DEF 14A 1 def14a_2015xproxyxv21.htm DEF 14A def14a_2015_proxy_v21
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

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100 NE Adams Street
Peoria, Illinois 61629

May 2, 2015
Dear Fellow Stockholder:
I am pleased to invite you to attend Caterpillar’s annual meeting of stockholders on June 10, 2015. The meeting will be held at The Columbian Theatre, 521 Lincoln Avenue, Wamego, KS 66547 beginning at 8:00 a.m. We hope that you will attend the meeting, but whether or not you are planning to attend, we encourage you to vote your shares.
This booklet includes a formal notice of the meeting and the proxy statement which, among other things, provides information on Caterpillar’s corporate governance, executive compensation programs and the matters to be voted on at the meeting. The booklet also contains information about our business and 2014 financial performance. I encourage you to review the financial information contained in Appendix A.
If you wish to attend the meeting, you will need to request an admission ticket in advance. Procedures for requesting an admission ticket are described on page 52.
I thank you for your commitment to Caterpillar and urge you to vote your shares.


 
 
Sincerely yours,
 
 
 
 
Douglas R. Oberhelman
Chairman and Chief Executive Officer





100 NE Adams Street
Peoria, Illinois 61629

Notice of Annual Meeting of Stockholders
of Caterpillar Inc.

Date: June 10, 2015
Time: 8:00 a.m.
Place: The Columbian Theatre, 521 Lincoln Avenue, Wamego, KS 66547

The items of business are:
Elect as Directors the twelve nominees identified in this proxy statement, each for a term of one year.
Ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2015.
Approve, on a non-binding advisory basis, the compensation of our named executive officers.
Vote on four stockholder proposals described in this proxy statement, if properly presented at the meeting.
Conduct any other business properly brought before the meeting or any adjournment or postponement of the meeting.

We initiated delivery of the proxy materials to stockholders on or about May 2, 2015. Stockholders at the close of business on April 13, 2015 will be entitled to notice of and to vote at the annual meeting and any adjournment or postponement. A list of registered stockholders is available at the Company’s headquarters in Peoria, Illinois.
 
 
 
By order of the Board of Directors
 
 
 
 
Christopher M. Reitz
Corporate Secretary
May 2, 2015
 
 

If you wish to attend the meeting, you will need to request an admission ticket in advance. Procedures for requesting an admission ticket are described on page 52.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 10, 2015: This Notice of Annual Meeting and Proxy Statement and the 2014 General and Financial Information are available at www.eproxyaccess.com/cat2015.




TABLE OF CONTENTS
 
2014 Business Highlights
 
Corporate Governance Highlights
 
Executive Compensation Highlights
 
Meeting Agenda and Vote Recommendations
 
 
 
 
 
Corporate Governance Guidelines
 
Code of Conduct
 
Board Composition and Leadership Structure
 
Board’s Role in Risk Oversight
 
Board Meetings and Committees
 
Director Nominations and Evaluations
 
Director Independence Determinations
 
Communication with the Board
 
Investor Outreach
 
Sustainability
 
Political Contributions
 
Talent Management and Succession Planning
 
Related Party Transactions
 
Audit Fees and Approval Process
 
Audit Committee Report
 
 
 
 
Compensation Discussion and Analysis
 
Compensation and Human Resources Committee Report
 
Executive Compensation Tables
 
Potential Payments Upon Termination or Change in Control
 
Director Compensation
 
Compensation Risk
 
 
 




 
Proposal 1 -
Election of Directors
 
Proposal 2 -
Ratification of our Independent Registered Public Accounting Firm
 
Proposal 3 -
Advisory Vote on Executive Compensation
 
 
 
 
Proposal 4 -
Independent Board Chairman
 
Proposal 5 -
Stockholder Right to Act by Written Consent
 
Proposal 6 -
Review of Global Corporate Standards
 
Proposal 7 -
Review of Human Rights Policy
 
 
 
 
Persons Owning More than Five Percent of Caterpillar Common Stock
 
Security Ownership of Executive Officers and Directors
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Matters Raised at the Annual Meeting not Included in this Statement
 
Stockholder Proposals and Director Nominations for the 2016 Annual Meeting
 
Access to Form 10-K
 
Frequently Asked Questions Regarding Meeting Attendance and Voting
 
Admission and Ticket Request Procedure
 
 
 





PROXY SUMMARY
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information you should consider. You should read the complete proxy statement and appendix before voting.

2014 Business Highlights
Strong Operating Performance. Despite slightly lower sales, emphasis on cost management, operational execution and cash flow helped us deliver better profit per share than 2013.

Cash Returns to Stockholders. In June of 2014, we increased our quarterly dividend by 17 percent to $0.70 per share, marking 21 consecutive years that we have paid higher dividends to our stockholders. We also repurchased $4.2 billion of our common stock in 2014.

Market Position Strength. For the fourth year in a row, we improved our market position for machines.

Corporate Governance Highlights
BOARD STRUCTURE AND LEADERSHIP
 
SUSTAINABILITY

Our Chief Executive Officer also serves as the Chairman of the Board and we have an independent director who is elected by the Board to serve as the Presiding Director, with broad authority and responsibility over Board governance and operations. Eleven of our twelve director nominees are independent. See "Board Composition and Leadership Structure" on page 5 for more information.
 

We seek to provide products and solutions that make productive and efficient use of natural resources and reduce unnecessary impacts on the environment and the communities where we work and live. Our operational goals include a focus on energy conservation, reductions in greenhouse gas emissions and water and by-product materials management. See “Sustainability” on page 10 for more information.
INVESTOR OUTREACH
 
CODE OF CONDUCT

We conduct an annual governance review and engage investors throughout the year to ensure that management and the Board understand and consider the issues that matter most to our stockholders. After considering feedback received from investors over the past year, we adopted a new human rights policy. See "Investor Outreach" on page 10 for more information.
 

Our code of conduct is called “Our Values in Action” and is the foundation of our corporate existence. Our Values in Action apply to all members of the Board and to all management and employees worldwide and embody the high ethical standards that Caterpillar has upheld since its formation in 1925. See "Code of Conduct" on page 5 for more information.
BOARD RISK OVERSIGHT
 

Our Board has oversight for risk management with a focus on the most significant risks facing the Company, including strategic, operational, financial, legal and compliance risks. See "Board’s Role in Risk Oversight" on page 6 for more information.
 




Executive Compensation Highlights
Our executive compensation programs are designed to align the actions of our Executive Officers with the long-term interests of our stockholders based on two fundamental principles: Pay for Performance and Pay at Risk. To that end, we structure the majority of our executive compensation around four objectives which we believe reflect our Pay for Performance and Pay at Risk philosophy:
1.
Base salary is targeted to be the smallest component of total direct compensation.
2.
Short-term incentive compensation is based on annual corporate and business unit performance.
3.
Long-term incentive compensation is based on Company performance.
4.
Equity is a significant percentage of compensation.

The table below includes some, but not all, of the information included in the Summary Compensation Table.
NEO
Salary
Long and Short-
Term Cash Incentives
Stock and Stock
Option Awards
Total of
All Columns
Douglas R. Oberhelman, Chairman & CEO
$
1,600,008

 
$
4,913,288
 
$
8,377,481

 
$
14,890,777

 
Bradley M. Halverson, Group President & CFO
$
755,202

 
$
1,501,537
 
$
2,392,921

 
$
4,649,660

 
Stuart L. Levenick, Group President *
$
925,584

 
$
1,845,771
 
$
2,560,624

 
$
5,331,979

 
Edward J. Rapp, Group President
$
872,424

 
$
1,961,564
 
$
2,560,624

 
$
5,394,612

 
D. James Umpleby III, Group President
$
755,202

 
$
1,847,136
 
$
2,527,089

 
$
5,129,427

 
* Mr. Levenick retired effective February 1, 2015.

Meeting Agenda and Vote Recommendations
Company Proposals
Board
Recommendation
Election of Directors
FOR each Nominee
Ratification of our Independent Registered Public Accounting Firm
FOR
Advisory Vote on Executive Compensation
FOR
Stockholder Proposals
 
Independent Board Chairman
AGAINST
Stockholder Right to Act by Written Consent
AGAINST
Review of Global Corporate Standards
AGAINST
Review of Human Rights Policy
AGAINST
Transact other business that properly comes before the meeting
 




Election of Directors (Proposal 1)
You will find important information in “Proposal 1 - Election of Directors” on page 38 about the qualifications and experience of each of the director nominees whom you are being asked to elect. The Public Policy and Governance Committee performs an annual assessment to determine that our directors have the skills and experience to effectively oversee the Company. All of our directors have proven track records of leadership, sound judgment, integrity and a commitment to the success of our Company.
Nominee
Age
Director
Since
Principal Occupation
Independent
David L. Calhoun
58
2011
Senior Managing Director of The Blackstone Group, L.P.
Yes
Daniel M. Dickinson
53
2006
Managing Partner of HCI Equity Partners
Yes
Juan Gallardo
67
1998
Chairman of Organización CULTIBA, S.A.B. de C.V.
Yes
Jesse J. Greene, Jr.
70
2011
Instructor at Columbia Business School and former Vice President of Financial Management and Chief Financial Risk Officer of International Business Machines Corporation
Yes
Jon M. Huntsman, Jr.
55
2012
Former United States Ambassador to China and former Governor of Utah
Yes
Dennis A. Muilenburg
51
2011
Vice Chairman, President and Chief Operating Officer of The Boeing Company
Yes
Douglas R. Oberhelman
62
2010
Chairman and CEO of Caterpillar Inc.
No
William A. Osborn
67
2000
Former Chairman and CEO of The Northern Trust Corporation
Yes
Debra L. Reed
59
--
Chairman and CEO of Sempra Energy
Yes
Edward B. Rust, Jr.
64
2003
Chairman and CEO of State Farm Mutual Automobile Insurance Company
Yes
Susan C. Schwab
60
2009
Professor at the University of Maryland School of Public Policy and a Strategic Advisor for Mayer Brown LLP; former United States Trade Representative
Yes
Miles D. White
60
2011
Chairman and CEO of Abbott
Yes
Ratification of our Independent Registered Public Accounting Firm (Proposal 2)
As a matter of good corporate governance, we are asking our stockholders to ratify the selection of PricewaterhouseCoopers as our independent registered public accounting firm for 2015.
Additional information regarding “Proposal 2 - Ratification of our Independent Registered Public Accounting Firm” appears on page 41.
Advisory Vote on Executive Compensation (Proposal 3)
Our stockholders have the opportunity to cast a non-binding, advisory vote on the compensation of our named executive officers. Last year stockholders overwhelmingly supported our compensation program. In evaluating this proposal, we recommend that you review our Compensation Discussion and Analysis, which explains how and why the Compensation and Human Resources Committee arrived at its executive compensation actions and decisions for 2014.
Additional information regarding “Proposal 3 - Advisory Vote on Executive Compensation” appears on page 41.
Stockholder Proposals (Proposals 4 - 7)
You will be asked to consider four stockholder proposals involving (i) Independent Board Chairman, (ii) Stockholder Right to Act by Written Consent, (iii) a Review of Global Corporate Standards and (iv) a Review of Human Rights Policy.





Even if you plan to attend our annual meeting in person, please cast your vote as soon as possible by:
using the Internet at www.caterpillar.com/proxymaterials
scanning this QR code to vote with your mobile device
calling the number included on your proxy card or notice
mailing your signed proxy or voting instruction form


PROXY STATEMENT
The Board of Directors (Board) of Caterpillar Inc. (Caterpillar, Company, we or us) is providing the notice, proxy statement and proxy card (Proxy Materials) in connection with the Company’s solicitation of proxies to be voted at the 2015 annual meeting of stockholders (Annual Meeting) to be held on June 10, 2015, at The Columbian Theatre, 521 Lincoln Avenue, Wamego, KS 66547 at 8:00 a.m., and at any adjournment or postponement of the meeting.

Voting your shares is an important way to participate in the governance of your Company. If your Caterpillar shares are held for you in a brokerage, bank or other institutional account, you are considered the beneficial owner of those shares. Your broker is not permitted to vote on your behalf on the election of directors and other matters to be considered at the Annual Meeting (except ratification of the selection of our independent auditors for 2015), unless you provide specific instructions by completing and returning the voting instruction form or following the instructions provided to you for voting your shares via telephone, mobile device or the Internet. For your vote to be counted, you must communicate your voting decisions to your broker, bank or other financial institution before the date of the Annual Meeting. If you have any questions about the proxy voting process, please contact the broker, bank or other financial institution where you hold your shares. See “Frequently Asked Questions Regarding Meeting Attendance and Voting” on page 48 for information on how to vote your shares.

Proxy Materials or a Notice of Internet Availability were first sent to stockholders on or about May 2, 2015. If you received a Notice of Internet Availability and would like to receive a paper copy of the proxy materials, please follow the instructions included in the Notice of Internet Availability. If you received a paper copy of the proxy materials and would like to register to receive a Notice of Internet Availability in the future, you can do so by any of the following methods:    
Internet - Go to www.eproxyaccess.com/cat2015 and follow the registration instructions.
Telephone - From within the United States or Canada, call us free of charge at 1-888-216-1280. From locations outside the United States or Canada, please call +1-215-521-1341.
Email - Send us an email at cat@eproxyaccess.com. Include the control number from your paper copy as the subject line and indicate that you wish to receive a Notice of Internet Availability and whether your request is for this meeting only or for all future meetings.





CORPORATE GOVERNANCE INFORMATION
Corporate Governance Guidelines
Our Board has adopted Guidelines on Corporate Governance Issues (Corporate Governance Guidelines), which are available on our website at www.caterpillar.com/governance. The guidelines reflect the Board’s commitment to oversee the effectiveness of policy and decision-making both at the Board and management level, with a view to enhancing stockholder value over the long-term.
Code of Conduct
Caterpillar’s code of conduct is called “Our Values in Action.” Integrity, Excellence, Teamwork, Commitment and Sustainability are the core values identified in the code and are the foundation for Caterpillar’s corporate existence. Our Values in Action apply to all members of the Board and to management and employees worldwide. These values embody the high ethical standards that Caterpillar has upheld since its formation in 1925. Our Values in Action is available on our website at www.caterpillar.com/code.

The Audit Committee has established a means for the anonymous reporting (where permitted by law) of (i) suspected or actual violations of the code of conduct, our enterprise policies or applicable laws, including those related to accounting practices, internal controls or auditing matters and procedures; (ii) theft or fraud of any amount; (iii) insider trading; (iv) performance and execution of contracts; (v) conflicts of interest; (vi) violations of securities and antitrust laws; and (vii) violations of the Foreign Corrupt Practices Act.

Any employee, supplier, customer, stockholder or other interested party can submit a report via the following methods:
Direct Telephone: 309-494-4393 (English only)
Call Collect Helpline: 770-582-5275 (language translation available)
Confidential Fax: 309-494-4818
Email: BusinessPractices@CAT.com
Internet: www.caterpillar.com/obp
Board Composition and Leadership Structure
The 2015 director nominees consist of one nominee who serves as a member of management and eleven non-employee nominees. The non-employee director nominees are skilled and experienced leaders in business, education, government and public policy. They currently serve or have served as chief executives and members of senior management of large public and private for profit companies; as leaders of numerous nonprofit organizations; as U.S. federal and state government officials; and as members of academia. In these roles, the non-employee director nominees have been called upon to ask hard questions of management and provide advice on complex issues. Biographical information and qualifications of our director nominees are included under “Proposal 1 - Election of Directors” on page 38.

Directors are elected at each annual meeting to serve for a one-year term and until their respective successors are duly elected and qualified, subject to their earlier death, resignation or removal. In uncontested elections, directors are elected by a majority of the votes cast for such director. If an incumbent director does not receive a greater number of “for” votes than “against” votes, then such director must tender his or her resignation to the Board. In contested elections, directors are elected by a plurality vote. Directors must retire at the end of the calendar year in which they reach the age of 72. If any nominee is unavailable for election, proxy holders will vote for another nominee proposed by the Board or, as an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting.





The Board has elected the Chief Executive Officer as the Chairman of the Board. The Board has further elected the Chairman of the Public Policy and Governance Committee (PPGC) as the Presiding Director. The Presiding Director’s duties and responsibilities include: (i) presiding at all meetings of the Board at which the Chairman is not present; (ii) serving as a liaison between the Chairman and the independent directors; (iii) approving information sent to the Board; (iv) approving meeting agendas for the Board; (v) approving meeting schedules to assure that there is sufficient time for discussion of all agenda items; (vi) authority to call meetings of the independent directors; and (vii) if requested by major stockholders, ensuring that he is available for consultation and direct communication. All directors play an active role in overseeing the Company’s business both at the Board and committee levels.

The Board believes that this leadership structure - a combined Chairman of the Board and Chief Executive Officer (CEO), a Presiding Director, active and strong non-employee directors and committees comprised entirely of independent directors - is the most effective for the Company at this time. The Company’s business is complex, and its products are sold in more than 180 countries around the world. Because the CEO is closest to the many facets of the business, the Board believes the CEO is in the best position to lead most effectively and to serve in the critical role of Chairman of the Board. In addition, having a Chairman who also serves as the CEO allows timely communication with the Board on critical business matters given the complexity and global reach of our business. Further, most of the Company’s products are sold through an extensive network of independent dealers around the world. Our dealership business model has historically required our CEO to have strong relationships with the leaders of our dealers. Having a single person as both Chairman of the Board and CEO ensures that the Company is represented by a single voice to dealers, stockholders, employees and other stakeholders.

Board’s Role in Risk Oversight
The Board has oversight for risk management with a focus on the most significant risks facing the Company, including strategic, operational, financial and legal compliance risks. The Board’s risk oversight process builds upon management’s risk assessment and mitigation processes, which include an enterprise risk management program, regular internal management disclosure committee meetings, code of business conduct, quality standards and processes, an ethics and compliance office and comprehensive internal and external audit processes. The Board implements its risk oversight function both as a full Board and through delegation to Board committees, which meet regularly and report back to the full Board. Throughout the year, the Board and the committees to which it has delegated responsibility dedicate a portion of their meetings to review and discuss specific risk topics in greater detail. Strategic and operational risks are regularly discussed at Board meetings. The Board has delegated responsibility for the oversight of specific risks to Board committees as follows:
Audit Committee
Policies and processes relating to the financial statements, financial reporting, accounting and internal auditing functions of the Company and independent auditors
Enterprise risk management and the Company’s ethics and compliance program
Computerized information system controls and related security, litigation and tax related matters
Hedging and derivatives practices
Compensation and
Human Resources Committee
Compensation philosophy and programs
Global workforce matters
Public Policy and
Governance Committee
Governance structure and processes and related person transactions
Environmental, health and safety risks
Political and charitable activities and reputational risks

The Board believes that its leadership structure, discussed above, supports the risk oversight function of the Board.




Board Meetings and Committees
The Board held seven meetings during 2014. The independent directors generally meet in executive session as part of each regularly scheduled Board meeting, with the Presiding Director serving as Chairman. Each director attended at least 75 percent of the total meetings of the Board and committee on which he or she served. Absent unavoidable conflict, directors are expected to attend the Annual Meeting. All directors attended the 2014 Annual Meeting.

During 2014, the Board had three standing committees: Audit, Compensation and Human Resources and Public Policy and Governance. Each committee meets periodically throughout the year, reports its actions and recommendations to the Board, receives reports from management, annually evaluates its performance and has the authority to retain outside advisors 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
Selects and oversees the independent auditors
Oversees our financial reporting activities, including our financial statements, annual report and the accounting standards and principles
Discusses with management the Company’s risk assessment and risk management framework
Approves audit and non-audit services provided by the independent auditors
Reviews the organization, scope and effectiveness of our internal audit function and our disclosure and internal controls
Sets parameters for, and monitors the Company’s hedging and derivatives practices
Provides oversight for the Company’s ethics and compliance programs
Monitors the Company’s litigation and tax compliance
Number of Meetings in 2014: 11

Compensation and Human Resources Committee
Recommends the CEO’s compensation to the Board and establishes the compensation of other executive officers
Establishes, oversees and administers the Company’s equity compensation and employee benefit plans
Reviews incentive compensation arrangements to ensure that incentive pay does not encourage unnecessary risk-taking and reviews and discusses the relationship between risk management policies and practices, corporate strategy and executive compensation
Recommends to the Board the compensation of directors
Provides oversight of the Company’s diversity and immigration practices and employee relations
Furnishes an annual Compensation and Human Resources Committee Report on executive compensation and approves the Compensation Discussion and Analysis section in the Company’s proxy statement
Number of Meetings in 2014: 10





Public Policy and Governance Committee
Makes recommendations to the Board regarding the size and composition of the Board and its committees, and the criteria to be used for the selection of candidates to serve on the Board
Discusses and evaluates the qualifications of potential and incumbent directors and recommends the slate of director candidates to be nominated for election at the Annual Meeting
Leads the Board in its annual self-evaluation process
Oversees the Company’s officer succession planning
Oversees the Company’s environmental, health and safety activities, including the Company’s sustainable development initiatives
Oversees the corporate governance structure
Oversees matters of domestic and international public policy affecting the Company’s business, such as trade policy and international trade negotiations and major global legislative and regulatory developments
Annually reviews the Company’s charitable and political contributions and policies
Oversees investor and community relations
Number of meetings in 2014: 6


Committee Membership
(as of January 1, 2015)
 
 
 
Audit
Compensation &
Human Resources
Public Policy &
Governance
 
 
David L. Calhoun
 
 
 
 
Daniel M. Dickinson
 
 
 
 
Juan Gallardo
 
 
 
 
Jesse J. Greene, Jr.
 
 
 
 
Jon M. Huntsman, Jr.
 
 
 
 
Dennis A. Muilenburg
 
 
 
 = Chairman
Douglas R. Oberhelman
 
 
 
 
 = Member
William A. Osborn
 
 
 
 
Edward B. Rust, Jr.
 
 
 
 
Susan C. Schwab
 
 
 
 
Miles D. White
 
 
 
 




Director Nominations and Evaluations
Process for Nominating and Evaluating Directors
Each director is responsible for overseeing the Company’s business consistent with his or her fiduciary duty to stockholders. This responsibility requires highly skilled individuals with various qualities, attributes and professional experience. The Board and the PPGC consider the qualifications of incumbent directors and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs.

The PPGC solicits and receives recommendations for potential director candidates from the Board and management. In its assessment of each potential candidate, the PPGC considers each candidate’s integrity, honesty, judgment, independence, accountability, willingness to express independent thought, understanding of the Company’s business and other factors that the PPGC determines are pertinent in light of the current needs of the Board. Candidates must have successful leadership experience and stature in their primary fields, with a background that demonstrates an understanding of business affairs as well as the complexities of a large, publicly held company. In addition, candidates must have a demonstrated ability to think strategically and make decisions with a forward-looking focus and the ability to assimilate relevant information on a broad range of complex topics. Moreover, candidates must have the ability to devote the time necessary to meet director responsibilities and serve on no more than five public company boards in addition to the Company’s Board.

The following table summarizes certain key characteristics of the Company’s businesses and the associated qualifications, skills and experience that the PPGC believes should be represented on the Board.
Business Characteristics
Qualifications, Skills and Experience
The Company’s businesses involve acquisitions and financial transactions in many countries and in many currencies.
High level of financial literacy
Mergers and acquisitions experience
The Company is a global manufacturer with products sold in over 180 countries around the world.
Manufacturing or logistics experience
Broad international exposure
Relevant executive experience
Diversity of race, ethnicity, gender, cultural background or professional experience
Demand for many of the Company’s products is tied to conditions in the global commodity, energy, construction and transportation markets.
Experience in the evaluation of global economic conditions
Knowledge of commodity, energy, construction or transportation markets
The Company’s businesses require compliance with a variety of regulatory requirements across a number of countries and is impacted by the policies of various governmental entities.
Governmental and international trade expertise
The Board’s responsibilities include understanding and overseeing the various risks facing the Company and ensuring that appropriate policies and procedures are in place to effectively manage risk.
Risk oversight/management expertise

The Board values diversity of talents, skills, abilities and experiences and believes that Board diversity of all types provides significant benefits to the Company. Although the Board has no specific diversity policy, the PPGC may also consider the diversity of the Board and potential director candidates in selecting new director candidates. Based on a review of the current composition of the Board of Directors, the Board determined that the addition of Debra L. Reed, Chairman and CEO of Sempra Energy, would enhance the Board’s effectiveness.

Stockholder Nominations
The PPGC also considers unsolicited inquiries and director nominees recommended by stockholders. Recommendations should be sent to the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. Stockholders may nominate a director candidate to serve on the Board by following the procedures described in our bylaws. Deadlines for stockholder nominations for Caterpillar’s 2016 annual meeting of stockholders are included in the “Stockholder Proposals and Director Nominations for the 2016 Annual Meeting” section on page 48.




Director Independence Determinations
The Company’s Corporate Governance Guidelines establish that no more than two non-independent directors may serve on the Board at any point in time. A director is “independent” if he or she has no direct or indirect material relationship with the Company or with senior management of the Company and their respective affiliates. Annually, the Board makes an affirmative determination regarding the independence of each director based upon the recommendation of the PPGC and in accordance with the standards in the Company’s Corporate Governance Guidelines, which are available on our website at www.caterpillar.com/governance.

Applying these standards, the Board determined that each of the directors met the independence standards except Mr. Oberhelman, who is a current employee of the Company.

Communication with the Board
You may communicate with any of our directors, our Board as a group, our non-management directors as a group or any Board committee as a group by sending an email to Directors@CAT.com or by mail to Caterpillar Inc. c/o Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. The Board has delegated to the Corporate Secretary, or his designee, responsibility for determining, in his discretion, whether the communication is appropriate for consideration. According to the policy adopted by the Board, the Corporate Secretary is required to direct all communications regarding personal grievances, administrative matters, the conduct of the Company’s ordinary business operations, billing issues, product or service related inquiries, order requests and similar issues to the appropriate individual within the Company. All other communications are to be submitted to the Board as a group, to the particular director to whom it is directed or, if appropriate, to the Presiding Director or committee the Corporate Secretary believes to be the most appropriate recipient. If a legitimate communication is sent, you will receive a written acknowledgement from the Corporate Secretary’s office confirming receipt of your communication.

Investor Outreach
We conduct an annual governance review and investor outreach throughout the year to ensure that management and the Board understand and consider the issues that matter most to our stockholders. During 2014, the Company conducted proactive investor outreach programs, including attending 13 investor conferences as well as other meetings with the investment community and meeting one-on-one or in small groups with nearly 400 investors. Additionally, the Company periodically engages investors to discuss specific matters of importance to stockholders. We value our dialogue with our stockholders and believe our annual outreach efforts, which are in addition to the other communication channels available to our stockholders, help ensure our corporate governance practices continue to evolve and reflect the insights and perspectives of our many stakeholders.

Sustainability
We seek to provide work environments, products, services and solutions that make productive and efficient use of natural resources and reduce unnecessary impacts on the environment and the communities where we work and live. Our sustainability practices are focused on ways to maximize the life cycle benefits of our products while minimizing the economic, social and environmental costs of ownership. To this end, we are building engines that are more fuel efficient and have lower emissions, collaborating with customers to increase jobsite efficiency and growing our remanufacturing business, which keeps nonrenewable resources in circulation for multiple lifecycles. In addition, our operational goals include a focus on energy conservation and resources, greenhouse gas emissions reductions, water management and by-product materials management. Caterpillar was named to the 2014 Dow Jones Sustainability Indices, recognizing Caterpillar as a sustainability leader in the Industrial Engineering sector. Our annual Sustainability Report highlights our progress towards these goals and our ongoing commitment to sustainability. To learn more about the Company’s sustainability efforts, please view our Sustainability Report by visiting reports.caterpillar.com.




Political Contributions
We currently disclose on our website www.caterpillar.com/contributions a description of our oversight process for political contributions and an itemized list of corporate and employee PAC contributions to federal and state political candidates.

Talent Management and Succession Planning
The Board is actively engaged and involved in talent management. This includes a detailed review of the Company’s global leadership and succession plans with a focus on key positions at the senior officer level.

In addition, the committees of the Board regularly discuss the talent pipeline for specific critical roles. High potential leaders are given exposure and visibility to Board members through formal presentations and informal events. More broadly, the Committees of the Board are regularly updated on key talent indicators for the overall workforce, including diversity, recruiting and development programs.

Related Party Transactions
Caterpillar’s Board has adopted a written process governing the approval of transactions that are expected to exceed $120,000 in any calendar year and that involve both the Company and any director, executive officer or their immediate family members. Under the process, all such transactions must be approved in advance by the PPGC.

Prior to entering into such a transaction, the director or officer must submit the details of the proposed transaction to the Company’s chief legal officer, including whether the related person or his or her immediate family member has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of an entity involved in the transaction). The chief legal officer will then submit the matter to the PPGC for its consideration.

Based on information provided by the directors, the executive officers, and the chief legal officer, the PPGC determined that there are no related party transactions required to be disclosed in this proxy statement.

Audit Fees and Approval Process
Pre-Approval Process
The Audit Committee pre-approves all audit and non-audit services to be performed by the independent auditors. It has policies and procedures in place designed to ensure that the Company complies with the requirements for pre-approval set forth in the Sarbanes-Oxley Act and the SEC rules regarding auditor independence. These policies and procedures provide a mechanism whereby management can request and secure pre-approval of audit and non-audit services in an orderly manner with minimal disruption to normal business operations. The policies and procedures are detailed as to the particular service and do not delegate the Audit Committee’s responsibility to management. These policies and procedures address any service provided by the 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.

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




Interim Pre-Approval Process
During the course of the year, the Audit Committee chairman has the authority to pre-approve requests for services that were not approved in the annual pre-approval process. However, all services, regardless of fee amounts, are subject to restrictions on the services allowable under the Sarbanes-Oxley Act and SEC rules regarding auditor independence. In addition, all fees are subject to ongoing monitoring by the Audit Committee.

Independent Registered Public Accounting Firm Fee Information
Fees for professional services provided by our independent auditors included the following (in millions):
 
2014
 
2013
Audit Fees 1
$
32.7

 
 
$
32.4

 
Audit-Related Fees 2
 
1.2

 
 
 
1.2

 
Tax Compliance Fees 3
 
0.6

 
 
 
0.9

 
Tax Planning and Consulting Fees 4
 
0.2

 
 
 
0.3

 
All Other Fees 5
 
23.5

 
 
 
0.2

 
TOTAL
 
$
58.2

 
 
$
35.0

 
 
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 $0.9 in 2014 and $0.7 in 2013 and are not included in the amounts shown above.
3

“Tax Compliance Fees” includes, among other things, statutory tax return preparation and review and advice on the impact of changes in local tax laws.
4

“Tax Planning and Consulting Fees” includes, among other things, tax planning and advice and assistance with respect to transfer pricing issues.
5

On April 2, 2014, Booz & Company combined with PricewaterhouseCoopers, our independent registered public accounting firm, and was renamed Strategy&. As of the date of the combination, Strategy& was providing and continues to provide strategy consulting services to the Company. Included in “All Other Fees” are fees of $23.5 for strategy consulting services provided by Strategy& to the Company for the period from April 2, 2014 through December 31, 2014.
Audit Committee Report
The Audit Committee is comprised entirely of independent directors (as defined for members of an audit committee in SEC rules and the NYSE listing standards) and operates under a written charter adopted by the Board, a copy of which is available on our website at www.caterpillar.com/governance. Management is responsible for the Company’s internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements and internal control over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board (PCAOB). The Audit Committee is responsible for monitoring these processes. In this regard, the Audit Committee meets periodically with management, the internal auditors and the independent auditors. The Audit Committee has the authority to conduct or authorize investigations into any matters within the scope of its responsibilities and the authority to retain outside counsel, experts and other advisors as it determines appropriate to assist it in conducting any investigations. The Audit Committee is responsible for selecting and, if appropriate, replacing the current independent auditors, PricewaterhouseCoopers LLP, including the lead audit partner.

The Audit Committee has discussed with the Company’s independent auditors the overall scope and execution of the independent audit and has reviewed and discussed the audited financial statements with management. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States. Discussions about the Company’s audited financial statements included the auditors’ judgments about the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee also discussed with the independent auditors other matters required by PCAOB auditing standards. Management, the internal auditors and the independent auditors also made presentations to the Audit Committee throughout the year on specific topics of interest, including




the Company’s: (i) enterprise risk assessment process; (ii) information technology systems and controls; (iii) income tax strategy and risks; (iv) derivatives policy and usage; (v) benefit plan fund management; (vi) 2014 integrated audit plan; (vii) updates on completion of the audit plan; (viii) critical accounting policies; (ix) assessment of the impact of new accounting guidance; (x) compliance with the internal controls required under Section 404 of the Sarbanes-Oxley Act; (xi) ethics and compliance program; (xii) risk management initiatives and controls for various acquisitions and business units; (xiii) strategy and management of the implementation of new systems; and (xiv) cyber security.

The independent auditors provided to the Audit Committee the written communications required by applicable standards of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and the Audit Committee discussed the independent auditors’ independence with management and the auditors. The Audit Committee concluded that the independent auditors’ independence had not been impaired.

Based on: (i) the Audit Committee’s discussions with management and the independent auditors; (ii) the Audit Committee’s review of the representations of management; and (iii) the report of the independent auditors to the Audit Committee, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
 
By the members of the Audit Committee consisting of:
 
 
William A. Osborn (Chairman)
 
 
Daniel M. Dickinson
 
 
Dennis A. Muilenburg
 

EXECUTIVE COMPENSATION INFORMATION
Compensation Discussion and Analysis (CD&A)
Executive Summary
Business Performance

*Excluding restructuring costs. A reconciliation of our non-GAAP results to our most closely comparable GAAP results are included under the caption “NON-GAAP FINANCIAL MEASURES” on page A-140 of Exhibit 13 to the Company’s Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on February 17, 2015.




Financial Highlights:
As illustrated above, sales and revenues for the full-year 2014 were $55.184 billion, down slightly from $55.656 billion in 2013.
Despite this, our emphasis on cost management, operational execution and cash flow helped us deliver improved profit per share-diluted (PPS) in 2014, as compared to 2013.
PPS was $5.88, up from $5.75 in 2013 and excluding restructuring costs, PPS was $6.38, up from $5.97 in 2013.
Machinery, Energy & Transportation (ME&T) operating cash flow for 2014 was the third highest in our history.

Stockholder Highlights:
Strong cash flow enabled us to repurchase $4.2 billion of Caterpillar common stock in 2014 and increase the quarterly dividend by 17 percent, from $0.60 to $0.70 per share.
A total of $5.8 billion of capital was returned to stockholders in 2014 through stock repurchases and dividend payments, in addition to the $3.1 billion returned to stockholders in 2013.

Operational Highlights:
Overall market position for machines improved for the fourth consecutive year.
Safety and quality metrics generally exceeded 2014 targets.
The Company performance measure for our Executive Short-Term Incentive Plan, Corporate Operating Profit After Capital Charge (OPACC), improved significantly from negative $158 million in 2013 to $1.376 billion in 2014. An increase in OPACC means that the Company is utilizing assets more efficiently to generate stockholder value.
Compensation Philosophy and Objectives
The objective of the Company’s executive compensation program is to attract, retain and motivate talented executive officers who will improve the Company’s performance and provide strategic leadership. Additionally, the Compensation and Human Resources Committee of the Board of Directors (the Committee) designs compensation programs to align the actions of our Named Executive Officers (NEOs) with the long-term interests of our stockholders based on two fundamental concepts: Pay for Performance and Pay at Risk.




Pay for Performance:

As shown in the chart above, 2014 Total Direct Compensation for the CEO was $14,890,977, which was below the 2014 target level of $15,476,345.
Base Salary: The annualized base salary of the CEO was not adjusted in 2014.
ESTIP: The cash payout under the Executive Short-Term Incentive Plan was capped at $4,000,000. This was above the target level in 2014 due to a significant increase in the Company’s 2014 OPACC results, as compared with 2013.
SPP: The cash payout from the 2012-2014 cycle of the Strategic Performance Plan (SPP - formerly the Long-Term Cash Performance Plan (LTCPP)) was $913,288. This was significantly below the target level, primarily due to the Company’s relative total stockholder return during the 2012-2014 performance period.
Stock Options: The grant date fair market value of stock options awarded to the CEO was $8,377,481 in 2014, compared with $7,966,091 in 2013.
On December 31, 2014, the closing price of Caterpillar’s common stock as reported on the New York Stock Exchange (NYSE) was below the option exercise price for the stock options granted to the CEO in each of the 2011, 2012 and 2014 grants which are due to vest in 2014, 2015 and 2017, respectively.
As shown in the “2014 Summary Compensation Table” on page 28, total compensation for the CEO was $17,131,448 in 2014.




Pay at Risk:
As illustrated below, for NEOs in position throughout 2014, on average approximately 85 percent of compensation was variable or “at risk” and tied to Caterpillar’s performance:
The Company’s executive compensation design includes four principles that drive our Pay for Performance and Pay at Risk philosophy:
1.
Base salary is targeted to be the lowest percentage of total direct compensation. Our NEOs have responsibility for overall Company performance so a significant amount of their compensation should be contingent on performance. To achieve this objective, base salary is targeted to be the lowest percentage of their compensation, compared with incentive pay and equity.
2.
Short-term incentive compensation is based on corporate and business unit performance. Short-term incentive compensation awarded under the ESTIP is based on the achievement of annual performance goals at the corporate and business unit levels. We believe that this design drives accountability and rewards exceptional results. Payouts are subject to a threshold performance “trigger” and are not guaranteed.
3.
Long-term incentive compensation is based on Company performance. We expect our executives to focus on the Company’s continued success. SPP awards are tied to the Company’s performance over a longer period of time. Executives have a higher ratio of long-term to short-term incentive compensation. Payouts are subject to a threshold performance “trigger” and are not guaranteed.
4.
Equity is a significant percentage of compensation. Profitable growth is an important priority for the Company and our stockholders. To align the actions of our executives with the expectations of our stockholders and long-term Company performance, equity represents a significant percentage of their compensation.

Compensation Practices and Policies
The Committee engages in an ongoing review of the Company’s executive compensation programs to evaluate whether they support our compensation philosophy and objectives. In connection with this ongoing review, the Committee continues to implement and maintain what the Committee believes to be best practices for executive compensation. These best practices include the following, each of which reinforces our compensation philosophy:
Stock ownership requirements - Caterpillar stock ownership requirements for NEOs are a minimum of 50 percent of the average number of shares or units granted to the NEO during the last five years, which as of year-end 2014, equated to over six times base salary for our CEO. Each of our NEOs has exceeded the Company’s stock ownership requirements. Starting with the 2015 grant, the ownership requirement for the CEO will be set at six times base salary, and the ownership requirement for other NEOs will be set at three times base salary. Failure to meet these requirements will result in an NEO being unable to sell shares until the requirement is met. The CEO will be required to meet the stock ownership requirement until one-year post-retirement, with other NEOs required to meet the requirement until six months post-retirement.




Benchmark process - The Committee reviews the external marketplace in order to set market-based pay levels and considers market practices when making compensation decisions.
Independent compensation consultant - The Committee retains an independent compensation consultant.
No individual change in control agreements - The Company does not have any individual change in control agreements with its NEOs. Under the Company’s short-term and long-term incentive plans, a termination of employment, in addition to a change in control, is required to trigger benefits.
Compensation recoupment policy - The Company may seek the reimbursement of bonus and incentive compensation or cancel unvested or deferred awards based on the misconduct of an executive officer that causes the Company to restate all or a portion of its financial statements.
Prohibition on hedging, pledging and related transactions - The Company prohibits NEOs, directors and employees from engaging in any transactions involving Company securities that hedge or offset any decreases in the market value of such securities, including put or call options, pledges, any other form of hedging transactions, margin purchases of Company stock or short sales. Additionally, the Company’s Board has adopted a written process governing the approval of transactions that are expected to exceed $120,000 in any calendar year and that involve both the Company and any director, executive officer or their immediate family members. Pursuant to this process, all such “related party” transactions must be approved in advance by the Public Policy and Governance Committee of the Board.
No tax gross-ups - The Company does not pay tax gross-ups for payments relating to a change in control or with respect to perquisites, with the exception of certain international relocation benefits.
Equity grant policies - The Company does not backdate, re-price or grant equity awards retroactively. The grant date for annual equity awards is the first Monday in March and the first business day in May for the Chairman’s Awards.

Say-on-Pay Consideration
In June 2014, the Company held a stockholder advisory vote on the compensation of our NEOs (Say-on-Pay). Our stockholders overwhelmingly approved the compensation of our NEOs, with over 95 percent of stockholder votes cast in favor of our Say-on-Pay resolution. The Committee reviewed these voting results and considered other factors in evaluating the Company’s executive compensation programs as discussed in this Compensation Discussion and Analysis, including the Committee’s assessment of the alignment of our compensation programs with the long-term interests of our stockholders and the relationship between our risk management policies and the incentive compensation we provide to our NEOs. In addition, the Committee considered executive compensation practices at other companies in our peer group (discussed below) to benchmark the types and amount of compensation the Company provides. After considering all of these factors, the Committee reaffirmed the elements of our executive compensation programs and the Company’s Pay for Performance and Pay at Risk philosophy and did not make any changes to our executive compensation programs in response to the Say-on-Pay vote.
Overview of Compensation Practices
The Compensation & Human Resources Committee
The Committee is responsible for the executive compensation program design and decision-making process for NEO compensation. The Committee regularly reviews executive compensation practices, including the methodologies for setting NEO total compensation, the goals of the program and the underlying compensation philosophy. The Committee also considers the recommendations and market data provided by its independent compensation consultant and makes decisions, as it deems appropriate, on executive compensation based on its assessment of performance and achievement of Company, business unit and individual goals. The Committee also exercises its judgment as to what is in the best interests of the Company and its stockholders. The responsibilities of the Committee are described more fully in its charter, which is available at www.caterpillar.com/governance.




Named Executive Officers
The Company’s NEOs for 2014 were:
Executive
Title in 2014
Douglas R. Oberhelman
Chairman and Chief Executive Officer (CEO)
Bradley M. Halverson
Group President, Corporate Services and Chief Financial Officer (CFO)
Stuart L. Levenick *
Former Group President, Customer & Dealer Support
Edward J. Rapp
Group President, Construction Industries
D. James Umpleby III
Group President, Energy & Transportation
*Mr. Levenick retired from the position of group president, effective February 1, 2015.
Independent Compensation Consultant
The Committee retained Meridian Compensation Partners, LLC (Meridian) as its independent compensation consultant. Meridian provides executive and director compensation consulting services to the Committee, including advice regarding the design and implementation of compensation programs, market information, regulatory updates and analyses and trends on executive base salary, short-term incentives, long-term incentives, benefits and perquisites. Interactions between Meridian and management are generally limited to discussions on behalf of the Committee or as required to compile information at the Committee’s direction. During 2014, Meridian did not provide any other services to the Company. Based on these factors, its own evaluation of Meridian’s independence pursuant to the requirements approved and adopted by the SEC & NYSE, and information provided by Meridian, the Committee has determined that the work performed by Meridian does not raise any conflicts of interest.
Benchmarking
The Committee regularly assesses the market competitiveness of our executive compensation programs based on peer group data. The Compensation Committee relies on Meridian to compile and analyze peer group compensation data for the purposes of this assessment. Our 2014 peer group was unchanged from our 2013 peer group, which was established based on the following criteria:
Total revenue and market capitalization of the peer company relative to Caterpillar
Global presence with a significant portion of non-U.S. revenue
Relevance of the peer company’s industry, including consideration of direct industry and talent competitors

The peer group used for 2014 compensation decisions is shown below:
2014 Peer Group
  3M Company
• E.I. du Pont de Nemours and Company
• Illinois Tool Works Inc.
• Alcoa Inc.
• Emerson Electric Co.
• Intel Corporation
• Archer-Daniels-Midland Company
• FedEx Corporation
• Johnson Controls, Inc.
• The Boeing Company
• Fluor Corporation
• Parker-Hannifin Corporation
• Cisco Systems, Inc.
• Ford Motor Company
• The Procter & Gamble Company
• Coca-Cola Company
• General Dynamics Corporation
• Raytheon Company
• Cummins Inc.
• General Electric Company
• United Technologies Corporation
• Deere & Company
• Halliburton Company
 
• Dell Inc.
• Honeywell International Inc.
 

To account for differences in the size of our peer group companies, market data provided by Meridian is statistically adjusted (regressed) allowing for a comparison of our compensation levels to similarly sized companies.




Components of Caterpillar’s 2014 Executive Compensation Program
 
Component
Description
Pay for Performance / Pay at Risk
Annual Cash Compensation
Base Salary
Competitive pay to attract and retain talented executives.
Base salary is targeted to be the smallest percentage of NEO compensation which reinforces our Pay at Risk philosophy. Increases are generally market and performance-driven.
ESTIP
Annual incentive plan designed to provide NEOs with an opportunity to earn an annual cash incentive based on Company and business unit financial performance as well as the achievement of strategic business unit goals.
Variable component of pay intended to motivate and reward achievement of annual objectives. Goals are focused on shorter-term critical issues that are indicative of improved year-over-year performance. Payouts are not guaranteed, and no payouts are made if performance thresholds are not achieved.
Long-Term Incentive Compensation
Equity Awards
Non-qualified stock options that expire ten years after the grant and become exercisable three years from the grant date.
Stock options reward increasing stockholder value. Equity awards further align the interests of our NEOs with those of our stockholders.
SPP
Three-year performance program with cash payouts based on achieving strategic objectives. Payout amounts are targeted as a percentage of base salary, with threshold, target and maximum payouts based on performance.
SPP is tied to longer-term Company performance and aligns executive actions with stockholder expectations. Payouts are not guaranteed, and no payouts are made if performance thresholds are not achieved.
Other Benefits
Health and Welfare Benefit Plans, Perquisites
Executives are eligible to participate in health and welfare benefit plans generally available to other employees in the countries in which they are located and receive a limited number of perquisites commonly provided in the marketplace.
We believe that these programs provide competitive benefits that help attract and retain executive talent.
Annual Cash Compensation
Base Salary
Base salary is the only fixed component of our NEO’s total cash compensation. The Committee targets the base salary midpoint at the size-adjusted median level of the peer group, with the minimum base salary at 80 percent of the midpoint and the maximum base salary at 120 percent of the midpoint. An NEO’s base salary within that range is related to the individual’s level of responsibility and performance. Annual increases are based on the achievement of individual and Company objectives, contributions to Caterpillar’s performance and leadership accomplishments.

Following a review of compensation data with respect to the 2014 peer group, no changes were made to the CEO or group president base salary ranges in 2014.

2014 Salary Adjustments
In 2014, the Committee approved salary adjustments to Mr. Rapp, Mr. Halverson and Mr. Umpleby. Mr. Rapp’s annualized base salary was adjusted from $847,008 to $880,896 and the annualized base salaries for Mr. Halverson and Mr. Umpleby were adjusted from $661,872 to $786,312. In adjusting the base salaries of Mr. Halverson and Mr. Umpleby, the Committee considered their position relative to the base salary midpoint. Following the adjustments, the annualized base salaries for both NEOs were at approximately 95 percent of the base salary midpoint. In 2014, the annualized base salaries of the CEO and Mr. Levenick were not adjusted.

Executive Short-Term Incentive Compensation - ESTIP
The Executive Short-Term Incentive Plan (ESTIP) is designed to provide NEOs with an opportunity to earn an annual cash incentive based on Company and business unit financial performance as well as the achievement of strategic business unit goals. The objective of ESTIP is to provide executives with the opportunity to earn cash compensation tied to the short-term performance of the Company and their business units and reward NEOs for achieving corporate and business unit objectives.




The 2014 ESTIP design provided that a bonus pool would only be funded if the Company achieved a minimum profit per share-diluted (PPS) performance “trigger” of $3.50. The Committee established a target incentive opportunity for each NEO, with the actual award payable based on achieving performance measures and a limited additional amount available to reward performance which exceeded pre-established individual objectives. The 2014 ESTIP design enabled the Committee to exercise negative discretion to establish awards at levels the Committee deemed appropriate to reflect the performance of the Company, each NEO and other factors the Committee considered relevant, subject to a $4.0 million payout cap, while preserving the ability to deduct the bonuses to the extent permitted under Section 162(m) of the Internal Revenue Code.

Under the 2014 ESTIP, the Committee established threshold, target and maximum performance levels for the Company Performance Measure and each Business Unit Performance Measure based on recommendations from management, Meridian and a review of historical and forecasted results. If the threshold performance levels were not achieved, there would be no payout under the 2014 ESTIP. The results of each performance measure are expressed as a payout factor based on the percentage of the target performance level. For the 2014 ESTIP performance levels:
Performance greater than threshold but less than target results in a payout factor range of 30 percent to 99.99 percent of the executive’s target opportunity.
Performance at or greater than target results in a payout range of 100 percent up to a maximum of 200 percent of the executive’s target opportunity, subject to a $4.0 million payout cap.

ESTIP Formula

Target Incentive as a Percent of Base Salary: The Committee set the target incentive, expressed as a percentage of base salary for NEOs, based on the target annual bonus opportunities for similar positions in our peer group after considering the total annual cash compensation for comparable positions. Based on the peer group review for 2014, the Committee approved the target incentive levels of 175 percent of base salary for the CEO and 100 percent of base salary for group presidents, both of which were unchanged from 2013.

Company Performance Measure: The Committee established corporate Operating Profit After Capital Charge (OPACC) as the Company Performance Measure for NEOs in 2014. OPACC is designed to measure how productively and efficiently the Company’s assets are being utilized by examining the relationship between the value of the Company’s assets and the operating profit that those assets generate. An increase in OPACC means that the Company’s management is utilizing assets more efficiently to generate stockholder value, which the Committee views as key to Caterpillar’s long-term success. Under the 2014 ESTIP, OPACC is calculated as Machinery, Energy & Transportation (ME&T) operating profit excluding short-term incentive compensation expense and restructuring costs, less the capital charge. In 2014, the capital charge was calculated as the average monthly ME&T net accountable assets multiplied by a pre-tax capital charge rate of 17 percent, which the Committee believed to be a challenging rate. OPACC metrics may reflect a negative number even as the Company operates profitably. For 2014, the Committee set the OPACC target performance level at $20 million, in line with the Company’s 2014 business plan. This target was significantly above the level of OPACC achieved in 2013, which was negative $158 million.
For the NEOs, the Committee made the following determinations in weighting the Company Performance Measure:
Executive
Weight
Committee Determinations
Douglas R. Oberhelman
90%
Mr. Oberhelman is responsible for corporate financial results, resulting in a higher weighting of the corporate measure.
Bradley M. Halverson
80%
Mr. Halverson was primarily responsible for corporate level financial and Corporate Services resulting in a higher weighting of the corporate measure.
Stuart L. Levenick
25%
Mr. Levenick was primarily responsible for Customer and Dealer Support business units resulting in a higher weighting on business unit measures.
Edward J. Rapp
25%
Mr. Rapp was primarily responsible for Construction Industries business units resulting in a higher weighting on business unit measures.
D. James Umpleby III
25%
Mr. Umpleby was primarily responsible for Energy and Transportation business units resulting in a higher weighting on business unit measures.




Company Performance Measure Results
The Company’s 2014 OPACC of $1.376 billion exceeded the target performance level, resulting in a payout factor of 166.96 percent.

Business Unit Performance Measures: Based on Caterpillar’s strategic goals of achieving Superior Financial Results and being the Global Leader in the markets it serves, at its February 2014 meeting the Committee approved the measures described below to incentivize the NEOs to drive these strategic goals throughout the organization.

The Committee set targets for these measures that were designed to be reasonably achievable with strong management performance. Maximum performance levels were designed to be difficult to achieve in light of historical performance and the Company’s business forecast at the time the measures were approved. The Business Unit Performance Measures were also weighted according to the Company’s business priorities and the responsibilities of each NEO.

Description of Business Unit Performance Measures
Business Unit Performance Measure
Corporate Strategy
Description
Operating Profit After Capital Charge (OPACC)
Superior Financial Results
The Committee approved OPACC as a measure to incentivize each NEO to achieve the Company’s strategic goal of increasing OPACC throughout the organization.
Construction Industries OPACC: Based on the Construction Industries operating segment.
Customer & Dealer Support OPACC: Based on the ‘All Other’ operating segments, specifically limited to those businesses providing component manufacturing, remanufacturing and logistics services.
Diversified Products OPACC: Based on the Diversified Products business, part of the ‘All Other’ operating segments, excluding the Global On Highway Truck business.
Energy & Transportation OPACC: Based on the Energy & Transportation operating segment.
Percent of Industry Sales (PINS)
Global Leader
The Committee approved PINS as a performance measure to focus on the Company’s strategic goal of being the global leader. PINS is used to measure improvements in the Company’s competitive position in the markets it serves by comparing dealer sales (including deliveries to dealer rental operations) of equipment to industry sales. Certain products and geographic areas are excluded from this measure due to availability of accurate data or recent acquisitions. Products were given different weights based on NEO responsibilities and relationship to the corporate strategy.
Customer & Dealer Support Group Enterprise Parts (Orders) Sales
Global Leader
The Committee approved this measure because increasing Caterpillar branded parts sales is an important aspect of the corporate strategy. This measure represents the percentage of Caterpillar branded parts (orders) sales at actual price levels compared to target.
Cat Branded Parts (Orders) Sales vs. Total Cat Branded Parts Opportunity (POPS-C)
Global Leader
The Committee approved this measure because increasing Caterpillar branded parts sales is an important aspect of the corporate strategy. POPS-C is defined as Caterpillar branded parts sales achieved divided by the total parts sales opportunity on the population of Caterpillar products (ME&T) in the field.
Financial Products Division Return on Equity (ROE)
Superior Financial Results
The Committee approved this measure to drive accountability and performance for Caterpillar’s Financial Products operating segment. For ESTIP, ROE is calculated by dividing the full year profit (after tax) by the average of the monthly accountable equity balances, excluding the impact of interest costs and equity changes associated with differences in planned vs. actual dividends. Dividends are payments of retained earnings from Caterpillar Financial Services Corporation and Caterpillar Financial Insurance Services, the Company’s wholly owned finance and insurance subsidiaries, to Caterpillar.




Business Unit Performance Measure Results
Douglas R. Oberhelman: Mr. Oberhelman’s Business Unit Performance Measure was Financial Products Division ROE with a target of 13.18 percent, weighted 10 percent. Financial Products Division ROE for 2014 of 14.04 percent exceeded the target level, and resulted in a payout factor of 121.73 percent. Mr. Oberhelman’s combined weighted average payout factor based on Corporate and Business Unit Performance Measures was 162.44 percent, however Mr. Oberhelman’s ESTIP award was capped at $4.0 million in accordance with the maximum amount payable to any participant under the ESTIP.

Bradley M. Halverson: Mr. Halverson’s Business Unit Performance Measure was Financial Products Division ROE with a target of 13.18 percent, weighted 20 percent. Financial Products Division ROE for 2014 of 14.04 percent exceeded the target level, and resulted in a payout factor of 121.73 percent. Mr. Halverson’s combined weighted average payout factor based on Corporate and Business Unit Performance Measures was 157.91 percent, resulting in an award of $1,193,242. In addition, the Committee approved an additional amount payable under the ESTIP of $82,500, for exceeding pre-existing individual objectives, including corporate profit per share and operating cash flow goals.

Stuart L. Levenick: Mr. Levenick’s Business Unit Performance Measures included Customer & Dealer Support OPACC with a target of $504 million, weighted 20 percent and Diversified Products OPACC with a target of negative $78 million, weighted 5 percent. Customer & Dealer Support OPACC of $663 million and Diversified Products OPACC of negative $10 million, both exceeded the respective maximum performance levels for 2014. PINS measures for Building Construction Products (BCP), Earthmoving, Excavation and Mining Divisions, each weighted 2.5 percent, Customer & Dealer Support Group Enterprise Parts (Orders) Sales, weighted 20 percent and POPS-C, weighted 20 percent were the other Business Unit Performance Measures. The results of his Business Unit Performance Measures resulted in a payout factor of 161.88 percent. Mr. Levenick’s combined weighted average payout factor based on Corporate and Business Unit Performance Measures was 163.15 percent, resulting in an ESTIP award of $1,510,076.

Edward J. Rapp: Mr. Rapp’s Business Unit Performance Measures included Construction Industries OPACC with a target of $547 million, weighted 51 percent. Construction Industries OPACC of $1,216 million for 2014 exceeded the maximum level. PINS measures for the Earthmoving Division, Excavation Division and BCP business unit, each weighted 8 percent, were the other Business Unit Performance Measures. The results of his Business Unit Performance Measures resulted in a payout factor of 169.44 percent. Mr. Rapp’s combined weighted average payout factor based on Corporate and Business Unit Performance Measures was 168.82 percent, resulting in an award of $1,472,989. In addition, the Committee approved an additional amount payable under the ESTIP of $172,500, for exceeding pre-existing individual objectives, including profitability and quality goals.

D. James Umpleby III: Mr. Umpleby’s Business Unit Performance Measure was Energy & Transportation OPACC with a target of $2,036 million, weighted 75 percent. Energy & Transportation OPACC of $3,021 million for 2014 exceeded the maximum level and resulted in a payout factor of 200 percent. Mr. Umpleby’s combined weighted average payout factor based on Corporate and Business Unit Performance Measures was 191.74 percent, resulting in an award of $1,448,841. In addition, the Committee approved an additional amount payable under the ESTIP of $172,500, for exceeding pre-existing individual objectives, including sales and profitability goals.
Long-Term Incentive Compensation
Consistent with market practice, the Committee has adopted a portfolio approach to long-term executive compensation, where multiple long-term incentive compensation vehicles are used in combination. The Committee reviews this approach annually, and maintained this structure for 2014. Caterpillar’s 2014 long-term incentive plan provides for equity grants and cash performance awards. Providing a portion of long-term incentives in the form of cash also allows the Committee to manage the share run rate and preserve the available pool of shares authorized for issuance under the 2006 Long-Term Incentive Plan (LTIP).

In connection with its ongoing review of the Company’s executive compensation programs and based on input from Meridian, beginning with the 2015 long-term incentive grants to the NEOs, the Committee replaced the cash-based awards under the SPP with a performance-based Restricted Stock Units (RSUs) award. In line with current practice, long-term incentive award




values continue to be granted based on benchmarking against our peer group, with adjustments to the grant levels to reflect Company and individual performance. Consistent with prior years, for 2015, approximately two-thirds of the long-term incentive award value was granted in the form of stock options. However, approximately one-third was granted in the form of performance-based RSUs rather than cash awards under the SPP. One-third of the award will vest each year that the Company achieves the ongoing Return on Equity (ROE) hurdle, established by the Committee. For any year that the ROE hurdle is not met, no awards will vest at that time. If the Company achieves an average ROE during a three-year cycle that meets or exceeds the ongoing ROE hurdle, then any remaining unvested shares for that cycle will vest. The Committee believes that the use of an ROE metric further focuses executives on managing the returns of the Company in the long-term interests of stockholders through effectively deploying the capital that stockholders have invested.

Annual Equity Awards
For 2014, the Committee approved market-based equity awards for our NEOs based on benchmarking against our peer group. The dollar value target was determined by calculating the median long-term incentive compensation amount based on our peer group and subtracting the present value of the target SPP opportunity. The Committee made these awards in the form of stock options to reinforce its compensation philosophy of linking executive officer actions to long-term Company performance and stock price appreciation.

At the February 2014 meeting, after discussion and review of the CEO’s recommendations in view of Company and individual performance in 2013, the Committee approved positive adjustments to the awards for NEOs in the range of 8 to 15 percent.

2014 Equity Awards
Executive
Equity Award (Stock Options)
 
Value 1
# Units
Douglas R. Oberhelman
$
8,377,481
 
283,790
Bradley M. Halverson
$
2,392,921
 
81,061
Stuart L. Levenick
$
2,560,624
 
86,742
Edward J. Rapp
$
2,560,624
 
86,742
D. James Umpleby III
$
2,527,089
 
85,606
1 Grant date fair market value determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation - Stock Compensation (FASB ASC Topic 718).

Strategic Performance Plan (SPP)
As part of its portfolio approach, the Committee approves cash awards under the SPP, (formerly the Long-Term Cash Performance Plan (LTCPP)), which are tied to long-term Company performance over a three-year performance cycle. Each year, the Committee establishes a target opportunity for NEOs. The Committee also specifies two performance measures for the cycle and approves payout factors based on performance at the threshold, target and maximum levels. The SPP is different from the ESTIP because each measure within SPP triggers independently, but the threshold performance level must be met in order to receive a payout for that particular measure. Although increasingly larger payments are awarded when the target and maximum performance levels are achieved, the SPP payout amount can vary greatly from one year to the next based on achievement of the performance goals during the prior three-year period. The SPP target for the period 2012-2014, expressed as a percentage of base salary, was 170 percent for the CEO and 110 percent for the group presidents, which remained unchanged from the SPP targets for the 2011-2013 cycle.

The Committee has the discretion to reduce individual SPP earned payouts, but individual NEO payout increases are not permitted. No adjustments were made to the 2014 SPP payouts to the NEOs. In addition, individual payouts are capped at $5.0 million.

2012-2014 SPP Cycle: At its February 2012 meeting, the Committee established relative Total Stockholder Return (TSR), measured against the S&P 500 and ME&T Return on Assets (ROA) as the performance measures for the 2012-2014 cycle. Payouts were based on a range, expressed as a percentage of an NEO’s target opportunity. For performance at the threshold level up to target, the payout range was 30 percent to 99.99 percent of target; for target to maximum performance, the payout range was 100 percent to 200 percent of target.




The following chart summarizes the 2012-2014 cycle, including the performance-based results:
Performance Measure
Weight
Performance Levels
Results
Payout Factor
Weighted Factor
Threshold
Target
Max.
ME&T ROA
50%
4%
11%
13%
7.8%
67.67%
33.84%
Relative TSR
(Measured against S&P 500)
50%
40th 
percentile
55th 
percentile
75th 
percentile
Below 40th
percentile
0%

The following performance-based payouts resulted from the 2012-2014 SPP:
 
Executive
Performance-Based Payout
(2012-2014 SPP)
 
 
Douglas R. Oberhelman
$913,288
 
Bradley M. Halverson
$225,795
 
Stuart L. Levenick
$335,695
 
Edward J. Rapp
$316,075
 
D. James Umpleby III
$225,795

2013-2015 SPP Cycle: The 2013-2015 SPP cycle approved by the Committee at its February 2013 meeting, also includes ROA and TSR measured against companies within the S&P 500, each weighted 50 percent. The Committee approved the same range of payouts as the 2012-2014 SPP cycle and established performance levels to focus management on improved performance. The target level was designed to be reasonably achievable with strong management performance, while the maximum level was designed to be difficult to achieve.

2014-2016 SPP Cycle: The 2014-2016 SPP cycle approved by the Committee at its February 2014 meeting, includes Profit Per Share weighted 75 percent and TSR measured against companies within the S&P Industrials, weighted 25 percent. The Committee approved these changes to further focus NEOs and other plan participants on profitability, linked to the Company’s enterprise strategy. The Committee approved the same range of payouts as the 2012-2014 SPP and 2013-2015 cycles and established performance levels to focus management on improved performance. The target level was designed to be reasonably achievable with strong management performance, while the maximum level was designed to be difficult to achieve. Additionally, the Committee approved a change to set the target opportunity for NEOs for the 2014-2016 cycle as a dollar amount, rather than as a percentage of base salary. The dollar amount target opportunity was determined based on benchmarking against the Company’s peer group with the present value set at approximately one-third of the market-based long-term incentive for NEOs in 2014, increasing the portion of the long-term incentive awards tied to this performance-based plan.
2014 Performance Considerations
Chairman and CEO Performance Considerations
The Board, excluding the CEO, all of whom are independent directors, conducts the CEO’s performance evaluation which is based on objective and subjective criteria including:
Caterpillar’s financial performance.
The accomplishment of Caterpillar’s long-term strategic objectives.
The achievement of individual goals set at the beginning of each year.
The development of Caterpillar’s management team.

Prior to the Board’s evaluation of the CEO’s performance and its approval of CEO compensation, the Committee makes a preliminary compensation recommendation to the Board based on the Committee’s initial evaluation and performance review of the CEO. In February 2015, the Board reviewed the Committee’s assessment of Mr. Oberhelman’s performance and ratified his annual incentive compensation. In making these determinations, the Board noted that the most critical results for Mr. Oberhelman’s 2014 performance were:
Profit per share improved from 2013, despite slightly lower sales and revenues.
The Company’s management of fixed and variable costs was deemed to be excellent.




ME&T operating cash flow was significantly above plan.
The balance sheet remained strong, supporting a 17 percent increase in the quarterly dividend and the repurchase of $4.2 billion of Caterpillar common stock in 2014.
Overall market position for machines improved for the fourth consecutive year; and POPS-C was above plan.
Safety and quality metrics generally exceeded targets.
The Company continues to be a leading voice on public policy issues.

Other NEO Performance Considerations
For each NEO, the CEO presents a performance evaluation and recommends compensation adjustments to the Committee based on objective and subjective criteria. In February 2015, the CEO met with the Committee to share his evaluations of each NEO and discuss performance-based compensation adjustments. The Committee approved each NEO’s annual incentive compensation and proposed adjustments based on individual performance and the benchmarking information discussed above. In making these determinations, the Committee considered the most critical results for each of the NEOs in 2014 with respect to their business units, which included many of the factors described in the CEO's evaluation above, as well as certain financial performance measures, including but not limited to, accountable profit, OPACC, operating cash flow, return on equity, return on sales and parts sales. The Committee also considered non-financial measures including PINS, POPS-C, as delivered quality, reliability, safety performance, successful launch of NPI programs, cost management, inventory turns, diversity and inclusion initiatives and job responsibilities.
Post-Termination and Change in Control Benefits
Except for customary provisions in employee benefit plans and as required by applicable law, the NEOs do not have any pre-existing executive severance packages or contracts; however, the Committee will consider the particular facts and circumstances of an NEO’s separation to determine whether payment of any severance or other benefit to such NEO is appropriate. Change in control benefits are provided under our long-term and short-term plans and represent customary provisions for these types of plans and have no direct correlation with other compensation decisions. These change in control provisions generally provide accelerated vesting and maximum payouts under the incentive plans, but are subject to a “double trigger,” whereby both a change in control and involuntary termination of employment without cause are needed to trigger such provisions. There is no cash severance or other benefits for termination related to change in control beyond what is provided for under LTIP and ESTIP. Additional information is disclosed in the “Potential Payments Upon Termination or Change in Control” section on page 34 of this proxy statement.

In the event of a qualifying termination of employment following a change in control, maximum payouts are provided under the LTIP and ESTIP.
LTIP allows for the maximum performance level to be paid under each open plan cycle of the SPP.
All unvested stock options, stock appreciation rights, restricted stock and restricted stock units vest immediately.
Options and stock appreciation rights remain exercisable over the normal life of the grant.
ESTIP allows for the maximum award opportunity, prorated based on the individual’s time of employment from the beginning of the performance period through the later of: (1) the change in control or (2) termination of employment, subject to a maximum of $4.0 million in any single year.

In connection with Mr. Levenick’s retirement, on January 5, 2015, the Committee granted Mr. Levenick stock options with an aggregate grant date value targeted to be $4.0 million. In addition, the Committee approved the accelerated vesting of 1,583 shares of restricted stock units, representing all of the outstanding awards previously granted to Mr. Levenick pursuant to the Chairman’s Award Program. In providing this approval, the Committee considered Mr. Levenick’s 37 years of service with the Company, including his leadership in strengthening the relationship between Caterpillar and the independent global dealer network through the “Across the Table” dealer transformation. His strategic leadership has been viewed as instrumental in strengthening the alignment between Caterpillar and its independent dealers.




Retirement and Other Benefits
The defined contribution and defined benefit retirement plans available to the NEOs are also available to many U.S. Caterpillar management and salaried employees. Under the defined benefit pension plans, the benefit is calculated based on years of service and final average monthly earnings. All of the NEOs participate in the U.S. retirement plans described in the table below, except that Mr. Umpleby participates in Solar Turbines Incorporated sponsored defined benefit pension plans, which are similar to the pension plans described below.

Plan Type
Title
Description
Pension
Retirement Income Plan (RIP)
Defined benefit pension plan under which benefit amounts are not offset for any Social Security benefits. RIP was closed to new entrants, effective January 1, 2011. All U.S. based NEOs participate in this plan and, subject to the Company’s right to amend or terminate the plan, continue to earn benefits under RIP until the earlier of separation or December 31, 2019.
Supplemental Retirement Plan (SERP)
Non-qualified defined benefit pension plan that works in tandem with RIP. SERP provides additional pension benefits if the NEO’s benefit is limited due to the compensation and annual benefit limits imposed on RIP by the tax code. SERP also pays a benefit that would otherwise have been paid under RIP but for (1) the NEO’s deferral of compensation under SDCP, SEIP or DEIP and (2) exclusions of lump sum discretionary awards and variable base pay from RIP earnings. As with RIP, SERP was closed to new entrants effective January 1, 2011. Subject to the Company’s right to amend or terminate the plan, all U.S. based NEOs continue to earn SERP benefits until the earlier of separation or December 31, 2019.
Savings
Caterpillar 401(k) Savings Plan
All U.S.-based NEOs are eligible to participate in the Caterpillar 401(k) Savings Plan under which the Company matches 50 percent of the first 6 percent of pay contributed to the savings plan.
Supplemental Deferred Compensation Plan (SDCP)
All U.S.-based NEOs are eligible to participate in SDCP, which provides the opportunity to make deferrals of base salary in excess of the limits imposed on the 401(k) Savings Plan by the Internal Revenue Code and to elect deferrals of ESTIP and LTCPP awards. Under the terms of SDCP, supplemental base pay deferrals earn matching contributions at a rate of 3 percent of the deferred amount, supplemental ESTIP deferrals earn matching contributions at a rate of 50 percent of the first 6 percent of ESTIP deferrals and excess base pay deferrals are matched 50 percent.
Supplemental (SEIP) and Deferred (DEIP) Employees’ Investment Plan
All U.S.-based NEOs were previously eligible to participate in SEIP and DEIP. These plans were frozen in March 2007. Compensation deferred into SEIP and DEIP prior to January 1, 2005, remains in SEIP and DEIP.




Perquisites
The Company provides NEOs a limited number of perquisites that the Committee believes are reasonable and consistent with the overall compensation program and those commonly provided in the marketplace. The Committee annually reviews the levels of perquisites provided to the NEOs which include home security systems, parking and limited personal use of the Company aircraft and ground transportation. These perquisites are provided to attract and retain talented executive officers, for security purposes and to allow the NEOs to devote additional time to Caterpillar business. Costs associated with these perquisites are included in the “2014 All Other Compensation Table” on page 29.
Tax Implications: Deductibility of NEO Compensation
Under Section 162(m) of the Internal Revenue Code, generally NEO compensation over $1.0 million for any year is not deductible for United States income tax purposes. However, performance-based compensation is exempt from the deduction limit if certain requirements are met. One of the goals of the Committee is to structure compensation to take advantage of this exemption under Section 162(m) to the extent practicable. However, the Committee may elect to provide compensation outside those requirements when necessary to achieve its compensation objectives.
Compensation Recoupment Policy
Under the Company’s compensation recoupment policy, the Board will require reimbursement of any bonus or incentive compensation awarded to an officer or cancel unvested restricted or deferred stock awards previously granted to the officer if all of the following apply:
The amount of the bonus, incentive compensation or stock award was calculated based on the achievement of certain financial results that were subsequently the subject of a restatement.
The officer engaged in intentional misconduct that caused or partially caused the need for the restatement.
The amount of the bonus, incentive compensation or stock award that would have been awarded to the officer had the financial results been properly reported would have been lower than the amount actually awarded.


Compensation and Human Resources Committee Report
The Compensation and Human Resources Committee has reviewed and discussed the CD&A included in this proxy statement with management and is satisfied that the CD&A fairly and completely represents the philosophy, intent and actions of the Committee with regard to executive compensation. Based on such review and discussion, we recommend to the Board that the CD&A be included in this proxy statement and the Company’s Annual Report on Form 10-K for filing with the SEC.
 
 
By the members of the Compensation
and Human Resources Committee consisting of:
 
 
 
 
Miles D. White (Chairman)
 
 
 
 
David L. Calhoun
 
 
 
 
Jesse J. Greene, Jr.
 
 




Executive Compensation Tables
2014 Summary Compensation Table
Name and
Principal Position
Year
Salary
Bonus 1
Stock
Awards
Option
Awards 2
Non-Equity
Incentive Plan
Compensation 3
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings 4
All Other
Compensation 5
Total
Douglas R. Oberhelman
2014
$
1,600,008
 
$
 
$
 
$
8,377,481
 
$
4,913,288
 
$
1,998,805
 
$
241,866

 
$
17,131,448

 
Chairman & CEO
2013
$
1,600,008
 
$
 
$
 
$
7,966,091
 
$
2,241,766
 
$
2,964,405
 
$
217,299

 
$
14,989,569

 
 
2012
$
1,562,508
 
$
 
$
 
$
10,780,000
 
$
5,049,988
 
$
4,636,668
 
$
345,580

 
$
22,374,744

 
Bradley M. Halverson 6
2014
$
755,202
 
$
 
$
 
$
2,392,921
 
$
1,501,537
 
$
595,014
 
$
42,294

 
$
5,286,968

 
Group President & CFO
2013
$
661,872
 
$
 
$
 
$
2,266,520
 
$
747,012
 
$
348,392
 
$
46,107

 
$
4,069,903

 
Stuart L. Levenick 7
2014
$
925,584
 
$
 
$
 
$
2,560,624
 
$
1,845,771
 
$
570,390
 
$
162,214

 
$
6,064,583

 
Group President
2013
$
914,565
 
$
 
$
 
$
2,557,997
 
$
1,220,080
 
$
452,798
 
$
118,909

 
$
5,264,349

 
 
2012
$
865,182
 
$
 
$
128,275
 
$
2,290,221
 
$
1,849,220
 
$
1,418,318
 
$
122,305

 
$
6,673,521

 
Edward J. Rapp
2014
$
872,424
 
$
50,000
 
$
 
$
2,560,624
 
$
1,961,564
 
$
565,770
 
$
944,315

 
$
6,954,697

 
Group President
2013
$
847,008
 
$
 
$
 
$
2,266,520
 
$
883,667
 
$
1,129,584
 
$
296,280

 
$
5,423,059

 
 
2012
$
827,757
 
$
 
$
256,550
 
$
2,372,188
 
$
1,961,748
 
$
1,396,792
 
$
103,173

 
$
6,918,208

 
D. James Umpleby III 8
2014
$
755,202
 
$
 
$
 
$
2,527,089
 
$
1,847,136
 
$
1,484,122
 
$
57,772

 
$
6,671,321

 
Group President
2013
$
661,872
 
$
 
$
 
$
2,266,520
 
$
964,041
 
$
4,181,546
 
$
52,857

 
$
8,126,836

 
1
Amount includes a lump sum discretionary bonus payment authorized by the Compensation & Human Resources Committee of the Board of Directors. Discretionary bonuses recognize responsibilities or significant efforts that may not be fully reflected in the performance objectives established under the short-term incentive plans. In February 2014, the Committee approved a lump sum discretionary bonus of $50,000 for Mr. Rapp.
2
The amounts reported in this column represent stock options granted under the LTIP that are valued based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Assumptions made in the calculation of these amounts are included in Note 2 “Stock based compensation” to the Company’s consolidated financial statements for the fiscal year ended December 31, 2014, included in the Company’s Form 10-K filed with the SEC on February 17, 2015.
3
The amounts in this column reflect cash payments made to NEOs under the 2014 ESTIP in 2015 with respect to 2014 performance and under the SPP with respect to performance over a three year performance cycle from 2012 through 2014 as follows: Mr. Oberhelman $4,000,000/ESTIP and $913,288/SPP; Mr. Halverson $1,275,742/ESTIP and $225,795/SPP; Mr. Levenick $1,510,076/ESTIP and $335,695/SPP; Mr. Rapp $1,645,489/ESTIP and $316,075/SPP; and Mr. Umpleby $1,621,341/ESTIP and $225,795/SPP.
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, 2013 and December 31, 2014. The amount assumes the pension benefit is payable at each NEO’s earliest unreduced retirement age based upon the NEO’s current pensionable earnings. See the "2014 Pension Benefits" table for disclosure regarding the various assumptions used to calculate these pension benefits.
5
"All Other Compensation" for 2014 consists of the following items detailed in a separate table appearing on page 29: Matching contributions to the Company’s 401(k) plan, matching contributions to SDCP, personal corporate aircraft usage, home security, life insurance premiums and compensation received by Mr. Rapp in connection with his International Service Assignment.
6
Mr. Halverson became a NEO in 2013 so historical information for 2012 is not presented.
7
Mr. Levenick retired effective February 1, 2015.
8
Mr. Umpleby became a NEO in 2013 so historical information for 2012 is not presented.




2014 All Other Compensation Table
Name
Year
Matching
Contributions
401(k)
Matching
Contributions
SDCP
Corporate
Aircraft/
Transportation 1
Home
Security 2
Other 3
Total All Other
Compensation
Douglas R. Oberhelman
2014
$
7,650
 
$
76,497
 
$
116,946
 
$
37,209
 
$
3,564
 
$
241,866
 
 
2013
$
7,900
 
$
104,315
 
$
96,594
 
$
4,926
 
$
3,564
 
$
217,299
 
 
2012
$
7,760
 
$
136,797
 
$
105,006
 
$
94,397
 
$
1,620
 
$
345,580
 
Bradley M. Halverson
2014
$
6,930
 
$
31,012
 
$
385
 
$
2,725
 
$
1,242
 
$
42,294
 
 
2013
$
7,938
 
$
25,810
 
$
192
 
$
10,925
 
$
1,242
 
$
46,107
 
Stuart L. Levenick
2014
$
6,942
 
$
45,339
 
$
103,460
 
$
2,909
 
$
3,564
 
$
162,214
 
 
2013
$
7,981
 
$
40,749
 
$
59,842
 
$
6,773
 
$
3,564
 
$
118,909
 
 
2012
$
7,169
 
$
55,038
 
$
56,323
 
$
2,155
 
$
1,620
 
$
122,305
 
Edward J. Rapp
2014
$
7,800
 
$
34,419
 
$
37,680
 
$
949
 
$
863,467
 
$
944,315
 
 
2013
$
7,750
 
$
45,767
 
$
17,430
 
$
13,805
 
$
211,528
 
$
296,280
 
 
2012
$
7,953
 
$
51,847
 
$
41,648
 
$
825
 
$
900
 
$
103,173
 
D. James Umpleby III
2014
$
6,930
 
$
37,523
 
$
9,080
 
$
1,917
 
$
2,322
 
$
57,772
 
 
2013
$
7,650
 
$
26,116
 
$
14,614
 
$
2,155
 
$
2,322
 
$
52,857
 
1
Several of our NEOs serve as board members for other corporations at the request of the Company, and the personal usage noted above primarily consists of NEO flights to attend these outside board meetings. Under the rules of the SEC, use of aircraft for this purpose is deemed to be personal, even though Caterpillar considers these flights beneficial to the Company and for a business purpose. CEO approval is required for all personal use. The value of personal aircraft usage reported above is based on Caterpillar’s incremental cost per flight hour, including the weighted average variable operating cost of fuel, oil, aircraft maintenance, landing and parking fees, related ground transportation, catering and other smaller variable costs. Occasionally, a spouse or other guest may accompany the NEO, and if the Company aircraft is already scheduled for business purposes and can accommodate additional passengers, no additional variable operating cost is incurred. Mr. Oberhelman and the Company have a time-sharing lease agreement, pursuant to which certain costs associated with those flights are reimbursed by Mr. Oberhelman to the Company in accordance with the agreement.
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
The amount shown includes the premium cost of Company provided basic life insurance under a Group Variable Universal Life policy. The coverage amount is two times base salary, capped at $500,000. The premium cost is as follows: Mr. Oberhelman $3,564; Mr. Halverson $1,242; Mr. Levenick $3,564; Mr. Rapp $2,322; and Mr. Umpleby $2,322.
During 2014, Mr. Rapp was an International Service Employee (ISE) based in Singapore. The amount shown includes $861,145 of foreign service allowances typically paid by the Company on behalf of ISEs, including allowances paid to Mr. Rapp for moving expenses, housing, mobility premium, home leave and foreign and U.S. taxes. Company paid taxes of $496,897 was included in this amount. These allowances are intended to ensure that our ISEs are in the same approximate financial position as they would have been if they lived in the U.S. during the time of their international service.





Grants of Plan-Based Awards in 2014
Name
Grant
Date
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards 1
All Other
Stock Awards:
 Number of
Shares of
Stock or
Units
All Other
Option Awards:
Number of Securities Underlying Options 4
Exercise or
Base Price of Option Awards ($/share)
Grant Date
Fair Value
 of Stock and
Option Awards ($) 5
Threshold
Target
Maximum
Douglas R. Oberhelman
SPP 2
$
1,282,500
 
$
4,275,000
 
$
5,000,000
 
 
 
 
 
 
 
 
ESTIP 3
$
840,004
 
$
2,800,014
 
$
4,000,000
 
 
 
 
 
 
 
 
3/3/2014
 
 
 
 
 
 
 
283,790
 
$
96.31
 
$
8,377,481
 
Bradley M. Halverson
SPP 2
$
345,000
 
$
1,150,000
 
$
2,300,000
 
 
 
 
 
 
 
 
ESTIP 3
$
226,561
 
$
755,202
 
$
1,510,404
 
 
 
 
 
 
 
 
3/3/2014
 
 
 
 
 
 
 
81,061
 
$
96.31
 
$
2,392,921
 
Stuart L. Levenick
SPP 2
$
345,000
 
$
1,150,000
 
$
2,300,000
 
 
 
 
 
 
 
 
ESTIP 3
$
277,675
 
$
925,584
 
$
1,851,168
 
 
 
 
 
 
 
 
3/3/2014
 
 
 
 
 
 
 
86,742
 
$
96.31
 
$
2,560,624
 
Edward J. Rapp
SPP 2
$
345,000
 
$
1,150,000
 
$
2,300,000
 
 
 
 
 
 
 
 
ESTIP 3
$
261,727
 
$
872,424
 
$
1,744,848
 
 
 
 
 
 
 
 
3/3/2014
 
 
 
 
 
 
 
86,742
 
$
96.31
 
$
2,560,624
 
D. James Umpleby III
SPP 2
$
345,000
 
$
1,150,000
 
$
2,300,000
 
 
 
 
 
 
 
 
ESTIP 3
$
226,561
 
$
755,202
 
$
1,510,404
 
 
 
 
 
 
 
 
3/3/2014
 
 
 
 
 
 
 
85,606
 
$
96.31
 
$
2,527,089
 
1
The amounts reported in this column represent estimated potential awards under the 2014-2016 SPP cycle and 2014 ESTIP.
2
The 2014-2016 SPP cycle estimates for the NEOs are based upon a predetermined plan target fixed dollar amount and the actual payouts will be determined based on Caterpillar’s achievement of specified performance levels (TSR and Profit Per Share) over the three-year performance cycle. The threshold amount is earned if the threshold performance level is achieved. The target amount is earned if at least 100 percent of the targeted performance level is achieved. The maximum award is earned if the maximum performance level is achieved.
3
The 2014 ESTIP estimates are based upon the executive’s base salary and the payouts at the threshold, target and maximum performance levels for the Company and Business Unit Performance Measures for 2014, subject to a $4.0 million payout cap. The actual award payable was based on achieving the performance measures with a limited additional amount available to reward performance which exceeded pre-established individual objectives. For a detailed explanation of the 2014 ESTIP, please refer to pages 19-21 of the CD&A. The cash payouts for the 2014 plan year are included in the column “Non-Equity Incentive Plan Compensation” of the “2014 Summary Compensation Table.”
4
Amounts reported represent stock options granted under the LTIP. The exercise price for all stock options granted to the NEOs is the closing price of Caterpillar stock on the grant date, which was $96.31. All stock options granted to the NEOs will vest three years from the grant date, subject to the NEO’s continued employment through the vesting date. The actual realizable value of the options will depend on the fair market value of Caterpillar stock at the time of exercise.
5
The amounts shown do not reflect realized compensation by the NEO. The amounts shown represent the value of the stock option awards granted to the NEOs based upon the grant date fair market value of the award as determined in accordance with FASB ASC Topic 718.




Outstanding Equity Awards at 2014 Fiscal Year-End
Name
Grant
Date
Vesting
Date
Option Awards
Stock Awards
Number of Securities
Underlying Unexercised
SARs/Options
SAR / Option
Exercise
Price
SAR / Option
Expiration
Date 1
Number of Shares or Units of Stock
That Have
Not Vested 2
Market Value of
Shares or Units of
Stock That Have
Not Vested 3
Exercisable
Unexercisable
Douglas R. Oberhelman
02/17/2006
02/17/2009
110,000
 
 
$
72.0500
 
02/17/2016
 
$
 
 
03/02/2007
03/02/2010
125,884
 
 
$
63.0400
 
03/02/2017
 
$
 
 
03/03/2008
03/03/2011
115,484
 
 
$
73.2000
 
03/03/2018
 
$
 
 
03/02/2009
03/02/2012
166,252
 
 
$
22.1700
 
03/02/2019
 
$
 
 
03/01/2010
03/01/2013
272,282
 
 
$
57.8500
 
03/01/2020
 
$
 
 
03/07/2011
03/07/2014
226,224
 
 
$
102.1300
 
03/07/2021
 
$
 
 
03/05/2012
03/05/2015
 
275,000
 
$
110.0900
 
03/05/2022
 
$
 
 
03/04/2013
03/04/2016
 
281,090
 
$
89.7500
 
03/04/2023
 
$
 
 
03/03/2014
03/03/2017
 
283,790
 
$
96.3100
 
03/03/2024
 
$
 
Bradley M. Halverson
03/02/2007
03/02/2010
9,935
 
 
$
63.0400
 
03/02/2017
 
$
 
 
03/03/2008
03/03/2011
9,306
 
 
$
73.2000
 
03/03/2018
 
$
 
 
03/02/2009
03/02/2012
14,092
 
 
$
22.1700
 
03/02/2019
 
$
 
 
03/01/2010
03/01/2013
9,449
 
 
$
57.8500
 
03/01/2020
 
$
 
 
03/07/2011
03/07/2014
22,696
 
 
$
102.1300
 
03/07/2021
 
$
 
 
03/05/2012
03/05/2015
 
21,416
 
$
110.0900
 
03/05/2022
 
$
 
 
03/04/2013
03/04/2016
 
79,976
 
$
89.7500
 
03/04/2023
 
$
 
 
03/03/2014
03/03/2017
 
81,061
 
$
96.3100
 
03/03/2024
 
$
 
 
 
 
$
 
2,500
4 
$
228,825
 
Stuart L. Levenick
03/02/2007
03/02/2010
124,396
 
 
$
63.0400
 
03/02/2017
 
$
 
 
03/03/2008
03/03/2011
115,484
 
 
$
73.2000
 
03/03/2018
 
$
 
 
03/02/2009
03/02/2012
148,722
 
 
$
22.1700
 
03/02/2019
 
$
 
 
03/01/2010
03/01/2013
134,851
 
 
$
57.8500
 
03/01/2020
 
$
 
 
03/07/2011
03/07/2014
56,228
 
 
$
102.1300
 
03/07/2021
 
$
 
 
03/05/2012
03/05/2015
 
58,424
 
$
110.0900
 
03/05/2022
 
$
 
 
03/04/2013
03/04/2016
 
90,261
 
$
89.7500
 
03/04/2023
 
$
 
 
03/03/2014
03/03/2017
 
86,742
 
$
96.3100
 
03/03/2024
 
$
 
 
 
 
$
 
1,583
5 
$
144,892
 
Edward J. Rapp
02/17/2006
02/17/2009
48,000
 
 
$
72.0500
 
02/17/2016
 
$
 
 
03/02/2007
03/02/2010
47,044
 
 
$
63.0400
 
03/02/2017
 
$
 
 
03/03/2008
03/03/2011
109,898
 
 
$
73.2000
 
03/03/2018
 
$
 
 
03/02/2009
03/02/2012
148,722
 
 
$
22.1700
 
03/02/2019
 
$
 
 
03/01/2010
03/01/2013
145,765
 
 
$
57.8500
 
03/01/2020
 
$
 
 
03/07/2011
03/07/2014
56,228
 
 
$
102.1300
 
03/07/2021
 
$
 
 
03/05/2012
03/05/2015
 
60,515
 
$
110.0900
 
03/05/2022
 
$
 
 
03/04/2013
03/04/2016
 
79,976
 
$
89.7500
 
03/04/2023
 
$
 
 
03/03/2014
03/03/2017
 
86,742
 
$
96.3100
 
03/03/2024
 
$
 
 
 
 
$
 
3,557
6 
$
325,572
 
(table continued on next page)





Outstanding Equity Awards at 2014 Fiscal Year-End (continued)
Name
Grant
Date
Vesting
Date
Option Awards
Stock Awards
Number of Securities
Underlying Unexercised
SARs/Options
SAR / Option
Exercise