DEF 14A 1 caterpillar_def14a.htm DEFINITIVE PROXY STATEMENT

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

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

Filed by the Registrant Filed by a Party other than the Registrant      

CHECK THE APPROPRIATE BOX:
  Preliminary Proxy Statement
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
  Definitive Additional Materials
Soliciting Material Under Rule 14a-12

Caterpillar Inc.

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
  No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
Fee paid previously with preliminary materials:
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:



Table of Contents

2016     Proxy
Statement
 and Notice of Annual Meeting of Stockholders
of Caterpillar Inc.


June 8, 2016, 8 a.m. local time
at the offices of our wholly owned
subsidiary

Electro-Motive Diesel
Muncie, Indiana




Table of Contents

Caterpillar’s reputation is one of our greatest assets. We all share the responsibility to protect it – every day. We have earned our solid reputation by developing, building and delivering great products and services, and by acting according to the highest ethical standards.

 

Integrity
The Power of Honesty

Integrity is the foundation of all we do. It is a constant. Those with whom we work, live and serve can rely on us.

 

Excellence
The Power of Quality

The power of quality. We set and achieve ambitious goals. The quality of our products and services reflects the power and heritage of Caterpillar.

 

Teamwork
The Power of Working Together

We help each other succeed. We are a team, sharing our unique talents to help those with whom we work, live and serve.

 

Commitment
The Power of Responsibility

We embrace our responsibilities. Individually and collectively we make meaningful commitments — first to each other, and then to those with whom we work, live and serve.

 

Sustainability
The Power of Endurance

We are committed to building a better world. Sustainability is part of who we are and what we do every single day.

 



Table of Contents

TABLE OF CONTENTS

We are sending you these proxy materials in connection with Caterpillar’s solicitation of proxies, on behalf of its Board of Directors, for the 2016 Annual Meeting of Stockholders (Annual Meeting). Distribution of these materials is scheduled to begin on May 2, 2016. Please submit your vote and proxy by telephone, mobile device, Internet, or, if you received your materials by mail, you can also complete and return your proxy or voting instruction form by mail.

LETTERS TO STOCKHOLDERS 1
 
PROXY SUMMARY 2
Annual Meeting of Stockholders 2
Stockholder Voting Matters 2
Our Director Nominees 2
Governance Highlights 3
2015 Performance Highlights 3
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS 4
 
DIRECTORS & GOVERNANCE 5
Proposal 1 - Election of Directors 5
Overview of Our Board 5
Board Attendance 5
Board Evolution Since 2011 6
Diversity of Skills and Expertise 6
Global Experience 6
Director Candidate Biographies and Qualifications 7
Director Compensation 11
Board Election and Leadership Structure 12
Duties and Responsibilities of Presiding Director 12
Corporate Governance Guidelines and Code of Conduct 12
Board Committees 13
Board’s Role in Risk Oversight 14
Director Nominations and Evaluations 15
Director Independence Determinations 16
Communication With the Board 16
Investor Outreach 17
Awards and Recognitions 17
Sustainability 18
Political Contributions 18
Related Party Transactions 18
 
AUDIT 19
Proposal 2 - Ratification of our Independent Registered Public Accounting Firm 19
Audit Fees and Approval Process 19
Independent Registered Public Accounting Firm Fee Information 19
Anonymous Reporting of Accounting Concerns 20
Audit Committee Report 20

COMPENSATION 21
Proposal 3 - Advisory Vote to Approve Executive Compensation 21
 
COMPENSATION DISCUSSION & ANALYSIS 22
Executive Summary 22
Compensation Discussion & Analysis in Detail 28
 
EXECUTIVE COMPENSATION TABLES 40
2015 Summary Compensation Table 40
2015 All Other Compensation Table 41
Grants of Plan-Based Awards in 2015 42
Outstanding Equity Awards at 2015 Fiscal Year End 43
2015 Option Exercises and Stock Vested 44
2015 Pension Benefits 45
2015 Nonqualified Deferred Compensation 46
 
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL 47
Potential Payments Upon Termination or Change in Control 49
Compensation Risk 49
 
STOCKHOLDER PROPOSALS 50
Proposal 4 - Stockholder Proposal - Lobbying Report 50
Proposal 5 - Stockholder Proposal - Stockholder Action by Written Consent 51
Proposal 6 - Stockholder Proposal - Independent Board Chairman 53
 
OTHER IMPORTANT INFORMATION 55
Persons Owning More Than Five Percent of Caterpillar Common Stock 55
Security Ownership of Executive Officers and Directors 56
Section 16(a) Beneficial Ownership Reporting Compliance 56
Matters Raised at the Annual Meeting Not Included in This Statement 56
Stockholder Proposals and Director Nominations for the 2017 Annual Meeting 57
Access to Form 10-K 57
Frequently Asked Questions Regarding Meeting Attendance and Voting 58
Admission and Ticket Request Procedure 61



Table of Contents



DEAR FELLOW STOCKHOLDERS,

On behalf of the Board of Directors, thank you for your investment in Caterpillar. As Caterpillar’s Presiding Director, I help guide the Board in its independent oversight of the Company and work to ensure the Board and management are aligned with the Company’s strategy. I want to share the Board’s current areas of focus with you.

Business Strategy and Operational Oversight

Many of Caterpillar’s customers continue to face challenging business environments, which has resulted in lower sales of our machines and engines. While the management team has little control over external factors affecting industry sales volumes, the Board is helping to ensure the Company continues to make improvements to those items it can control, such as manufacturing efficiencies, inventory levels, market position, product quality and safety. The Board has reviewed and endorses the business strategies described in the accompanying CEO letter.

The Board also supports the major restructuring actions management promptly initiated in response to the prolonged business downturn. These actions have helped Caterpillar maintain a strong balance sheet, allowing for continued investment in innovation and digital technologies, and are expected to substantially lower annual operating costs, with much of the savings expected to be realized in 2016. The necessary cost reductions are being thoughtfully implemented such that impacted employees are treated fairly and our manufacturing capacity will not be constrained when industry conditions improve.

Leadership and Executive Compensation

The Board has actively reshaped itself and the executive team to meet the Company’s evolving needs. Since 2011, a majority of the Board’s composition has changed and new leaders have taken charge of each of the Company’s business segments. Executive compensation programs were recently restructured to better align employee incentives with business goals and to ensure executive pay reflects both Company and individual performance. We have the right team in place to manage operations successfully today and prepare Caterpillar for the next business upturn.

Corporate Governance and Compliance

The Board stays mindful of and responsive to corporate governance developments. We are also responsible for the oversight and review of the Company’s safety initiatives and compliance programs and consider these to be best-in-class. Caterpillar has recently increased emphasis on sustainability, social responsibility and human rights. We are proud Caterpillar was named to the Dow Jones Sustainability Index again in 2015 – recognizing the Company’s leadership across a broad range of social, environmental, human rights and corporate governance measures.

The Board of Directors is honored to represent your interests. We encourage you to vote your shares at the Annual Meeting.


   

Very truly yours,

Edward B. Rust, Jr.
Presiding Director




Table of Contents



DEAR FELLOW STOCKHOLDERS,

Our Company is financially strong and successfully managing through a period of weak global economic growth and depressed commodity prices. These external factors are affecting sales and revenues, but our core businesses – the machines and engines critical to providing the energy, transportation and infrastructure needs of a growing world population – are well positioned for the long-term. We are, for the most part, a market leader in each of our major product categories. This is an enviable position in good times and absolutely essential in times like this when the industries the Company serves are down. With the stability of market leadership, the competitive advantage of an unparalleled worldwide distribution network, excellent operational execution and sound Board-endorsed strategies, we are delivering the products and services that will keep us the leader in the industries we serve tomorrow, just as we are today. In fact, in 2015 our market position for machines increased for the fifth year in a row.

Investing in the Future

We’re continuing rapid deployment of Lean manufacturing from top to bottom in our operations, addressing the root causes of delays, defects and inefficiencies. This is already showing good results in quality, gross margins and productivity. Research and development spending levels are being maintained as we lead the technology transformation that will increase efficiency, productivity and sustainability across the industries Caterpillar serves. Our factories are modern and prepared to take full advantage of the recovery when it comes.

Serving our Customers

Every part of our strategy is dedicated to serving our customers, to help them make more money with our products than with our competitors’. There are many aspects to this, but I’ll focus on two primary ones here. First, we are in the midst of a multi-year initiative to further strengthen the capabilities of Cat dealers that are the front-line of customer service and support around the world. Multiple projects are underway, from pricing consistency to expanded e-business. Second, our continuing commitment to digital technology advancements will create even more value for our customers, reducing downtime and lowering owning and operating costs by preventing failures and increasing fuel economy and operator efficiency.

Prepared for the Challenges and Opportunities Ahead

Caterpillar has been through many down cycles in our 90-year history and I believe we will, as we have in the past, emerge stronger and able to compete very effectively around the world. In 2016 we will stay focused on serving our customers, on reducing costs to align with demand and developing the products of the future. As you read the accompanying proxy statement, you’ll see our Board of Directors has deep expertise in manufacturing, services, leadership, government and relevant industries. Not only are our products made of iron, so is our will to adapt and succeed in whatever environment we face.

For additional information about our Company’s performance and strategy, please see the Chairman’s Message in the 2015 Year in Review at reports.caterpillar.com.

I look forward to discussing this more with you at the Annual Meeting.



   

Sincerely,

Doug Oberhelman
Chairman and CEO




Table of Contents

PROXY SUMMARY

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

ANNUAL MEETING OF STOCKHOLDERS
Time & Date:  8:00 a.m. - June 8, 2016
Place:  Electro-Motive Diesel, Muncie, IN 47302
Record Date:  Stockholders as of the close of business on April 11, 2016
Admission:  Please follow the instructions contained in the Admission Procedure on page 61

STOCKHOLDER VOTING MATTERS
  PROPOSAL       

BOARD’S VOTING
RECOMMENDATION

     

PAGE
REFERENCE

  
  1      Election of twelve Directors named in this Proxy Statement   FOR each Nominee   5  
  2 Ratification of our Independent Registered Public Accounting Firm   FOR   19  
  3 Advisory Vote to approve Executive Compensation   FOR   21  
  4 Stockholder Proposal – Lobbying Report   AGAINST   50  
  5 Stockholder Proposal – Written Consent   AGAINST   51  
  6 Stockholder Proposal – Independent Board Chairman   AGAINST   53  

OUR DIRECTOR NOMINEES

DIRECTOR CAT COMMITTEES
NOMINEE AND PRINCIPAL OCCUPATION

INDEPENDENT

AGE

SINCE

OTHER PUBLIC COMPANY BOARDS

AC

CC

PPGC

David L. Calhoun
Senior Managing Director of The Blackstone Group, L.P.

Yes

58

2011

Nielsen Holdings PLC
The Boeing Company

Daniel M. Dickinson
Managing Partner of HCI Equity Partners

Yes

54

2006

None

Juan Gallardo
Chairman and former CEO of Organización CULTIBA, S.A.B. de C.V.

Yes

68

1998

Grupo Aeroportuario del Pacifico,
S.A.B. de C.V.
Grupo Financiero Santander Mexico,
S.A.B. de C.V.
Organización CULTIBA, S.A.B. de C.V.

Jesse J. Greene, Jr.
Instructor at Columbia Business School and former Vice President of Financial Management and Chief Financial Risk Officer of International Business Machines Corporation

Yes

71

2011

None

Jon M. Huntsman, Jr.
Former United States Ambassador to China and former Governor of Utah

Yes

56

2012

Chevron Corporation
Ford Motor Company
Hilton Worldwide Holdings Inc.

Dennis A. Muilenburg
Chairman, President and CEO of The Boeing Company

Yes

52

2011

The Boeing Company

Douglas R. Oberhelman
Chairman and CEO of Caterpillar Inc.

No

63

2010

Exxon Mobil Corporation

William A. Osborn
Former Chairman and CEO of Northern Trust Corporation

Yes

68

2000

Abbott Laboratories
General Dynamics Corporation

Debra L. Reed
Chairman and CEO of Sempra Energy

Yes

59

2015

Halliburton Company
Sempra Energy

Edward B. Rust, Jr., Presiding Director
Chairman of State Farm Mutual Automobile Insurance Company

Yes

65

2003

Helmerich & Payne, Inc.
McGraw-Hill Financial, Inc.

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

Yes

61

2009

FedEx Corporation
Marriott International, Inc.
The Boeing Company

Miles D. White
Chairman and CEO of Abbott Laboratories

Yes

61

2011

Abbott Laboratories
McDonald’s Corporation

 
AC: Audit Committee         CC: Compensation Committee         PPGC: Public Policy and Governance Committee 


2  | 

   2016 Proxy Statement




Table of Contents

GOVERNANCE HIGHLIGHTS

Our commitment to good corporate governance stems from our belief that a strong governance framework creates long-term value for our stockholders, strengthens Board and management accountability and builds trust in the Company and its brand. Our governance framework includes the following highlights:

BOARD AND GOVERNANCE INFORMATION       BOARD AND GOVERNANCE INFORMATION
Size of Board 12 Average Director Tenure 8 years
Number of Independent Directors 11   Supermajority Voting Threshold for Mergers No
Average Age of Directors 62 Proxy Access Yes
Board Meetings Held in 2015 7 Stockholder Action by Written Consent No
Annual Election of Directors Yes Stockholder Called Special Meetings Yes
Mandatory Retirement Age 72 Poison Pill No
Women and Minority Board Members 33% Code of Conduct for Directors, Officers and Employees Yes
Majority Voting in Director Elections Yes Stock Ownership Guidelines for Directors and Executive Officers Yes
Separate Chair and CEO No Anti-Hedging and Pledging Policies Yes
Presiding Director Yes Compensation Recoupment Policy Yes

Additionally, we took the following actions in 2015:

Added a director who is a current CEO with experience in the power, oil and gas industries
Increased diversity on the Board
Adopted a proxy access bylaw
Adopted a human rights policy

2015 PERFORMANCE HIGHLIGHTS

 
    GAINED MARKET POSITION             ROBUST COST MANAGEMENT            STRONG BALANCE SHEET    

Increased machine market position for the fifth year in a row.

 

~$1.5 Billion

Restructuring plan announced in September 2015 expected to lower operating costs by ~$1.5 Billion annually when fully implemented by the end of 2018.

 

$6.5 billion

Despite significant restructuring costs, we ended 2015 with Machinery, Energy & Transportation (ME&T) debt-to-capital ratio within the target range at 39.1%, and $6.5 billion of enterprise cash on the balance sheet.

 

             
  

CAPITAL RETURNED TO STOCKHOLDERS ($ in billions)

   
   
  $15.5 Billion

2011-2015
Cumulative Total
 
     

 Dividends Paid     Stock Repurchases

 
 
 

*1Q 2013 Dividend Paid in 2012 ($0.340B) 


2016 Proxy Statement   

 |  3




Table of Contents


100 NE Adams Street
Peoria, Illinois 61629
Phone (309) 675-1000
www.caterpillar.com

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Date:       June 8, 2016
Time: 8:00 a.m.
Place: Electro-Motive Diesel
3500 South Cowan Rd.
Muncie, IN 47302
Record Date: April 11, 2016
         

MEETING AGENDA:

 
Elect twelve director nominees named in this Proxy Statement
Ratify our independent registered public accounting firm for 2016
Approve, by non-binding vote, executive compensation
Vote on stockholder proposals
Any other business that properly comes before the meeting 
   


   
   PLEASE VOTE YOUR SHARES                        
        

We encourage stockholders to vote promptly, as this will save the expense of additional proxy solicitation. You may vote in the following ways:

   
 

By Internet

   By Mobile Device    By Telephone  

By Mail

 
 

vote online at
www.caterpillar.com/
proxymaterials

 

scan this QR code
to vote with your
mobile device

call the number
included on your
proxy card or notice

mail your signed
proxy or voting
instruction form

         
   

By Order of the Board of Directors


Christopher M. Reitz
Corporate Secretary
May 2, 2016

   
   Important Notice Regarding the Availability of
Proxy Materials
 

This Notice of Annual Meeting and Proxy Statement and the 2015 Annual Report on Form 10-K are available at www.eproxyaccess.com/cat2016.

  
   


4  | 

   2016 Proxy Statement




Table of Contents

PROPOSAL 1 – ELECTION OF DIRECTORS

PROPOSAL SNAPSHOT  
What am I voting on?

Stockholders are being asked to elect twelve director nominees named in this Proxy Statement for a one-year term.

Voting Recommendation:
FOR the election of each of the Board’s director nominees.

OVERVIEW OF OUR BOARD

                     
 

BOARD SIZE
# of Caterpillar directors

 

GENDER AND
CULTURAL
DIVERSITY

DIRECTOR
AGE

 

DIRECTOR
TENURE

 

75% OF DIRECTORS ARE
SEVEN OR MORE YEARS FROM
MANDATORY RETIREMENT AGE 72

   

BOARD ATTENDANCE

 
 
     
   
     100%
Attendance for 2015
  
   

* Ms. Reed became a director of the Company in June 2015 and has attended all Board and Compensation Committee meetings held during her tenure.

The Board’s policy is that directors should attend the annual stockholder meeting. All directors attended the 2015 stockholder meeting. The independent directors generally meet in executive session as part of each regularly scheduled Board meeting, with the Presiding Director serving as Chairman.

2016 Proxy Statement   

 |  5




Table of Contents

BOARD EVOLUTION SINCE 2011

Reduced Board size by four directors
Six new directors elected
Full rotation of Board committee chairs

New Presiding Director elected
Reallocation of committee responsibilities
Expanded qualifications and diversity represented on Board


DIVERSITY OF SKILLS AND EXPERTISE

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

GLOBAL EXPERIENCE

As shown by the yellow highlighted areas in the map below, our independent directors have international experience that aligns with Caterpillar’s global presence.


6  | 

   2016 Proxy Statement




Table of Contents

The Board has nominated the following individuals to stand for election for a one-year term expiring at the annual meeting of stockholders in 2017.

DIRECTOR CANDIDATE BIOGRAPHIES AND QUALIFICATIONS

Directors have been in their current positions for the past five years unless otherwise noted. Information is as of April 1, 2016.

  
 

DAVID L. CALHOUN

    
 
  

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

   Other current directorships (2)         Age 58
 
Nielsen Holdings PLC
The Boeing Company
         
  Other directorships within the last five years         Director Since 2011
 
Medtronic, Inc
   
  Caterpillar Committee         Independent
 
Compensation
         
   Key Qualifications and Skills:   
 

Mr. Calhoun was previously Executive Chair of Nielsen Holdings N.V. (2014-2015). Prior to his position at Blackstone, Mr. Calhoun served as Chairman of the Executive Board and Chief Executive Officer of The Nielsen Company B.V. (2006-2013) and Vice Chairman of General Electric Company and President and Chief Executive Officer of GE Infrastructure (2005-2006).

The Board believes that Mr. Calhoun provides valuable insight and perspective into general strategic and business matters, stemming from his extensive executive and management experience with Blackstone, Nielsen and GE. Mr. Calhoun also has significant manufacturing and high-technology industry expertise as evidenced by his leadership of GE’s aircraft engines and transportation businesses.



  
 

DANIEL M. DICKINSON

    
 
  

Managing Partner of HCI
Equity Partners (private equity
investment)

   Other current directorships (0)         Age 54
 
None
         
  Other directorships within the last five years         Director Since 2006
 
Mistras Group, Inc.
Progressive Waste Solutions Ltd.
   
  Caterpillar Committee         Independent
 
Audit
         
   Key Qualifications and Skills:   
 

The Board believes that Mr. Dickinson’s experience in mergers and acquisitions, private equity business and role as an investment banker provides important insights for evaluating investment opportunities. His significant financial expertise and experience, both in the U.S. and internationally, contributes to the Board’s understanding and ability to analyze complex issues. His experience as a former director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.




  
 

JUAN GALLARDO

    
 
  

Chairman and former CEO
of Organización CULTIBA,
S.A.B. de C.V.

   Other current directorships (3)         Age 68
 
Grupo Aeroportuario del Pacifico, S.A.B. de C.V.
Grupo Financiero Santander Mexico, S.A.B. de C.V.
Organización CULTIBA, S.A.B. de C.V.
         
  Other directorships within the last five years         Director Since 1998
 
Lafarge SA
   
  Caterpillar Committee         Independent
 
Public Policy and Governance
         
   Key Qualifications and Skills:   
 

Mr. Gallardo is the Chairman of Organización CULTIBA and was its Chief Executive Officer until his retirement from that role in 2016. Mr. Gallardo resides in Mexico where Caterpillar has a significant manufacturing presence. The Board believes that Mr. Gallardo’s international business experience, particularly in Latin America and South America, are important for the Company’s understanding of these key markets. His extensive background in trade-related issues also contributes to the Board’s expertise. In addition, his experience as a chief executive officer and director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.




2016 Proxy Statement   

 |  7



Table of Contents

  
 

JESSE J. GREENE, JR.

    
 
  

Instructor at Columbia
Business School

   Other current directorships (0)         Age 71
 
None
         
  Other directorships within the last five years         Director Since 2011
 
None
   
  Caterpillar Committee         Independent
 
Compensation
         
   Key Qualifications and Skills:   
 

Mr. Greene is currently an instructor at Columbia Business School in New York City where he teaches corporate governance, risk management and other business topics at the graduate and executive education levels. He was formerly Vice President of Financial Management and Chief Financial Risk Officer of International Business Machines Corporation (computer and office equipment).

The Board believes that Mr. Greene’s risk management and information technology experience provides a unique skill set to the Board. His experience as a chief financial risk officer and executive of a large, publicly-traded multinational corporation enables him to provide meaningful input and guidance to the Board and the Company.




  
 

JON M. HUNTSMAN, JR.

    
 
  

Former United States
Ambassador to China (2009-
2011) and former Governor of
Utah (2005-2009)

   Other current directorships (3)         Age 56
 
Chevron Corporation
Ford Motor Company
Hilton Worldwide Holdings Inc.
         
  Other directorships within the last five years         Director Since 2012
 
Huntsman Corporation
   
  Caterpillar Committee         Independent
 
Public Policy and Governance
         
   Key Qualifications and Skills:   
 

Caterpillar has a significant manufacturing presence and dealer network in China. The Board believes that Mr. Huntsman’s extensive knowledge of Asia and international affairs, operational experience gained as governor of Utah and experience as a director of other large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.




  
 

DENNIS A. MUILENBURG

    
 
  

Chairman, President and
Chief Executive Officer of
The Boeing Company

   Other current directorships (1)         Age 52
 
The Boeing Company
         
  Other directorships within the last five years         Director Since 2011
 
None
   
  Caterpillar Committee         Independent
 
Audit
         
   Key Qualifications and Skills:   
 

Prior to his current position, Mr. Muilenburg was Vice Chairman, President and Chief Operating Officer of The Boeing Company (2013-2015). Prior to that, he was Executive Vice President of The Boeing Company and President and Chief Executive Officer of Boeing Defense, Space & Security (2009-2013).

The Board believes that Mr. Muilenburg provides valuable insight to the Board on strategic and business matters, stemming from his experience with large-scale product development programs and his worldwide supply chain and manufacturing expertise.




8  | 

   2016 Proxy Statement




Table of Contents

  
 

DOUGLAS R. OBERHELMAN

    
 
  

Chairman and Chief Executive
Officer of Caterpillar Inc.

   Other current directorships (1)         Age 63
 
Exxon Mobil Corporation
         
  Other directorships within the last five years         Director Since 2010
 
Eli Lilly and Company
   
  Caterpillar Committee         Management
  None          
   Key Qualifications and Skills:   
 

Prior to his current position, Mr. Oberhelman served as Vice Chairman and Chief Executive Officer-Elect and as a Group President of Caterpillar Inc.

The Board believes that Mr. Oberhelman’s extensive experience and knowledge of the Company, gained from 40 years of service in a wide range of Caterpillar leadership positions enables him to provide meaningful input and guidance to the Board and the Company.



  
 

WILLIAM A. OSBORN

    
 
  

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

   Other current directorships (2)         Age 68
 
Abbott Laboratories
General Dynamics Corporation
         
  Other directorships within the last five years         Director Since 2000
 
Tribune Company
   
  Caterpillar Committee         Independent
 
Audit, Chair
         
   Key Qualifications and Skills:   
 

The Board believes that Mr. Osborn’s financial expertise and experience is valuable to the Board. In addition, his experience as a chief executive officer and director of other large, publicly-traded corporations enables him to provide meaningful input and guidance to the Board and the Company.




  
 

DEBRA L. REED

    
 
  

Chairman of the Board and
Chief Executive Officer of
Sempra Energy

   Other current directorships (2)         Age 59
 
Halliburton Company
Sempra Energy
         
  Other directorships within the last five years         Director Since 2015
 
Avery Dennison Corporation
   
  Caterpillar Committee         Independent
 
Compensation
         
   Key Qualifications and Skills:   
 

Prior to her current position, Ms. Reed was Executive Vice President of Sempra.

The power, oil and gas industries are key end-user markets for Caterpillar products. The Board believes that Ms. Reed’s background provides valuable insights into trends in these industries. In addition, her experience as a chief executive officer and director of other large, publicly-traded corporations enables her to provide meaningful input and guidance to the Board and the Company.




2016 Proxy Statement   

 |  9



Table of Contents

  
 

EDWARD B. RUST, JR.

    
 
  

Chairman of State Farm
Mutual Automobile
Insurance Company

   Other current directorships (2)         Age 65
 
Helmerich & Payne, Inc.
McGraw-Hill Financial, Inc.
         
  Other directorships within the last five years         Director Since 2003
 
None
   
  Caterpillar Committee         Independent Presiding Director
 
Public Policy and Governance, Chair
         
   Key Qualifications and Skills:   
 

Previously Mr. Rust served as Chief Executive Officer of State Farm Mutual Automobile Insurance Company and as Chairman, President and Chief Executive Officer of State Farm Fire and Casualty Company, State Farm Life Insurance Company and other principal State Farm affiliates. He also previously served as President of State Farm Mutual Automobile Insurance Company and Trustee and President of State Farm Mutual Fund Trust and State Farm Variable Product Trust.

The Board believes that Mr. Rust’s financial and business experience is valuable to the Board. His role as a past Chairman of the U.S. Chamber of Commerce, chief executive officer of a major national corporation and experience as a director of large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company. In addition, his extensive involvement in education improvement compliments the Company’s culture of social responsibility.




  
 

SUSAN C. SCHWAB

    
 
  

Professor at the University
of Maryland School of Public
Policy and a Strategic Advisor
for Mayer Brown LLP

   Other current directorships (3)         Age 61
 
FedEx Corporation
Marriott International, Inc.
The Boeing Company
         
  Other directorships within the last five years         Director Since 2009
 
None
   
  Caterpillar Committee         Independent
 
Public Policy and Governance
         
   Key Qualifications and Skills:   
 

Prior to her current positions, Ambassador Schwab held various positions including United States Trade Representative (member of the President’s cabinet) and Deputy United States Trade Representative.

The Board believes that Ambassador Schwab brings extensive knowledge, insight and experience on international trade issues to the Board. Her educational experience and role as the U.S. Trade Representative provide important insights for the Company’s global business model and long-standing support of open trade. In addition, her experience as a director of large, publicly-traded multinational corporations enables her to provide meaningful input and guidance to the Board and the Company.





  
 

MILES D. WHITE

    
 
  

Chairman and Chief Executive
Officer of Abbott Laboratories

   Other current directorships (2)         Age 61
 
Abbott Laboratories
McDonald’s Corporation
         
  Other directorships within the last five years         Director Since 2011
 
None
   
  Caterpillar Committee         Independent
 
Compensation, Chair
         
   Key Qualifications and Skills:   
 

The Board believes that Mr. White’s experience as the chief executive officer of a large, complex multinational company provides important insight to the Board. His skills include knowledge of cross-border operations, strategy and business development, risk assessment, finance, leadership development and succession planning, and corporate governance matters. In addition to his role as an executive officer, his experience as a director of other large, publicly-traded multinational corporations enables him to provide meaningful input and guidance to the Board and the Company.




10  | 

   2016 Proxy Statement




Table of Contents

DIRECTOR COMPENSATION

Compensation for non-employee directors for 2015 was comprised of the following components:

Cash Retainer:       $150,000
Restricted Stock Units (1 year vesting) $125,000
Committee Chairman Stipend: Presiding Director       $25,000  
Audit   $20,000      
Compensation $20,000

Directors are required to own Caterpillar common stock equal to five times their annual cash retainer. Directors have a five-year period from the date of their election or appointment to meet the target ownership guidelines.

Directors may defer 50 percent or more of their annual cash retainer and stipend into an interest-bearing account or an account representing phantom shares of Caterpillar stock.

Directors that joined the Board prior to 2008 also participate in a Charitable Award Program, under which a donation of up to $500,000 will be made by the Company, in the director’s name, to charitable organizations selected by the director and $500,000 to the Caterpillar Foundation. Directors derive no financial benefit from the program.

DIRECTOR COMPENSATION FOR 2015
DIRECTOR       FEES EARNED OR
PAID IN CASH
RESTRICTED
STOCK UNITS
1
ALL OTHER
COMPENSATION2
TOTAL
David L. Calhoun        $ 150,000                   $ 124,998                    $ 5,000               $ 279,998
Daniel M. Dickinson $ 150,000 $ 124,998 $ 35,441 $ 310,439      
Juan Gallardo $ 150,000 $ 124,998 $ 12,170 $ 287,168
Jesse J. Greene, Jr.   $ 150,000 $ 124,998 $ 9,000 $ 283,998
Jon M. Huntsman, Jr. $ 150,000 $ 124,998 $ $ 274,998
Dennis A. Muilenburg $ 150,000 $ 124,998 $ $ 274,998
William A. Osborn $ 170,000 $ 124,998 $ 17,170 $ 312,168
Debra L. Reed $ 87,500 $ 72,996 $ 2,000 $ 162,496
Edward B. Rust, Jr. $ 175,000 $ 124,998 $ 21,465 $ 321,463
Susan C. Schwab $ 150,000 $ 124,998 $ 12,000 $ 286,998
Miles D. White $ 170,000 $ 124,998 $ 10,000 $ 304,998

1 As of December 31, 2015, the number of vested and non-vested options (NQs), RSUs and Phantom Shares held by each individual serving as a non-employee director during 2015 was: Mr. Calhoun: 9,842 (which consists of 1,506 RSUs and 8,336 Phantom Shares); Mr. Dickinson: 26,113 (which consists of 2,916 SARs, 1,506 RSUs and 21,691 Phantom Shares); Mr. Gallardo: 38,314 (which consists of 12,833 SARs, 1,506 RSUs and 23,975 Phantom Shares); Mr. Greene: 1,506 RSUs; Mr. Huntsman: 1,506 RSUs; Mr. Muilenburg: 1,506 RSUs; Mr. Osborn: 1,828 (which consists of 1,506 RSUs and 322 Phantom Shares); Ms. Reed: 2,151 (which consists of 825 RSUs and 1,326 Phantom Shares); Mr. Rust: 43,400 (which consists of 12,833 SARs, 1,506 RSUs and 29,061 Phantom Shares); Ms. Schwab: 8,780 (which consists of 1,506 RSUs and 7,274 Phantom Shares); and Mr. White: 5,385 (which consists of 1,506 RSUs and 3,879 Phantom Shares). Mr. Calhoun, Mr. Dickinson, Mr. Gallardo, Ms. Reed, Ms. Schwab and Mr. Rust deferred 100 percent of their 2015 retainer fee into phantom stock in the Directors’ Deferred Compensation Plan. Mr. White deferred 50 percent of his 2015 retainer fee into phantom stock in the Directors’ Deferred Compensation Plan.
2 All Other Compensation represents amounts paid in connection with the Caterpillar Foundation’s Directors’ Charitable Award Program and the Caterpillar Political Action Committee Charitable Matching Program (CATPAC’s PACMATCH program) and administrative fees associated with the Directors’ Charitable Award Program. All outside directors are eligible to participate in the Caterpillar Foundation Matching Gift Program and eligible directors may participate in the CATPAC’s PACMATCH program annually. The Caterpillar Foundation will match contributions to eligible two year or four year colleges or universities, arts and cultural institutions and public policy or environmental organizations, up to a maximum of $2,000 per eligible organization per calendar year. As part of CATPAC’s PACMATCH program, Caterpillar Inc. will contribute to two charities on behalf of eligible members of the Board of Directors. The annual CATPAC’s PACMATCH contribution limit is $5,000 so the match, per person, would not exceed $5,000. The amounts listed represent the matching contributions as follows: Mr. Calhoun $5,000, Mr. Dickinson $5,000, Mr. Greene $9,000, Mr. Osborn $5,000, Ms. Reed $2,000, Mr. Rust $13,500, Ms. Schwab $12,000 and Mr. White $10,000. For directors eligible to participate in the Directors’ Charitable Award Program, the amounts represented include the insurance premium and administrative fees. The premium and administrative fees are as follows: Mr. Dickinson $30,441, Mr. Gallardo $12,170, Mr. Osborn $12,170 and Mr. Rust $7,965.

2016 Proxy Statement   

 |  11



Table of Contents

BOARD ELECTION AND LEADERSHIP STRUCTURE

Directors are elected at each annual meeting to serve for a one-year term. In uncontested elections, directors are elected by a majority of the votes cast for such director. If an incumbent director does not receive a greater number of “for” votes than “against” votes, then such director must tender his or her resignation to the Board. In contested elections, directors are elected by a plurality vote. Directors must retire at the end of the calendar year in which they reach the age of 72.

The Board has elected the Chief Executive Officer as the Chairman of the Board. The Board believes that having a single person as both Chairman of the Board and CEO ensures that the Company is represented by a single voice to dealers, stockholders, employees and other stakeholders. The independent members of the Board have further elected the Chairman of the Public Policy and Governance Committee (PPGC) as the Presiding Director.

DUTIES AND RESPONSIBILITIES OF PRESIDING DIRECTOR

Presides at all meetings of the Board at which the Chairman of the Board is not present.
Encourages and facilitates active participation of all directors.
Serves as a liaison between the independent directors and the Chairman of the Board.
Approves Board meeting materials for distribution.
Approves Board meeting schedules and agendas.
Has the authority to call meetings of the directors.
Leads the Board’s annual evaluation of the Chairman of the Board and Chief Executive Officer.
Monitors and coordinates with management on corporate governance issues and developments.

CORPORATE GOVERNANCE GUIDELINES AND CODE OF CONDUCT

Our Board has adopted Guidelines on Corporate Governance Issues (Corporate Governance Guidelines), which are available on our website at www.caterpillar.com/governance. The guidelines reflect the 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. 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.

12  | 

   2016 Proxy Statement




Table of Contents

BOARD COMMITTEES

The Board has three standing committees: Audit; Compensation; and Public Policy and Governance. Each committee meets periodically throughout the year, reports its actions and recommendations to the Board, receives reports from management, annually evaluates its performance and has the authority to retain outside advisors at its discretion. The current primary responsibilities of each committee are summarized below and set forth in more detail in each committee’s written charter, which can be found on Caterpillar’s website at www.caterpillar.com/governance. All committee members are independent under Company, NYSE and SEC standards applicable to Board and committee service, and the Board has determined that each member of the Audit Committee is an “audit committee financial expert” as defined under SEC rules.

  AUDIT COMMITTEE  
  

Committee Members:
Daniel M. Dickinson
Dennis A. Muilenburg
William A. Osborn (Chair)

Number of Meetings
in 2015:
11

 
COMMITTEE ROLES AND RESPONSIBILITIES
Selects and oversees the independent auditors
Oversees our financial reporting activities, including our financial statements, annual report and accounting standards and principles
Discusses with management the Company’s risk assessment and risk management framework
Approves audit and non-audit services provided by the independent auditors
Reviews the organization, scope and effectiveness of the Company’s internal audit function, disclosures and internal controls
Sets parameters for and monitors the Company’s hedging and derivatives practices
Provides oversight for the Company’s ethics and compliance programs
Monitors the Company’s litigation and tax compliance

 

 

 




  COMPENSATION COMMITTEE  
  

Committee Members:
David L. Calhoun
Jesse J. Greene, Jr.
Debra L. Reed
Miles D. White (Chair)

Number of Meetings
in 2015:
8

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

 

 

 




2016 Proxy Statement   

 |  13



Table of Contents

  PUBLIC POLICY AND GOVERNANCE COMMITTEE  
  

Committee Members:
Juan Gallardo
Jon M. Huntsman, Jr.
Edward B. Rust, Jr. (Chair)
Susan C. Schwab

Number of meetings
in 2015:
6

 

COMMITTEE ROLES AND RESPONSIBILITIES

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

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

Leads the Board in its annual self-evaluation process

Oversees the Company’s officer succession planning

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

Oversees the corporate governance structure

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

 

 

 




BOARD’S ROLE IN RISK OVERSIGHT

The Board has oversight for risk management with a focus on the most significant risks facing the Company, including strategic, operational, financial and legal compliance risks. The Board’s risk oversight process builds upon management’s risk assessment and mitigation processes, which include an enterprise risk management program, regular internal management disclosure and compliance committee meetings, code of business conduct, quality standards and processes, an ethics and compliance office and comprehensive internal audit processes. The Board’s risk oversight role also includes the selection and oversight of the independent auditors. The Board implements its risk oversight function both as a full Board and through delegation to Board committees, which meet regularly and report back to the full Board. The Board has delegated the oversight of specific risks to Board committees that align with their functional responsibilities.

14  | 

   2016 Proxy Statement




Table of Contents

DIRECTOR NOMINATIONS AND EVALUATIONS


PROCESS FOR NOMINATING AND EVALUATING DIRECTORS

The Public Policy and Governance Committee (PPGC) solicits and receives recommendations for potential director candidates from the Board, management and other sources. In its assessment of each potential candidate, the PPGC considers each 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 four public company boards in addition to the Company’s Board.

DIRECTOR RECRUITMENT PROCESS

 

PPGC

Board of Directors

Stockholders

Candidate
Recommendations

from Stockholders,
Management, Directors
& Search Firms

    

Discusses

      

Discusses PPGC
Recommendations

      

Vote on Nominees
at Annual Meeting

 

Reviews

 

Qualifications & expertise

 

Board needs

 

Analyzes

Regulatory requirements

 

Independence

Cognitive diversity

Selects Nominees

Interviews

Recommends Nominees

 

The following table summarizes certain key characteristics of the Company’s businesses and the associated qualifications, skills and experience that the PPGC believes should be represented on the Board.

BUSINESS CHARACTERISTICS       QUALIFICATIONS, SKILLS AND EXPERIENCE
The Company is a global manufacturer with products sold around the world.
 
Manufacturing or logistics experience
Broad international exposure
Technology and customer and product support services are becoming increasingly important.
Technology experience
Customer and product support experience
The Company’s businesses undertake numerous transactions in many countries and in many currencies.
Diversity of race, ethnicity, gender, cultural background or professional experience
High level of financial literacy
Mergers and acquisitions experience
Demand for many of the Company’s products is tied to conditions in the global commodity, energy, construction and transportation markets.
Experience in the evaluation of global economic conditions
Knowledge of commodity, energy, construction or transportation markets
The Company’s businesses are impacted by regulatory requirements and policies of various governmental entities around the world.
 
Governmental and international trade 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
Relevant executive experience

The Board values diversity of talents, skills, abilities and experiences and believes that Board diversity of all types provides significant benefits to the Company. Although the Board has no specific diversity policy, the PPGC considers the diversity of the Board and potential director candidates in selecting new director candidates.

2016 Proxy Statement   

 |  15



Table of Contents

NOMINATIONS FROM STOCKHOLDERS

The PPGC considers unsolicited inquiries and director nominees recommended by stockholders in the same manner as nominees from all other sources. Recommendations should be sent to the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. Stockholders may nominate a director candidate to serve on the Board by following the procedures described in our bylaws. Deadlines for stockholder nominations for Caterpillar’s 2017 annual meeting of stockholders are included in the “Stockholder Proposals and Director Nominations for the 2017 Annual Meeting” section on page 57.

DIRECTOR INDEPENDENCE DETERMINATIONS

The 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

Stockholders, employees and other Caterpillar stakeholders may communicate with any of our directors, our Board as a group, our independent directors as a group or any Board committee as a group by email or regular mail:

BY EMAIL
 

 
send an email to
Directors@CAT.com

BY MAIL
 

 
mail to Caterpillar Inc.
c/o Corporate Secretary
100 NE Adams Street
Peoria, Illinois 61629




All communications regarding personal grievances, administrative matters, the conduct of the Company’s ordinary business operations, billing issues, product or service related inquiries, order requests and similar issues will be directed to the appropriate individual within the Company. The Presiding Director has instructed the Corporate Secretary to consult with him if he is unsure who should receive the communication. If a legitimate communication is sent, you will receive a written acknowledgement from the Corporate Secretary’s office confirming receipt of your communication.

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

16  | 

   2016 Proxy Statement




Table of Contents

INVESTOR OUTREACH

We conduct an annual governance review and stockholder outreach throughout the year to ensure that management and the Board understand and consider the issues that matter most to our stockholders and to help ensure our corporate governance practices continue to evolve and reflect the insights and perspectives of our many stakeholders.

WHO PARTICIPATES IN THE INVESTOR
OUTREACH PROGRAM?

Board of Directors

Senior Management

Investor Relations

Corporate Secretary

IN WHAT TYPES OF ENGAGEMENT DOES
THE COMPANY PARTICIPATE?

Investor conferences

One-on-one meetings

Earnings calls

Investor and analyst calls





AWARDS AND RECOGNITIONS

Third parties regularly recognize our employees’ innovation, leadership and workplace satisfaction. We are pleased to highlight some of these 2015 awards here.

SOCIAL RESPONSIBILITY AND SUSTAINABILITY

Vision for America Award - Keep America Beautiful

Dow Jones Sustainability Index - World and North America

Most Responsible Enterprise Award at the 11th Global Corporate Social Responsibility Forum, honoring our sustainability commitments in China

Innovation Iron Award from Compact Equipment

Accenture Award for Circular Economy Multinational

Brave New Corporate Funders - Inside Philanthropy

United Way Worldwide’s Global Corporate Leadership Program

 

CORPORATE REPUTATION AND LEADERSHIP

World’s Most Admired Companies - Fortune Magazine

40 Best Companies for Leaders - Chief Executive Magazine

Top 50 Employer - Woman Engineer Magazine

New York Stock Exchange Corporate Governance Leadership Awards, finalist

America’s Best Employers - Forbes Magazine

Top 25 Noteworthy Companies - DiversityInc

Top 10 Companies for Global Diversity - DiversityInc

Top 10 Companies for Employee Resource Groups - DiversityInc

Corporate Award Recipient - Executive Leadership Council

Top 5 Best Companies to Work For in Brazil - Época Magazine

Top 10 Best Companies For Workers With Disabilities - São Paulo State Department for the Rights of People with Disabilities

U.S. Military Friendly® Employer

Effie Award for Marketing Effectiveness

Top 100 undergraduate employers - Caterpillar UK


2016 Proxy Statement   

 |  17



Table of Contents

SUSTAINABILITY

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

POLITICAL CONTRIBUTIONS

We currently disclose on our website www.caterpillar.com/contributions a description of our oversight process for political contributions, an itemized list of corporate and employee PAC contributions to federal and state political candidates and a list of trade associations to which we provided more than $50,000.

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.

18  | 

   2016 Proxy Statement




Table of Contents

PROPOSAL 2 – RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  PROPOSAL SNAPSHOT   
What am I voting on?

The Board seeks an indication from stockholders of their approval or disapproval of the Audit Committee’s appointment of PricewaterhouseCoopers as the Company’s independent auditors for 2016.

 ☑   Voting Recommendation:

FOR the ratification of our independent registered public accounting firm.


PricewaterhouseCoopers has been our independent auditor since 1925. If the appointment of PricewaterhouseCoopers is not approved by the stockholders, the Audit Committee will consider whether it is appropriate to select another independent auditor.

Representatives of PricewaterhouseCoopers will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. The representatives will also be available to respond to questions at the meeting.

AUDIT FEES AND APPROVAL PROCESS

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

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

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

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEE INFORMATION

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

2015       2014
Audit Fees1 $32.0 $32.7
Audit-Related Fees2 1.3 1.2
Tax Compliance Fees3 0.4 0.6
Tax Planning And Consulting Fees4 0.2 0.2
All Other Fees5   19.8 23.5
TOTAL      $53.7 $58.2

2016 Proxy Statement   

 |  19



Table of Contents

1 “Audit Fees” principally includes audit and review of financial statements (including internal control over financial reporting), statutory and subsidiary audits, SEC registration statements, comfort letters and consents.
2 “Audit-Related Fees” principally includes attestation services requested by management, accounting consultations, pre- or post- implementation reviews of processes or systems and audits of employee benefit plan financial statements. Total fees paid directly by the benefit plans, and not by the Company, were $1.0 million in 2015 and $0.9 million in 2014 and are not included in the amounts shown above.
3 “Tax Compliance Fees” includes, among other things, statutory tax return preparation and review and advice on the impact of changes in local tax laws.
4 “Tax Planning and Consulting Fees” includes, among other things, tax planning and advice and assistance with respect to transfer pricing issues.
5 On April 2, 2014, Booz & Company combined with PricewaterhouseCoopers, our independent registered public accounting firm, and was renamed Strategy&. As of the date of the combination, Strategy& was providing strategy consulting services to the Company, however the Company stopped engaging Strategy& during 2015. Included in “All Other Fees” are fees of $23.5 million for strategy consulting services provided by Strategy& to the Company for the period from April 2, 2014 through December 31, 2014 and $19.5 million for 2015.

ANONYMOUS REPORTING OF ACCOUNTING CONCERNS

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

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

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

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

Confidential Fax: 309-494-4818

Email: BusinessPractices@CAT.com

Internet: www.caterpillar.com/obp

AUDIT COMMITTEE REPORT

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 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. The Audit Committee also discussed with the independent auditors other matters required by PCAOB auditing standards.

The independent auditors provided to the Audit Committee the written communications required by applicable standards of the PCAOB regarding the independent 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 the reviews and discussion referred to above, 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, 2015.

By the members of the Audit Committee consisting of:

Daniel M. Dickinson William A. Osborn Dennis A. Muilenburg
(Chairman)  

20  | 

   2016 Proxy Statement




Table of Contents

PROPOSAL 3 – ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

  PROPOSAL SNAPSHOT    
What am I voting on?
Stockholders are being asked to approve, on an advisory basis, the compensation of named executive officers as disclosed in this proxy statement.

☑  Voting Recommendation: FOR proposal

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

“RESOLVED, that the compensation of Caterpillar’s named executive officers as described under “Compensation Discussion and Analysis,” the compensation tables and the narrative discussion associated with the compensation tables in Caterpillar’s proxy statement for its 2016 Annual Meeting of Stockholders is hereby APPROVED.”

This vote is advisory and therefore not binding on Caterpillar, the Compensation Committee (Committee) or the Board. The Board and the Committee value the opinion of Caterpillar’s stockholders, and to the extent there is any significant vote against Caterpillar’s named executive officer compensation, the Board will consider the reasons for such a vote, and the Committee will evaluate whether any actions are necessary to address those concerns.

2016 Proxy Statement   

 |  21



Table of Contents

COMPENSATION DISCUSSION & ANALYSIS


EXECUTIVE SUMMARY

I. Principles of aligning pay and performance
 
II. Stockholder outreach and response to 2015 Say on Pay vote
 
III. Business performance in context
 
IV. Compensation program structure for 2015 and 2016
 
V. Pay outcome demonstrates alignment with Company performance
 
VI.  Strong compensation governance practices and policies

I. PRINCIPLES OF ALIGNING PAY AND PERFORMANCE

The Compensation Committee (the Committee) believes the executive compensation program at Caterpillar should be structured to align the interests of executives and stockholders to encourage value creation over both the short and long term. 2015 was another difficult year for Caterpillar and its stockholders. As a result, the CEO and other NEOs did not receive an annual incentive payment. In addition, the payout for the 3-year long-term incentive plan (2013-2015) paid 30 percent of target. These reductions based on 2015 performance are reflected in the 2015 proxy compensation tables.

Following last year’s Say on Pay vote, management and the Committee engaged with stockholders and undertook a careful analysis of the value drivers at Caterpillar to improve the alignment between pay and performance. The Committee believes that the changes made to the program going forward will better align executive compensation with stockholder interests and encourage value creation at Caterpillar.

II. STOCKHOLDER OUTREACH AND RESPONSE TO 2015 SAY ON PAY VOTE

At the Company’s 2015 annual meeting, the advisory vote on compensation received support from 65 percent of shares voted. In the three years prior to 2015, stockholder support averaged more than 95 percent. As a result of the decline in support for Say on Pay, management and the Committee conducted a robust stockholder engagement effort, reaching out to stockholders representing nearly half of the shares outstanding. The purpose of the outreach was to better understand stockholder perspectives and evaluate concerns regarding the Company’s executive compensation program.

The Company found the added stockholder engagement to be helpful and intends to continue it going forward. Stockholder feedback over the past year was focused on the following themes:

1.  Pay for performance alignment and the consistency of performance goals,
 
2. Incentive compensation components and design and
 
3. Mix and structure of performance metrics.

22  | 

   2016 Proxy Statement




Table of Contents

As a result of the feedback from stockholders, some changes were made in 2015. The remainder were made for 2016 going forward. Although many of these changes are discussed here, the full impact of these decisions will be reflected in 2016 pay and next year’s proxy statement.

SUMMARY OF KEY MESSAGES AND ACTIONS RELATED TO STOCKHOLDER OUTREACH AND RESPONSE TO 2015 SAY ON PAY VOTE

Pay for Performance Alignment and the Consistency of Performance Goals

WHAT WE HEARD         WHAT WE DID
Compensation not consistent with Total Shareholder Return (TSR)

Performance goals not considered adequately rigorous

Limit awards for below median relative performance
2015
The CEO and other NEOs did not receive an annual incentive payment for 2015 based primarily on severe market downturns in mining, energy and oil and gas and the Committee’s assessment of the Company’s declining financial performance.
CEO compensation level was targeted at the median of the peer group (as defined on page 35), but the CEO’s actual compensation was below the peer group median.
Majority of CEO pay was at risk and based on the Company’s short and long-term performance (at target, 85 percent of CEO pay was at risk in 2015).
2016
Annual incentive plan metrics reflect measurable and challenging financial performance factors and a mix of pre-defined operational factors that the Committee deems critical for the Company’s annual and long-term performance.
Eliminated the potential for above target annual incentive payouts in years when the Company’s performance is expected to be lower than prior year actual results.
Reduced NEO’s annual incentive opportunity when operating profit is lower than the previous year. Each NEO’s annual incentive opportunity will be reduced in proportion to the amount the performance target is lowered from the prior year. For example, if the performance target is reduced 10 percent from the prior year, each NEO’s annual incentive opportunity (expressed as a percentage of base salary) will be reduced by 10 percent.
Decreased the maximum payout range for NEOs from 200 percent of target to 150 percent of target. In years when the corporate performance goal is higher than prior year’s actual performance, the payout range will now have a maximum payout of 150 percent of the target award.
Based on 2015’s disappointing performance, the 2016 long-term incentive grant for the CEO and NEOs was reduced to the 25th percentile of the peer group. This decision was based on the Company’s 1, 3 and 5-year relative TSR performance versus the peer group, the S&P Industrials, and competitors that the Committee has determined compete directly with the Company. NEO grants were further adjusted by the Committee to reflect individual performance taking into consideration the consistency of their performance against goals and their strategic goal performance as assessed by the CEO.

Incentive Compensation Components and Design

WHAT WE HEARD         WHAT WE DID
Greater portion of long-term compensation should be performance-vested equity
2015
Replaced long-term performance-based cash awards with Performance Restricted Stock Units (PRSUs).
2016
Increased PRSUs from one-third to 50 percent of the total long-term incentive grant and proportionately reduced the use of stock options from two-thirds of the total to 50 percent.


2016 Proxy Statement   

 |  23



Table of Contents

Mix and Structure of Performance Metrics

WHAT WE HEARD         WHAT WE DID
Changing long-term incentive metrics from year to year makes goals and results difficult to evaluate

Performance metrics and results should be disclosed

Relative performance metrics typically preferable to absolute metrics

PRSU performance period should be more than one year

PRSU hurdle should not have both a one-year hurdle and three-year hurdle
2015
Eliminated Earnings Per Share (EPS) as a performance metric in the long-term incentive plan (2015) and in the annual incentive plan (2016).
Moved to a consistent long-term incentive plan design.
PRSUs only vest if the Company meets or exceeds a Return on Equity (ROE) hurdle.
Added disclosure of performance metrics and Company performance for award cycles.
2016
Defined a mix of short-term performance metrics that align with the Company’s cyclical business and support long-term strategy which is focused on efficient operations and strong competitive positioning.
Annual incentive opportunity measured by total Company operating profit with the target-setting process considering Operating Profit After Capital Charge (OPACC).
Added annual incentive operational metrics related to cost reduction, machine PINS (market position), aftermarket parts sales, Cat Financial ROE and inventory performance.
Sized the long-term incentive grant (to the 25th percentile as reflected on page 23) based on peer group median and relative 1, 3 and 5-year TSR to the peer group, the S&P Industrials and competitors that the Committee has determined compete directly with the Company.
Eliminated the “retesting” feature beginning with PRSUs granted in 2016. PRSUs are now subject to a 3-year cumulative ROE performance hurdle based on total average ROE performance at the end of the 3-year period.

III. BUSINESS PERFORMANCE IN CONTEXT

BUSINESS ENVIRONMENT AND MANAGEMENT’S RESPONSE

Financial results were negatively impacted by severe weakness in mining, the steep drop in oil prices and difficulties in emerging market economies, particularly China and Brazil. These economic factors weighed on sales, profit and TSR. In the opinion of the Committee, management’s response to these difficult market conditions was both aggressive and effective. Management has taken significant restructuring and operating actions to reduce costs and maintain variable margins, gain market position and expand the Company’s service businesses to preserve value for Caterpillar stockholders and dealers and maintain ample liquidity for the future.

STOCKHOLDERS

Low commodity prices and weakness in emerging economies have been negative for stock prices in general, and Caterpillar in particular. As a result, Caterpillar’s TSR in 2015 was in the bottom quartile of the S&P Industrials and the compensation peer group. That was despite about $2 billion of share repurchases, a 10 percent increase in the quarterly dividend and a dividend yield near 5 percent.

  TOTAL SHAREHOLDER RETURN
       1 YEAR      3 YEAR      5 YEAR
Caterpillar Inc. -23% -6% -4%
Direct Competitors – Median -24% -2% -2%
Compensation Peer Group – Median -10% 11% 8%
S&P Industrials – Median -7% 14% 11%

Table represents Total Shareholder Return for the Company and the median of the comparator groups that the Committee considers. They include the Compensation peer group (reference page 35), the S&P Industrials and the Company’s competitor peer group (reference page 36).


24  | 

   2016 Proxy Statement




Table of Contents

2015 OPERATIONAL PERFORMANCE

Dealing with peaks and troughs is a key part of the Company’s strategy. Managing the cost structure and maintaining a strong balance sheet throughout business cycles are important elements. That was certainly important in 2015 with sales and revenues down nearly 15 percent from 2014.

Cost Structure – The Company continued to lower costs in 2015 and in September announced substantial new restructuring and cost reduction actions. These actions are expected to lower annual operating costs by about $1.5 billion and should reduce the manufacturing footprint about 10 percent when complete in 2018. The Company acted quickly at the end of 2015 and as a result, we expect to recognize about half of the $1.5 billion of operating cost reduction in 2016.

Strong Balance Sheet and Cash Flow – In 2015, Machinery, Energy & Transportation (ME&T) operating cash flow was $5.2 billion, enterprise cash on hand at the end of the year was $6.5 billion and the ME&T debt-to-capital ratio was 39.1 percent, well within the targeted range of 30 to 45 percent. The Company’s captive finance company, Cat Financial, remained healthy and strong in 2015. Key portfolio metrics, such as past dues and credit losses, were near historic averages despite weakness in many of the industries served, and are an indication of how well the finance business is managed. In fact, past dues improved slightly from year-end 2014 to year-end 2015.

Operational Performance – 2015 was the fifth consecutive year of improved market position for Cat machines, the quality of our machines and engines continued at high levels, inventory declined over 20 percent and employee safety improved again in 2015. Safety is a high priority and has improved substantially over the past 10 years, including in 2015. We believe the Company’s safety is at world-class levels for similar manufacturing companies.

INVESTING FOR THE LONG TERM

Despite difficult economic conditions across Caterpillar’s businesses, the Company remains focused on investment for the long term. Broadly, the Company’s strategy is based on the Caterpillar Business Model and is focused on helping customers be more successful with Caterpillar than with our competitors.

The Caterpillar Business Model is based on:

Gaining market position by delivering high value products and services that provide customers with the lowest owning and operating costs.

The resulting growth in field population drives aftermarket sales, which tend to be relatively stable through the ups and downs of the new equipment business cycle … and that has helped sustain the Company for over 90 years. This model, along with the Company’s unparalleled distribution network including 175 dealers around the world, has helped maintain our leadership.

The Company has continued to commit resources to support the Caterpillar Business Model and drive long-term stockholder value:

Investment in Research and Development (R&D) – Spending has been relatively stable at historically high levels for the past few years despite challenging economic conditions. In 2015, spending increased $30 million from 2014 and, as a percent of sales and revenues, 2015 was the highest in over a decade. The continued investment in R&D has resulted in an excellent product lineup with improving fuel economy, highly productive machines and engines and intelligent fleets. It has been an important driver in improving the Company’s equipment market position and aftermarket service opportunity.

Lean Manufacturing and Engineered Value Chains – This strategic initiative was launched to substantially improve operations, drive velocity and lower costs. Since the launch of the Lean initiative in 2013, product quality has improved, delivery times have improved and annual material costs have improved by over $1 billion.

Across the Table – This collaborative initiative between Caterpillar and Cat dealers includes ten interrelated work streams designed to improve how we jointly serve customers and improve dealer performance. It is expected that Across the Table will improve market position, aftermarket sales and dealer profitability.

Digital Strategy – The Company is accelerating investment in its digital vision by increasing investment in sensors, control and communications technology and data analytics. In addition, we are partnering with innovative companies outside Caterpillar to bring the best available technologies to the Cat operating environment.


2016 Proxy Statement   

 |  25



Table of Contents


IV. COMPENSATION PROGRAM STRUCTURE FOR 2015 AND 2016

The executive compensation program is based on a mix of variable and fixed compensation with a focus on performance-based annual and long-term incentives. It includes:

Base Salary – Competitive pay to attract and retain talented executives;
 

Annual Incentive – An opportunity to earn annual cash awards based on the Company’s financial performance and strategic business initiatives;
 

Long-Term Incentive – A mix of performance-based restricted stock units and stock options to align management with long-term stockholder interests.


V. PAY OUTCOME DEMONSTRATES ALIGNMENT WITH COMPANY PERFORMANCE

2015

No annual incentive was paid to the CEO or NEOs in 2015. Despite management’s strong response, the market downturn took its toll on stockholders and, therefore the NEOs.
 

The long-term cash plan for the 2013-2015 cycle paid at 30 percent of target.
 

Stock options in 2013, 2014 and 2015 were granted at strike prices of $89.75, $96.31 and $83.00, respectively. The exercise price exceeds current market value. As valued on the date of grant, stock options represented approximately 70 percent and 55 percent of CEO and NEO total compensation, respectively.

2016

The Company’s TSR was in the bottom quartile of the peer group in 2015. Therefore, CEO and NEO equity grants under the long-term incentive program for 2016 were reduced to the 25th percentile of the peer group. NEOs may be further adjusted by the Committee to reflect individual performance taking into consideration the consistency of their performance against goals and their strategic goal performance as assessed by the CEO.
 

The NEOs’ annual incentive opportunity for 2016 will be reduced by 20.9 percent, in proportion to the reduction in operating profit at target versus 2015 actual. There will be no upside opportunity beyond target level.
 

Based on performance to date, the long-term cash plan for the 2014-2016 cycle is tracking to pay out at 40 percent of target.
 


VI. STRONG COMPENSATION GOVERNANCE PRACTICES AND POLICIES

The Committee engages in an ongoing review of the Company’s executive compensation programs to evaluate whether the structure supports the Company’s compensation philosophy and objectives, and is closely aligned to the Company’s business objectives. In connection with this ongoing review, and based on feedback received through stockholder outreach, the Committee continues to implement and maintain what the Committee believes to be best practices for executive compensation, each of which reinforces the Company’s compensation philosophy.

Robust stock ownership
and retention requirements       

Caterpillar stock ownership requirements include 6x base salary for the CEO and 3x base salary for other NEOs; shares to be held until after retirement.

Beginning with the 2015 grant, the Company implemented post-retirement holding requirements that require the CEO to maintain the target ownership for one year following retirement and six months following retirement for the other NEOs.

Benchmark process

The Committee reviews the external marketplace to best reflect current market practices in setting market-based pay levels and in making compensation decisions, focusing on the median of the peer group.



26  | 

   2016 Proxy Statement




Table of Contents


No individual change in     
control agreements

The Company does not have any individual change in control agreements with its NEOs. In addition, the Company does not use employment contracts with its NEOs.

Under the Company’s annual and long-term incentive plans, a termination of employment, in addition to a change in control, is required to trigger benefits – a double-trigger change in control.

Clawback policy

The Company may seek reimbursement of bonus and incentive compensation or cancel unvested or deferred awards based on the misconduct of an executive officer that causes the Company to restate all or a portion of its financial statements.

Prohibition on hedging,
pledging and related
transactions

The Company prohibits NEOs, directors and employees from engaging in any transactions involving the Company’s securities that hedge or offset any decreases in the market value of such securities, including put or call options, pledges, any other form of hedging transactions, margin purchases of the Company’s 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 benefits relating to international assignment or relocation.

Equity grant policies

The Company does not backdate, re-price or grant equity awards retroactively.

The grant date for annual equity awards is the first Monday in March.

Independent compensation
consultant

The Committee retains an independent compensation consultant.

The Committee regularly meets with the consultant without management present.


2016 Proxy Statement   

 |  27



Table of Contents

COMPENSATION DISCUSSION & ANALYSIS IN DETAIL

NAMED EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION OBJECTIVES

The objectives of the Company’s executive compensation program are to attract and retain talented executive officers and to incentivize NEOs to improve Company performance and provide strategic leadership over the long term. The majority of targeted annual compensation is equity-based, vests over multiple years and is tied directly to long-term value creation for stockholders.

We are committed to developing and implementing an executive compensation program that directly aligns the interests of the NEOs with the long-term interests of stockholders.

NAMED EXECUTIVE OFFICERS FOR 2015

This CD&A discusses the compensation of the following NEOs.

   

Douglas R. Oberhelman
Chairman and Chief Executive Officer (CEO)

           

Robert B. Charter
Group President, Customer & Dealer Support

Bradley M. Halverson
Group President, Corporate Services and Chief Financial Officer (CFO)

Edward J. Rapp
Group President, Resource Industries

D. James Umpleby III
Group President, Energy & Transportation


NEO compensation is delivered in three primary forms: base salary, annual incentives and long-term incentives, with a focus on variable compensation tied to Company performance. Approximately 85 percent of the CEO’s targeted annual total compensation is variable, at-risk compensation, with 50 percent of long-term incentives in the form of performance-based restricted stock units beginning in 2016.

COMPONENTS OF EXECUTIVE COMPENSATION

NEOs receive a mix of fixed and variable compensation with a focus on components that are performance-based. This section describes each component and demonstrates that approximately 85 percent of NEO compensation is targeted to be variable and tied to Company performance.

BASE SALARY

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

The CEO’s base salary has not increased since 2012 and remains in line with the median base salary of CEOs in the Company’s peer group. Other NEOs’ base salaries are below the peer group median except for Mr. Rapp’s base salary. Mr. Rapp is one of the longest tenured NEOs and has had multiple years of exceptional performance.

28  | 

   2016 Proxy Statement




Table of Contents

ANNUAL INCENTIVE
 

2015 ANNUAL INCENTIVE AWARD

The 2015 annual incentive was designed to provide NEOs with an annual cash payout based on the short-term performance of the Company and their respective business units. The annual incentive places the majority of each NEO’s annual cash compensation at risk and is designed to align the interests of executives and stockholders.

The CEO and other NEOs did not receive an annual incentive payment for 2015 based primarily on severe market downturns in mining, energy and oil and gas and the Committee’s assessment of the Company’s declining financial performance.


CHANGES TO DETERMINATION OF ANNUAL INCENTIVE AWARD (EXAMPLE: 2016)

As summarized below, the Committee has enhanced the annual incentive award following extensive stockholder engagement. Beginning in 2016, if the targeted operating profit performance level for the year is set below the prior year’s actual results, the target award opportunity for all NEOs will be reduced proportionately and payouts, if any, will be capped at the target level as described below. For example, in 2016, the CEO’s annual incentive award will be based on Company financial and operating performance metrics and will have performance adjustments as described below:

METRICS AND WEIGHTING

EXAMPLE: 2016

CEO annual
incentive
award
 
 

Determined by ➔

Financial Metric

70% Operating
Profit Performance

Operating Performance
Metrics

10% Cost Reduction
5% Machine PINS
5% Parts Sales
5% Cat Financial ROE
5% Inventory
 


2016 CEO and NEO Performance Adjustments
“Down Year”

20.9% reduction in annual incentive award opportunity
No upside opportunity above target level for 2016
Threshold performance set at 87% of target

For all NEOs, the largest portion of their annual incentive award opportunity (ranging from 50 percent to 90 percent of the award) will be based on the profitability of the total enterprise and an NEO’s respective business segment. For this component, the Committee reviews the Company’s OPACC performance and business plan in establishing an operating profit performance target for the year.

Once the operating profit performance target has been set, it is used to determine whether the current year is an “up year” or “down year” versus the prior year’s operating profit actual results.
 

If the operating profit target is above the prior year’s actual operating profit results (“up year”), the threshold performance level will be set at no less than 87 percent of the operating profit target. Performance at threshold will result in a payout of 50 percent of the target award opportunity for the year. Performance below threshold will result in no annual incentive payout. Achievement of the target level operating profit performance goal will result in a payout of 100 percent of the target award opportunity. The payout for achievement of the maximum performance level will be capped at 150 percent of the target award opportunity, down from 200 percent in prior years.


2016 Proxy Statement   

 |  29



Table of Contents

If the operating profit goal is below the prior year’s actual operating profit results (“down year”), the target incentive award opportunity for each NEO for that year will be reduced. The reduction in incentive award opportunity will be in proportion to the decline in the operating profit target relative to the prior year’s actual operating profit results. In addition, in a “down year”, there will be no upside opportunity beyond the target level. For “down years”, the threshold performance level will also be set at no less than 87 percent of the operating profit target which will correspond with a payout factor of 50 percent of the reduced target award opportunity. Performance below threshold will result in no annual incentive payout.
 

In addition to operating profit performance, a portion of each NEO’s annual incentive will be based on operational performance metrics related to their responsibilities, such as cost reduction, machine PINS (market position), aftermarket parts sales, Cat Financial ROE and inventory performance.


LONG-TERM INCENTIVE
 

HISTORICAL PERSPECTIVE

In years before 2015, long-term incentive compensation design was based on two components – a rolling 3-year cash plan and market-based stock option grants. As described below, starting in 2015, the Committee revised the long-term incentive plan, eliminating the cash portion and replacing it with PRSUs.

While the Committee believes PRSUs are better aligned with stockholder interests going forward, NEOs’ pay in 2015 includes results of the legacy 2013-2015 performance-based cash plan, as well as PRSUs granted in 2015. Next year’s NEO compensation will include results from the 2014-2016 performance-based cash plan which will be the final year for maturing 3-year cash plans.

The Committee recognizes that there have been numerous changes to the long-term incentive plan design over the past four cycles. Stockholder outreach over the past year has confirmed that simple, easy to understand plans that align with stockholder interests and are stable year to year are preferred. Consequently, no further changes are expected at this time.

The Committee’s objective in providing long-term incentive compensation is to align the interests of the Company’s NEOs with the interests of the Company’s stockholders. Stock options reward increasing stockholder value and PRSUs only vest upon attainment of an ROE hurdle. The Committee believes that ROE is an appropriate vesting hurdle because it is an effective measure of capital allocation and value received by stockholders. In addition, long-term incentive awards, as a significant portion of total direct compensation, and stock ownership guidelines are structured to align management with risk management principles and to maintain focus on the Company’s long-term success.

 
LONG-TERM AWARD – SIZING

The Committee bases long-term incentive grants for NEOs by starting with the peer group median of long-term incentive awards, then adjusts award sizing from the peer group median based on relative performance and current business conditions. The Committee considers financial results; 1, 3 and 5-year TSR; operational performance; market conditions and strategy execution when sizing awards. Individual adjustments may be made by the Committee to reflect individual performance, taking into consideration the consistency of performance against goals and strategic goal performance as assessed by the CEO.

30  | 

   2016 Proxy Statement




Table of Contents

LONG-TERM AWARD – FORM OF PAYMENT

Starting in 2015 and continuing in 2016, long-term incentive compensation is awarded with two forms of equity – PRSUs and stock options. In the 2015 plan, 33 percent of the award value was in PRSUs and 67 percent stock options. Based on feedback from stockholder engagement over the past year, the Committee changed the weighting in 2016 to 50 percent PRSUs and 50 percent stock options.

At Target Grant

  Equity Awards
  (Non-qualified
  Stock Options)

                 

Performance-Based
Awards (Restricted Stock
Units (PRSUs))



DESIGN AND STATUS OF LONG-TERM PLANS

2013 – 2015 CYCLE

This 3-year cycle concluded in 2015 with a weighted-average performance factor well below target at 0.30. The plan for this 3-year cycle was based on two components – ME&T Return on Assets (ROA) and relative TSR (versus S&P 500). As a result of substantial declines in mining activity and generally weak conditions in many of the industries the Company serves, performance for both metrics was well below target. The ROA metric result was below target, but was above the minimum performance threshold. Relative TSR was in the 11th percentile of the S&P 500 and, as a result, was below the minimum required for a payout.

Performance-Based Cash Award (1/3) / Stock Options (2/3)

Initial grant size based on peer group market data.

Performance-based cash award based on metrics – ROA and relative TSR – demonstrates strong alignment with Company performance outcomes.

Designed to ensure management’s long-term focus on effective use of Company assets to generate returns.

Relative TSR aligns management with stockholder returns on a relative basis.

Stock options vest over a 3-year period and have a 10-year term.

Stock option grant price was $89.75 and the exercise price exceeds current market value.


  WEIGHTING   0.3 THRESHOLD   1.0 TARGET 2.0 MAXIMUM    RESULT FACTOR
ME&T ROA 50% 4.0% 8.3% 10.2% 5.9% 0.60
Relative TSR vs. S&P 500 50% 25th Percentile 55th Percentile   75th Percentile 11th Percentile   0.00
        Overall Weighted Factor: 0.30

2016 Proxy Statement   

 |  31



Table of Contents

PAYOUTS FOR NEOs FROM THE 2013 – 2015 CYCLE (Included in the 2015 Summary Compensation Table)

Douglas R. Oberhelman          

$822,804

Bradley M. Halverson

$244,440

Robert B. Charter

$190,994

Edward J. Rapp

$292,114

D. James Umpleby III

$247,726


2014 – 2016 CYCLE

This 3-year cycle will conclude in 2016 and is currently tracking, after two years, at a weighted-average performance factor well below target at 0.40, and is not reflected in 2015 NEO compensation. The plan for this 3-year cycle was based on two components – EPS and relative TSR (versus S&P Industrials). As in the 2013-2015 cycle, declines in mining activity and economic conditions in many of the industries the Company serves are well below expectations. As a result, performance for both metrics, after completing the first two years of the 3-year cycle, are well below target. Should this 3-year cycle pay out, the results would be included in NEO compensation in 2016.

Performance-Based Cash Award (1/3) / Stock Options (2/3)

Initial grant size based on peer group market data.

Performance-based cash award based on metrics – EPS and relative TSR – designed to ensure management’s long-term focus on profitability and stockholder returns.

Relative TSR aligns management with stockholder returns on a relative basis.

Stock options vest over a 3-year period and have a 10-year term.

Stock option grant price was $96.31 and the exercise price exceeds current market value.


The 2014–2016 factor to date includes 2014 and 2015 actual results and the 2016 profit outlook as provided on January 28, 2016.

WEIGHTING    0.3 THRESHOLD    1.0 TARGET 2.0 MAXIMUM RESULTS/OUTLOOK    FACTOR
EPS 75% $3.50 $5.85 $7.02 $4.29 0.54
Relative TSR vs. S&P Industrials 25% 25th Percentile 55th Percentile    75th Percentile    17th Percentile 0.00
        Overall Weighted Factor: 0.40

2015 – 2017 CYCLE

In 2015, the cash portion of long-term incentive was replaced with PRSUs. For the 2015 grant, one-third of the PRSUs is eligible to vest annually based on three annual 18 percent ROE hurdles. In addition, PRSUs that do not vest based on the annual performance hurdle have the opportunity to vest based on the achievement of an average 18 percent ROE performance hurdle over the 3-year performance period. In setting this ROE hurdle percentage, the Committee considered the Company’s history, current business conditions and the long-term forecast. The Company’s long-term forecast takes into account many financial and operational factors, including share repurchases.

For 2015, the Company did not achieve the ROE performance hurdle and accordingly none of the PRSUs vested based on 2015 actual ROE performance. However, the value of the PRSUs is included in 2015 NEO compensation. In light of the first year results and the Company’s current outlook for 2016, provided on January 28, 2016, the degree of difficulty in achieving the 3-year hurdle has increased significantly. The annual vesting opportunity was eliminated in the 2016-2018 plan.

PRSUs with an ROE Performance Hurdle (1/3) / Stock Options (2/3)

Initial grant size based on peer group market data with adjustments for individual performance. As shown in the Summary Compensation Table (on page 40), granted in 2015, based on 2014 performance, two Group President awards were above median and two Group President awards were below median, with awards ranging from the 40th to the 65th percentile.

Aligns management with profitability goals by measuring and rewarding profitability relative to stockholders’ investment in the business.

Aligns management with stockholder returns on a relative basis.


32  | 

   2016 Proxy Statement




Table of Contents

Stock options vest over a 3-year period and have a 10-year term.
Stock option grant price was $83.00 and the exercise price exceeds current market value.
These grants are included in NEO compensation in 2015 (reference Executive Compensation Tables beginning on page 40).

2016 – 2018 CYCLE

The plan was modified in 2016 based on feedback from stockholder outreach that was conducted over the past year and to reflect the cyclicality of the Company’s business and long-term business drivers.

The plan design has moved to 50 percent PRSUs with a 3-year ROE hurdle and 50 percent stock options.
Reduced the 2016 long-term incentive grant for the CEO and NEOs to the 25th percentile of the peer group following a review of the Company’s 1, 3 and 5-year relative TSR performance versus peers, the S&P Industrials and competitors that the Committee has determined compete directly with the Company. NEO grants were further adjusted to reflect individual performance. The 2016 grant date fair value for the CEO on the date of the grant was $10.80 million, as compared to the 2015 grant date fair value on the date of the grant of $12.99 million.
PRSUs cliff vest at the end of the 3-year period based on average ROE over the full 3-year performance period; the retesting feature has been eliminated.
Aligns management with profitability goals by measuring and rewarding profitability relative to stockholders’ investment in the business.
Aligns management with stockholder returns on a relative basis.
Stock option grant price was $74.77 and was based on the closing price on the first Monday of March 2016.

NEO PERFORMANCE GOALS AND RESULTS FOR 2015

Douglas R. Oberhelman

Goals:      

Deliver against the enterprise-wide financial plan for the Company. Reinforce Caterpillar’s long-term focus on growth by investing in new products and services to improve strategic competitiveness. Strengthen operational execution of the Company by improving market position, cost management, product quality and employee safety through the continuing cyclical decline in key end markets.

 

Results:

Caterpillar TSR in 2015 was in the bottom quartile of the S&P Industrials and the compensation peer group. Results fell short of the financial plan as the Company continued to face declining demand. Sales and Revenues for 2015 were $47 billion, a decline of $3 billion from the plan, while profit after tax excluding restructuring costs was only down approximately $100 million. Substantial restructuring actions were also taken to improve the cost structure in the future. The Company continued with R&D investment at high levels and increased investment and focus on digital technology solutions designed to deliver better value to customers through equipment connectivity and data analytics. Market position was slightly below planned levels (but improved for the fifth consecutive year), product quality continued at high levels and safety improved in 2015.

 

Bradley M. Halverson

 

Goals:

Maintain a strong financial position for the Company through the continuing cyclical decline in key end markets, deliver targeted ROE for the Company’s captive finance company, Caterpillar Financial Services, and manage credit metrics within sustained long-term target ranges.

 

Results:

Sales and Revenues were lower than expected in 2015. However, ME&T operating cash flow of $5.2 billion was slightly better than planned, and the ME&T debt-to-capital ratio of 39.1 percent was within the targeted range of 30 percent to 45 percent. Financial Products Division ROE was higher than target and Cat Financial credit metrics were near historic averages despite difficult conditions in the Company’s key end markets.


2016 Proxy Statement   

 |  33



Table of Contents

Edward J. Rapp

Goals:      

For Resource Industries (RI): deliver against the RI financial plan, deploy the Operating and Execution Model, accelerate restructuring activities as a result of the prolonged downturn in the mining industry and improve operational performance by improving market position, quality and safety.

 

Results:

Sales were 4 percent below plan, but operating profit exceeded planned levels. Inventory turns achieved targeted levels. The Operating and Execution Model has resulted in detailed action plans to improve OPACC over the next few years. Restructuring activities were carried out with a comprehensive reorganization of the business, reduced manufacturing footprint and lower costs and headcount. Operational metrics improved – market position, employee safety and quality were all better in 2015.

 

D. James Umpleby III

 

Goals:

For Energy & Transportation (E&T): deliver against the E&T financial plan, improve operational performance and accelerate future profitable growth.

 

Results:

Financial results were below plan. Operating profit was close to planned levels despite a 7 percent decline in sales. Inventory turns were below targeted levels. Return on sales (ROS) was the second highest in E&T history and four of the six divisions within E&T achieved record ROS. Also, E&T delivered solid improvements in product quality, safety and material costs in 2015; and, continued to focus on future profitable growth through the introduction of new products and through acquisitions and strategic alliances, specifically in the areas of digital technologies, Power Generation and Transportation.

 

Robert B. Charter

 

Goals:

For Customer & Dealer Support (C&DS): deliver against the C&DS financial plan, execute the Across the Table initiative with our dealers to improve performance and drive the enterprise digital strategy.

 

Results:

Financial results were below plan. Sales were 9 percent below plan and operating profit fell 10 percent below planned levels. Inventory turns were below targeted levels. C&DS achieved significant operational improvement in parts distribution operations, parts availability and on-time supplier delivery. Execution continued on plan for the Across the Table work streams. Significant progress was made on advancing the Company’s digital strategy including progress on strategic alliances to expand analytics capabilities.


THE COMPENSATION PROCESS

THE COMPENSATION COMMITTEE

The Committee is responsible for the executive compensation program design and decision-making process for NEO compensation. The Committee regularly reviews executive compensation practices, including the methodologies for setting NEO total compensation, the goals of the program and the underlying compensation philosophy. The Committee also considers the recommendations and market data provided by its independent compensation consultant and makes decisions, as it deems appropriate, on executive compensation based on its assessment of performance and achievement of Company goals. The Committee also exercises its judgment as to what is in the best interests of the Company and its stockholders. The responsibilities of the Committee are described more fully in its charter, which is available at www.caterpillar.com/governance.

INDEPENDENT COMPENSATION CONSULTANT

The Committee retained Meridian Compensation Partners, LLC as its independent compensation consultant. Meridian provides executive and director compensation consulting services to the Committee, including advice regarding the design and implementation of compensation programs, market information, regulatory updates and analyses and trends on

34  | 

   2016 Proxy Statement




Table of Contents

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 2015, 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 and NYSE, and information provided by Meridian, the Committee has determined that the work performed by Meridian does not raise any conflicts of interest.

BENCHMARKING COMPENSATION TO PEERS

Peer Group Selection – The Committee regularly assesses the market competitiveness of the Company’s executive compensation programs based on peer group data. The 2015 peer group was established based on the following criteria:

Total revenue and market capitalization of the peer company relative to Caterpillar
Global presence with a significant portion of non-U.S. revenue

The peer group used for 2015 compensation decisions is shown below, which was changed from the 2014 peer group by the removal of Dell, Inc. as it ceased to be a public company:

2015 PEER GROUP*    
3M Company E.I. du Pont de Nemours and Company Illinois Tool Works Inc.
Alcoa Inc. Emerson Electric Co. Intel Corporation
Archer-Daniels-Midland Company FedEx Corporation Johnson Controls, Inc.
The Boeing Company Fluor Corporation Parker-Hannifin Corporation
Cisco Systems, Inc. Ford Motor Company The Procter & Gamble Company
Coca-Cola Company General Dynamics Corporation Raytheon Company
Cummins Inc. General Electric Company United Technologies Corporation
Deere & Company Halliburton Company  
  Honeywell International Inc.  

* The 2016 peer group has been modified to add Paccar Inc. and remove Parker-Hannifin Corporation and United Technologies Corporation.

Benchmarking to Similarly Sized Firms and Adjusting for Large Variances – To account for differences in the size of the peer group companies, market data is statistically adjusted (using a regression analysis) by the Committee’s independent compensation consultant allowing for a comparison of the compensation levels to similarly sized companies. Each element of the Company’s NEOs’ compensation is then targeted to the median of the peer group. To the extent an NEO’s total actual compensation exceeds the peer group median, it is due to outstanding performance, critical skills, experience and tenure. If an NEO’s compensation is below the median, it is generally due to underperformance against relevant metrics or an individual who is newer in the role.

2016 Direct Competitor Peer Group Selection for Performance Comparisons For 2016, the Committee also assessed the market competitiveness of the Company’s executive compensation programs against a group of competitors that it deems to compete directly with the Company. The Committee noted that although the Company’s peer group described above is an appropriate benchmark for executive compensation at other similarly sized companies, the peer group data does not always provide useful comparisons to other companies that might be experiencing similar business conditions. To that end, and consistent with its pay-for-performance philosophy, in 2016, the Committee further sought to compare the Company’s business performance with that of our competitors by establishing a “Competitor Peer Group.”

The Committee formed the 2016 Direct Competitor Peer Group by selecting seven of the Company’s competitors that, in the opinion of the Committee, compete in the same markets as the Company, or offer similar products and services as the Company, or serve the same, or similar, industries or end-users as the Company.

2016 Proxy Statement   

 |  35



Table of Contents

The competitor peer group used for 2016 performance comparisons is shown below:

2016 COMPETITOR GROUP
Deere & Company
Joy Global Inc.
Cummins Inc.
Komatsu Ltd.
Volvo AB
Sany Heavy Equipment International Holdings Company Limited
Hitachi Ltd.

ROLE OF EXECUTIVE OFFICERS IN DETERMINING EXECUTIVE COMPENSATION

CHAIRMAN AND CEO PERFORMANCE REVIEW

The Board, excluding the CEO, all of whom are independent directors, conducts the CEO’s performance evaluation. 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 2016, the Board reviewed the Committee’s assessment of Mr. Oberhelman’s performance and ratified the decision not to award an annual incentive payment.

OTHER NEO PERFORMANCE CONSIDERATIONS

For each NEO, the CEO presents a performance evaluation and makes compensation recommendations to the Committee. In February 2016, the CEO met with the Committee to share his evaluations of each NEO and as discussed above, the Committee determined not to award any annual incentive payment to the NEOs for 2015 performance.

COMPENSATION DETERMINATION: PERFORMANCE THAT REFLECTS ALIGNMENT WITH BUSINESS ENVIRONMENT

The Committee, with the support of management and the independent compensation consultant, considers the Company’s financial and market performance in the context of global market conditions when making executive compensation decisions including the payouts under the annual incentive plan.

CONSIDERATIONS WHEN DETERMINING COMPENSATION

In setting compensation levels for the year, the Committee considered many factors, including:

Long-term stockholder value creation
The cyclical nature of the business
Enhancements made to Company strategy
Performance relative to financial guidance provided throughout the year
Operational and business unit performance
Performance relative to peers and competitors
Historic absolute and relative performance
Key areas management can influence over the short and long term

EXECUTIVE COMPENSATION AND RISK MANAGEMENT

The Committee assesses the Company’s risk profile relative to the executive compensation program and confirms that NEOs are not incentivized to focus on short-term stock performance or take excessive risk in managing the business. In particular, long-term incentive awards, as a significant portion of total direct compensation and stock ownership guidelines, are structured to align management with principles of risk management and to maintain focus on the long term.

36  | 

   2016 Proxy Statement




Table of Contents

OTHER COMPENSATION, BENEFITS AND CONSIDERATIONS

RETIREMENT OF EDWARD J. RAPP

Mr. Rapp will be retiring from the Company in 2016 and will be stepping down as the Group President with responsibility for Resource Industries as of April 1, 2016. He will remain on special assignment until his retirement on June 30, 2016.

TRANSFER AND RELOCATION PAYMENT FOR ROBERT B. CHARTER

The Committee approved a transfer and relocation payment in connection with Mr. Charter’s appointment to Group President of the Company and his transfer from Singapore to the United States due to his required relocation to Peoria, Illinois. As a result, in 2015, Mr. Charter received a payment of $300,000. In approving this payment, the Committee considered that the transfer and relocation were expected to result in adverse income tax consequences to Mr. Charter, an Australian citizen, who was at the time, an International Service Employee (ISE) in Singapore. Providing this payment was more cost effective to the Company than placing Mr. Charter as an ISE in Peoria, which customarily includes housing, mobility premiums, home leave and tax allowances. This ensures employees are in the same approximate financial position as they would have been absent an international assignment.

POST-TERMINATION AND CHANGE IN CONTROL BENEFITS

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

Except for customary provisions in employee benefit plans and as required by applicable law, the NEOs do not have any pre-existing executive severance packages or contracts; however, the Committee will consider the particular facts and circumstances of an NEO’s separation to determine whether payment of any severance or other benefit to such NEO is appropriate. Change in control benefits are provided under the Company’s long-term and annual incentive plans and represent customary provisions for these types of plans and have no direct correlation with other compensation decisions. There is no cash severance or other benefits for termination related to change in control beyond what is provided for under the long-term and annual incentive plans. Additional information is disclosed in the “Potential Payments Upon Termination or Change in Control” section on page 47 of this proxy statement.

In the event of a qualifying termination of employment following a change in control, maximum payouts are provided under the long-term incentive plan and annual incentive plan.

The long-term plan allows for the maximum performance level to be paid under each open plan cycle of the long-term cash plan, subject to a maximum of $20 million in any single year.
All unvested stock options, stock appreciation rights, PRSUs and restricted stock units vest immediately.
Stock options and stock appreciation rights remain exercisable over the normal life of the grant.
The annual incentive plan allows for the target award opportunity, prorated based on the 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 $15 million in any single year.

RETIREMENT AND OTHER BENEFITS

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

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

2016 Proxy Statement   

 |  37



Table of Contents

below, except that Mr. Umpleby participates in the Solar Turbines Incorporated sponsored non-qualified defined benefit pension plan, which is similar to the SERP described below, and Mr. Charter participates in the Company’s Australian-based defined benefit programs.

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 from the annual incentive plan and long-term cash plan awards. Under the terms of SDCP, supplemental base pay deferrals earn matching contributions at a rate of 3 percent of the deferred amount, supplemental annual incentive plan deferrals earn matching contributions at a rate of 50 percent of the first 6 percent of annual incentive plan deferrals and excess base pay deferrals are matched 50 percent.

Supplemental
(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.

     

CHANGE IN PENSION VALUES IN 2015

The Summary Compensation Table (SCT) includes a reportable amount for ‘‘Change in Pension Value.’’ This number reflects the change between the present value of each NEOs total accumulated pension benefit between December 31, 2014 and December 31, 2015.

The change in pension values are driven by three main elements:

Pensionable Earnings – Changes in the pensionable earnings of the NEOs. Earnings used to determine the pension benefit for the NEOs consist of base salary and annual incentive pay. If an NEO’s compensation increases through time because of a role with heightened responsibilities and/or through outstanding performance, a larger pension benefit will accrue. This is the largest contributor to the change in pension value for 2015. Additional information is disclosed in the “2015 Pension Benefits” section on page 45.
Actuarial Assumptions – Changes in mortality assumptions. The Society of Actuaries released new mortality tables in 2014 that reflect longer life expectancies. An increase in life expectancy assumptions results in an increase in the present value of each NEO’s pension. These new assumptions are reflected in the present value of each NEO’s pension as of 2015.
Interest Rates Prevailing market interest rates are used to calculate the discount rate as required by Financial Accounting Standards Board rules. In 2015, the interest rates applied to the Company’s pension calculations increased and the discount rate used for the pension was increased to reflect the change in market interest rates. A change in the discount rate does not reflect the actual pension payments that will be made to NEOs upon retirement. Rather, an increase in the discount rate decreases the present value of each NEO’s pension value, resulting in an amount reportable as a change in pension value in the SCT. The discount rate used for 2015 was 4.2 percent and the discount rate used for 2014 was 3.9 percent.

38  | 

   2016 Proxy Statement




Table of Contents

LIMITED PERQUISITES

The Company provides NEOs a limited number of perquisites that the Committee believes are reasonable and consistent with the overall compensation program and those commonly provided in the marketplace. The Committee annually reviews the levels of perquisites provided to the NEOs which include home security systems, parking and limited personal use of the Company aircraft and ground transportation. These perquisites are provided to attract and retain talented executive officers, for security purposes and to allow the NEOs to devote additional time to Caterpillar business. Costs associated with these perquisites are included in the “2015 All Other Compensation Table” on page 41.

CLAWBACK POLICY

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

The amount of the bonus, incentive compensation or stock award was calculated based on the achievement of certain financial results that were subsequently the subject of a restatement.

The officer engaged in intentional misconduct that caused or partially caused the need for the restatement.

The amount of the bonus, incentive compensation or stock award that would have been awarded to the officer had the financial results been properly reported would have been lower than the amount actually awarded.


TAX IMPLICATIONS: DEDUCTIBILITY OF NEO COMPENSATION

Under Section 162(m) of the Internal Revenue Code, generally NEO compensation over $1.0 million for any year is not deductible for United States income tax purposes. However, performance-based compensation is exempt from the deduction limit if certain requirements are met. One of the goals of the Committee is to structure compensation to take advantage of this exemption under Section 162(m) to the extent practicable. However, the Committee may elect to provide compensation outside those requirements when necessary to achieve its compensation objectives.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the CD&A included in this proxy statement with management and is satisfied that the CD&A fairly and completely represents the philosophy, intent and actions of the Committee with regard to executive compensation. Based on such review and discussion, we recommend to the Board that the CD&A be included in this proxy statement and the Company’s Annual Report on Form 10-K for filing with the SEC.

By the members of the Compensation Committee consisting of:


Miles D. White
(Chairman)
David L. Calhoun Jesse J. Greene, Jr. Debra L. Reed

2016 Proxy Statement   

 |  39



Table of Contents

EXECUTIVE COMPENSATION TABLES

In years before 2015, long-term incentive compensation design was based on two components – a rolling 3-year cash plan and market based stock option grants. Beginning in 2015, the Committee revised the long-term incentive plan, eliminating the cash portion and replacing it with stock-settled PRSUs.

While the Committee believes PRSUs are better aligned with stockholder interests going forward, NEO’s pay in 2015 includes results of the legacy 2013-2015 performance-based cash plan as well as PRSUs granted in 2015. SEC executive compensation disclosure rules require the grant date fair value of PRSUs to be reported in the year of grant in the Stock Awards column below, rather than after the completion of the 3-year performance period that commenced in 2015. Because the payment for the 2013-2015 performance-based cash plan is also included in the Non-Equity Incentive Plan Compensation column, the Summary Compensation Table in effect double counts the NEO’s long-term incentive compensation for 2015. Next year’s NEO compensation will include results from the 2014-2016 cash plan which will be the final year for this legacy performance-based cash plan.

2015 SUMMARY COMPENSATION TABLE

  

NAME AND
PRINCIPAL POSITION

     

YEAR

     

SALARY

      BONUS1       STOCK
AWARDS2
     

OPTION
AWARDS3

   

NON-EQUITY
INCENTIVE PLAN
COMPENSATION4

    

CHANGE IN
PENSION VALUE
AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS5

    

ALL OTHER
COMPENSATION6

   

SEC TOTAL

      SEC TOTAL
WITHOUT
CHANGE IN
PENSION
VALUE7
  
Douglas R. Oberhelman
Chairman & CEO
2015 $ 1,600,008 $  — $ 3,031,479 $ 9,959,588         $ 822,804                $ 2,091,814                $ 398,144            $ 17,903,837      $ 15,812,023   
2014 $ 1,600,008 $ $ $ 8,377,481 $ 4,913,288 $ 1,998,805 $ 241,866 $ 17,131,448 $ 15,132,643
2013 $ 1,600,008 $ $ $ 7,966,091 $ 2,241,766 $ 2,964,405 $ 217,299 $ 14,989,569 $ 12,025,164
Bradley M. Halverson
Group President & CFO
2015 $ 786,312 $ $ 1,127,963 $ 3,705,673 $ 244,440 $ 2,293,173 $ 90,933 $ 8,248,494 $ 5,955,321
  2014 $ 755,202 $ $ $ 2,392,921 $ 1,501,537 $ 595,014 $ 42,294 $ 5,286,968 $ 4,691,954
2013 $ 661,872 $ $ $ 2,266,520 $ 747,012 $ 348,392 $ 46,107 $ 4,069,903 $ 3,721,511
Robert B. Charter8
Group President
2015 $ 729,768 $ 300,000 $ 1,046,232 $ 3,437,148 $ 190,994 $ 845,918 9 $ 541,566 $ 7,091,626 $ 6,245,708
 
Edward J. Rapp
Group President
2015 $ 913,935 $ $ 1,264,698 $ 4,154,987 $ 292,114 $ 1,927,253 $ 1,554,073 $ 10,107,060 $ 8,179,807
2014 $ 872,424 $ 50,000 $ $ 2,560,624 $ 1,961,564 $ 565,770 $ 944,315 $ 6,954,697 $ 6,388,927
2013 $ 847,008 $ $ $ 2,266,520 $ 883,667 $ 1,129,584 $ 296,280 $ 5,423,059 $ 4,293,475
D. James Umpleby III
Group President
2015 $ 815,805 $ $ 1,264,698 $ 4,154,987 $ 247,726 $ 2,582,073 $ 83,085 $ 9,148,374 $ 6,566,301
2014 $ 755,202 $ $ $ 2,527,089 $ 1,847,136 $ 1,484,122 $ 57,772 $ 6,671,321 $ 5,187,199
2013 $ 661,872 $ $ $ 2,266,520 $ 964,041 $ 4,181,546 $ 52,857 $ 8,126,836 $ 3,945,290

1 The amount reported for 2015 represents a lump sum discretionary bonus authorized by the Committee in connection with Mr. Charter’s required relocation from Singapore to the United States.
2 The amounts reported in this column represent PRSUs granted in 2015 under the Caterpillar Inc. 2014 Long-Term Incentive Plan (LTIP) and are valued based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, assuming the highest level of performance is achieved for the PRSUs, which at the time of grant reflected the probable level of achievement. Assumptions made in the calculation of these amounts are included in Note 2 “Stock-based compensation” to the Company’s consolidated financial statements for the fiscal year ended December 31, 2015, included in the Company’s Form 10-K filed with the SEC on February 16, 2016.
3 The amounts reported in this column represent Non-qualified Stock Options (NQs) 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, 2015, included in the Company’s Form 10-K filed with the SEC on February 16, 2016.

40  | 

   2016 Proxy Statement




Table of Contents

4 The amounts in this column reflect cash payments made to NEOs under the Strategic Performance Plan (SPP) with respect to performance over a 3-year performance cycle from 2013-2015. As noted in the CD&A, in 2015, none of the NEOs received a cash payment under the 2015 Annual Incentive Plan (AIP).
5 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, 2014 and December 31, 2015. The amount assumes the pension benefit is payable at each NEO’s earliest unreduced retirement age based upon the NEO’s current pensionable earnings.
6 All Other Compensation for 2015 consists of the following items detailed in a separate table appearing on page 41: matching contributions to the Company’s 401(k) plan; matching contributions to SDCP; personal corporate aircraft usage; home security; and certain other items.
7 To demonstrate how year over year changes in pension value impact total compensation, as determined under SEC rules, we have included this column to show total compensation without pension value changes. The amounts reported in this column are calculated by subtracting the change in pension value reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column, as described in footnote five to this table, from the amounts reported in the SEC Total column. The amounts reported in this column differ from, and are not a substitute for, the amounts reported in the SEC Total column.
8 Mr. Charter became an NEO in 2015 so historical compensation information for 2013-2014 is not presented in accordance with applicable SEC executive compensation disclosure rules.
9 The amount reported for Mr. Charter has been converted to U.S. dollars using the exchange rate in effect on December 31, 2015 (1 Australian dollar = 0.7286 U.S. dollar).

2015 ALL OTHER COMPENSATION TABLE

   NAME    

MATCHING
CONTRIBUTIONS
401(K)

   

MATCHING
CONTRIBUTIONS
SDCP

    CORPORATE
AIRCRAFT/
TRANSPORTATION
1
    HOME
SECURITY2
    OTHER3     TOTAL ALL OTHER
COMPENSATION
  
Douglas R. Oberhelman            $ 8,100                    $ 160,050                       $ 143,806                  $ 86,188      $          $ 398,144         
Bradley M. Halverson $ 8,733 $ 53,912 $ 1,200 $ 27,088 $ $ 90,933
Robert B. Charter $ 4,301 $ $

$

$ 537,265   $ 541,566
Edward J. Rapp $ 7,950 $ 70,333 $ 27,280 $ 2,872 $ 1,445,638   $ 1,554,073
D. James Umpleby III $ 8,820 $ 65,164 $ $ 9,101 $ $ 83,085

1 The value of personal aircraft usage reported above is based on Caterpillar’s incremental cost per flight hour, including the weighted average variable operating cost of fuel, oil, aircraft maintenance, landing and parking fees, related ground transportation, catering and other smaller variable costs. Mr. Oberhelman and the Company have a time-sharing lease agreement, pursuant to which certain costs associated with personal flights are reimbursed by Mr. Oberhelman to the Company in accordance with the agreement.
2 Amounts reported for home security represent the cost provided by an outside security provider for hardware and monitoring service. The incremental cost associated with the home security services is determined based upon the amounts paid to the outside service provider.
3 Mr. Charter and Mr. Rapp were previously International Service Employees (ISEs) based in Singapore. The amount shown includes foreign service allowances typically paid by the Company on behalf of ISEs, including allowances paid for moving expenses, housing, mobility premium, home leave, foreign and U.S. taxes. Company paid taxes, relating to their ISE assignment, of $394,127 for Mr. Charter and $1,338,213 for Mr. Rapp were included in this amount, pursuant to the Company’s tax equalization policy for ISEs. These allowances are intended to ensure the Company’s ISEs are in the same approximate financial position as they would have been if they lived in their home country during the time of their international service. These ISE related expenses were valued on the basis of the aggregate incremental cost to the Company and represent the amount accrued for payment or paid to the service provider or the NEO, as applicable.

2016 Proxy Statement   

 |  41



Table of Contents

GRANTS OF PLAN-BASED AWARDS IN 2015




ESTIMATED FUTURE PAYOUTS UNDER
EQUITY INCENTIVE PLAN AWARDS
1
ALL OTHER
STOCK
AWARDS:
NUMBER OF
SHARES OF
STOCK OR
UNITS
(#)
ALL OTHER
OPTION AWARDS:
NUMBER OF
SECURITIES
UNDERLYING
OPTIONS2
(#)
EXERCISE OR
BASE PRICE
OF OPTION
AWARDS
($/SHARE)

GRANT DATE
FAIR VALUE
OF STOCK
AND
OPTION
AWARDS ($)3
   NAME   GRANT
DATE
  THRESHOLD
(#)
  TARGET
(#)
  MAXIMUM
(#)
          
Douglas R. Oberhelman  02/27/2015 13,044 39,131          $             $ 3,031,479   
03/02/2015 413,776 $ 83.00 $ 9,959,588
Bradley M. Halverson 02/27/2015 4,853 14,560 $  — $ 1,127,963
03/02/2015 153,954 $ 83.00 $ 3,705,673
Robert B. Charter 02/27/2015 4,502 13,505 $  — $ 1,046,232
  03/02/2015 142,798 $ 83.00 $ 3,437,148
Edward J. Rapp 02/27/2015 5,442 16,325 $  — $ 1,264,698
03/02/2015 172,621 $ 83.00 $ 4,154,987
D. James Umpleby III 02/27/2015 5,442 16,325 $  — $ 1,264,698
03/02/2015 172,621 $ 83.00 $ 4,154,987

1 PRSUs were granted on February 27, 2015, for the 2015-2017 performance cycle. PRSUs vest over a 3-year performance cycle with one-third scheduled to vest on each anniversary of the grant date, subject to the achievement of an ROE performance hurdle for the prior calendar year. Any PRSUs that do not vest based on the annual performance cycle will remain eligible for vesting on the third anniversary of the grant date, subject to the Company’s achievement of an average ROE performance hurdle during the 3-year performance cycle. The amounts reported in the threshold column reflect the minimum number of PRSUs that would vest if the ROE performance hurdle is achieved in only one annual performance cycle. The amounts reported in the target column reflect the number of PRSUs that would vest if the Company’s average ROE performance during the 3-year performance cycle meets or exceeds the ROE performance hurdle.
2 Amounts reported represent stock options granted under the LTIP. The exercise price for all stock options granted to the NEOs is the closing price of Caterpillar stock on the grant date ($83.00). All stock options granted to the NEOs will vest in one-third increments on each of the first through third year anniversaries of the date of grant. The actual realizable value of the options will depend on the fair market value of Caterpillar stock at the time of exercise.
3 The amounts shown do not reflect realized compensation by the NEO. As reported in this column, the value of PRSUs granted in 2015 under the LTIP are based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, assuming the highest level of performance is achieved for the PRSUs, which at the time of the grant reflected the probable level of achievement.

42  | 

   2016 Proxy Statement




Table of Contents

OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR END

OPTION AWARDS

STOCK AWARDS

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SARs/OPTIONS

MARKET
VALUE

OF
SHARES
OR
UNITS OF
STOCK
THAT HAVE
NOT
VESTED3

EQUITY INCENTIVE
PLAN AWARDS:

NAME

GRANT
DATE

EXERCISABLE

UNEXERCISABLE

SAR /
OPTION

EXERCISE
PRICE
SAR /
OPTION

EXPIRATION
DATE1
NUMBER OF
SHARES OR

UNITS
OF STOCK
THAT HAVE
NOT
VESTED2
NUMBER OF
UNEARNED

SHARES,
UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED4
MARKET OR
PAYOUT VALUE OF

UNEARNED
SHARES, UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED5
   Douglas R.    02/17/2006    110,000           $ 72.05            02/17/2016                 $                       $  —             
Oberhelman 03/02/2007 125,884 $ 63.04 03/02/2017 $ $  —
  03/03/2008 115,484 $ 73.20 03/03/2018 $ $  —
03/02/2009 166,252 $ 22.17 03/02/2019 $ $  —
03/01/2010 272,282 $ 57.85 03/01/2020 $ $  —
03/07/2011 226,224 $ 102.13 03/07/2021 $ $  —
  03/05/2012 275,000 $ 110.09 03/05/2022 $ $  —
03/04/2013 281,090 $ 89.75 03/04/2023 $ $  —
03/03/2014 283,790 $ 96.31 03/03/2024 $ $  —
03/02/2015 413,776 $ 83.00 03/02/2025 $ $  —
02/27/2015 $ $ 39,131 6 $ 2,659,343
Bradley M. 03/03/2008 9,306 $ 73.20 03/03/2018 $ $  —
Halverson 03/01/2010 9,449 $ 57.85 03/01/2020 $ $  —
03/07/2011 22,696 $ 102.13 03/07/2021 $ $  —
  03/05/2012 21,416 $ 110.09 03/05/2022 $ $  —
03/04/2013 79,976 $ 89.75 03/04/2023 $ $  —
03/03/2014 81,061 $ 96.31 03/03/2024 $ $  —
03/02/2015 153,954 $ 83.00 03/02/2025 $ $  —
$ 1,666 7 $ 113,221 $  —
02/27/2015 $ $ 14,560 6 $ 989,498
Robert B. 03/07/2011 23,379 $ 102.13 03/07/2021 $ $  —
Charter 03/05/2012 20,534 $ 110.09 03/05/2022 $ $  —
03/04/2013 25,369 $ 89.75 03/04/2023 $ $  —
03/03/2014 27,045 $ 96.31 03/03/2024 $ $  —
03/02/2015 142,798 $ 83.00 03/02/2025 $ $  —
02/27/2015 $ $ 13,505 6 $ 917,800
Edward J. 02/17/2006 48,000 $ 72.05 02/17/2016 $ $  —
Rapp 03/02/2007 47,044 $ 63.04 03/02/2017 $ $  —
03/03/2008 109,898 $ 73.20 03/03/2018 $ $  —
03/02/2009 148,722 $ 22.17 03/02/2019 $ $  —
03/01/2010 145,765 $ 57.85 03/01/2020 $ $  —
03/07/2011 56,228 $ 102.13 03/07/2021 $ $  —
03/05/2012 60,515 $ 110.09 03/05/2022 $ $  —
03/04/2013 79,976 $ 89.75 03/04/2023 $ $  —
03/03/2014 86,742 $ 96.31 03/03/2024 $ $  —
03/02/2015 172,621 $ 83.00 03/02/2025 $ $  —
$ 1,998 8 $ 135,784 $  —
02/27/2015 $ $ 16,325 6 $ 1,109,447

2016 Proxy Statement   

 |  43



Table of Contents

OPTION AWARDS STOCK AWARDS
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SARs/OPTIONS

MARKET
VALUE
OF
SHARES
OR
UNITS OF
STOCK
THAT HAVE
NOT
VESTED3

    EQUITY INCENTIVE
PLAN AWARDS:
 
   NAME     GRANT
DATE
   

EXERCISABLE

   

UNEXERCISABLE

   

SAR /
OPTION
EXERCISE
PRICE

    SAR /
OPTION
EXPIRATION
DATE1
   

NUMBER OF
SHARES OR
UNITS
OF STOCK
THAT HAVE
NOT
VESTED2

    

NUMBER OF
UNEARNED
SHARES,
UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED4

    MARKET OR
PAYOUT VALUE OF
UNEARNED
SHARES, UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED5
D. James 02/17/2006 7,150     $ 72.05         02/17/2016          $                    $              
Umpleby III 03/02/2007 3,341 $ 63.04 03/02/2017 $ $
03/03/2008 4,661 $ 73.20 03/03/2018 $ $
03/02/2009 6,619 $ 22.17 03/02/2019 $ $
  03/01/2010 6,781 $ 57.85 03/01/2020 $ $
03/07/2011 22,696 $ 102.13 03/07/2021 $ $
03/05/2012 21,416 $ 110.09 03/05/2022 $ $
03/04/2013 79,976 $ 89.75 03/04/2023 $ $
03/03/2014 85,606 $ 96.31 03/03/2024 $ $
03/02/2015 172,621 $ 83.00 03/02/2025 $ $
$ 1,666 9 $ 113,221 $
02/27/2015 $ $ 16,325 6 $ 1,109,447

1 Stock options granted in 2013 and 2014 are exercisable three years after the grant date. Stock options granted in 2015 are exercisable in one-third increments on each of the first through third year anniversaries of the date of grant. Stock options expire 10 years from the grant date for an active employee.
2 The amounts shown include the portion of any prior RSU grants that were not vested as of December 31, 2015.
3 The market value of the non-vested RSUs is calculated using the closing price of Caterpillar common stock on December 31, 2015 ($67.96 per share).
4 The amounts shown include the portion of any prior PRSU grants that were not vested as of December 31, 2015.
5 The market value of the non-vested PRSUs is calculated using the closing price of Caterpillar common stock on December 31, 2015 ($67.96 per share).
6 Represents the PRSUs that are scheduled to vest in one-third increments on February 27, 2016, February 27, 2017 and February 27, 2018 based on the Company’s achievement of an annual ROE performance hurdle or, PRSUs that do not vest based on the annual performance hurdle, but may vest based on the achievement of an average ROE performance hurdle over the 3-year performance cycle. For 2015, the Company did not achieve the ROE performance hurdle and, accordingly, none of the PRSUs vested based on 2015 performance. The number of PRSUs reported in this table assumes the aggregate ROE performance hurdle is achieved for the 3-year performance cycle.
7 This amount includes 833 RSUs scheduled to vest on May 1, 2016 and 833 RSUs scheduled to vest on May 1, 2017.
8 This amount includes 833 RSUs scheduled to vest on May 1, 2016, 332 RSUs scheduled to vest on May 2, 2016 and 833 RSUs scheduled to vest on May 1, 2017.
9 This amount includes 833 RSUs scheduled to vest on May 1, 2016 and 833 RSUs scheduled to vest on May 1, 2017.

2015 OPTION EXERCISES AND STOCK VESTED

OPTION AWARDS1      STOCK AWARDS2
  NAME        NUMBER OF SHARES
ACQUIRED ON EXERCISE
       VALUE REALIZED
ON EXERCISE
       NUMBER OF SHARES
ACQUIRED ON VESTING
       VALUE REALIZED
ON VESTING
  Douglas R. Oberhelman                                               $                                                         $          
  Bradley M. Halverson 11,867 $ 915,922 834 $ 72,992
  Robert B. Charter $ $
  Edward J. Rapp $ 1,559 $ 133,501
  D. James Umpleby III $ 834 $ 72,992

1 Upon exercise of the stock appreciation rights shares are surrendered to satisfy the income tax withholding requirement. The amounts shown are net amounts after surrendering shares for income tax.
2 Upon vesting of the RSUs, shares are surrendered to satisfy income tax withholding requirements. The amounts shown are gross amounts absent netting for shares surrendered.

44  | 

   2016 Proxy Statement




Table of Contents

2015 PENSION BENEFITS

NAME       PLAN NAME1       NUMBER OF YEARS OF
CREDITED SERVICE2
      PRESENT VALUE OF
ACCUMULATED BENEFIT3
Douglas R. Oberhelman RIP 35.00                 $ 2,982,817                
SERP 35.00 $ 22,557,058
Bradley M. Halverson   RIP 27.83 $ 1,833,801
SERP 27.83   $ 4,118,102  
Robert B. Charter CatSuper Plan 26.67 $ 3,218,440
Edward J. Rapp RIP   35.00   $ 2,641,850
SERP 35.00 $ 9,291,016  
D. James Umpleby III RIP 25.00 $ 1,669,706
Solar MRO 25.00 $ 10,187,255

1 Caterpillar Inc. Retirement Income Plan (RIP) is a noncontributory U.S. qualified defined benefit pension plan and the Supplemental Retirement Plan (SERP) is a U.S. non-qualified pension plan. The total benefit formula across both plans is 1.5 percent for each year of service (capped at 35 years) multiplied by the final average earnings during the highest five of the final ten years of employment. Final average earnings include base salary and annual incentive compensation, including amounts deferred. The employee’s annual retirement income benefit under the qualified plan is restricted by the Internal Revenue Code limitations, and the excess benefits are paid from SERP. SERP is not funded. Mr. Charter participates in the Caterpillar of Australia PTY LTD Retirement Plan (CatSuper Plan), a defined benefit plan. The total benefit formula in the plan is 17.5 percent for each year of service multiplied by final average salary during the highest three of the final ten years of employment. Final average salary for this plan includes base salary and annual incentive compensation, including amounts deferred, without any limitation on the dollar amounts covered. The plan formula produces a lump sum amount. Mr. Umpleby participated in the Solar Turbines Incorporated Retirement Plan (Solar RP) through December 31, 2014, and participates in the Solar Turbines Incorporated Managerial Retirement Objective Plan (Solar MRO) because he was originally hired by Solar Turbines Incorporated, a wholly owned subsidiary of Caterpillar. The Solar RP was merged into RIP as of January 1, 2015; however, all benefit and eligibility provisions of Solar RP remain unchanged. The Solar RP is a noncontributory U.S. qualified defined benefit pension plan and the Solar MRO is a U.S. non-qualified pension plan. The total benefit formula for the Solar RP is 60 percent of final average salary prorated for years of service less than 25 minus 65 percent of the monthly Social Security benefit. Final average salary is the average base salary for the highest consecutive 36 month period during the 120 month period prior to retirement. Amounts payable under both Solar RP and Solar MRO are based upon a maximum of 25 years of service. Mr. Umpleby meets the early retirement eligibility requirement of age 55.The Solar MRO provides a benefit under the same benefit formula and includes base salary and annual incentive pay. The employee’s annual retirement income benefit under the Solar RP is restricted by the Internal Revenue Code limitations and the excess benefits are paid from the Solar MRO. The Solar MRO is not funded.
2 Mr. Oberhelman, Mr. Halverson and Mr. Rapp participate in RIP and SERP. Mr. Oberhelman and Mr. Rapp have more than 35 years of service with the Company. Amounts payable under both RIP and SERP are based upon a maximum of 35 years of service. All RIP participants may receive their benefit immediately following termination of employment after reaching early retirement eligibility, or may defer benefit payments until any time between early retirement age and normal retirement age. SERP and Solar MRO participants receive their benefit six months after their retirement date. Normal retirement age is defined as age 65 with five years of service. For RIP and SERP participants, early retirement is defined as: any age with 30 years of service, age 55 with 15 years of service or age 60 with 10 years of service. If a participant elects early retirement, benefits are reduced by four percent per year, before age 62. In 2015, Mr. Oberhelman and the Company agreed to amend the Company’s SERP to provide that if Mr. Oberhelman terminates employment prior to age 65, his benefit under the SERP will be reduced for early retirement. Prior to the amendment, Mr. Oberhelman was entitled to an unreduced benefit under the SERP for any retirement after attainment of age 62. As current RIP and SERP participants, Mr. Oberhelman is eligible for early retirement, with a four percent reduction per year under age 65, while Mr. Rapp and Mr. Halverson are eligible for early retirement, with a four percent reduction per year under age 62. Mr. Charter, who participates in the CatSuper Plan, is currently vested in a benefit attributable to 17.75 years of his service. He also has a benefit under the same plan formula based on an additional 8.92 years of service which will vest if he remains employed with the Company until age 55. This additional benefit would result in $1,626,317 pension increase once fully vested. Normal retirement in the CatSuper Plan is defined as age 65 and early retirement is available at age 55, with no reduction to the lump sum earned. Mr. Umpleby, who participates in the Solar RP and Solar MRO, has more than 25 years of service with the Company and meets the early retirement eligibility requirement of age 55 with at least 10 years of service. Early retirement benefits paid under Solar RP and Solar MRO have a three percent reduction per year under age 62. The Solar RP was merged into RIP as of January 1, 2015; however, all benefit and eligibility provisions of Solar RP remain unchanged.
3 The amount in this column represents the actuarial present value for each NEO’s accumulated pension benefit on December 31, 2015. For each NEO, it assumes benefits are payable at each NEO’s earliest unreduced retirement age based upon current level of pensionable income. The interest rate of 4.17 percent and the RP-2014 mortality table, adjusted with a lead factor of 113.2 percent and using projected scale BB-2D in years 2011 and beyond used in the calculations, are based upon the FASB ASC 715 disclosure on December 31, 2015. The amount reported for Mr. Charter has been converted to U.S. dollars using the exchange rate in effect on December 31, 2015 (1 Australian dollar = 0.7286 U.S. dollar).

2016 Proxy Statement   

 |  45



Table of Contents

2015 NONQUALIFIED DEFERRED COMPENSATION

NAME       PLAN NAME       EXECUTIVE
CONTRIBUTIONS
IN 2015
1
      REGISTRANT
CONTRIBUTIONS
IN 20152
     

AGGREGATE
EARNINGS IN
20153

      AGGREGATE
BALANCE
AT 12/31/154
Douglas R. Oberhelman SDCP          $ 320,100                   $ 160,050              $ (797,275 )         $ 2,948,856    
  SEIP $ $ $ (203,695 ) $ 693,124
DEIP $ $ $ (375,004 ) $ 1,412,140
Bradley M. Halverson SDCP $ 107,823 $ 53,912 $ (232,643 ) $ 873,008
SEIP $ $ $ (947 ) $ 3,222
DEIP $ $ $ (17,923 ) $ 60,994
Robert B. Charter5 SDCP $ $ $ $
Edward J. Rapp SDCP $ 140,665 $ 70,333 $ (507,452 ) $ 2,578,357
SEIP $ $ $ (14,449 ) $ 49,169
DEIP $ $ $ (96,095 ) $ 767,451
D. James Umpleby III SDCP $ 130,329 $ 65,164 $ (169,757 ) $ 1,850,259
SEIP $ $ $ (229 ) $ 30,239
DEIP $ $ $ (49,921 ) $ 2,359,598

1 The Supplemental Deferred Compensation Plan (SDCP) is a non-qualified deferred compensation plan created in March of 2007 with a retroactive effective date of January 1, 2005, which effectively replaced the Supplemental Employees’ Investment Plan (SEIP) and Deferred Employees’ Investment Plan (DEIP).
2 SDCP allows eligible U.S. employees, including all NEOs, to voluntarily defer a portion of their base salary and AIP pay into the plan and receive a Company matching contribution. SPP pay may also be deferred, but does not qualify for any Company matching contributions. Amounts deferred by executives in 2015 for base salary, AIP pay and/or SPP payouts are included in the “2015 Summary Compensation Table.” Matching contributions in non-qualified deferred compensation plans made by Caterpillar in 2015 are also included in the “2015 All Other Compensation Table” under the Matching Contributions SDCP column. SDCP participants may elect a lump sum payment, or an installment distribution payable for up to 15 years after separation.
3 Aggregate earnings comprise interest, dividends, capital gains and appreciation/depreciation of investment results. The investment choices available to the participant mirror those of the Company’s 401(k) plan.
4 Amounts in this column were previously reported in the “Summary Compensation Table” for the years 2013–2015 as follows: Mr. Oberhelman $1,022,586; Mr. Halverson $359,410; Mr. Rapp $451,556; and Mr. Umpleby $382,412.
5 Mr. Charter began participation in SDCP on January 1, 2016.

46  | 

   2016 Proxy Statement




Table of Contents

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

Except for customary provisions in employee compensation plans and as required by law, there are no pre-existing severance or change in control agreements with the NEOs.

The following is a summary of the compensation that would become payable under the existing compensation plans if an NEO’s employment had terminated on December 31, 2015 in each of the following scenarios:

Voluntary Separation, including retirement that does not qualify as Long-Service Separation
Long-Service Separation (separation after age 55 with 5 or more years of Company service effective with the 2011 equity grant, and age 55 with 10 or more years of service for prior year grants)
Termination for Cause
Termination without Cause or for Good Reason within one year following a change in control (Termination following CIC)

EQUITY AWARDS    
Voluntary Separation
Stock Options and SARs: Vested awards are exercisable until the earlier of the expiration date or 60 days from the separation date; unvested awards are forfeited
PRSUs and RSUs: Forfeited
Long-Service Separation
Stock Options and SARs granted prior to 2016: Vest and are exercisable until the earlier of the expiration date or 60 months from the separation date
Stock Options and SARs granted in 2016 or after: Vest and become immediately exercisable for the remaining term of the award
RSUs: Accelerated vesting; Chairman’s RSU Awards granted prior to May 2014 are not eligible for Long-Service Separation treatment
PRSUs: Remain outstanding and vest if and to the extent performance goals are achieved
Termination for Cause
Stock Options and SARs: Vested and unvested awards are forfeited
PRSUs and RSUs: Forfeited
Termination following CIC
Stock Options and SARs: Vest and become immediately exercisable for remaining term of the award
PRSUs and RSUs: Accelerated vesting of outstanding awards
     
ANNUAL INCENTIVE PLAN  
Voluntary Separation
Payment is forfeited
Long-Service Separation  
Payment for a pro-rated service period based on actual results
Termination for Cause
Payment is forfeited
Termination following CIC
Payment for a pro-rated service period assuming achievement of target opportunity
     
STRATEGIC PERFORMANCE PLAN  
Voluntary Separation
Payment is forfeited
Long-Service Separation
Payment for a pro-rated service period based on actual results
Termination for Cause
Payment is forfeited
Termination following CIC
Payment for entire performance period assuming achievement of maximum opportunity

2016 Proxy Statement   

 |  47




Table of Contents

DEFERRED COMPENSATION

The “2015 Nonqualified Deferred Compensation” table on page 46 describes unfunded, non-qualified deferred compensation plans that permit the deferral of salary, bonus and short-term cash performance awards by NEOs. These plans also provide for matching contributions by the Company. NEOs are eligible to receive the amount in their deferred compensation accounts following termination under any termination scenario unless the NEO elected to further defer the payment as permitted by the plans.

SEVERANCE PAY

The Company is not obligated to provide any special severance payments to any NEOs.

RETIREMENT OF EDWARD J. RAPP

Mr. Rapp will be retiring from the Company in 2016 and will be stepping down as the Group President with responsibility for Resource Industries as of April 1, 2016. He will remain on special assignment receiving his current salary until his retirement on June 30, 2016.

TERMS & POTENTIAL PAYMENTS – CHANGE IN CONTROL

The following tabular information quantifies certain payments that would become payable under existing plans and arrangements if the NEO’s employment had terminated on December 31, 2015. The information is provided relative to the NEO’s compensation and service levels as of the date specified. If applicable, they are based on the Company’s closing stock price on December 31, 2015.

48  | 

   2016 Proxy Statement




Table of Contents

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

EQUITY AWARDS INCENTIVE
NAME      TERMINATION SCENARIO      STOCK
OPTIONS/
SARs
1
     PRSUs/ RSUs2      SHORT-TERM
INCENTIVE3
     LONG-TERM
INCENTIVE4
     POST
TERMINATION
BENEFITS
     TOTAL
Douglas R. Oberhelman Voluntary Separation $     $        $       $    $
Long-Service Separation $ $ 2,659,343   $ 2,800,014   $ 2,850,143   $ 8,309,500
Termination for Cause $ $ $ $ $
Termination following CIC $ $ 2,659,343 $ 5,600,028 $ 8,550,000 $ 16,809,371
Bradley M. Halverson Voluntary Separation $ $ $ $ $
Long-Service Separation $ $ 1,102,719 $ 904,259 $ 766,705 $ 2,773,683
Termination for Cause $ $ $ $ $
  Termination following CIC $ $ 1,102,719 $ 1,808,518 $ 2,300,000 $ 5,211,237
Robert B. Charter Voluntary Separation $ $ $ $ $
Long-Service Separation $ $ 917,800 $ 839,233 $ 766,705 $ 2,523,738
Termination for Cause $   $   $ $   $
Termination following CIC $ $ 917,800 $ 1,678,466 $ 2,300,000 $ 4,896,266
Edward J. Rapp Voluntary Separation $ $ $ $ $
Long-Service Separation   $ $ 1,245,231 $ 1,051,025 $ 766,705   $ 3,062,961
Termination for Cause $ $ $ $ $
Termination following CIC