based on Operating Profit After Capital Charge (OPACC) and Services Revenues, all of which were subject to the same design above. Consistent with this design process, after reviewing the Company’s 2018 business plan, the CHRC determined that 2018 would be an “up year,” as Enterprise Operating Profit was forecasted to be above 2017. As a result, there were no adjustments to the target annual incentive opportunity for NEOs.

For the annual incentive, at its February 2018 meeting, the CHRC approved the performance measures described below to be used for determining actual payouts. The largest portion (ranging from 60 percent to 80 percent) of each NEO’s 2018 annual incentive opportunity was based on Enterprise Operating Profit and the Operating Profit After Capital Charge (OPACC) for their respective businesses. The remaining portion of each NEO’s annual incentive award opportunity was determined by the newly introduced Services Revenues metric for the enterprise or their respective businesses. Consistent with the Operating & Execution model, Services Revenues align the Company's emphasis on the aftermarket strategy with variable incentive opportunity.

When establishing the performance targets for 2018, the CHRC reviewed the Company’s business plan, historical performance, management recommendations and feedback provided by the independent compensation consultant. Targets were set for each of the performance measures at levels that were designed to be reasonably achievable with strong management performance. Maximum performance levels were designed to be difficult to achieve in light of historical performance and the Company’s business forecast at the time the measures were approved. The business forecast is based on market, economic and geopolitical factors. The performance measures were also weighted according to the Company’s business priorities and the responsibilities of each NEO.

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The charts below and on the following page summarize the performance measures, weightings and results for the 2018 annual incentive for each NEO. However, during 2018, including while serving as Interim CFO, Mr. Creed was a participant in the Company’s Short-Term Incentive Plan (STIP), an annual cash incentive plan in which the Company’s vice presidents and other management employees participate, instead of the AIP. STIP awards are calculated similar to the AIP, except the STIP also includes an individual performance factor (IPF) within the final payout calculation. The IPF takes into account the individual’s performance and contributions to the enterprise recognizing initiative, achievement and impact, and can range from 80 percent to 200 percent of the calculated payout prior to final award determination. Mr. Creed’s individual performance and contributions in 2018, including his performance relative to peers, superior strategy execution and strong performance against goals were considered and an IPF of 120 percent was applied.

 

DESCRIPTION OF PERFORMANCE MEASURES

 

PERFORMANCE MEASURE

DEFINITION

RATIONALE

ENTERPRISE OPERATING PROFIT

Enterprise Operating Profit measures the overall profitability of all of Caterpillar’s operations (including ME&T and Financial Products) before taxes, interest and other non-operating items. For AIP purposes, the Enterprise Operating Profit metric will be calculated as Caterpillar Consolidated Operating Profit excluding restructuring costs.

The CHRC approved Enterprise Operating Profit as a performance measure in order to incentivize management with respect to the overall profitability of the Company. The CHRC believes that Enterprise Operating Profit is an important corporate metric for shareholders to be able to assess the financial health of the Company.

ENTERPRISE OPERATING PROFIT AFTER CAPITAL CHARGE (OPACC)

Enterprise Operating Profit After Capital Charge (OPACC) measures how productively and efficiently Caterpillar is utilizing assets to generate shareholder value. For AIP purposes, Enterprise OPACC is calculated as ME&T operating profit excluding restructuring costs less the capital charge.

For Enterprise OPACC, the capital charge equals average quarterly ME&T net assets multiplied by a pre-tax capital charge rate of 13 percent.

OPACC is designed to measure how productively and efficiently the Company’s assets are being utilized by examining the relationship between the value of the Company’s assets and the operating profit that those assets generate. An increase in OPACC means that the Company’s management is utilizing assets more efficiently to generate shareholder value, which the CHRC views as key to Caterpillar’s long-term success.

OPERATING PROFIT AFTER CAPITAL CHARGE (OPACC)

For each segment, OPACC is calculated as segment profit less the capital charge. In 2018, the capital charge was calculated as the average monthly net accountable assets multiplied by a pre-tax capital charge rate of 13 percent.

OPACC is designed to measure how productively and efficiently the Company’s assets are being utilized by examining the relationship between the value of the Company’s assets and the operating profit that those assets generate. An increase in OPACC means that the Company’s management is utilizing assets more efficiently to generate shareholder value, which the CHRC views as key to Caterpillar’s long-term success.

SERVICES REVENUES

Services Revenues measure service-related revenues across Caterpillar including, but not limited to, revenues from aftermarket parts, financing and services provided by direct businesses. Due to the competitively sensitive nature of this measure, the threshold, target and result levels have all been indexed and reported as such.

 

 

The CHRC approved Services Revenues as an important measure intended to further strengthen profitability realized by growth in aftermarket parts and services.

 

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2018 ANNUAL INCENTIVE PERFORMANCE MEASURES AND RESULTS

 

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2018 INCENTIVE PAYMENTS

In early 2019, the results for each performance measure noted above were converted into a performance factor and reviewed by the CHRC. Each performance factor was multiplied by the respective weightings for each NEO to obtain a final weighted performance factor which was then used to determine actual incentive payments for each of the NEOs.

The following are the calculated 2018 cash incentive payments made to the NEOs:

 

Target

Opportunity

 

Salary(1)

 

Weighted

Performance

Factor

 

 

Payment(2)

Umpleby

175%

X

$

1,426,027

 

X

1.90

 

=

$

4,742,000

Bonfield

115%

X

$

267,397

 

X

1.90

 

=

$

585,000

Halverson

115%

X

$

272,959

 

X

1.90

 

=

$

597,000

Creed(3)

80%

X

$

370,892

 

X

1.90

 

=

$

677,000

Charter

115%

X

$

321,159

 

X

1.82

 

=

$

673,000

De Lange(4)

115%

X

$

725,275

 

X

1.77

(5)

=

$

1,180,000

Johnson

115%

X

$

763,153

 

X

1.91

 

=

$

1,677,000

Pellette

115%

X

$

799,658

 

X

1.77

(5)

=

$

1,629,000

(1) All payments were calculated using a daily weighted average salary.

(2) Payments were rounded up to the nearest thousand.

(3) The calculated amount includes application of an IPF of 120 percent.

(4) The calculated payment was reduced by 20 percent.

(5) Prorated and rounded weightings based on time in segment.

 

 

LONG-TERM INCENTIVE

2018 DESIGN AND SIZING OF GRANT

In 2018, 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. Beginning with the 2018 equity grant, to align with market practice, Dividend Equivalent Units (DEUs) accrued 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 2018 grant, the CHRC selected Return on Equity (ROE) as the PRSU performance measure as it aligns management with 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 competitor peer group (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 uses 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 S&P 500 Industrials, Compensation Peer Group and Competitor Peer Group); 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 2018, the CHRC reviewed the Company’s exemplary 1-, 3- and 5-year relative TSR and financial performance at the end of 2017. 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, LTI awards for the NEOs were granted at the 75th percentile of the benchmarked LTI values of the Company’s compensation peer group and 80th percentile for the CEO.

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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

94th

100th

99th

3-Year

94th

83rd

90th

5-Year

56th

50th

40th

Grant Sizing

 

75th Percentile

 

 

 

 

 

2016 – 2018 PERFORMANCE RESTRICTED STOCK UNITS (PRSUs)

For the 2016 – 2018 performance period, adjustments were made to the ROE to account for restructuring costs, the effect of an accounting principle change impacting the accounting for pension and other post-employment benefits and the impact of the 2017 tax reform legislation in the U.S. Gains from divestitures were excluded as well as deferred tax valuation allowance adjustments. In each case, the CHRC determined that these adjustments were an appropriate use of its discretion and in the best interest of the Company and its shareholders.

For the 2016 grant, the PRSUs were eligible to cliff vest based on a three-year average adjusted ROE result of 31.1 percent, which exceeded the goal of 15 percent. Therefore, the 2016 PRSU award cliff vested. The chart below describes the Company’s ROE performance and results for the 2016 – 2018 performance period:

2016-2018 PRSUs

 

 

 

 

OTHER COMPENSATION, BENEFITS AND CONSIDERATIONS

NEO RETIREMENTS IN 2018

Bradley M. Halverson retired as Group President and Chief Financial Officer on May 4, 2018. Upon his retirement, and pursuant to the Retention and Retirement Agreement between him and the Company, (i) Mr. Halverson received a cash payment of $2,612,250, and (ii) his outstanding equity awards were treated in accordance with their terms, except that the performance-based restricted stock unit award granted to Mr. Halverson in 2017 will not be prorated should the company meet the performance hurdle.

Robert B. Charter retired as Group President, Customer & Dealer Support on June 1, 2018. Upon his retirement, and pursuant to the Retention and Retirement Agreement between him and the Company, (i) Mr. Charter received a cash payment of $2,967,125, (ii) the Company waived the application of the provision of its relocation policy that would otherwise require Mr. Charter to reimburse the Company for relocation allowances and benefits provided in connection with his relocation to Deerfield, Illinois, and (iii) his outstanding equity awards were treated in accordance with their terms, except that the performance-based restricted stock unit award granted to Mr. Charter in 2017 will not be prorated should the company meet the performance hurdle.

Both agreements mentioned above also contain various covenants, including restrictive covenants relating to non-competition, non-solicitation, non-disparagement, confidentiality and cooperation.

INTERIM CHIEF FINANCIAL OFFICER POSTING OF JOSEPH E. CREED

Joseph E. Creed assumed the role of Interim Chief Financial Officer (CFO) while carrying out his duties as Vice President, Finance Services Division from May 4, 2018 to August 31, 2018. Moreover, in addition to his annual LTI award, upon successfully serving in the Interim CFO role, Mr. Creed was granted an additional equity award described in the Grants of Plan-Based Awards 2018 table. As Interim CFO, Mr. Creed participated in the Short-Term Incentive Plan (STIP) rather than the AIP.

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APPOINTMENT OF ANDREW R. J. BONFIELD

Andrew R. J. Bonfield was hired as Caterpillar’s Chief Financial Officer on September 1, 2018. As a component of his recruitment to join the Company, Mr. Bonfield was awarded a cash sign-on bonus of $800,000, a time vested Restricted Stock Unit grant valued at $3,700,040 (to offset forfeited equity to join the Company), a Non-Qualified Stock Option grant valued at $993,465 and a Performance-based Restricted Stock Unit grant valued at $749,985. All equity compensation values above are based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718.

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.

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

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.

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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 employees to provide competitive benefits.

The defined contribution and defined benefit retirement plans available to the NEOs are also available to many U.S. Caterpillar management and salaried employees. Under the defined benefit pension plans, the benefit is calculated based on years of service and final average monthly earnings. All NEOs participate in one or more of the U.S. retirement plans described in the following table:

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. RIP was closed to new entrants, effective January 1, 2011. Benefits were frozen for most participants; however, a group of “Sunset” participants are accruing 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. Subject to the Company’s right to amend or terminate the plan, Mr. Umpleby and Mr. Pellette continue to earn benefits under RIP until the earlier of separation or December 31, 2019.

SUPPLEMENTAL RETIREMENT PLAN (SERP)

Non-qualified defined benefit pension plan that works in tandem with RIP. SERP provides additional pension benefits if the NEO’s benefit is limited due to the compensation and annual benefit limits imposed on RIP by the tax code. SERP also pays a benefit that would otherwise have been paid under RIP but for (1) the NEO’s deferral of compensation under SDCP, SEIP or DEIP and (2) exclusions of lump sum discretionary awards and variable base pay from RIP earnings. Subject to the Company’s right to amend or terminate the plan, Mr. Pellette continues to earn SERP benefits until the earlier of separation or December 31, 2019. Mr. Umpleby participates in a Solar Turbines Incorporated sponsored non-qualified defined benefit pension plan, which is similar to SERP. Subject to the Company’s right to amend or terminate the plan, Mr. Umpleby continues to earn benefits until the earlier of separation or December 31, 2019.

CATERPILLAR 401(k) PLANS

U.S.-based NEOs who continue to earn benefits in a pension plan are eligible to participate in a Caterpillar 401(k) plan under which the Company matches 50 percent of the first six percent of the NEO’s eligible pay contributed to the 401(k). All other U.S.-based NEOs participate in a Caterpillar 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 U.S.-based NEOs who participate in a Caterpillar 401(k) plan are eligible to participate in SDCP, which provides the opportunity to make deferrals of base salary in excess of the limits imposed on the 401(k) plans 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 Caterpillar 401(k) plans.

SUPPLEMENTAL (SEIP) AND DEFERRED (DEIP) EMPLOYEES’ INVESTMENT PLAN

All U.S.-based 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. An annual review of perquisites provided to the NEOs is conducted and beginning in 2018, all NEOs became eligible to receive financial planning services and executive physicals through approved providers. These and other services are intended to provide for the security and safety of our executives, such as home security systems and limited use of company aircraft and ground transportation, and will allow our NEOs to devote additional time to Caterpillar business. The costs associated with these perquisites are included in the “2018 All Other Compensation Table.”

CLAWBACK POLICY

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

David L. Calhoun

Debra L. Reed-Klages

 



(1)

The report was approved by the CHRC prior to changes in committee membership that were effective April 12, 2019.

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2018 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

2018

$

1,425,000

 

$

$

6,499,973

 

$

8,448,354

$

4,742,000

$

5,891,465

 

$

282,721

$

27,289,513

$

21,398,048

2017

$

1,200,000

 

$

1,070,000

$

3,288,528

 

$

5,361,394

$

2,430,000

$

 

$

685,287

$

14,035,209

$

14,035,209

 

2016

$

825,636

 

$

$

1,166,657

 

$

2,353,971

$

858,138

$

62,688

 

$

27,097

$

5,294,187

$

5,231,499

Andrew R. J. Bonfield
CFO

2018

$

266,667

 

$

800,000(7)

$

4,450,025

 

$

993,465

$

585,000

$

 

$

86,030

$

7,181,187

$

7,181,187

Joseph E. Creed
Interim CFO

2018

$

370,752

 

$

$

1,750,110

 

$

844,817

$

677,000

$

 

$

99,525

$

3,742,204

$

3,742,204

Bradley M. Halverson
Group President & CFO

2018

$

303,727

 

$

$

 

$

$

597,000

$

1,772,250

 

$

2,665,677

$

5,338,654

$

3,566,404

2017

$

804,078

 

$

$

2,367,683

(8) 

$

2,218,512

$

1,387,174

$

444,299

 

$

380,950

$

7,602,696

$

7,158,397

2016

$

786,312

 

$

$

1,080,269

 

$

2,179,625

$

852,957

$

231,289

 

$

96,250

$

5,226,702

$

4,995,413

Robert B. Charter
Group President

2018

$

323,417

 

$

$

2,950,336

(9) 

$

2,014,603

$

673,000

$

3,308,607

(10) 

$

3,014,139

$

12,284,102

$

8,975,495

2017

$

756,192

 

$

$

1,678,238

 

$

2,736,169

$

1,244,626

$

397,794

 

$

714,835

$

7,527,854

$

7,130,060

2016

$

729,768

 

$

500,000

$

984,692

 

$

1,986,744

$

818,510

$

189,327

 

$

247,311

$

5,456,352

$

5,267,025

Bob De Lange
Group President

2018

$

725,001

 

$

$

2,149,984

 

$

2,794,444

$

1,180,000

$

 

$

453,190

$

7,302,619

$

7,302,619

2017

$

664,221

 

$

$

1,224,639

 

$

1,996,648

$

1,381,917

$

 

$

2,455,278

$

7,722,703

$

7,722,703

Denise C. Johnson
Group President

2018

$

763,002

 

$

$

2,000,073

 

$

2,599,472

$

1,677,000

$

 

$

157,034

$

7,196,581

$

7,196,581

Thomas A. Pellette
Group President

2018

$

799,500

 

$

$

2,000,073

 

$

2,599,472

$

1,629,000

$

2,189,362

 

$

47,982

$

9,265,389

$

7,076,027

2017

$

756,192

 

$

$

1,587,553

 

$

2,588,260

$

1,304,639

$

478,939

 

$

621,423

$

7,337,006

$

6,858,067

(1)

Except as otherwise described for Mr. Charter in footnote 9 below, the amounts reported in this column represent PRSUs granted in 2018 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, 2018, included in the Company’s Form 10-K filed with the SEC on February 14, 2019.

(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, 2018, included in the Company’s Form 10-K filed with the SEC on February 14, 2019.

(3)

The amounts in this column reflect the AIP payments for 2018 for all NEOs except Mr. Creed whose payment was for the STIP.

(4)

Because NEOs do not receive “preferred” or “above market” earnings on compensation deferred into SDCP, SEIP and/or DEIP, the amount shown represents only the change between the actuarial present value of each NEO’s total accumulated pension benefit between December 31, 2017 and December 31, 2018. The amount assumes the pension benefit is payable at each NEO’s earliest unreduced retirement age based upon the NEO’s current pensionable earnings. Mr. Umpleby’s change in pension value was primarily due to an increase in his annual pensionable earnings resulting from an additional year of compensation as the CEO.

(5)

All Other Compensation detail for 2018 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.

(7)

This amount reflects a cash sign-on bonus in connection with Mr. Bonfield’s appointment as CFO as described under the headings “Components of Executive Compensation - Base Salary” and “Other Compensation, Benefits and Considerations – Appointment of Andrew R. J. Bonfield.”

(8)

This amount includes the incremental fair value associated with the modification to Mr. Halverson’s 2017 PRSU award which was disclosed in the Company’s 2018 proxy statement.

(9)

For Mr. Charter, this amount also includes the incremental fair value associated with the modification to his outstanding 2017 PRSU award totaling $1,400,298 as described under the heading “Other Compensation, Benefits and Considerations – NEO Retirements in 2018.” Pursuant to the SEC disclosure rules, removal of the pro-rata vesting provision is considered a modification resulting in additional compensation being reported in the year of modification. Under ASC 718, the incremental fair value associated with such modification is calculated based on the value of the company’s common stock at the time of modification.

(10)

The amount reported for Mr. Charter has been converted to U.S. dollars using the exchange rate in effect on December 31, 2018 (1 Australian dollar = 0.70585 U.S. dollar).

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2018 ALL OTHER COMPENSATION TABLE

Name

Company

Contributions

401(k)

Company

Contributions

SDCP

Corporate

Aircraft/

Transportation(1)

Home

Security(2)

 

Other

 

 

Total All

Other

Compensation

D. James Umpleby III

$

8,350

$

139,500

$

115,126

$

7,683

$

12,062

(3)

$

282,721

Andrew R. J. Bonfield

$

16,000

$

$

$

$

70,030

(4)

$

86,030

Joseph E. Creed

$

27,613

$

57,773

$

$

2,599

$

11,540

(3)

$

99,525

Bradley M. Halverson

$

7,538

$

42,709

$

229

$

2,951

$

2,612,250

(5)

$

2,665,677

Robert B. Charter

$

8,183

$

38,791

$

40

$

$

2,967,125

(5)

$

3,014,139

Bob De Lange

$

27,016

$

61,275

$

10

$

11,262

$

353,627

(6)

$

453,190

Denise C. Johnson

$

26,722

$

108,083

$

$

8,910

$

13,319

(3)

$

157,034

Thomas A. Pellette

$

8,250

$

39,139

$

$

593

$

 

$

47,982

(1)

The value of personal aircraft usage reported above is based on Caterpillar’s incremental cost per flight hour, including the weighted average variable operating cost of fuel, oil, aircraft maintenance, landing and parking fees, related ground transportation, catering and other smaller variable costs. 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.

(2)

Amounts reported for home security represent the cost provided by an outside security provider for hardware and monitoring service. The incremental cost associated with the home security services is determined based upon the amounts paid to the outside service provider.

(3)

Amounts 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.

(4)

The amount reported for Mr. Bonfield represents relocation expenses.

(5)

The amounts reported are payments in connection with the retention and subsequent retirements of Messrs. Halverson and Charter.

(6)

Mr. De Lange was previously an International Service Employee (ISE). The amount reported includes payments made and credits received in 2018 related to Mr. De Lange’s previous ISE service. The amount shown includes foreign service allowance typically paid by the Company on behalf of the ISE, which may include allowances paid or credits received for moving expenses, housing, mobility premium, home leave, foreign and U.S. taxes. Company paid taxes related to Mr. De Lange’s ISE assignment of $355,458 were included in this amount, net of any credits received, in accordance with the Company’s tax equalization policy for ISEs. These allowances are intended to ensure the Company’s ISEs are in the same approximate financial position as they would have been if they lived in their home country during the time of their international service. These ISE related expenses were valued based on the aggregate incremental cost to the Company and represent the amount accrued for payment or paid to the service providers of the NEO, as applicable. Also, included in this amount is the cost of executive financial planning services. The incremental cost associated with these services is determined based upon the amounts paid to the approved service providers.

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GRANTS OF PLAN-BASED AWARDS IN 2018

Name

 

 

Estimated Future Payouts Under Non-Equity

Incentive Plan Awards(1)

 

Estimated

Future

Payouts

Under Equity

Incentive Plan

Awards(2)

 

All Other

Option

Awards:

Number of

Securities

Underlying

Options(3)

(#)

Exercise or

Base Price

of Option

Awards

($/Share)

Grant Date

Fair Value

of Stock

and Option

Awards ($)(4)

 

Grant

Date

 

Threshold

($)

Target

($)

Maximum

($)

 

Target

(#)

 

D. James Umpleby III

3/5/2018

 

 

 

 

 

43,012

 

$

$

6,499,973

 

3/5/2018

 

 

 

 

 

 

182,944

$

151.12

$

8,448,354

 

AIP

(5)

$

1,247,774

$

2,495,548

$

4,991,096

 

 

$

$

 

Andrew R. J. Bonfield

9/7/2018

 

 

 

 

 

5,307

 

$

$

749,985

 

9/7/2018

 

 

 

 

 

26,182

(6)

$

$

3,700,040

 

9/7/2018

 

 

 

 

 

 

23,077

$

141.32

$

993,465

 

AIP

(5)

$

153,753

$

307,507

$

615,014

 

 

$

$

 

Joseph E. Creed

3/5/2018

 

 

 

 

 

4,301

 

$

$

649,967

 

3/5/2018

 

 

 

 

 

 

18,294

$

151.12

$

844,817

 

6/13/2018

 

 

 

 

 

7,111

(7)

$

$

1,100,143

 

STIP

(5)

$

89,014

$

296,714

$

593,427

 

 

$

$

 

Bradley M. Halverson

AIP

(5)

$

156,951

$

313,903

$

627,805

 

 

$

$

 

Robert B. Charter

3/5/2018

 

 

 

 

 

10,257

 

$

$

1,550,038

(8)

3/5/2018

 

 

 

 

 

 

43,625

$

151.12

$

2,014,603

(8)

4/6/2018

 

 

 

 

 

19,339

 

$

$

1,400,298

(9)

AIP

(5)

$

184,666

$

369,333

$

738,666

 

 

$

$

 

Bob De Lange

3/5/2018

 

 

 

 

 

14,227

 

$

$

2,149,984

 

3/5/2018

 

 

 

 

 

 

60,512

$

151.12

$

2,794,444

 

AIP

(5)

$

417,033

$

834,066

$

1,668,133

 

 

$

$

 

Denise C. Johnson

3/5/2018

 

 

 

 

 

13,235

 

$

$

2,000,073

 

3/5/2018

 

 

 

 

 

 

56,290

$

151.12

$

2,599,472

 

AIP

(5)

$

438,813

$

877,626

$

1,755,251

 

 

$

$

 

Thomas A. Pellette

3/5/2018

 

 

 

 

 

13,235

 

$

$

2,000,073

 

3/5/2018

 

 

 

 

 

 

56,290

$

151.12

$

2,599,472

 

AIP

(5)

$

459,803

$

919,606

$

1,839,212

 

 

$

$

 

(1)

The amounts reported represent estimated potential awards under the 2018 AIP for all NEOs other than Mr. Creed who participated in the 2018 STIP. The STIP applies an individual performance factor (IPF) ranging from 80 percent to 200 percent. Mr. Creed’s STIP threshold, target and maximum assume an IPF of 100 percent.

(2)

The amounts reported in this column represent estimated potential awards under the LTIP. PRSUs were granted on March 5, 2018 under the LTIP for the 2018-2020 performance period except for Mr. Bonfield who received his grant on September 7, 2018. PRSUs vest at the end of a 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.

(3)

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. All stock options granted to the NEOs will vest in one-third increments on March 5, 2019, March 5, 2020 and March 5, 2021.

(4)

The amounts shown do not reflect realized compensation by the NEO. As reported in this column, the value of PRSUs granted in 2018 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.

(5)

The 2018 AIP and STIP estimates shown are based upon each executive’s base salary for 2018. The actual payout was based on the achievement of corporate and business unit performance metrics and in the case of Mr. Creed an IPF. Please refer to page 38 of the CD&A for a detailed explanation of the various performance metrics. Payments under AIP are limited by a plan cap set at $15 million. The cash payouts for the 2018 plan year are included in the column “Non-equity Incentive Plan Compensation” of the “2018 Summary Compensation Table.”

(6)

Mr. Bonfield received a grant of Restricted Stock Units (RSUs) upon hire. The RSUs will time vest in one-half increments on September 7, 2019 and September 7, 2020.

(7)

Mr. Creed received a grant of RSUs in 2018 for the period he served as an Interim Chief Financial Officer.

(8)

Pursuant to their terms, the equity awards made to Mr. Charter on March 5, 2018 were forfeited upon his retirement effective June 1, 2018.

(9)

This amount represents the incremental fair value associated with the modification to Mr. Charter’s 2017 PRSU award in connection with his retirement and does not reflect a new equity grant.

 2019 PROXY STATEMENT    47


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OUTSTANDING EQUITY AWARDS AT 2018 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(2)

Market Value

of Shares or Units of

Stock that have not

Vested(3)

Equity Incentive Plan Awards:

Grant Date

Exercisable

Unexercisable

Number of

Unearned

Shares,

Units or other

Rights that

have not

Vested(4)

Market or

Payout Value

of Unearned

Shares, Units

or other Rights

that have not

Vested(5)

D. James Umpleby III

03/01/2010

6,781

$

57.85

03/01/2020

 

$

 

$

03/07/2011

22,696

$

102.13

03/07/2021

 

$