DEF 14A 1 cat3172421-def14a.htm DEFINITIVE PROXY STATEMENT

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

SCHEDULE 14A

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

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Caterpillar Inc.

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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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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.




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We are sending you these proxy materials in connection with Caterpillar’s solicitation of proxies, on behalf of its Board of Directors, for the 2017 Annual Meeting of Shareholders (Annual Meeting). Distribution of these materials is scheduled to begin on May 2, 2017. 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.

LETTER TO SHAREHOLDERS      
 
PROXY SUMMARY 2
Annual Meeting of Shareholders 2
Shareholder Voting Matters 2
Our Director Nominees 3
Governance Highlights 4
2016 Performance Highlights 4
 
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS 5
 
DIRECTORS & GOVERNANCE 6
Proposal 1 - Election of Directors 6
Overview of Our Board 6
Board Attendance 6
Board Evolution Since 2011 7
Diversity of Skills and Expertise 7
Global Experience 7
Director Candidate Biographies and Qualifications 8
Director Compensation 12
Board Election and Leadership Structure 13
Duties and Responsibilities of Chairman 13
Corporate Governance Guidelines and Code of Conduct 13
Board Evaluation Process 14
Board Committees 14
Board’s Role in Risk Oversight 15
Director Nominations and Evaluations 16
Director Independence Determinations 17
Communication With the Board 17
Investor Outreach 18
Awards and Recognitions 18
Sustainability 19
Political Contributions and Lobbying 19
Related Party Transactions 20
 
AUDIT 21
Proposal 2 - Ratification of our Independent Registered Public Accounting Firm 21
Audit Fees and Approval Process 21
Independent Registered Public Accounting Firm Fee Information 21
Anonymous Reporting of Accounting Concerns 22
Audit Committee Report 22
 
COMPENSATION 23
Proposal 3 - Advisory Vote to Approve Executive Compensation 23
 
COMPENSATION DISCUSSION & ANALYSIS 24
Executive Summary 24
Compensation Discussion & Analysis 28
EXECUTIVE COMPENSATION TABLES 41
2016 Summary Compensation Table 41
2016 All Other Compensation Table 42
Grants of Plan-Based Awards in 2016 43
Outstanding Equity Awards at 2016 Fiscal Year End 44
2016 Option Exercises and Stock Vested 45
2016 Pension Benefits 46
2016 Nonqualified Deferred Compensation 47
 
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL 48
Potential Payments Upon Termination or Change in Control 50
Compensation Risk 50
Proposal 4 - Advisory Vote on the Frequency of Executive Compensation Votes 51
Proposal 5 - Approve the Amended and Restated 2014 Long-Term Incentive Plan 51
 
SHAREHOLDER PROPOSALS 60
Proposal 6 - Shareholder Proposal – Provide a Report of Lobbying Activities 60
Proposal 7 - Shareholder Proposal – Decrease Percent of Ownership Required to Call Special Shareholder Meeting 62
Proposal 8 - Shareholder Proposal – Provide a Report of Lobbying Priorities 63
Proposal 9 - Shareholder Proposal – Include Sustainability as a Performance Metric under Executive Incentive Plans 65
Proposal 10 - Shareholder Proposal – Amend the Company’s Compensation Clawback Policy 67
Proposal 11 - Shareholder Proposal – Adopt a Permanent Policy that the Chairman be Independent 69
 
OTHER IMPORTANT INFORMATION 71
Persons Owning More Than Five Percent of Caterpillar Common Stock 71
Security Ownership of Executive Officers and Directors 72
Section 16(a) Beneficial Ownership Reporting Compliance 72
Matters Raised at the Annual Meeting Not Included in This Statement 73
Shareholder Proposals and Director Nominations for the 2018 Annual Meeting 73
Access to Form 10-K 73
Frequently Asked Questions Regarding Meeting Attendance and Voting 74
Admission and Ticket Request Procedure 77
 
EXHIBIT A - AMENDED AND RESTATED CATERPILLAR INC. 2014 LONG-TERM INCENTIVE PLAN 78


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David L. Calhoun
Chairman of the Board

        

DEAR FELLOW SHAREHOLDERS,


I am honored to serve your interests as Caterpillar’s recently elected non-executive chairman of the board of directors. Your board has played a very active role in recent months. Following a thorough and deliberative succession planning process, the board elected Jim Umpleby as Caterpillar’s chief executive officer effective January 1, 2017. Jim has more than 35 years of experience at Caterpillar, most recently as group president of the Energy & Transportation business segment and a member of the executive office.

Doug Oberhelman, our chairman and CEO since 2010, has retired and we want to acknowledge his enormous contributions to our company over his 41-year career. Doug led our management team through the most severe business cycle in our history. The team took extraordinary steps to optimize our manufacturing and distribution footprint, lower overhead costs, and invest in competitively differentiated technologies. Over this very challenging period we improved our competitive position, protected our financial position, and developed a very capable leadership team for the future.

A leadership transition is an appropriate time to take a fresh look at our company’s strategy. Jim has brought a diverse management team together to review our strategy and will report recommendations later this year. Caterpillar remains the worldwide market leader in an array of businesses with great prospects. We have a global dealer network that is the envy of our competitors. As our customers seek greater productivity than ever before, they require technology solutions to, among other things, make them more efficient, and increase safety, equipment utilization and performance. Caterpillar is committed to meeting those needs, and more, for all of our customers. Your board will be closely involved in this strategy review process to help ensure our choices create maximum long term value for shareholders.

Caterpillar is also committed to good governance and compliance with all regulations and laws, and we have a very robust system in place to support and monitor our performance on this commitment, which is reviewed by the board on an annual basis and by the audit committee at its regularly scheduled meetings. Employee compliance matters are brought to our attention through the Caterpillar Office of Business Practices and audit staff reviews. Caterpillar’s code of conduct, known as Our Values in Action, is applied consistently across our global enterprise, acknowledged annually by all employees and benchmarked against the best in industry. Board members must also read, understand, and acknowledge our commitment to these Values every year. We regularly benchmark our corporate governance, compensation, compliance and other practices against peers and preferences of organizations such as The Council of Institutional Investors, of which we are a member.

On March 2, 2017, federal law enforcement authorities executed search warrants at three of our Peoria-area facilities. The warrants, while also related to export filings, were connected in part to a matter we previously disclosed relating to our Switzerland-based subsidiary, CSARL. We take this matter very seriously, we are cooperating with the government investigation, and we have a strong team in place to manage this matter. Caterpillar has retained former U.S. Attorney General William P. Barr and Jim has asked him to review matters related to the search warrants, take a fresh look at Caterpillar’s disputes with the government, get all the facts, and then help bring these matters to an appropriate resolution.




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As part of our leadership transition, the board separated the roles of chairman and chief executive officer. This structure allows our new CEO to focus on running the business while, as non-executive chairman, I ensure the board is providing Jim the resources and counsel to make our company successful. We believe a strong and independent board is integral to the long term success of our company. Our move to split the chair and CEO role at this moment in time demonstrates that commitment. The board intends to review the appropriateness of this structure on a biannual basis.

We regularly review the composition and qualifications of our board, and are delighted that Ray Wilkins, a former executive of AT&T Inc., joined our board in April 2017. Ray brings a broad array of leadership and business skills, including communications and information technology expertise that will serve the emerging needs of our company and augment the Board’s knowledge in these areas.

Shareholder relationships and outreach are a critical part of the board’s oversight. In addition to regular investor relations engagement, we meet annually with many of our institutional shareholders.

The board of directors is honored to represent Caterpillar and our shareholders. We encourage you to vote your shares at the upcoming annual meeting.

Very truly yours,


David L. Calhoun
Chairman of the Board



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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 SHAREHOLDERS

Time & Date: 8:00 a.m. - June 14, 2017
Place: 250 Dozer Drive, Athens, Georgia 30606-0701
Record Date: The close of business on April 17, 2017
Admission: Please follow the instructions contained in the Admission Procedure on page 77

SHAREHOLDER VOTING MATTERS

PROPOSAL BOARD’S VOTING
RECOMMENDATION
     PAGE
REFERENCE
1     Election of thirteen Directors named in this Proxy Statement FOR each Nominee 6
2 Ratification of our Independent Registered Public Accounting Firm FOR 21
3 Advisory Vote to approve Executive Compensation FOR 23
4 Advisory Vote on the Frequency of Executive Compensation Votes One Year 51
5 Approve the Amended and Restated Caterpillar Inc. 2014 Long-Term Incentive Plan FOR 51
6 Shareholder Proposal – Provide a Report of Lobbying Activities AGAINST 60
7 Shareholder Proposal – Decrease Percent of Ownership Required to Call Special Shareholder Meeting AGAINST 62
8 Shareholder Proposal – Provide a Report of Lobbying Priorities AGAINST 63
9 Shareholder Proposal – Include Sustainability as a Performance Measure under Executive Incentive Plans AGAINST 65
10 Shareholder Proposal – Amend the Company’s Compensation Clawback Policy AGAINST 67
11 Shareholder Proposal – Adopt a Permanent Policy that the Chairman be Independent AGAINST 69

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OUR DIRECTOR NOMINEES

DIRECTOR CAT COMMITTEES
NOMINEE AND PRINCIPAL OCCUPATION

INDEPENDENT

AGE

SINCE

OTHER PUBLIC COMPANY BOARDS

AC

CC

PPGC

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

Yes

59

2011

Nielsen Holdings PLC
The Boeing Company

Daniel M. Dickinson
Managing Partner of HCI Equity Partners

Yes

55

2006

None

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

Yes

69

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

72

2011

None

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

Yes

57

2012

Chevron Corporation
Ford Motor Company
Hilton Worldwide Holdings Inc.

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

Yes

53

2011

The Boeing Company

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

Yes

69

2000

Abbott Laboratories
General Dynamics Corporation

Debra L. Reed
Chairman and CEO of Sempra Energy

Yes

60

2015

Halliburton Company
Sempra Energy

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

Yes

66

2003

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

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

Yes

62

2009

FedEx Corporation
Marriott International, Inc.
The Boeing Company

Jim Umpleby
CEO of Caterpillar Inc.

No

59

2017

None
Miles D. White
Chairman and CEO of Abbott Laboratories

Yes

62

2011

Abbott Laboratories
McDonald’s Corporation

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

Yes

65

2017

Morgan Stanley
Valero Energy Corporation


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

  Chair
  Member


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GOVERNANCE HIGHLIGHTS

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

BOARD AND GOVERNANCE INFORMATION               BOARD AND GOVERNANCE INFORMATION       
Size of Board 13 Average Director Tenure 7 years
Number of Independent Directors 12 Supermajority Voting Threshold for Mergers No
Average Age of Directors 62 Proxy Access   Yes
Board Meetings Held in 2016 9 Shareholder Action by Written Consent No
Annual Election of Directors   Yes Shareholder Called Special Meetings Yes
Mandatory Retirement Age 72 Poison Pill No
Women and Minority Board Members 38% 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 Yes Anti-Hedging and Pledging Policies Yes
Independent Chair Yes Compensation Recoupment Policy Yes

2016 PERFORMANCE HIGHLIGHTS

 
DIVIDEND PAYMENTS             COST REDUCTION             STRONG BALANCE SHEET
 

$1.8 billion

Our dividend has remained a high priority throughout this difficult economic cycle and in 2016 we paid $1.8 billion in dividends to shareholders.

Caterpillar has paid a cash dividend every year since the Company was formed and has paid a quarterly dividend since 1933.

~$2.3 billion

Period costs and variable manufacturing costs were $2.3 billion lower in 2016 – restructuring and cost reduction actions and lower incentive pay helped mitigate the impact of lower sales.


$7.2 billion

Despite significant restructuring costs, we ended 2016 with $7.168 billion of cash on the balance sheet and Machinery, Energy & Transportation (ME&T) debt-to-capital ratio at 41%.

 

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

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

Date:       June 14, 2017
Time: 8:00 a.m.
Place: 250 Dozer Drive
Athens, GA 30606-0701
Record Date: April 17, 2017

MEETING AGENDA:

 
Elect thirteen director nominees named in this Proxy Statement
Ratify our independent registered public accounting firm for 2017
Approve, by non-binding vote, executive compensation
Approve, by non-binding vote, the frequency of executive compensation votes
Vote to approve the Amended and Restated 2014 Long-Term Incentive Plan
Vote on shareholder proposals
Any other business that properly comes before the meeting

PLEASE VOTE YOUR SHARES

 

   
We encourage shareholders to vote promptly, as this will save the expense of additional proxy solicitation. You may vote in the following ways:                                                
    By Internet     By Mobile Device    By Telephone    By Mail
 

 
vote online at
www.caterpillar.com/
proxymaterials

 
scan this QR code
to vote with your
mobile device

 
call the number
included on your
proxy card or notice

 

 
mail your signed
proxy or voting
instruction form

 


By Order of the Board of Directors


Christopher M. Reitz
Corporate Secretary
May 2, 2017

Important Notice Regarding the Availability of Proxy Materials

This Notice of Annual Meeting and Proxy Statement and the 2016 Annual Report on Form 10-K are available at www.eproxyaccess.com/cat2017.



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PROPOSAL 1 – ELECTION OF DIRECTORS

PROPOSAL SNAPSHOT
What am I voting on?

Shareholders are being asked to elect thirteen 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

 
GENDER AND
DIVERSITY
            DIRECTOR
AGE
            DIRECTOR
TENURE
 

BOARD ATTENDANCE

 
Board 9 9 9 9 9 8 9 9 9 7 9 9 8
Audit 11   11       11   11        
Compensation &
Human Resources
7 7     7         7     7
Public Policy &
Governance
5     5   5         5 5  




98%
Attendance for 2016



The Board’s policy is that directors should attend the annual shareholder meeting. All directors attended the 2016 shareholder meeting. The independent directors generally meet in executive session as part of each regularly scheduled Board meeting. Ed Rust, who was Caterpillar’s Presiding Director in 2016, presided over the executive sessions in 2016.

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BOARD EVOLUTION SINCE 2011

Eight new directors elected

Full rotation of Board committee chairs

Independent Chairman 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.


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The Board has nominated the following individuals to stand for election for a one-year term expiring at the annual meeting of shareholders in 2018.

The number of persons comprising the Caterpillar Board of Directors is currently established as thirteen. If any of the Board’s nominees should become unavailable to serve as a Director prior to the Annual Meeting, the size of the Board and number of Board nominees will be reduced accordingly.

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, 2017.

               
 

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 59
Nielsen Holdings PLC
 
The Boeing Company
Other directorships within the last five years Director Since 2011
Medtronic, Inc
Caterpillar Committee Independent Chairman of the Board
Compensation

Key Qualifications and Skills:

Mr. Calhoun was previously Executive Chair of Nielsen Holdings N.V. (marketing and media information) (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).

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 firm)

Other current directorships (0) Age 55
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 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

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

Other current directorships (3) Age 69
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 retired as the CEO of Organización CULTIBA, S.A.B. de C.V. in 2016. Mr. Gallardo resides in Mexico where Caterpillar has a presence. The Board believes that Mr. Gallardo’s international business experience, particularly in Latin America and South America, is important for the Company’s understanding of these 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.

     

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JESSE J. GREENE, JR.

Instructor at Columbia Business School

Other current directorships (0) Age 72
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 57
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 CEO of The Boeing Company (aircraft and defense)

Other current directorships (1) Age 53
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.

     

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WILLIAM A. OSBORN

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

Other current directorships (2) Age 69
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 CEO of Sempra Energy (energy infrastructure and utilities)

Other current directorships (2) Age 60
Halliburton Company
 
Sempra Energy
 
Other directorships within the last five years Director Since 2015
None
Caterpillar Committee Independent
Compensation

Key Qualifications and Skills:

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.

     

               
 

EDWARD B. RUST, JR.

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

Other current directorships (2) Age 66
Helmerich & Payne, Inc.
 
S&P Global Inc.
Other directorships within the last five years Director Since 2003
None
Caterpillar Committee Independent
Public Policy and Governance, Chair

Key Qualifications and Skills:

Mr. Rust retired as Chairman in 2017 and as Chief Executive Officer in 2016 of State Farm Mutual Automobile Insurance Company.

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.

     

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SUSAN C. SCHWAB

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

Other current directorships (3) Age 62
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.

     

               
 

JIM UMPLEBY

CEO of Caterpillar Inc.

Other current directorships (0) Age 59
None
Other directorships within the last five years Director Since January 2017
None
Caterpillar Committee Management
None

Key Qualifications and Skills:

Prior to his current position, Mr. Umpleby served as a Group President of Caterpillar Inc. 2013 to 2016) and before that served as a Vice President of Caterpillar Inc. (2010 to 2013).

The Board believes that Mr. Umpleby’s extensive experience and knowledge of the Company, gained in a wide range of Caterpillar leadership positions in engineering, manufacturing, marketing, sales and services enables him to provide meaningful input and guidance to the Board and the Company.

     

               
 

MILES D. WHITE

Chairman and CEO of Abbott Laboratories (pharmaceuticals and biotechnology)

Other current directorships (2) Age 62
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.

     

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RAYFORD WILKINS, JR.

Former Chief Executive Officer of Diversified Businesses at AT&T (telecommunications)

Other current directorships (2) Age 65
Morgan Stanley
 
Valero Energy Corporation
Other directorships within the last five years Director Since April 2017
América Móvil, S.A.B. de C.V.
Caterpillar Committee Independent
Audit

Key Qualifications and Skills:

The Board believes that Mr. Wilkins’ expertise and oversight experience in the information technology area is valuable to the Board. In addition, his experience as an executive officer and director of other large, publicly-traded corporations enables him to provide meaningful input and guidance to the Board and the Company. Mr. Wilkins was brought to the attention of the Board through a professional search firm.

     

DIRECTOR COMPENSATION

Compensation for non-employee directors for 2016 was comprised of the following components:

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

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

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 2016
DIRECTOR FEES EARNED OR
PAID IN CASH
RESTRICTED
STOCK UNITS
1
ALL OTHER
COMPENSATION2
TOTAL
David L. Calhoun $150,000 $125,015         $         $275,015
Daniel M. Dickinson       $150,000       $125,015       $ 32,696       $307,711
Juan Gallardo $150,000 $125,015 $ 13,051 $288,066
Jesse J. Greene, Jr. $150,000 $125,015 $ 2,000 $277,015
Jon M. Huntsman, Jr. $150,000 $125,015 $ $275,015
Dennis A. Muilenburg $150,000 $125,015 $ $275,015
William A. Osborn $170,000 $125,015 $ 13,051 $308,066
Debra L. Reed $150,000 $125,015 $ 2,100 $277,115
Edward B. Rust, Jr. $175,000 $125,015 $ 22,833 $322,848
Susan C. Schwab $150,000 $125,015 $ 15,000 $290,015
Miles D. White $170,000 $125,015 $ 8,000 $303,015

1 As of December 30, 2016, the number of vested and non-vested options (NQs), RSUs and Phantom Shares held by each individual serving as a non-employee director during 2016 was: Mr. Calhoun: 12,197 (which consists of 1,672 RSUs and 10,525 Phantom Shares); Mr. Dickinson: 26,101 (which consists of 1,672 RSUs and 24,429 Phantom Shares); Mr. Gallardo: 34,400 (which consists of 5,833 SARs, 1,672 RSUs and 26,895 Phantom Shares); Mr. Greene: 1,672 RSUs; Mr. Huntsman: 1,672 RSUs; Mr. Muilenburg: 1,672 RSUs; Mr. Osborn: 2,036 (which consists of 1,672

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RSUs and 364 Phantom Shares); Ms. Reed: 4,897 (which consists of 1,672 RSUs and 3,225 Phantom Shares); Mr. Rust: 34,083 (which consists of 1,672 RSUs and 32,411 Phantom Shares); Ms. Schwab: 11,091 (which consists of 1,672 RSUs and 9,419 Phantom Shares); and Mr. White: 7,802 (which consists of 1,672 RSUs and 6,130 Phantom Shares). Mr. Calhoun, Mr. Dickinson, Mr. Gallardo, Ms. Reed, Mr. Rust, Ms. Schwab and Mr. White deferred 100 percent of their 2016 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. Dickinson $2,250, Mr. Greene $2,000, Ms. Reed $2,100, Mr. Rust $13,500, Ms. Schwab $15,000 and Mr. White $8,000. For directors eligible to participate in the Directors’ Charitable Award Program, the amounts represented include the insurance premium and administrative fees. The premium and administrative fees are as follows: Mr. Dickinson $30,446, Mr. Gallardo $13,051, Mr. Osborn $13,051 and Mr. Rust $9,333.

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.

On January 1, 2017, Jim Umpleby, formerly Group President with responsibility for Energy & Transportation, succeeded Douglas R. Oberhelman as Chief Executive Officer and was appointed as a member of our Board of Directors. In planning for the succession of Mr. Oberhelman, the Public Policy and Governance Committee (PPGC) and the Board carefully reviewed the Board’s leadership structure and determined that it would be appropriate to separate the roles of the Chairman and Chief Executive Officer and to appoint an independent Chairman. Accordingly, on April 1, 2017 David L. Calhoun became our independent Chairman.

The Board has no fixed policy on whether or not to have a non-executive chairman. The Board believes this determination should be made based on the Company’s best interests in light of the circumstances at the time and experience. The PPGC and the Board believe that this leadership structure is the most appropriate one for the Company at this time, as it allows Mr. Umpleby to focus on the day-to-day management of the business and on executing our strategic priorities, while allowing Mr. Calhoun to focus on leading the Board, providing its advice and counsel to Mr. Umpleby, and facilitating the Board’s independent oversight of management.

The Board believes it is important to maintain flexibility as to the Board’s leadership structure. The Board will continue to regularly review its leadership structure and exercise its discretion in recommending an appropriate and effective framework on a case-by-case basis, taking into consideration the needs of the Board and the Company at such time.

DUTIES AND RESPONSIBILITIES OF CHAIRMAN

Presides at all meetings of the Board.
Encourages and facilitates active participation of all directors.
Serves as a liaison between the independent directors and the Chief Executive Officer.
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 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 shareholder

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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.

BOARD EVALUATION PROCESS

The Board conducts an annual self-evaluation to determine whether the Board and its committees are functioning effectively. In 2016, the Presiding Director contacted each Board member to solicit their feedback. The Public Policy & Governance Committee also developed a discussion outline that was circulated to the Board members in advance of their year-end meeting. The Presiding Director then led a discussion during the Board’s private session. Each of the committees of the Board followed a similar process.

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
Rayford Wilkins, Jr.
William A. Osborn, Chair
(pictured below)

Number of Meetings
in 2016:
11

COMMITTEE ROLES AND RESPONSIBILITIES
 
Selects and oversees the independent auditors
 
Involved in selecting the independent auditors’ lead audit partner
 
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
 
Discusses information technology systems and related security
    

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COMPENSATION COMMITTEE
 
         

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

Number of Meetings
in 2016:
7

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
    

PUBLIC POLICY AND GOVERNANCE COMMITTEE
 
         

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

Number of Meetings
in 2016:
5


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.

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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 shareholders, management, directors 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 a director’s responsibilities and serve on no more than four public company boards in addition to the Company’s Board.

DIRECTOR RECRUITMENT PROCESS

    Candidate
Recommendations
PPGC Board of Directors Shareholders    
from Shareholders,
Management, Directors
& Other Sources

Discusses

Reviews
Qualifications & expertise

Board needs

Regulatory requirements

Cognitive diversity

Interviews

Recommends Nominees

Discusses PPGC
Recommendations

Analyzes
Independence

Selects Nominees

Vote on Nominees
at Annual Meeting
                 

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

BUSINESS CHARACTERISTICS

      

QUALIFICATIONS, SKILLS AND EXPERIENCE

The Company is a global manufacturer with products sold around the world.
Manufacturing or logistics 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
Cybersecurity experience

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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.

NOMINATIONS FROM SHAREHOLDERS

The PPGC considers unsolicited inquiries and director nominees recommended by shareholders in the same manner as nominees from all other sources. Recommendations should be sent to the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. Shareholders may nominate a director candidate to serve on the Board by following the procedures described in our bylaws. Deadlines for shareholder nominations for Caterpillar’s 2018 annual meeting of shareholders are included in the “Shareholder Proposals and Director Nominations for the 2018 Annual Meeting” section on page 73.

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 Jim Umpleby, who is a current employee of the Company.

COMMUNICATION WITH THE BOARD

Shareholders, employees and all other interested parties may communicate with any of our directors, 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 Chairman 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 direct your message to the appropriate area of our Company.

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INVESTOR OUTREACH

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

                           
WHO PARTICIPATES IN THE INVESTOR OUTREACH PROGRAM?     IN WHAT TYPES OF ENGAGEMENT DOES THE COMPANY PARTICIPATE?  
 
Board of Directors
Senior Management
Investor Relations
Corporate Secretary
 
Investor conferences
One-on-one meetings
Earnings calls
Investor and analyst calls
   

AWARDS AND RECOGNITIONS

Third parties regularly recognize our employees’ innovation, leadership and workplace satisfaction. We are pleased to highlight some of these 2016 awards here.

SOCIAL RESPONSIBILITY AND SUSTAINABILITY         CORPORATE REPUTATION AND LEADERSHIP
Dow Jones Sustainability Index – World and North America
United Way Worldwide’s Global Corporate Leadership Program
Golden Peacock Award for Sustainability (India)
AmCham Cares Award – American Chamber of Commerce in Singapore (Singapore)
Top 10 Companies for Contribution of Fortune Global 500 (China)
2016 China Philanthropic Enterprise of the Year (China)
2016 China CSR Award (China)
2016 Best Partner Award of Foreign-Invested Enterprises (China)
China Baosteel Environmental Award – China Environmental Protection Foundation (China)
Poverty Alleviation Ambassador Award – China Foundation for Poverty Alleviation (China)
 
World’s Most Admired Companies – Fortune Magazine
ANNY Excellence in Analytics Award – International Institute for Analytics
Best Global Brands Top 100 – Interbrand
Top 50 Best Companies To Interview For – Glassdoor
Top 10 Employer – Woman Engineer Magazine
Top 150 Global Licensors – Global License
Top 25 Noteworthy Companies – DiversityInc
Top 50 Employer – CAREERS & the disABLED Magazine
Dedicated to STEM Diversity – Diversity in Action
Leading Disability Employer – National Organization on Disability
U.S. Military Friendly® Employer
Best Industry to Work For in Brazil – Você S/A Magazine (Brazil)
Top 5 Best Companies to Work For in Brazil – Época Magazine (Brazil)
Top 10 Best Companies to Work For in Brazil (Perkins - Brazil)
The UK’s Most Popular Graduate Recruiters 2016/17 (United Kingdom)
Top 100 Undergraduate Employers (United Kingdom)
Family Friendly Employer (Mexico)
#2 Great Place to Work (Panama)
#3 Great Place to Work (Central America)

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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 AND LOBBYING

The actions that governments take can impact the Company, our employees, customers, and shareholders. It is important for government leaders to understand the impact of such actions. For this reason, the Company participates in the political process and advocates in a responsible and constructive manner on issues that advance the Company’s goals and protect shareholder value.

To promote transparency and good corporate citizenship, the Company provides voluntary disclosure relating to the political contribution activities of the Company and its political action committee, its engagement in public policy issues and global issues of importance to the Company, including detailed information on the Company’s position with respect to such issues. This information is disclosed on our website

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www.caterpillar.com/contributions and includes an itemized list of organizations and individuals that received political contributions from Caterpillar or the Caterpillar Political Action Committee. It also includes a summary of some of the public policy issues important to the Company that may cause us to engage in public advocacy.

Caterpillar’s political and advocacy activities, at both the state and federal levels, are managed by the Vice President, Global Government & Corporate Affairs who coordinates and reviews with senior management the legislative and regulatory priorities that are significant to the Company’s business and shareholders, as well as related advocacy activities. To ensure appropriate Board oversight of political activities, the Board’s Public Policy and Governance Committee receives regular briefings on the Company’s legislative and regulatory priorities, the Company’s political spending and trade association expenditures as well as the activities of Caterpillar’s Political Action Committee.

RELATED PARTY TRANSACTIONS

Caterpillar has a written process governing the approval of transactions with the Company that are expected to exceed $120,000 in any calendar year in which any director, executive officer or their immediate family members will have a material interest. 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.

The Board concluded that each director, other than Mr. Umpleby, is independent. In reaching this determination the Board considered, with respect to Ms. Reed, ordinary course business between Sempra Energy and Caterpillar involving the purchase or sale of equipment, engines and energy.


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PROPOSAL 2 – RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PROPOSAL SNAPSHOT
What am I voting on?

The Board seeks an indication from shareholders of their approval or disapproval of the Audit Committee’s appointment of PricewaterhouseCoopers as the Company’s independent auditor for 2017.

Voting Recommendation:
FOR the ratification of our independent registered public accounting firm.


The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent auditor. PricewaterhouseCoopers has been our independent auditor since 1925. The Audit Committee believes that the retention of PricewaterhouseCoopers to serve as the Company’s independent auditor is in the best interests of the Company and its shareholders. If the appointment of PricewaterhouseCoopers is not approved by the shareholders, 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 auditor 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 auditor included the following (in millions):

      2016       2015
Audit Fees1 $ 33.3 $ 32.0
Audit-Related Fees2   1.2 1.3
Tax Compliance Fees3 0.4 0.4
Tax Planning And Consulting Fees4 0.1 0.2
All Other Fees5   0.1 19.8
TOTAL $ 35.1 $ 53.7

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1 “Audit Fees” principally includes audit and review of financial statements (including internal control over financial reporting), statutory and subsidiary audits, SEC registration statements, comfort letters and consents.
2 “Audit-Related Fees” principally includes attestation services requested by management, accounting consultations, pre- or post- implementation reviews of processes or systems and audits of employee benefit plan financial statements. Total fees paid directly by the benefit plans, and not by the Company, were $0.6 million in 2016 and $1.0 million in 2015 and are not included in the amounts shown above.
3 “Tax Compliance Fees” includes, among other things, statutory tax return preparation and review and advice on the impact of changes in local tax laws.
4 “Tax Planning and Consulting Fees” includes, among other things, tax planning and advice and assistance with respect to transfer pricing issues.
5 “All Other Fees” consist principally of strategy consulting services provided by Booz & Company, which was acquired by PricewaterhouseCoopers in 2014 and renamed Strategy&. The Company stopped engaging Strategy& in 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, shareholder or other interested party can submit a report via the following methods:

Direct Telephone: 309-494-4393 (English only)
Call Collect Helpline: 770-582-5275 (language translation available)
Confidential Fax: 309-494-4818
Email: BusinessPractices@CAT.com
Internet: www.caterpillar.com/obp

AUDIT COMMITTEE REPORT

The Audit Committee is composed of four directors, all of whom meet the independence standards contained in the NYSE Listed Company rules, SEC rules and Caterpillar’s Guidelines on Corporate Governance Issues, and operates under a written charter adopted by the Board of Directors.

Management is responsible for the Company’s internal controls and the financial reporting process. PricewaterhouseCoopers, acting as independent auditor, is responsible for performing an independent audit of the Company’s consolidated financial statements and internal control over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board (PCAOB).

The Audit Committee has discussed with the Company’s independent auditor the overall scope and execution of the independent audit and has reviewed and discussed the audited financial statements with management. The 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 also considered whether the provision of other non-audit services by the Company’s independent auditors to the Company is compatible with maintaining independence.

The 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, 2016.

By the members of the Audit Committee as of April 1, 2017 consisting of:

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


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PROPOSAL 3 – ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

PROPOSAL SNAPSHOT
What am I voting on?

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

Voting Recommendation:
FOR proposal

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

“RESOLVED, that the compensation of Caterpillar’s named executive officers as described under “Compensation Discussion and Analysis,” the compensation tables and the narrative discussion associated with the compensation tables in Caterpillar’s proxy statement for its 2017 Annual Meeting of Shareholders 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 shareholders, and to the extent there is any significant vote against Caterpillar’s named executive officer compensation, the Board will consider the reasons for such a vote, and the Committee will evaluate whether any actions are necessary to address those concerns.

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COMPENSATION DISCUSSION & ANALYSIS

EXECUTIVE SUMMARY

I. Governance and Pay for Performance Philosophy
 
II. Compensation Program Structure
 
III. Business Performance and Results
 
IV.  Pay Outcomes Demonstrate Alignment with Company Performance

I. GOVERNANCE AND PAY FOR PERFORMANCE PHILOSOPHY

The Compensation and Human Resources Committee (the Committee) believes the executive compensation program at Caterpillar should be structured to align the interests of executives and shareholders. The program should seek to reward value creation at all stages of our business cycle, and provide an increasing percentage of performance-based compensation at higher levels of executive responsibility.

Beginning in 2015, we significantly expanded our ongoing shareholder outreach program. The feedback received through this engagement led us to make changes to our executive compensation program for our senior leadership team including the following:

Annual Incentive   Long-Term Incentive
 
The maximum payout opportunity of awards in the Annual Incentive Plan (AIP) for Named Executive Officers (NEOs) decreased from 200 percent of target to 150 percent of target.
In years when the Company’s forecasted operating profit is below prior year’s actual results: (i) NEO annual incentive opportunity is reduced, and (ii) AIP payouts are capped at target.
The proportion of Performance-Based Restricted Stock Units (PRSUs) increased from 1/3 to 1/2 of the total long-term target incentive value.
The sizing of long-term incentive grant values is based on relative 1, 3 and 5-year Total Shareholder Return (TSR) as compared to the S&P Industrials, Compensation Peer Group and Competitor Peer Group that the Committee has determined compete directly with the Company.

These changes were well received by our shareholders, and support for our advisory vote on our executive compensation at our 2016 Annual Meeting, commonly referred to as the “say on pay” vote, was approximately 93%, up from 65% support in the prior year. After considering the 2016 “say on pay” results, the Committee determined that the Company’s executive compensation philosophy, compensation objectives and compensation elements continued to be appropriate and did not make any specific changes to the Company’s executive compensation program in response to the 2016 “say on pay” vote.   Say on Pay Support
                
 
93% 65% 96%
2016 2015 2014
 

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In 2016, we continued our shareholder outreach effort, reaching out to the holders of approximately half of our outstanding shares, to discuss various matters including governance, executive compensation, sustainability and operational performance. In these meetings, our shareholders generally expressed a continued positive view with respect to our executive compensation program.

The Committee engages in an ongoing review of the Company’s executive compensation program to evaluate whether the program supports the Company’s compensation philosophy and objectives, and is closely aligned with the Company’s business objectives. In connection with this ongoing review, and based on feedback received through our shareholder outreach program, the Committee continues to implement and maintain what it believes are best practices for executive compensation, each of which reinforces the Company’s compensation philosophy. Below is a summary of those practices.

   
   
Robust stock ownership and retention guidelines (6x base salary for our CEO and 3x base salary for each of the other NEOs)
Robust benchmarking process
Rigorous Committee oversight of incentive metrics, goals and pay/performance relationship
Clawback Policy
Limited executive perquisites
Strict anti-hedging and anti-pledging policies
Independent compensation consultant
No individual change-in-control agreements
No tax gross-ups on change-in-control benefits
No backdating, re-pricing or granting of option awards retroactively

II. COMPENSATION PROGRAM STRUCTURE

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 shareholders. To that end, the objectives of the Company’s executive compensation program are to attract and retain talented executive officers and to incent NEOs to improve Company performance and provide strategic leadership over the long term. The majority of targeted annual compensation for our NEOs is equity-based, vests over multiple years and is tied directly to long-term value creation for shareholders. NEO compensation is comprised of three primary components:

                     

Long-Term
Incentive

     
             

Annual Incentive

Base Salary
 

Competitive pay to attract and retain talented executives

     

An opportunity to earn an annual cash award based on the Company’s financial performance and high-priority business initiatives

     

A mix of PRSUs and stock options to align management with long-term shareholder interests

 

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Approximately 91 percent of our CEO’s 2016 targeted annual total compensation was variable and/or at-risk compensation, including 50 percent of long-term incentives in the form of PRSUs.

CEO Compensation Elements

91% of total compensation is variable and at-risk
 
9% 16% 37.5% 37.5%
Salary AIP Options PRSUs
   
50% of long-term incentives have performance-based vesting conditions

III. BUSINESS PERFORMANCE AND RESULTS

Our key financial and business results for 2016 included the following:

Cost Structure   

Dividend Payments and History

Paid $1.8 billion in dividends in 2016. Caterpillar has paid higher dividends to its shareholders for 23 consecutive years, and since 2007, the Company’s cash dividend has more than doubled. Caterpillar has paid a cash dividend every year since the Company was formed and has paid a quarterly dividend since 1933.

In 2016, Machinery, Energy & Transportation (ME&T) period costs and variable manufacturing costs were $2.3 billion less than 2015.
     

Strong Balance Sheet and Cash Flow

In 2016, ME&T operating cash flow was $3.9 billion and we maintained positive cash flow after capital expenditures (CAPEX) and dividends.
Enterprise cash on hand at the end of the year was $7.2 billion.
ME&T debt-to-capital ratio was 41 percent, within the targeted range of 30 to 45 percent.

Sales and Revenues
2016 Sales and Revenues By Segment

($ in millions)

   
     

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IV. PAY OUTCOMES DEMONSTRATE ALIGNMENT WITH COMPANY PERFORMANCE

In addition to the financial highlights noted above, the Company’s stock price increased 36.5% in 2016 and TSR for 2016 was 42%. Notwithstanding this increase in shareholder value and the accomplishments noted above, it was a challenging year for our business due to, among other things, continued weak global commodity prices and economic weakness in many countries. The challenges in our business were reflected in the resulting pay decisions made for our CEO and the other NEOs, consistent with the Committee’s pay-for-performance philosophy. Compensation outcomes for 2016 included the following items which adversely affected the compensation of our NEOs:

   
No adjustments were made to NEO base salaries in 2016
Because 2016 planned operating profit was below 2015 actual operating profit, the Committee determined that 2016 was a “down” year for purposes of 2016 AIP design.
 
Each NEO’s annual incentive opportunity was reduced by 20.9 percent in 2016, to reflect the same proportionate reduction in planned 2016 operating profit versus 2015 actual operating profit results.
 
Payouts for 2016 AIP were capped at the target level with no “upside” opportunity.
 
Actual annual incentive awards for 2016 paid out, on average, at less than 30% of target.
Based on the Committee’s review of the Company’s 1, 3 and 5-year relative TSR in early 2016, the 2016 equity grants to the NEOs were sized at approximately the 25th percentile of the compensation peer group.
 
The long-term cash incentive award for the 2014-2016 cycle paid out at approximately 56% of target.
 
None of the PRSUs granted for the 2015-2017 performance period vested in 2016 and, based on aggregate performance in 2015 and 2016, are trending significantly below target.

In 2016, our CEO’s compensation was substantially below target level in the aggregate as well as for each component of compensation other than base salary. This reduction reflects the very weak market conditions that the Company faced in 2016 and not an operating shortfall in the judgement of the Committee.

     
CEO Compensation


* Target Value Includes: Salary of $1,600,008, annual incentive of $2,800,000; and LTI grant of $9,273,300. Total Target value: $13,673,308.
** Actual Value Includes: Salary of $1,600,008, annual incentive of $518,000; and LTI grant of $8,268,000. Total Actual value: $10,386,008.

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COMPENSATION DISCUSSION & ANALYSIS

2016 NAMED EXECUTIVE OFFICERS

 

Douglas R. Oberhelman
Chairman and
Chief Executive Officer (CEO)
       
Douglas R. Oberhelman retired from the role of CEO on December 31, 2016 and remained the Executive Chairman until his retirement from the Company on March 31, 2017. In 2016, Mr. Oberhelman improved the operational execution of the Company by continuing to focus on:
Cost Management: ME&T period costs and variable manufacturing costs were $2.3 billion lower than 2015
Employee Safety: sixth consecutive year of improving employee safety
Product Quality: improved product quality and reliability metrics for machines
Market Position: machine market share saw gains over the previous 2 years
 
   
 


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

 
Bradley M. Halverson is Group President and Chief Financial Officer with responsibilities for Corporate Services and Financial Products Division. In 2016, Mr. Halverson:
Maintained a strong financial position for the Company through the continuing cyclical decline in key end markets
Provided strategic leadership in connection with the Company’s cost reduction actions
Delivered Return On Equity in line with plan for the Company’s captive finance company, Caterpillar Financial Services
Managed credit metrics within long-term ranges despite weak end markets
 
 
 


Robert B. Charter
Group President, Customer &
Dealer Support

Robert B. Charter is Group President with responsibility for Customer & Dealer Support. In 2016 Mr. Charter:
Led Caterpillar’s growing aftermarket business in partnership with the various business units and dealers
Maintained aftermarket performance despite challenging end markets such as oil and gas and mining
Improved inventory management including deploying systems utilized across the Global Caterpillar Dealer network
 
 
 


Jim Umpleby
Group President,
Energy & Transportation

Jim Umpleby became CEO on January 1, 2017. Prior to his role as CEO, Mr. Umpleby was Group President with responsibility for Energy & Transportation. In a challenging year with declining sales in key end markets, Energy & Transportation delivered the following results:
Achieved strong profit pull through and cash flow due to aggressive cost management
Made key acquisitions in 2016 in both Oil & Gas and Rail businesses focusing on digital technologies and customer connectivity
Improved quality and safety in 2016
 
 
 


David P. Bozeman
Senior Vice President,
Caterpillar Enterprise
System Group

David P. Bozeman served as Senior Vice President of the Caterpillar Enterprise System Group until his departure on December 31, 2016. Under Mr. Bozeman’s leadership, Caterpillar strengthened critical order-to-delivery processes while empowering enterprise support groups to improve the Company’s worldwide manufacturing and supply chain capabilities. During his tenure, the Company:
Executed the global deployment of Lean Transformation
Established the Engineered Value Chain methodology
Reinforced foundation capabilities of Product Source Planning, Sales & Operations Planning, Global Supply Network, Capacity Planning and New Production Introduction
 

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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 the Company’s 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 shareholders. The responsibilities of the Committee are described more fully in its charter, which is available at www.caterpillar.com/governance.

COMPENSATION CONSIDERATIONS

The Committee, with the support of management and the independent compensation consultant, considers many aspects of the Company’s financial and operational performance when making executive compensation decisions.

In setting compensation levels for 2016, the Committee considered many factors including, but not limited to:

Long-term shareholder value creation
The cyclical nature of the business
Performance relative to financial guidance provided throughout the year
Enterprise and Business Unit operational performance
Performance relative to peers and competitors
Historic absolute and relative performance
Key areas management can influence over the short and long term
Retention of management talent
Skills, experience and tenure of executive incumbents

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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 executive compensation and benefits. 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 2016, 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

2016 Compensation Peer Group – The Committee regularly assesses the market competitiveness of the Company’s executive compensation programs based on peer group data. The 2016 Compensation Peer Group was established based on the following criteria:

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

Competitors and industry segment;
 

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

Geographic footprint


2016 COMPENSATION PEER GROUP*
3M Company      E.I. du Pont de Nemours and Company      Honeywell International Inc.
Archer-Daniels-Midland Company Emerson Electric Co. Intel Corporation
Alcoa Inc. FedEx Corporation Johnson Controls, Inc.

The Boeing Company

Fluor Corporation

Paccar Inc.

Cisco Systems, Inc.

Ford Motor Company

Procter & Gamble Company
Coca-Cola Company General Dynamics Corporation Raytheon Company
Cummins Inc. General Electric Company United Technologies Corporation
Deere & Company Halliburton Company

* The 2016 peer group was modified from 2015 to add Paccar Inc. and remove Parker-Hannifin Corporation and Illinois Tool Works, Inc.

Benchmarking Methodology – To account for differences in the size of the compensation 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 our 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 reflective of an individual who is newer in his or her role.

2016 Competitor Peer Group – 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, the Committee further sought to compare the Company’s business performance with that of its competitors by establishing a “Competitor Peer Group.”

The Committee formed the 2016 Competitor Peer Group (along with the 2016 Compensation Peer Group) to assess relative performance when sizing long-term incentive awards. The 2016 Competitor Peer Group was established based on the following criteria:

Compete in the same markets as the Company;
 

Offer similar products and services as the Company; or
 

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


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

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ROLE OF EXECUTIVE OFFICERS IN DETERMINING EXECUTIVE COMPENSATION

The Board, excluding the CEO, all of whom are independent directors, annually conducts the CEO’s performance evaluation. Prior to the Board’s evaluation of the CEO’s performance and its approval of CEO compensation, the Committee makes a preliminary compensation recommendation to the Board based on the Committee’s initial evaluation and performance review of the CEO. Additionally, for each NEO, the CEO presents a performance evaluation and makes compensation recommendations to the Committee.

On December 31, 2016, Mr. Oberhelman retired from the role of CEO and remained the Executive Chairman until his retirement on March 31, 2017. Mr. Umpleby was promoted to the position of CEO effective January 1, 2017. In early 2017, NEO performance was reviewed and discussed by the Compensation Committee with Mr. Umpleby. These performance evaluations factored into the compensation decisions made by the Committee and, in the case of Messrs. Oberhelman and Umpleby, by the independent members of the Board.

EXECUTIVE COMPENSATION AND RISK MANAGEMENT

Each year, the Committee assesses the Company’s risk profile relative to the executive compensation program and confirms that the Company’s compensation programs and policies do not create or encourage excessive risks that are reasonably likely to have a material adverse impact on the Company. Also, the Committee has concluded that the total compensation structure for senior leadership does not inappropriately emphasize short-term stock price performance at the expense of longer-term value creation. In particular, long-term incentive awards, as a significant portion of total compensation, and stock ownership guidelines which NEOs are required to maintain pre- and post-retirement (6x base salary for our CEO and 3x base salary for each of the other NEOs), are structured to align management’s compensation with principles of risk management by maintaining a focus on the long term performance of the Company.

COMPONENTS OF EXECUTIVE COMPENSATION

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

CEO

9% 16% 75%
Salary Annual Incentive* Long-term Incentive*

Average of Other NEOs

13% 15% 72%
Salary Annual Incentive* Long-term Incentive*

* At target

BASE SALARY

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

Mr. Oberhelman’s base salary had not increased since 2012 and remained in line with the median base salary of CEOs in the Company’s 2016 compensation peer group. Additionally, there were no changes to salary levels for any of the NEOs in 2016. Upon his promotion to the position of CEO, Mr. Umpleby’s 2017 salary was set at $1.2 million which

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is below the peer group median. In setting Mr. Umpleby’s base salary, the Board took into consideration several factors including market data of other recently appointed CEOs relative to peer group medians. Other NEOs’ base salaries are at or below the peer group median primarily due to the relatively recent promotions of some of these individuals to their current roles.

ANNUAL INCENTIVE

2016 ANNUAL INCENTIVE PLAN DESIGN

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

The 2016 AIP design provided that an incentive pool would be funded based on the Company’s profit after taxes, with actual payouts based on achieving financial and operational performance measures that were established by the Committee in February 2016. Also, beginning in 2016, the Committee modified the AIP design to more closely align pay outcomes with business performance by comparing the Company’s annual forecasted operating profit to the prior year’s actual operating profit. Based on this comparison, the Committee annually determines whether the current year will be an “up year” or “down year” versus the prior year’s actual operating profit results.

“Up Year”

If the operating profit forecast is above the prior year’s actual operating profit results

 

Threshold performance level will be set at no less than 87 percent of the operating profit target.


Business
Plan
       

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.

Achievement of the target level operating profit performance goal will result in a payout of 100 percent of the target award opportunity.

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 under the program with respect to this measure.





 

“Down Year”

If the operating profit forecast is below the prior year’s actual operating profit results, target incentive award opportunity for each NEO will be reduced in proportion to the decline in the operating profit

 

Threshold performance level will be set at no less than 87 percent of the operating profit target.


Business
Plan
   

In a “down year,” there will be no upside opportunity above the target level.

 

Performance at threshold will result in a payout of 50 percent of the reduced target award opportunity for the year.

Performance below threshold will result in no annual incentive payout under the program with respect to this measure.







In addition to operating profit performance, a portion of each NEO’s annual incentive will be based on operational performance measures related to their responsibilities, such as cost reduction, machine PINS (market position), aftermarket parts sales, Financial Products Division Return on Equity (FPD ROE) and inventory performance, all of which are subject to the same design above.

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Consistent with this design process, after reviewing the Company’s 2016 business plan, the Committee determined that 2016 would be a “down year,” as operating profit was forecasted to be 20.9% below 2015 actual operating profit. As a result, each NEO’s target AIP opportunity was reduced by 20.9% and the AIP payout was capped at target with no additional upside.

2016 ANNUAL INCENTIVE PERFORMANCE MEASURES

At its February 2016 meeting, the Committee approved the performance measures described below to be used for determining actual payouts under the AIP. For all NEOs, the largest portion (ranging from 50 percent to 80 percent) of their 2016 AIP opportunity was based on Enterprise Operating Profit and the Operating Profit After Capital Charge (OPACC) of each NEO’s respective businesses. The remaining portion of each NEO’s annual incentive award opportunity was determined based on the achievement of specific operational goals, such as cost reduction, Percent of Industry Sales (PINS), aftermarket parts sales, FPD ROE and inventory performance.

When establishing the performance targets for 2016, the Committee reviewed the Company’s business plan and historical performance, management recommendations and feedback provided by the Committee’s independent compensation consultant. The Committee set the targets for each of the performance measures at levels that were designed to be reasonably achievable with strong management performance. Maximum performance levels were designed to be difficult to achieve in light of historical performance and the Company’s business forecast at the time the measures were approved. The performance measures were also weighted according to the Company’s business priorities and the responsibilities of each NEO. The chart below summarizes the performance measures, weightings and results for the 2016 AIP for each NEO.

In early 2017, the results for each performance measure noted above were converted into a performance factor and reviewed by the Committee. Each performance factor was multiplied by the respective weightings for each NEO to obtain a final weighted performance factor which was then used to determine actual incentive payments for each of the NEOs.

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Description of Performance Measures

    PERFORMANCE
MEASURE
    DEFINITION     RATIONALE    
       

Enterprise Operating Profit

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

The Committee approved Operating Profit as the primary corporate performance measure in order to incent management with respect to the overall profitability of the Company. The Committee believes that Operating Profit is an important corporate metric for shareholders to be able to assess the financial health of the Company and track its progress towards profit targets, particularly in a declining revenue environment.

 

Operating Profit After Capital Charge (OPACC)

For each reportable segment, OPACC is calculated as operating profit (excluding short-term incentive compensation expense and restructuring costs) less the capital charge. In 2016, the capital charge was calculated as the average monthly net accountable assets multiplied by a pre-tax capital charge rate of 13 percent.

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

 

Financial Products Division Return on Equity (FPD ROE)

FPD ROE is calculated by dividing the full year profit (after tax) by the average of the monthly accountable equity balances, excluding the impact of interest costs and equity changes associated with differences in planned vs. actual dividends. Dividends are payments of retained earnings from Caterpillar Financial Services Corporation and Caterpillar Financial Insurance Services, the Company’s wholly owned finance and insurance subsidiaries, to Caterpillar.

The Committee approved this measure to drive accountability for and performance of Caterpillar’s Financial Products Division, including appropriate oversight of risk management, portfolio quality and financial return expectations.

   
   

Percent of Industry Sales (PINS)

PINS capture dealer sales (including deliveries to dealer rental operations) as a percentage of industry sales. Due to the competitively sensitive nature of this measure, the threshold, target and result levels have all been indexed and reported as such.

The Committee approved PINS as a performance measure in order to incent improvements in the Company’s competitive position in the markets it serves.

 

Parts Sales

Parts Sales is measured using Caterpillar branded parts orders. This metric uses actual Caterpillar branded parts orders (at actual price levels), as reported from the Dealer Parts Orders Reporting System as compared to plan (at price levels when the plan was finalized). The metric is based on, and reported as, a percentage above or below plan. Due to the competitively sensitive nature of this measure, the threshold, target and result levels have all been indexed and reported as such.

The Committee approved this measure because increasing Caterpillar branded parts sales is an important aspect of the corporate strategy. Aftermarket support is important to our customers and parts are a material component of that support. Aftermarket support is one of the main reasons why customers buy Caterpillar products and is a key differentiator in the global market.

   
   

Cost Reduction

Cost reduction is calculated as 2015 ME&T total period costs less 2016 ME&T total period costs. Total period costs include the sum of ME&T period cost of sales, selling general & administrative (SG&A) expenses and Research & Development expenses and excludes restructuring charges, mark-to-market losses for pension and postemployment benefits and the year-over-year impact of changes in currency rates.

The Committee approved Cost Reduction as a performance measure in order to focus management on reducing costs during a period of significant and sustained revenue decline. The Committee believes that a focus on cost reduction is important for the current profitability of the Company as well as positioning the Company for improved profitability in the future.

 

Net Inventory Days on Hand

Total Enterprise Net Inventory Days on Hand for the sum of Production and Finished, Aftermarket Parts and Expanded Mining Parts, as reported in the Board reporting scorecard. Net Inventory Days on Hand will be calculated as 360 days divided by annualized rolling inventory turns, with inventory levels calculated net of customer advance payments.

During this period of sustained revenue decline, the Committee wanted a greater emphasis placed on improvement of inventory turns and the positive cash flow impact that such an improvement would drive across the enterprise.

 

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2016 ANNUAL INCENTIVE PAYMENTS

As described above, the 2016 AIP design provided that an incentive pool would be funded based on the Company’s profit after taxes, with actual payouts based on achieving the financial and operational performance measures established by the Committee in February 2016. Based on the Company’s 2016 reported profit after tax, the incentive pool did not fund, in part due to the impact of several significant items on profit (including restructuring costs, mark-to-market losses for pension and other postemployment benefits, a goodwill impairment charge and a state deferred tax valuation allowance). In order to more adequately reflect the Company’s core operating performance, the Committee, consistent with its authority, exercised its discretion to exclude these items and based on this adjusted profit after tax performance, approved the 2016 incentive payments as follows:

TARGET
OPPORTUNITY
“DOWN YEAR”
REDUCTION
REVISED
OPPORTUNITY
      SALARY             WEIGHTED
PERFORMANCE
FACTOR
            PAYOUT
Oberhelman 175%     -     20.9%        =        138.4%   X      $ 1,600,008 X 0.2339 = $518,126
Halverson 115% - 20.9% = 91.0% X $ 786,312 X 0.3000 = $214,592
Charter 115% - 20.9% = 91.0% X $ 729,768 X 0.4357   = $289,258
Umpleby 115% - 20.9% = 91.0% X $ 825,636 X 0.2926 = $219,773
Bozeman 100% - 20.9% = 79.1% X $ 698,904 X 0.1000 = $ 55,283

LONG-TERM INCENTIVE

2016 DESIGN AND SIZING OF GRANT

Beginning in 2015, NEO long-term incentive (LTI) awards were comprised of two forms of equity – PRSUs and time-vested non-qualified stock options (Options). Consistent with its pay-for-performance philosophy and in order to further align executives with shareholders, in 2016, the Committee revised the weighting of these elements to deliver one-half of the total LTI value in PRSUs and one-half in Options. For the 2016 grant, the Committee selected ROE as the PRSU performance measure as it aligns management with shareholders by measuring and rewarding profitability relative to shareholders’ investment in the business. The ROE target level was designed to be reasonably achievable with strong management performance. The PRSUs cliff vest at the end of the 2016-2018 performance period based on average ROE over the full three-year period.

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In February 2016, the Committee granted LTI awards that were initially sized at the 25th percentile of the benchmarked LTI values for the Company’s compensation peer group. The Committee viewed this level of LTI sizing as appropriate in view of the Company’s 1, 3 and 5-year relative TSR and financial performance at the end of 2015. The Committee further adjusted the LTI awards to reflect the individual performance of each NEO. The Committee’s process for sizing LTI grant values for NEOs is as follows:

     
 
   1       Benchmarking the median LTI value for the Company’s compensation peer group.  
 
   
 
 2 Review and consideration of financial results; 1, 3 and 5-year TSR (vs the S&P Industrials, Compensation Peer Group and Competitor Peer Group); operational  performance; market conditions and strategy execution.  
 
       
 
 3 Adjust award values to reflect individual performance including consistency of performance against goals, leadership contributions, time in role and other relevant factors.
 
 

2015 – 2017 PRSUs

Beginning in 2015, the Committee elected to award NEOs a portion of their LTI grant in the form of PRSUs, the vesting of which is determined over a three-year performance period. For the 2015 grant, one-third of the PRSUs are eligible to vest annually based on three annual 18% ROE hurdles. In addition, any PRSUs that do not vest based on the annual performance hurdle have the opportunity to vest based on the achievement of a three-year average ROE of 18% during the performance period. In setting this ROE hurdle, the Committee considered the Company’s historical ROE performance, current business conditions and long-term business outlook which accounted for several financial and operational factors, including share repurchases.

In each of 2015 and 2016, the Company failed to achieve the 18% ROE performance hurdle and, accordingly, none of the PRSUs have vested to date. In light of these results during the first two years of the performance period, the Company believes that the likelihood of achieving a three-year average ROE of 18% or greater has substantially decreased. Beginning in 2016, the Committee adjusted the vesting terms of future PRSU grants to remove the annual vesting feature and instead to provide for cliff vesting of the entire grant at the end of the three-year performance period subject to achieving the applicable ROE hurdle.

STRATEGIC PERFORMANCE PLAN (SPP)

Prior to 2015, NEOs received cash awards under the Company’s SPP, with the ultimate amounts determined based on a three-year performance cycle. The 2014 – 2016 SPP performance cycle was the final SPP cycle in which the current NEOs participated. For the 2014 – 2016 SPP cycle, the Committee established threshold, target and maximum payout levels as well as the two performance measures noted below. The Committee also established the target opportunity for each NEO at the time the performance cycle was established.

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2014 – 2016 PERFORMANCE PERIOD

The 2014-2016 performance period concluded in 2016 with a weighted-average performance factor well below target at 0.5551. The measures in this performance cycle were established in February 2014 and were comprised of two components – Earnings Per Share (EPS) and Relative TSR (versus S&P Industrials). Performance with respect to both measures was well below target. In its evaluation of the 2014 – 2016 SPP performance measures and results, the Committee noted the impact of a goodwill impairment charge and the effect of an accounting principle change impacting the accounting for pension and other postemployment benefits. The Committee viewed the goodwill impairment charge as neither indicative of the Company’s underlying performance nor that of the NEOs and acknowledged the impact of the accounting change was not contemplated when the 2014-2016 SPP was developed. Accordingly, the Committee excluded the impact of these expenses from EPS when evaluating and certifying the results below. Had the Committee not excluded these items, the overall payout factor for the 2014 – 2016 performance period would have been 0.4449, still substantially below target.

PERFORMANCE MEASURE       WEIGHTING       THRESHOLD
(30% PAYOUT)
      TARGET
(100% PAYOUT)
      MAXIMUM
(200% PAYOUT)
      RESULTS       PAYOUT
FACTOR
EPS1 75% $3.50 $5.85   $7.02   $4.52 0.6028
Relative TSR vs. S&P Industrials 25% 25th Percentile   55th Percentile 75th Percentile 30th Percentile 0.4120
  Overall Weighted Factor: 0.5551

1 Average of 2014-2016 actual EPS excluding restructuring and goodwill impairment. Results exclude the effect of an accounting principle change effective January 1, 2016 impacting the accounting for pension and other postemployment benefits.

2014 – 2016 PERFORMANCE PERIOD PAYMENTS

NEO         TARGET OPPORTUNITY                 FINAL FACTOR                 PAYOUT
Oberhelman $4,275,000 X 0.5551 = $2,373,053
Halverson $1,150,000 X   0.5551   = $638,365
Charter1   $953,435   X 0.5551 = $529,252
Umpleby $1,150,000 X 0.5551 = $638,365
Bozeman $750,000 X 0.5551 = $416,325

1 Mr. Charter was a Vice President during the first year of the performance period with a target opportunity of 90% of his base salary. For 2015 and 2016 Mr. Charter was a Group President with a target opportunity expressed as a flat dollar amount of $1,150,000. Mr. Charter’s blended target opportunity is reflected in the chart above.

OTHER COMPENSATION, BENEFITS AND CONSIDERATIONS

2017 CEO COMPENSATION

Jim Umpleby became Chief Executive Officer on January 1, 2017. Douglas R. Oberhelman retired from the role of CEO on December 31, 2016 but remained the Executive Chairman until his retirement from the Company on March 31, 2017. Mr. Umpleby’s 2017 base salary, AIP target opportunity and LTI award value were set below that of Mr. Oberhelman in recognition of Mr. Oberhelman’s tenure in the role. The following chart shows Mr. Umpleby’s compensation effective January 1, 2017. Additionally, Mr. Umpleby will participate in generally the same perquisites and benefit plans as Mr. Oberhelman as described in more detail below. Mr. Oberhelman was paid his current salary until his retirement on March 31, 2017. Mr. Oberhelman is not eligible for AIP or LTI in 2017 as Executive Chairman.

COMPENSATION COMPONENT          2017 VALUE
Salary $1,200,000
Annual Incentive 150% of salary
Long-Term Incentive Approximately 80% of the peer group median

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DEPARTURE OF DAVID P. BOZEMAN

Mr. Bozeman served as an executive officer of the company through December 31, 2016. Mr. Bozeman’s position was eliminated in connection with the Company’s ongoing restructuring efforts, and in consideration for his service to the Company, as well as a release of claims in favor of the Company, Mr. Bozeman was provided a severance payment of $2,300,000. In addition, the Committee approved the accelerated, pro-rata vesting of 666 shares of restricted stock units and 96,359 stock options previously granted to Mr. Bozeman and a 12-month post-separation exercise period. The Committee also approved continued, pro-rata vesting of his outstanding 2015-2017 and 2016-2018 PRSUs, with the level determined based on actual performance during the respective performance periods.

TRANSITION PAYMENT FOR ROBERT B. CHARTER

To assist with the continued costs associated with Mr. Charter’s relocation from Singapore to the United States and to help ensure that Mr. Charter remains in the same approximate financial position as he would have been absent his required international relocation, the Committee approved a transition payment of $500,000, which was paid to Mr. Charter in 2016. In approving this payment, the Committee considered the adverse income tax consequences to Mr. Charter, an Australian citizen, associated with his required relocation as well as the benefit programs in which Mr. Charter was previously eligible to participate as compared to the Company’s other NEOs. The Committee also noted that providing this final payment was more cost effective to the Company than placing Mr. Charter as an International Service Employee in Peoria, Illinois which customarily includes housing, mobility premiums, home leave and tax allowances.

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, as described further below.

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 a 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 48 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.
 

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.


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RETIREMENT AND OTHER BENEFITS

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

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

PLAN TYPE           TITLE DESCRIPTION

PENSION

Retirement Income
Plan (RIP)

Defined benefit pension plan under which benefit amounts are not offset for any Social Security benefits. RIP was closed to new entrants, effective January 1, 2011. All U.S.-based NEOs, except Mr. Charter who participates in the Company’s Australian-based defined benefit pension plan, participate in this plan and, except for Mr. Bozeman, 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. Based on his hire date, Mr. Bozeman’s RIP benefit was frozen effective January 1, 2011.

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, except Messrs. Bozeman and Umpleby, continue to earn SERP benefits until the earlier of separation or December 31, 2019. Based on Mr. Bozeman’s hire date, his SERP benefit was frozen effective January 1, 2011. Mr. Umpleby participates in a Solar Turbines Incorporated sponsored non-qualified defined benefit pension plan, which is similar to SERP. Subject to the Company’s right to amend or terminate the plan, Mr. Umpleby continues to earn benefits until the earlier of separation or December 31, 2019.

 
 

SAVINGS

Caterpillar 401(k)
Plans

All U.S.-based NEOs, except for Mr. Bozeman, are eligible to participate in the Caterpillar 401(k) Savings Plan under which the Company matches 50 percent of the first 6 percent of the NEO’s eligible pay contributed to the savings plan. Prior to his separation from the Company and based on his hire date, Mr. Bozeman participated in the Caterpillar 401(k) Retirement Plan, under which the Company matches 100 percent of the first 6 percent of eligible pay contributed to the retirement plan, and the Company makes an annual non-elective contribution equal to 3%, 4% or 5% of eligible pay based on the employee’s age and years of service with the Company.

Supplemental Deferred
Compensation Plan
(SDCP)

All U.S.-based NEOs who are eligible to participate in a Caterpillar 401(k) plan are eligible to participate in SDCP, which provides the opportunity to make deferrals of base salary in excess of the limits imposed on the 401(k) Savings Plan and the 401(k) Retirement Plan by the Internal Revenue Code and to elect deferrals from the AIP and the SPP. Under the terms of SDCP, participants are eligible to earn matching contributions and annual non-elective contributions based on formulas applicable to them in the Caterpillar 401(k) plans.

Supplemental
(SEIP) and Deferred
(DEIP) Employees’
Investment Plan

All U.S.-based NEOs hired prior to March 25, 2007 were previously eligible to participate in SEIP and DEIP. These plans were closed in March 2007. Compensation deferred into SEIP and DEIP prior to January 1, 2005, remains in these plans.

 

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LIMITED PERQUISITES

The Company provides NEOs a limited number of perquisites that the 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, among other things, home security systems and (in the case of the CEO) limited personal use of the Company aircraft and ground transportation. These perquisites are provided to attract and retain talented executive officers, to provide for adequate security and safety of our executives and to allow the NEOs to devote additional time to Caterpillar business. Costs associated with these perquisites are included in the “2016 All Other Compensation Table” on page 42.

At the discretion of the Committee, certain benefits may be continued for the CEO upon retirement. On December 13, 2016, the Committee approved the following retirement benefits for Mr. Oberhelman effective April 1, 2017: (1) office space and related IT, administrative and travel agent support at the Company’s facility located in Edwards, Illinois; and (2) continued home security for a period not to exceed five years from the date of Mr. Oberhelman’s retirement.

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; and
 

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 Compensation Discussion & Analysis (CD&A) included in this proxy statement with management and is satisfied that the CD&A fairly and completely represents the philosophy, intent and actions of the 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


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EXECUTIVE COMPENSATION TABLES

In years before 2015, long-term incentive compensation design was based on two components – a rolling three-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 PRSUs.

While the Committee believes PRSUs are better aligned with shareholder interests going forward, NEOs’ pay in 2016 includes results of the legacy 2014-2016 performance-based cash plan as well as PRSUs granted in 2016. 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 three-year performance period that commenced in 2016. Because the payment for the 2014-2016 performance-based cash plan is also included in the Non-Equity Incentive Plan Compensation column, the Summary Compensation Table in effect double counts the NEOs’ long-term incentive compensation for 2016. This is the final year for this legacy performance-based cash plan for the NEOs listed below.

2016 SUMMARY COMPENSATION TABLE

NAME AND
PRINCIPAL POSITION

 

YEAR

 

SALARY

 

BONUS1

 

STOCK
AWARDS
2

 

OPTION
AWARDS
3

 

NON-EQUITY
INCENTIVE PLAN
COMPENSATION
4

 

CHANGE IN
PENSION VALUE
AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS5

 

ALL OTHER
COMPENSATION
6

 

SEC TOTAL

SEC TOTAL
WITHOUT
CHANGE IN
PENSION
VALUE7

Douglas R. Oberhelman   2016     $ 1,600,008     $     $ 3,577,816     $ 7,218,819            $ 2,891,179                   $ 3,658                     $ 181,034              $ 15,472,514     $ 15,468,856
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
Bradley M. Halverson   2016   $ 786,312   $   $ 1,080,269   $ 2,179,625     $ 852,957       $ 231,289       $ 96,250     $ 5,226,702 $ 4,995,413
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
Robert B. Charter   2016   $ 729,768   $ 500,000   $ 984,692   $ 1,986,744     $ 818,510       $ 189,327 8     $ 247,311     $ 5,456,352 $ 5,267,025
Group President   2015   $ 729,768   $ 300,000   $ 1,046,232   $ 3,437,148     $ 190,994       $ 845,918       $ 541,566     $ 7,091,626 $ 6,245,708
Jim Umpleby   2016   $ 825,636   $   $ 1,166,657   $ 2,353,971     $ 858,138       $ 62,688       $ 27,097     $ 5,294,187 $ 5,231,499
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
David P. Bozeman   2016   $ 698,904   $   $ 1,412,362 9 $ 2,324,923 10   $ 471,608       $       $ 2,393,163     $ 7,300,960 $ 7,300,960
Senior Vice President                                                                    

1 The amount reported for 2016 represents a lump sum discretionary bonus authorized by the Committee relating to Mr. Charter’s required relocation from Singapore to the United States.
2 The amounts reported in this column represent PRSUs granted in 2016 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, 2016, included in the Company’s Form 10-K filed with the SEC on February 15, 2017.
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, 2016, included in the Company’s Form 10-K filed with the SEC on February 15, 2017.
4 The amounts in this column reflect the following cash annual incentive payments for 2016: Mr. Oberhelman $518,126; Mr. Halverson $214,592; Mr. Charter $289,258; Mr. Umpleby $219,773; Mr. Bozeman $55,283 ; and the following cash incentive payments for the 2014-2016 performance cycle: Mr. Oberhelman $2,373,053; Mr. Halverson $638,365; Mr. Charter $529,252; Mr. Umpleby $638,365; and Mr. Bozeman $416,325.
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, 2015 and December 31, 2016. The amount assumes the pension benefit is payable at each NEO’s earliest unreduced retirement age based upon the NEO’s current pensionable earnings.

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6 All Other Compensation for 2016 is detailed in a separate table appearing below.
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, 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 The amount reported for Mr. Charter has been converted to U.S. dollars using the exchange rate in effect on December 31, 2016 (1 Australian dollar = 0.72355 U.S. dollar).
9 For Mr. Bozeman this amount also includes the incremental fair value associated with modifications to his outstanding restricted stock unit and performance-based restricted stock unit awards in 2016 totaling $732,778. As noted in the Compensation Discussion & Analysis, in 2016, the vesting terms of certain equity awards were modified in connection with his separation from the Company.
10 For Mr. Bozeman this amount also includes the incremental fair value associated with modifications to his outstanding stock option awards in 2016 totaling $953,725. As noted in the Compensation Discussion & Analysis, in 2016, the vesting terms of certain equity awards were modified in connection with his separation from the Company.

2016 ALL OTHER COMPENSATION TABLE

NAME

MATCHING
CONTRIBUTIONS
401(K)

   

MATCHING
CONTRIBUTIONS
SDCP

     CORPORATE
AIRCRAFT/
TRANSPORTATION
1
    HOME
SECURITY2
    OTHER     TOTAL ALL OTHER
COMPENSATION
Douglas R. Oberhelman           $ 7,950                        $ 40,050                       $ 87,125                   $ 45,909      $         $ 181,034        
Bradley M. Halverson $ 7,950 $ 15,639 $ 8,742 $ 63,919 $ $ 96,250
Robert B. Charter $ 7,950 $ 13,943 $ 9,652 $ 2,353 $ 213,413 3 $ 247,311
Jim Umpleby $ 7,872 $ 16,819 $ $ 2,406 $ $ 27,097
David P. Bozeman $ 15,817 $ 76,803 $ $ 543 $ 2,300,000 4 $ 2,393,163

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 was previously an International Service Employee (ISE) based in Singapore. The amount reported represents Company paid taxes pursuant to the Company’s tax equalization policy for ISEs. This policy is 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.
4 The amount reported represents a severance payment authorized by the Committee in connection with Mr. Bozeman’s separation from service from the Company.

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GRANTS OF PLAN-BASED AWARDS IN 2016

 
ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY INCENTIVE
PLAN AWARDS1

ESTIMATED
FUTURE
PAYOUTS
UNDER
EQUITY
INCENTIVE
PLAN
AWARDS
2

ALL OTHER
STOCK
AWARDS:
NUMBER OF
SHARES OF
STOCK OR
UNITS
(#)

ALL OTHER
OPTION AWARDS:
NUMBER OF
SECURITIES
UNDERLYING
OPTIONS3
(#)

   

EXERCISE OR
BASE PRICE
OF OPTION
AWARDS
($/SHARE)
 

GRANT DATE
FAIR VALUE
OF STOCK
AND
OPTION
AWARDS ($)4

NAME

   

GRANT
DATE

THRESHOLD
($)

TARGET
($)

MAXIMUM
($)

TARGET
(#)

Douglas R. Oberhelman 03/07/2016                 55,290                     $             $ 3,577,816
03/07/2016 349,749 $ 74.77 $ 7,218,819

AIP5

$

1,107,406 $ 2,214,811 $ 2,214,811 $ $
Bradley M. Halverson 03/07/2016 16,694 $ $ 1,080,269
03/07/2016 105,602 $ 74.77 $ 2,179,625
AIP5

$

357,634 $ 715,269 $ 715,269 $ $
Robert B. Charter 03/07/2016 15,217 $ $ 984,692
  03/07/2016 96,257 $ 74.77 $ 1,986,744
AIP5

$

331,917 $ 663,833 $ 663,833 $ $
Jim Umpleby 03/07/2016 18,029 $ $ 1,166,657
03/07/2016 114,049 $ 74.77 $ 2,353,971
AIP5

$

371,049 $ 742,097 $ 742,097 $ $
David P. Bozeman 03/07/2016 10,502 $ $ 679,584
03/07/2016 66,434 $ 74.77 $ 1,371,198
10,502 $ 732,7786
66,434 $ 953,7257
AIP5

$

138,208 $ 276,417 $ 276,417 $ $

1 The amounts reported in this column represent estimated potential awards under the 2016 AIP. There was no maximum payout opportunity as the 2016 AIP design capped potential payments at target.
2 The amounts reported in this column represent estimated potential awards under the LTIP. PRSUs were granted on March 7, 2016 under the LTIP for the 2016-2018 performance period. PRSUs vest over a three-year performance period with 100 percent of the grant to vest on the third anniversary of the grant date, subject to the Company’s achievement of an average ROE performance hurdle during the three-year performance period. The amounts reported in the target column reflect the number of PRSUs that would vest if the Company’s average ROE performance during the three-year performance period meets or exceeds the ROE performance hurdle. There is no threshold or maximum payout opportunity with respect to these PRSUs.
3 Amounts reported represent stock options granted under the LTIP. The exercise price for all stock options granted to the NEOs is the closing price of Caterpillar stock on the grant date ($74.77). 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.
4 The amounts shown do not reflect realized compensation by the NEO. As reported in this column, the value of PRSUs granted in 2016 under the LTIP are based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, assuming the highest level of performance is achieved for the PRSUs, which at the time of the grant reflected the probable level of achievement.
5 The 2016 AIP estimates are based upon each executive’s base salary for 2016. The actual payout was based on the achievement of corporate and business unit performance metrics. Please refer to page 33 of the CD&A for a detailed explanation of the various performance metrics. For the 2016 AIP, the threshold amount was earned if at least 50 percent of the targeted performance level was achieved. The target amount was earned if at least 100 percent or greater of the targeted performance level was achieved, with a plan cap set at $15 million. The cash payouts for the 2016 plan year are included in the column “Non-Equity Incentive Plan Compensation” of the “2016 Summary Compensation Table.”
6 This amount represents the value of the modification to outstanding restricted stock unit and performance-based restricted stock unit awards in connection with Mr. Bozeman’s separation from the Company and does not reflect a new equity grant.
7 This amount represents the value of the modification to outstanding stock options in connection with Mr. Bozeman’s separation from the Company and does not reflect a new equity grant.

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OUTSTANDING EQUITY AWARDS AT 2016 FISCAL YEAR END

OPTION AWARDS

STOCK AWARDS

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SARs/OPTIONS

SAR /
OPTION
EXERCISE
PRICE

SAR /
OPTION
EXPIRATION
DATE
1

NUMBER OF
SHARES OR
UNITS
OF STOCK
THAT HAVE
NOT
VESTED
2

MARKET
VALUE
OF SHARES
OR
UNITS OF
STOCK
THAT HAVE
NOT
VESTED
3

EQUITY INCENTIVE
PLAN AWARDS:

NAME

GRANT
DATE

EXERCISABLE

UNEXERCISABLE

NUMBER OF
UNEARNED
SHARES,
UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED
4

MARKET OR
PAYOUT VALUE OF
UNEARNED
SHARES, UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED
5

Douglas R. Oberhelman     03/03/2008     60,000             $ 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 $ $
02/27/2015 $ $ 39,131 6 $ 3,629,009
03/02/2015 137,926 275,850 $ 83.00 03/02/2025 $ $
03/07/2016 $ $ 55,290 7 $ 5,127,595
03/07/2016 349,749 $ 74.77 03/07/2026 $ $
Bradley M. Halverson 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 $ $
02/27/2015 $ $ 14,560 6 $ 1,350,294
  03/02/2015 51,318 102,636 $ 83.00 03/02/2025 $ $
03/07/2016 $ $ 16,694 7 $ 1,548,202
03/07/2016 105,602 $ 74.77 03/07/2026 $ $
$ 832 8 $ 77,160 $
Robert B. Charter 03/07/2011 23,379 $ 102.13 03/07/2021 $ $
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 $ $
02/27/2015 $ $ 13,505 6 $ 1,252,454
03/02/2015 47,600 95,198 $ 83.00 03/02/2025 $ $
03/07/2016 $ $ 15,217 7 $ 1,411,225
03/07/2016 96,257 $ 74.77 03/07/2026 $ $
Jim Umpleby 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 $ $
02/27/2015 $ $ 16,325 6 $ 1,513,981
03/02/2015 57,541 115,080 $ 83.00 03/02/2025 $ $
03/07/2016 $   $ 18,029 7 $ 1,672,009
03/07/2016 114,049 $ 74.77 03/07/2026 $ $
$ 832 8 $ 77,160 $

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Table of Contents

OPTION AWARDS

STOCK AWARDS

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SARs/OPTIONS

SAR /
OPTION
EXERCISE
PRICE

SAR /
OPTION
EXPIRATION
DATE
1

NUMBER OF
SHARES OR
UNITS
OF STOCK
THAT HAVE
NOT
VESTED
2

MARKET
VALUE
OF SHARES
OR
UNITS OF
STOCK
THAT HAVE
NOT
VESTED
3

EQUITY INCENTIVE
PLAN AWARDS:

NAME

   

GRANT
DATE

EXERCISABLE

UNEXERCISABLE

   

NUMBER OF
UNEARNED
SHARES,
UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED
4

   

MARKET OR
PAYOUT VALUE OF
UNEARNED
SHARES, UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED
5

David P. Bozeman     03/02/2009     4,950             $ 22.17         03/02/2019               $                            $            
03/01/2010 57,642 $ 57.85 03/01/2020 $ $
03/07/2011 23,379 $ 102.13 03/07/2021 $ $
  03/05/2012 21,416 $ 110.09 03/05/2022 $ $
03/04/2013 27,083 $ 89.75 03/04/2023 $ $
03/03/2014 50,872 $ 96.31 03/03/2024 $ $
02/27/2015 $ $ 9,204 6 $ 853,579
03/02/2015 59,474 $ 83.00 03/02/2025 $ $
03/07/2016 $  — $ 10,502 7 $ 973,955
03/07/2016 18,454 $ 74.77 03/07/2026 $ $

1 Stock options granted in 2014 are exercisable three years after the grant date. Stock options granted in 2015 and 2016 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, 2016.
3 The market value of the non-vested RSUs is calculated using the closing price of Caterpillar common stock on December 30, 2016 ($92.74 per share).
4 The amounts shown include the portion of any prior PRSU grants that were not vested as of December 31, 2016.
5 The market value of the non-vested PRSUs is calculated using the closing price of Caterpillar common stock on December 30, 2016 ($92.74 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 three-year performance cycle. For 2016, the Company did not achieve the ROE performance hurdle and, accordingly, none of the PRSUs vested based on 2016 performance. The number of PRSUs reported in this table assumes the aggregate ROE performance hurdle is achieved for the three-year performance cycle.
7 Represents the PRSUs that are scheduled to vest on March 7, 2019 based on the Company’s achievement of an average ROE performance hurdle over the three-year performance period. The number of PRSUs reported in this table assumes the aggregate ROE performance hurdle is achieved for the three-year performance period.
8 These RSUs are scheduled to vest on May 1, 2017.

2016 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                    30,570                              $ 2,497,520                                                           $            
Bradley M. Halverson     3,912       $ 323,402       834       $ 64,506  
Robert B. Charter           $             $  
Jim Umpleby     6,722       $ 622,996       834       $ 64,506  
David P. Bozeman           $       1,000       $ 77,345  

1 Upon exercise, option holders may surrender shares to pay the option exercise price and satisfy income tax withholding requirements. The amounts shown are gross amounts.
2 Upon vesting of the RSUs, shares are surrendered to satisfy income tax withholding requirements. The amounts shown are gross amounts.

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Table of Contents

2016 PENSION BENEFITS

NAME      PLAN NAME1     NUMBER OF YEARS OF
CREDITED SERVICE2
PRESENT VALUE OF
ACCUMULATED BENEFIT3
Douglas R. Oberhelman        RIP                      35.00                                  $ 3,033,881            
SERP 35.00 $ 24,220,406
Bradley M. Halverson RIP 28.83 $ 2,086,918
SERP 28.83 $ 4,581,907
Robert B. Charter CatSuper Plan 27.67 $ 3,529,420
Jim Umpleby RIP 25.00 $ 1,817,177
Solar MRO 25.00 $ 11,018,453
David P. Bozeman RIP 2.17 $ 46,008
SERP 2.17 $ 20,915

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. Mr. Bozeman participates in RIP and SERP calculated based on the Pension Equity Formula which produces a single lump sum benefit based on salary and service. 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.
2 Mr. Oberhelman, Mr. Halverson and Mr. Bozeman participate in RIP and SERP. Mr. Oberhelman has 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 in SERP and a four percent reduction per year under age 62 in RIP, while Mr. Halverson is eligible for early retirement, with a four percent reduction per year under age 62 in both plans. Mr. Charter, who participates in the CatSuper Plan, is currently vested in a benefit attributable to 18.75 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 a $1,626,317 increase in his accumulated pension value 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. Mr. Bozeman participates in RIP and SERP calculated based on the Pension Equity Formula (PEP) which produces a single lump sum benefit based on salary and service. The lump sum benefit is equal to Final Average Monthly Earnings, annualized and multiplied by the sum of percentages from a table based on credited service and vesting service. Multipliers range from 4% times years and months of credited service for 0-5 years of vesting service to 9% times years and months of credited service for vesting service in excess of 20 years. Following separation from service, a PEP participant may elect immediate distribution of the benefit, as a single lump sum or monthly annuity actuarially equivalent in amount to the single lump sum determined by formula.
3 The amount in this column represents the actuarial present value for each NEO’s accumulated pension benefit on December 31, 2016. For each NEO, it assumes benefits are payable at each NEO’s earliest unreduced retirement age based upon current level of pensionable income. Present value factors use an interest rate of 3.97 percent and the RP-2014 separate annuitant and non-annuitant mortality table adjusted with a load factor of 99.4 percent using Projection Scale MP-2014 prior to 2006 then Scale MP-2016 in years 2006 and beyond which are SERP’s year-end disclosure assumptions at December 31, 2016. The amount reported for Mr. Charter has been converted to U.S. dollars using the exchange rate in effect on December 31, 2016 (1 Australian dollar = 0.72355 U.S. dollar).

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2016 NONQUALIFIED DEFERRED COMPENSATION

NAME PLAN NAME1 EXECUTIVE
CONTRIBUTIONS
IN 20162
REGISTRANT
CONTRIBUTIONS
IN 20162
AGGREGATE
EARNINGS
IN 20163
AGGREGATE
BALANCE
AT 12/31/164
Douglas R. Oberhelman    SDCP             $ 80,100                     $ 40,050                   $ 1,239,978               $ 4,308,984     
SEIP $ $ $ 287,494 $ 980,618
DEIP $ $ $ 539,682 $ 1,951,822
Bradley M. Halverson SDCP $ 31,279 $ 15,639 $ 367,585 $ 1,287,511
  SEIP $ $ $ 1,337 $ 4,559
DEIP $ $ $ 25,296 $ 86,291
Robert B. Charter SDCP $ 27,886 $ 13,943 $ 1,132 $ 42,961
Jim Umpleby SDCP $ 33,638 $ 16,819 $ 484,167 $ 2,384,883
SEIP $ $ $ 2,353 $ 32,591
DEIP $ $ $ 306,161 $ 2,665,759
David P. Bozeman SDCP $ 15,551 $ 76,803 $ 166,201 $ 1,015,649

1 The Supplemental Deferred Compensation Plan (SDCP) is a non-qualified deferred compensation plan adopted in March 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 annual incentive 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 2016 for base salary, annual incentive pay and/or long-term cash incentive payouts are included in the “2016 Summary Compensation Table.” Matching and/or annual non-elective contributions in non-qualified deferred compensation plans made by Caterpillar in 2016 are also included in the “2016 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 include the following amounts that were previously reported in the “Summary Compensation Table” for the years 2014–2016 as follows: Mr. Oberhelman $829,791; Mr. Halverson $301,690; Mr. Charter $41,829; Mr. Umpleby $354,520 and Mr. Bozeman $92,354.

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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, 2016 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: Unvested awards are 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: 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 but unexercised awards and unvested awards are forfeited
PRSUs and RSUs: Unvested awards are 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