DEF 14A 1 cat3306161-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. )

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

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  Preliminary Proxy Statement
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Definitive Proxy Statement
  Definitive Additional Materials
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Caterpillar Inc.

(Name of Registrant as Specified In Its Charter)
(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
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 2018 Annual Meeting of Shareholders (Annual Meeting). Distribution of these materials is scheduled to begin on May 2, 2018. Please submit your vote or 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
2017 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
Director Continuous Education and Development 8
Board’s Role in Risk Oversight 8
Director Nominations and Evaluations 8
Director Candidate Biographies and Qualifications 10
Director Compensation 14
Board Election and Leadership Structure 15
Duties and Responsibilities of Independent Chairman 15
Corporate Governance Guidelines and Code of Conduct 16
Board Evaluation Process 16
Board Committees 16
Director Independence Determinations 18
Communication With the Board 18
Investor Outreach 18
Awards and Recognitions 19
Sustainability 20
Political Contributions and Lobbying 20
Related Party Transactions 21
 
 AUDIT  22
Proposal 2 - Ratification of our Independent Registered Public Accounting Firm 22
Audit Fees and Approval Process 22
Independent Registered Public Accounting Firm Fee Information 22
Anonymous Reporting of Accounting Concerns 23
Audit Committee Report 23
   
 COMPENSATION  24
Proposal 3 - Advisory Vote to Approve Executive Compensation 24
 
COMPENSATION DISCUSSION & ANALYSIS  25
Executive Summary 25
Compensation Discussion & Analysis 29
2017 Summary Compensation Table 42
2017 All Other Compensation Table 43
Grants of Plan-Based Awards in 2017 44
Outstanding Equity Awards at 2017 Fiscal Year End 45
2017 Option Exercises and Stock Vested 46
2017 Pension Benefits 47
2017 Nonqualified Deferred Compensation 48
Potential Payments Upon Termination or Change in Control 48
CEO Pay Ratio 51
 
 SHAREHOLDER PROPOSALS  52
Proposal 4 - Shareholder Proposal – Decrease Percent of Ownership Required to Call Special Shareholder Meeting 52
Proposal 5 - Shareholder Proposal – Amend the Company’s Compensation Clawback Policy 54
Proposal 6 - Shareholder Proposal – Require Human Rights Qualifications for Director Nominees 56
 
 OTHER IMPORTANT INFORMATION  58
Persons Owning More Than Five Percent of Caterpillar Common Stock 58
Security Ownership of Executive Officers and Directors 59
Section 16(a) Beneficial Ownership Reporting Compliance 59
Matters Raised at the Annual Meeting Not Included in This Statement 60
Shareholder Proposals and Director Nominations for the 2019 Annual Meeting 60
Access to Form 10-K 60
Frequently Asked Questions Regarding Meeting Attendance and Voting 61
Admission and Ticket Request Procedure 64


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D. James Umpleby, III
Chief Executive Officer
Director

           DEAR FELLOW SHAREHOLDERS,

On behalf of the board of directors and our entire company, thank you for your continued confidence and investment in Caterpillar. This annual proxy filing provides the opportunity to share our accomplishments over the last year with you.

It is my honor to serve as Caterpillar’s chief executive officer and a member of our board. During 2017, our Caterpillar team developed and began implementing a new enterprise strategy. With Our Values in Action as its foundation, the goal of the strategy is to achieve long-term profitable growth while also fulfilling our company purpose—to provide the solutions our customers use to build a better world.

Through this new strategy, we intend to deliver shareholder value by investing in our strengths, and providing greater value for our customers, helping to ensure they are more successful using our products and services than they are using our competitors’. Our employees are key to our customers’ success, and our new strategy will further empower our global team and promote a positive and inclusive environment.

As part of the strategy, we are managing our business with the Operating & Execution Model, our decision making methodology, to intentionally direct resources to those areas that represent the greatest opportunity for investment return. We continue to develop a more competitive and flexible cost structure while also investing in expanded product offerings and services. Due to the hard work of our Caterpillar team, our Company is stronger today.

Caterpillar’s success requires strong governance practices that are championed by our board of directors. We routinely assess the board’s composition and qualifications to ensure we have the diverse mix of skills, experience and expertise necessary to provide oversight and counsel to management on wide-ranging matters, such as our corporate strategy, business and organizational initiatives, capital allocation priorities, risk management, and governmental and regulatory affairs. To that end, former U.S. Senator Kelly Ayotte joined the board in August 2017. Senator Ayotte’s significant government experience is valuable for the company as it addresses a broad range of business issues.

To ensure we understand and consider issues that matter most to our shareholders, Caterpillar conducts extensive shareholder outreach. This outreach includes investor conferences, one-on-one meetings with both shareholder governance and investment teams, earnings calls and routine phone calls. Our relationship with shareholders has been, and will continue to be, of the utmost importance.

We encourage you to review this proxy statement to learn more about your board, Caterpillar’s governance practices, compensation programs and the proposals on this year’s proxy ballot. We hope you will participate in the annual meeting either by attending and voting in person or by voting through one of the alternative methods described in the proxy statement.

Thank you again for the honor and opportunity to serve our shareholders.

Sincerely,

D. James Umpleby, III
Chief Executive Officer
Director



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PROXY SUMMARY

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

ANNUAL MEETING OF SHAREHOLDERS

Time & Date: 8:00 a.m. - June 13, 2018
Place: Pearl Stable, 307 Pearl Pkwy, San Antonio, TX 78215
Record Date: The close of business on April 16, 2018
Admission: Please follow the instructions contained in the Admission Procedure on page 64


SHAREHOLDER VOTING MATTERS

PROPOSAL BOARD’S VOTING
RECOMMENDATION
   PAGE
REFERENCE
1    Election of 12 Directors Named in This Proxy Statement FOR each Nominee 6
2 Ratification of our Independent Registered Public Accounting Firm FOR 22
3 Advisory Vote to Approve Executive Compensation FOR 24
4 Shareholder Proposal – Decrease Percent of Ownership Required to Call Special Shareholder Meeting AGAINST 52
5 Shareholder Proposal – Amend the Company’s Compensation Clawback Policy AGAINST 54
6 Shareholder Proposal – Require Human Rights Qualifications for Director Nominees AGAINST 56

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OUR DIRECTOR NOMINEES

NOMINEE AND PRINCIPAL OCCUPATION

DIRECTOR
SINCE
    CATERPILLAR
CO
MMITTEES
    INDEPENDENT     AGE     OTHER PUBLIC COMPANY BOARDS      AC     CC     PPGC
Kelly A. Ayotte
Former U.S. Senator representing New Hampshire
Yes 49 2017 News Corporation
David L. Calhoun Independent Chairman
Senior Managing Director of The Blackstone Group L.P.
Yes 60 2011 Nielsen Holdings plc
The Boeing Company
Gates Industrial Corporation plc
Daniel M. Dickinson
Managing Partner of HCI Equity Partners
Yes 56 2006 None
Juan Gallardo
Former CEO of Organización Cultiba, S.A.B. de C.V.
Yes 70 1998 Grupo Aeroportuario del Pacifico,
S.A.B. de C.V.
Grupo Financiero Santander Mexico,
S.A.B. de C.V.
Organización Cultiba, S.A.B. de C.V.
Dennis A. Muilenburg
Chairman, President and CEO of The Boeing Company
Yes 54 2011 The Boeing Company
William A. Osborn
Former Chairman and CEO of Northern Trust Corporation and The Northern Trust Company
Yes 70 2000 Abbott Laboratories
General Dynamics Corporation
Debra L. Reed
Chairman and CEO of Sempra Energy
Yes 61 2015 Halliburton Company
Sempra Energy
Edward B. Rust, Jr.
Former Chairman and CEO of State Farm Mutual Automobile Insurance Company
Yes 67 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 63 2009 FedEx Corporation
Marriott International, Inc.
The Boeing Company
D. James Umpleby, III
CEO of Caterpillar Inc.
No 60 2017 Chevron Corporation
Miles D. White
Chairman and CEO of Abbott Laboratories
Yes 63 2011 Abbott Laboratories
McDonald’s Corporation
Rayford Wilkins, Jr.
Former CEO of Diversified Businesses at AT&T Inc.
Yes 66 2017 Morgan Stanley
Valero Energy Corporation
AC: Audit Committee       CHRC: Compensation and Human Resources Committee       PPGC: Public Policy and Governance Committee
Chair
Member

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GOVERNANCE HIGHLIGHTS

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

BOARD AND GOVERNANCE INFORMATION    BOARD AND GOVERNANCE INFORMATION
Size of Board 12 Average Director Tenure 8 years
Number of Independent Directors 11 Supermajority Voting Threshold for Mergers No
Average Age of Directors 62 Proxy Access Yes
Board Meetings Held in 2017 8 Shareholder Action by Written Consent No
Annual Election of Directors Yes Shareholder Called Special Meetings Yes
Mandatory Retirement Age 72 Poison Pill No
Gender and Diversity 42% 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 Chairman and CEO Yes Anti-Hedging and Pledging Policies Yes
Independent Chair Yes Compensation Recoupment Policy Yes

2017 PERFORMANCE HIGHLIGHTS

     
DIVIDEND PAYMENTS SALES AND REVENUES STRONG BALANCE SHEET
$1.8 billion
Caterpillar has paid a higher dividend per share to its shareholders for 24 consecutive years, and since 2007, the Company’s cash dividend per share has more than doubled.
$45.5 billion
Sales and Revenues in 2017 were $45.5 billion, up 18% from 2016 with increases in all regions and many key end markets.
$8.3 billion
Caterpillar continued to strengthen its financial position, ending 2017 with a cash balance of $8.3 billion and Machinery, Energy & Transportation operating cash flow was $5.5 billion.
     

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

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

Date: June 13, 2018
Time: 8:00 a.m.
Place: 307 Pearl Pkwy
San Antonio, TX 78215
Record Date: April 16, 2018
MEETING AGENDA:
Elect 12 director nominees named in this Proxy Statement
Ratify our independent registered public accounting firm for 2018
Approve, by non-binding vote, executive compensation
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
 
Suzette M. Long
General Counsel and Corporate Secretary
May 2, 2018
Important Notice Regarding the Availability of Proxy Materials

This Notice of Annual Meeting and Proxy Statement and the 2017 Annual Report on Form 10-K are available at www.eproxyaccess.com/cat2018.


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PROPOSAL 1 – ELECTION OF DIRECTORS

PROPOSAL SNAPSHOT
What am I voting on?

Shareholders are being asked to elect 12 director nominees named in this Proxy Statement for a one-year term.

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

OVERVIEW OF OUR BOARD

 
GENDER AND
DIVERSITY
            DIRECTOR
AGE
            DIRECTOR
TENURE

* Diversity is defined as the representation of gender, ethnic, geographic, cultural and other perspectives.

 

BOARD ATTENDANCE

 
Board 8 2 8 8 6 8 8 7 8 8 8 8 5 97%
Attendance for incumbent
directors for 2017
Audit 11 11 10 11 7
Compensation &
Human Resources
7 7 7 7
Public Policy &
Governance
7 2 6 7 7

*

Senator Ayotte joined the board in August 2017 and Mr. Wilkins joined the board in April 2017.

The Board’s policy is to encourage and expect that all directors attend the Annual Shareholder Meeting. All directors attended the 2017 shareholder meeting, except Juan Gallardo and Jon Huntsman due to unavoidable conflicts. The independent directors generally meet in executive session as part of each regularly scheduled Board meeting. Ed Rust, who was Caterpillar’s Presiding Director through March 31, 2017, and David Calhoun, who became the Non-Executive Chairman of the Board on March 31, 2017, presided over the executive sessions in 2017.

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BOARD EVOLUTION SINCE 2011

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

Summary of Individual Director Skills, Core Competencies and Attributes

 
Caterpillar Board
Tenure (Years)
1 7 12 20 7 18 3 15 9 1 7 1 8 years
Average Tenure
Board of Directors
Experience (other Boards)
100%
Audit Committee
Financial Expert

100% of
Audit Committee Members

CEO 83%
Business Development
and Strategy
92%
Government/
Regulatory Affairs
83%
Customer and Product
Support Services
83%
Finance & Accounting 83%
Risk Management 67%
Technology 75%
Global Experience 83%
Manufacturing/Logistics 50%
Gender and Diversity 42%
Age 49 60 56 70 54 70 61 67 63 60 63 66 62 years
Average Age

*

Senator Ayotte joined the board in August 2017, and Mr. Wilkins joined the board in April 2017.


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DIRECTOR CONTINUOUS EDUCATION AND DEVELOPMENT

The company places a high importance on the continuous development of its Board. Board members receive on-going opportunities to obtain education through participating in meetings, subscribing to relevant publications and attending activities and professional development training offered by associations such as the National Association of Corporate Directors and Lead Director Network. These opportunities allow directors to be well informed and to expand their knowledge of trends and issues relevant to their role as a director. Directors are also given development opportunities through meeting directly with company dealers and customers and attending company trade shows such as CONEXPO.

BOARD’S ROLE IN RISK OVERSIGHT

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

The Audit Committee evaluates and monitors risks related to the Company’s financial reporting requirements, including the Company’s internal audit function and the independent auditor. The Audit Committee also assesses other risks faced by the Company including cybersecurity and information technology risks and the controls implemented to monitor and mitigate these risks, and the Chief Information Officer attends all bimonthly Audit Committee meetings. The Compensation and Human Resources Committee monitors and assess risks associated with the Company’s employment and compensation policies and practices. The Public Policy and Governance Committee oversees various governance matters and risks related to public policy matters affecting the Company.

DIRECTOR NOMINATIONS AND EVALUATIONS

PROCESS FOR NOMINATING AND EVALUATING DIRECTORS

The 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 professional experience, integrity, honesty, judgment, independence, accountability, willingness to express independent thought, understanding of the Company’s business and other factors that the PPGC determines are pertinent in light of the current needs of the Board. Candidates must have successful leadership experience and stature in their primary fields, with a background that demonstrates an understanding of business affairs as well as the complexities of a large, publicly-held company. In addition, candidates must have demonstrated

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an ability to think strategically and make decisions with a forward-looking focus and the ability to assimilate relevant information on a broad range of complex topics. Moreover, candidates must have the ability to devote the time necessary to meet a director’s responsibilities and serve on no more than four public company boards in addition to Caterpillar’s Board.

DIRECTOR RECRUITMENT PROCESS

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

Discusses

Reviews
Qualifications & Expertise

Board Needs

Diversity

Interviews

Recommends Nominees

Discusses PPGC
Recommendations

Analyzes
Independence

Selects Nominees

Vote on Nominees
at Annual Meeting
                 

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

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

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.

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NOMINATIONS FROM SHAREHOLDERS

The PPGC considers unsolicited inquiries and director nominees recommended by shareholders in the same manner as nominees from all other sources. Recommendations should be sent to the Corporate Secretary located at 510 Lake Cook Road, Suite 100, Deerfield, IL 60015. Shareholders may nominate a director candidate to serve on the Board by following the procedures described in our bylaws. Deadlines for shareholder nominations for Caterpillar’s 2019 Annual Meeting of Shareholders are included in the “Shareholder Proposals and Director Nominations for the 2019 Annual Meeting” section on page 60.

The number of persons comprising the Caterpillar Board of Directors is currently established as 12. If any of the Board’s nominees should become unavailable to serve as a Director prior to the Annual Meeting, the size of the Board and number of Board nominees will be reduced accordingly.

The Board has nominated the following individuals to stand for election for a one-year term expiring at the annual meeting of shareholders in 2019.

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, 2018.

             
 

KELLY A. AYOTTE

Former U.S. Senator representing New Hampshire

Other current directorships (1) Age 49
News Corporation
 
Other directorships within the last five years Director Since 2017
none
Caterpillar Board Committee Independent
Public Policy and Governance

Key Qualifications and Skills:

The Board believes that Kelly Ayotte provides the Company with in depth knowledge in the areas of public policy, government and law from her experience as U.S. Senator, Attorney General, Deputy Attorney General, and Chief of the Homicide Prosecution Unit for New Hampshire. She offers valuable insights for the company on important public policy issues from her service on the Senate Commerce, Science and Transportation Committee and financial experience from her service on the Senate Budget Committee. Senator Ayotte currently serves on three nonprofit boards that focus on human rights and other global issues. Senator Ayotte was brought to the attention of the Board through her public service.

     

             
 

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 (3) Age 60
Nielsen Holdings plc
The Boeing Company
Gates Industrial Corporation plc
Other directorships within the last five years Director Since 2011
None
Caterpillar Board 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 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 his previous role at General Electric. Mr. Calhoun also has significant manufacturing and advanced technology industry expertise as evidenced by his leadership of GE’s aircraft engines and transportation businesses.

     

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DANIEL M. DICKINSON

Managing Partner of HCI
Equity Partners
(private equity firm)

Other current directorships (0) Age 56
None
Other directorships within the last five years Director Since 2006
MISTRAS Group, Inc.
Caterpillar Board Committee Independent
Audit

Key Qualifications and Skills:

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

     

             
 

JUAN GALLARDO

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

Other current directorships (3) Age 70
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
LafargeHolcim Ltd.
Caterpillar Board 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 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 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 54
The Boeing Company
Other directorships within the last five years Director Since 2011
None
Caterpillar Board 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 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 70
Abbott Laboratories
General Dynamics Corporation
Other directorships within the last five years Director Since 2000
None
Caterpillar Board Committee Independent
Audit, Chair

Key Qualifications and Skills:

The Board believes 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 61
Halliburton Company
Sempra Energy
Other directorships within the last five years Director Since 2015
None
Caterpillar Board Committee Independent
Compensation

Key Qualifications and Skills:

The power, oil and gas industries are key end-user markets for Caterpillar products. The Board believes 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 67
Helmerich & Payne, Inc.
S&P Global Inc.
Other directorships within the last five years Director Since 2003
None
Caterpillar Board Committee Independent
Public Policy and Governance, Chair

Key Qualifications and Skills:

Mr. Rust retired as Chairman in 2016 and as Chief Executive Officer in 2015 of State Farm Mutual Automobile Insurance Company.

The Board believes 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 other 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 complements 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 Strategic Advisor
for Mayer Brown LLP
(global law firm)

Other current directorships (3) Age 63
FedEx Corporation
Marriott International, Inc.
The Boeing Company
Other directorships within the last five years Director Since 2009
None
Caterpillar Board Committee Independent
Public Policy and Governance

Key Qualifications and Skills:

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

     

             
 

D. JAMES UMPLEBY, III

CEO of Caterpillar Inc.

Other current directorships (1) Age 60
Chevron Corporation
Other directorships within the last five years Director Since January 2017
None
Caterpillar Board 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 as a Vice President of Caterpillar Inc. (2010 to 2013).

The Board believes 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 63
Abbott Laboratories
McDonald’s Corporation
Other directorships within the last five years Director Since 2011
None
Caterpillar Board Committee Independent
Compensation, Chair

Key Qualifications and Skills:

The Board believes 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 Inc.
(telecommunications)

Other current directorships (2) Age 66
Morgan Stanley
Valero Energy Corporation
Other directorships within the last five years Director Since 2017
América Móvil, S.A.B. de C.V.
Caterpillar Board Committee Independent
Audit

Key Qualifications and Skills:

The Board believes Mr. Wilkins’ expertise and oversight experience in the information technology arena 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.

     

DIRECTOR COMPENSATION

The following table sets forth information concerning the compensation for our non-employee directors during the year ended December 31, 2017. Messrs. Oberhelman and Umpleby, who served as chief executive officers during 2017, did not receive separate compensation for their service on the board of directors.

Compensation for non-employee directors for 2017 was comprised of the following components:

Cash Retainer         $      150,000
Restricted Stock Units (1 Year Vesting) for Chairman $ 375,000
Restricted Stock Units (1 Year Vesting) for Members $ 125,000
Stipends:
Audit Committee Chairman $ 25,000
Compensation and Human Resources Committee Chairman $ 20,000
Public Policy Committee Chairman $ 15,000

Directors are required to own Caterpillar common stock equal to five times their annual cash retainer. Directors have a five-year period from the date of their election or appointment to meet the target ownership guidelines. Directors may defer 50 percent or more of their annual cash retainer and stipend into an interest-bearing account or an account representing phantom shares of Caterpillar stock. Directors that joined the Board prior to April 1, 2008 also are able to participate in a Charitable Award Program, under which a donation of up to $500,000 will be made by the Company in the director’s name to charitable organizations selected by the director and a donation of up to $500,000 also will be made by the Company in the director’s name to the Caterpillar Foundation. Directors derive no financial benefit from the program.

DIRECTOR COMPENSATION FOR 2017
DIRECTOR       FEES EARNED OR
PAID IN CASH
      RESTRICTED
STOCK UNITS
1
      ALL OTHER
COMPENSATION2
      TOTAL
Kelly A. Ayotte          $   62,500                  $   52,079                 $                 $   114,579        
David L. Calhoun $ 150,000 $ 374,987 $ $ 524,987
Daniel M. Dickinson $ 150,000 $ 125,028 $   32,456 $ 307,484
Juan Gallardo $ 150,000 $ 125,028 $ 14,708 $ 289,736
Jesse J. Greene, Jr. $ 150,000 $ 125,028 $ 5,500 $ 280,528
Jon M. Huntsman, Jr. $ 112,500 $ 125,028 $ $ 237,528
Dennis A. Muilenburg $ 150,000 $ 125,028 $ $ 275,028
William A. Osborn $ 173,750 $ 125,028 $ 14,708 $ 313,486
Debra L. Reed $ 150,000 $ 125,028 $ $ 275,028
Edward B. Rust, Jr. $ 167,500 $ 125,028 $ 22,032 $ 314,560
Susan C. Schwab $ 150,000 $ 125,028 $ 9,600 $ 284,628
Miles D. White $ 170,000 $ 125,028 $ $ 295,028
Rayford Wilkins, Jr. $ 112,500 $ 93,705 $ $ 206,205

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1 As of December 29, 2017, the number of vested and non-vested options (NQs), RSUs and Phantom Shares held by these serving as non-employee directors during 2017 was: Ms. Ayotte: 677 (which consists of 458 RSUs and 219 Phantom Shares); Mr. Calhoun: 16,049 (which consists of 3,920 RSUs and 12,129 Phantom Shares); Mr. Dickinson: 27,732 (which consists of 1,307 RSUs and 26,425 Phantom Shares); Mr. Gallardo: 30,327 (which consists of 1,307 RSUs and 29,020 Phantom Shares); Mr. Greene: 1,307 RSUs; Mr. Huntsman: 1,307 RSUs; Mr. Muilenburg: 1,307 RSUs; Mr. Osborn: 1,702 (which consists of 1,307 RSUs and 395 Phantom Shares); Ms. Reed: 5,931 (which consists of 1,307 RSUs and 4,624 Phantom Shares); Mr. Rust: 36,097 (which consists of 1,307 RSUs and 34,790 Phantom Shares); Ms. Schwab: 12,299 (which consists of 1,307 RSUs and 10,992 Phantom Shares); Mr. White: 9,092 (which consists of 1,307 RSUs and 7,785 Phantom Shares); and Mr. Wilkins: 943 RSUs. Ms. Ayotte deferred 50 percent while Mr. Calhoun, Mr. Dickinson, Mr. Gallardo, Ms. Reed, Mr. Rust, Ms. Schwab and Mr. White deferred 100 percent of their 2017 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 Director’s 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 $2,000; Mr. Greene $5,500; Mr. Rust $11,000; and Ms. Schwab $9,600. 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 $30,456; Mr. Gallardo $14,708; Mr. Osborn $14,708; and Mr. Rust $11,032.

BOARD ELECTION AND LEADERSHIP STRUCTURE

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

On January 1, 2017, D. James Umpleby, III, 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 of the Board. Accordingly, on April 1, 2017, David L. Calhoun became our independent Chairman.

The Board has no fixed policy on whether or not to have an independent chairman. The Board believes this determination should be made based on the Company’s best interests in light of the circumstances at the time. 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 to assure effective governance and accountability, taking into consideration the needs of the Board and the Company.

DUTIES AND RESPONSIBILITIES OF INDEPENDENT CHAIRMAN

Preside at all meetings of the Board.

Encourage and facilitate active participation of all directors.

Serve as a liaison between the independent directors and the Chief Executive Officer.

Approve Board meeting materials for distribution.

Approve Board meeting schedules and agendas.

Has the authority to call special meetings of the Board.

Lead the Board’s annual evaluation of the Chief Executive Officer.

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


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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 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 2017, the Chairman of the Public Policy and Governance Committee contacted each Board member to solicit their feedback. The Public Policy and Governance Committee also developed a discussion outline that was circulated to the Board members in advance of the Board’s year-end meeting. The Public Policy and Governance Chairman 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 regularly throughout the year, reports its actions and recommendations to the Board, receives reports from management, annually evaluates its performance and has the authority to retain outside advisors at its discretion. The current primary responsibilities of each committee are summarized below and set forth in more detail in each committee’s written charter, which can be found on Caterpillar’s website at www.caterpillar.com/governance. All committee members are independent under Company, NYSE and SEC standards applicable to Board and committee service, and the Board has determined that each member of the Audit Committee is an “audit committee financial expert” as defined under SEC rules.

AUDIT COMMITTEE
 
         

Committee Members:
William A. Osborn, Chairman
(pictured below)
Daniel M. Dickinson
Dennis A. Muilenburg
Rayford Wilkins, Jr.

Number of Meetings
in 2017:
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
 
Reviews with management the Company’s risk assessment and risk management framework
 
Approves audit and non-audit services provided by the independent auditors
 
Reviews the organization, scope and effectiveness of the Company’s internal audit function, disclosures and internal controls
 
Sets parameters for and monitors the Company’s hedging and derivatives practices
 
Provides oversight for the Company’s ethics and compliance programs
 
Monitors the Company’s litigation and tax compliance
 
Oversees information technology systems and related security
    

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COMPENSATION AND HUMAN RESOURCES COMMITTEE
 
         

Committee Members:
Miles D. White, Chairman
(pictured below)
David L. Calhoun
Debra L. Reed

Number of Meetings
in 2017:
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 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:
Edward B. Rust, Jr., Chairman
(pictured below)
Kelly A. Ayotte
Juan Gallardo
Susan C. Schwab

Number of Meetings
in 2017:
7

COMMITTEE ROLES AND RESPONSIBILITIES
 
Makes recommendations to the Board regarding the size and composition of the Board and its committees, and the criteria to be used for the selection of candidates to serve on the Board.
 
Discusses and evaluates the qualifications of potential and incumbent directors and recommends the slate of director candidates to be nominated for election at the Annual Meeting.
 
Leads the Board in its annual self-evaluation process.
 
Oversees the Company’s officer succession planning.
 
Oversees the Company’s environmental, health and safety activities and sustainability.
 
Oversees the corporate governance structure.
 
Reviews/Advises on matters of domestic and international public policy affecting the Company’s business, such as trade policy and international trade negotiations and major global legislative and regulatory developments.
 
Annually reviews the Company’s charitable and political contributions and policies.
 
Oversees investor and community relations.
 
    

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DIRECTOR INDEPENDENCE DETERMINATIONS

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

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

COMMUNICATION WITH THE BOARD

Shareholders, employees and all other interested parties may communicate with any of our directors, 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
510 Lake Cook Road, Suite 100
Deerfield, IL 60015

   

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

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

INVESTOR OUTREACH

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

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

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AWARDS AND RECOGNITIONS

Third parties regularly recognize our employees’ innovation, leadership and workplace satisfaction. We are pleased to highlight some of these 2017 awards here.

SOCIAL RESPONSIBILITY AND SUSTAINABILITY         CORPORATE REPUTATION AND LEADERSHIP
Dow Jones Sustainability Index (World and North America)
The Just 100: America’s Best Corporate Citizens – Forbes
United Way Worldwide’s Global Corporate Leadership Program
Corporate Equality Index – Human Rights Campaign Foundation
2017 China Anti-poverty & Child Development Distinguished Contribution Silver Award – China Development and Research Foundation
Top 20 Companies for Contribution of Fortune Global 500 – Southern Weekly (China)
2016 Responsible Brand Award – China Charity Festival (China awarded in 2017)
The China Women and Children Philanthropy Award – All-China Women’s Federation (China)
2017 Corporate Social Responsibility Excellent Award (Silver Status) – American Chamber of Commerce in Thailand (Thailand)
 
World’s Most Admired Companies – Fortune Magazine
All-America Executive Team – Institutional Investor
Best Global Brands Top 100 – Interbrand
Top 100 Innovators in Diversity and Inclusion – Mogul
U.S. President’s Volunteer Service Award – Junior Achievement USA
Top 150 Global Licensors – Global License
Top 50 Employer – CAREERS & the disABLED Magazine
Top 50 Employer – Minority Engineer Magazine
Top 50 Employer – Woman Engineer Magazine
Military Friendly Employers Silver Award – Victory Media
Most Valuable Employer for Military – RecruitMilitary
Top Veteran-Friendly Company – U.S. Veterans Magazine
#15 Great Place to Work – Great Place To Work Institute (Panama)
#50 Great Place to Work – Great Place To Work Institute (Central America)
#10 Great Place to Work (Brazil)
Top 10 Best Companies to Work For in Brazil (Perkins - Brazil)
Top 150 Best Companies to Work For – Institute of Administration Foundation of Sao Paulo University (Brazil)
#93 Best Innovative Company (Brazil)
The Most Enterprising Company in Piracicaba (Brazil)
Top of Mind Company “Industry category” (Piracicaba, Brazil)
Most Admired Brand for Construction Machines PINI Group for Construction Industry (Brazil)
Best Product Support in 2017 Caterpillar-Sotreq Brazilian Association of Technology for Construction and Mining-Sobratema (Brazil)
2017 National Safety Award on Outstanding Models for Occupational Safety, Health and Environment – Department of Labor Protection and Welfare, Ministry of Labor (Thailand)
2017 Anti-Drug Workplace Award or The “White Factory Award” (Level  1) – Department of Labor Protection and Welfare, Ministry of Labor (Thailand)
The UK’s Most Popular Graduate Recruiters 2017/18 – UK Trendence Research (United Kingdom)
Top 100 Undergraduate Employers (United Kingdom) – RMP Enterprise (United Kingdom)
Environmental Quality Award – The Federal Agency of Environmental Protection (Solar Turbines - Mexico)

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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 its political contribution activities and its political action committee, its engagement in public policy issues and global issues of importance to the Company, including detailed information on the Company’s position with respect to such issues. This information is disclosed on our website

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

Caterpillar’s political and advocacy activities, at the state, federal and international levels, are managed by the Vice President, Global Government & Corporate Affairs who coordinates and reviews with senior management the legislative and regulatory priorities that are significant to the Company’s business and shareholders, as well as related advocacy activities. To ensure appropriate Board oversight of political activities, the Board’s Public Policy and Governance Committee 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 policy governing the approval of transactions with the Company that are expected to exceed $120,000 in any calendar year in which any director, executive officer or their immediate family members will have a material interest. Under the policy, 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 General Counsel and Corporate Secretary, including whether the related person or his or her immediate family member has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of an entity involved in the transaction). The General Counsel and Corporate Secretary will then submit the matter to the PPGC for its consideration.

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PROPOSAL 2 – RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PROPOSAL SNAPSHOT
What am I voting on?

Shareholders are being asked to approve the ratification of the Audit Committee’s appointment of PricewaterhouseCoopers as the Company’s independent auditor for 2018.

Board 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 current year. The service matrix categorizes the types of services by audit, audit-related, tax and all other services. Management and the independent auditors jointly submit an annual pre-approval limits request. The request lists aggregate pre-approval limits by service category. The request also lists known or anticipated services and associated fees. The 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):

                2017       2016
Audit Fees1       $ 34.6 $ 33.3
Audit-Related Fees2       1.8 1.2
Tax Compliance Fees3       0.4 0.4
Tax Planning And Consulting Fees4       0.1 0.1
All Other Fees5       0.1 0.1
  TOTAL $ 37.0 $ 35.1

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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 each of 2017 and 2016 and are not included in the amounts shown above.
3 “Tax Compliance Fees” includes, among other things, statutory tax return preparation and review and advice on the impact of changes in local tax laws.
4 “Tax Planning and Consulting Fees” includes, among other things, tax planning and advice and assistance with respect to transfer pricing issues.
5 “All Other Fees” consists principally of license-based services for statutory audit monitoring and accounting and reporting literature research.

ANONYMOUS REPORTING OF ACCOUNTING AND OTHER CONCERNS

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

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

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

AUDIT COMMITTEE REPORT

The 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, 2017.

By the members of the Audit Committee:

Daniel M. Dickinson       William A. Osborn
(Chairman)
      Dennis A. Muilenburg       Rayford Wilkins, Jr.

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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.

Board Voting Recommendation:
FOR
approval of executive compensation.

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

“RESOLVED, that the compensation of Caterpillar’s named executive officers as described under ‘Compensation Discussion and Analysis,’ the compensation tables and the narrative discussion associated with the compensation tables in Caterpillar’s proxy statement for its 2018 Annual Meeting of Shareholders is hereby APPROVED.”

This vote is advisory and therefore not binding on Caterpillar, the Compensation and Human Resources 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

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. Compensation should also be market competitive and internally equitable.

Over the last few years, the feedback from our shareholders has resulted in several changes to our executive compensation program. These changes have been well received by our shareholders, as reflected by our 2017 “say on pay” vote of approximately 96%, up from 93% in the prior year.

In 2017, we continued our shareholder outreach effort, reaching out to the holders of approximately 40% of our outstanding shares, to discuss various matters including governance, executive compensation, sustainability and operational performance. In these meetings, our shareholders generally expressed a continued positive view with respect to our executive compensation program.

  SAY ON PAY SUPPORT 
 
 
96% 93% 65%
2017 2016 2015
 
     

After considering feedback received from our shareholders through our outreach efforts and the 2017 “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 executive compensation program in response to the shareholder outreach or “say on pay” results.

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 to monitor the program’s alignment with the Company’s business objectives. In connection with this ongoing review, and based on feedback received through our shareholder outreach, 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:

                  
    WHAT WE DO       WHAT WE DON’T DO  
                                        
               
               
 
Robust stock ownership requirements (6x base salary for our CEO and 3x base salary for each of the other NEOs).
Robust annual 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.

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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, retain and motivate talented executive officers who will improve the company’s performance and provide long-term strategic leadership. The majority of targeted total compensation for our NEOs is equity-based, vests over multiple years and is tied directly to long-term value creation for shareholders. NEO compensation is comprised of three primary components:

  BASE SALARY     ANNUAL INCENTIVE (AIP)     LONG-TERM INCENTIVE  
           
Competitive pay to
attract and retain
talented executives
An opportunity to
earn an annual cash
award based on
the Company’s financial
performance and
high-priority business
initiatives
A mix of performance-based
restricted stock units (PRSUs)
and stock options to align
management’s interests with
long-term shareholder’s
interests

Approximately 90% of our CEO’s 2017 targeted total compensation was variable and/or at-risk compensation, including 50% of long-term incentives in the form of PRSUs.

CEO COMPENSATION ELEMENTS


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BUSINESS PERFORMANCE AND RESULTS

Caterpillar delivered strong results throughout 2017. Many of our end markets improved, our team capitalized on the opportunity and we achieved excellent results. As demand improved during the year, we stayed disciplined and maintained control of our structural costs, while introducing new products, further developing our digital capabilities and executing the changes outlined in our new strategy. In addition, we delivered improved margins across the three primary segments and maintained a strong balance sheet. As a result, the company’s stock price increased 70 percent in 2017, and the Company’s one year Total Shareholder Return (TSR) improved to 75 percent.

Our key financial and business results for 2017 included the following:

PROFITABLE GROWTH 2017
STRONG BALANCE SHEET AND CASH FLOW

* Definitions of Enterprise Operating Profit and Adjusted Earnings Per Share, which are non-GAAP metrics used in determining performance under our Annual Incentive Plan and Strategic Performance Plan, can be found on pages 35 and 38, respectively.

SALES AND REVENUES

($ in millions)

 
TOTAL SHAREHOLDER RETURN
 
 



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PAY OUTCOMES DEMONSTRATE ALIGNMENT WITH COMPANY PERFORMANCE

Consistent with the Committee’s pay-for-performance philosophy, these improvements in business results were reflected in the resulting pay decisions made for our CEO and the other NEOs in 2017. Compensation outcomes for 2017 included the following items:

Named Executive Officers (other than the CEO) received an average base salary adjustment of 3.3%.
In recognition of management’s outstanding performance that resulted in a 93% improvement in enterprise operating profit in 2017 over the prior year, the Committee, consistent with its authority, elected to award 2017 AIP payouts based on the “up year” incentive plan structure.
 
Annual incentive awards for 2017 paid out, on average, at 140% of target.
Based on the Committee’s review of the Company’s 1-, 3- and 5-year relative TSR at the end of 2016 and 2017, respectively:
the 2017 equity grants to the NEOs were sized at approximately the 50th percentile of the compensation peer group.
the 2018 equity grants to the NEOs were sized at approximately the 75th percentile of the compensation peer group.
 
2015 – 2017 PRSU grant vested at 100% in 2017.

In 2017, the CEO’s actual compensation was below his target compensation. Mr. Umpleby’s actual annual incentive award reflects the Company’s strong results in 2017 coupled with the Committee’s assessment of his superior performance. Mr. Umpleby’s 2017 LTI grant was set at 80% of the Company’s peer group median reflecting his relative tenure as CEO.

CEO COMPENSATION


* Target Value Includes: Salary of $1,200,000, annual incentive of $1,800,000; and LTI grant of $9,085,000. Total Target value: $12,085,000.
** Actual Value Includes: Salary of $1,200,000, annual incentive of $3,500,000; and LTI grant of $7,250,000. Total Actual value: $11,950,000.

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COMPENSATION DISCUSSION & ANALYSIS

2017 NAMED EXECUTIVE OFFICERS

   
 


D. James Umpleby, III
Chief Executive Officer (CEO)

Mr. Umpleby became CEO on January 1, 2017. During his first year, he:
Led the company to increase profit per share from ($0.11) in 2016 to $1.26 in 2017, and doubled adjusted earnings per share to $6.88 in 2017 on an 18 percent increase in sales and revenues.
Led development and implementation of a new enterprise strategy to achieve long-term profitable growth, with an emphasis on growing services, expanded offerings and operational excellence.
Deployed the Caterpillar Operating & Execution Model across the company to emphasize allocation of resources to areas with the greatest opportunity for future profitable growth.
Continued necessary restructuring actions to achieve a more competitive and flexible cost structure while making additional investments for future profitable growth.
   
   
   


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

In 2017, Mr. Halverson:
Had responsibilities for Corporate Services and the Financial Products Division.
Improved the already strong financial position of the Company as end markets began their recovery.
Made key contributions to the Company’s new strategy by embedding the Operating & Execution Model.
Delivered Return on Equity greater than plan and last year for the Company’s captive finance company, Caterpillar Financial Services, while credit metrics were managed within long-term historical averages.
   
   
   


Robert B. Charter
Group President, Customer &
Dealer Support

In 2017, Mr. Charter:
Led Caterpillar’s growing aftermarket opportunity in partnership with various business units and dealers.
Drove strong aftermarket performance by quickly responding to a sharp upturn in the mining and oil and gas end markets.
Deployed Lean initiatives, including inventory management systems across the Global Caterpillar Dealer network.
Executed new Enterprise Strategy with a focus on growing aftermarket services by connecting assets, implementing customer support agreements, expanding eCommerce capabilities and using digitally enabled solutions.
 
 
 


Thomas Pellette
Group President,
Energy & Transportation

In 2017, Mr. Pellette:
Improved safety and quality, exceeded all full year key financial commitments and developed a more competitive and flexible cost structure.
Continued expansion of digital solutions including the launch of shop.perkins.com, Perkins® My Engine App and Perkins® SmartCap.
Delivered increased engine power density and new products, such as our Tier 4 transit locomotive, through key investments under the Operating & Execution Model.
   
   
   

Bob De Lange
Group President,
Construction Industries
In 2017, Mr. De Lange:
Doubled profit on 23% higher sales, increasing operating margin from 10.5% to 17%.
Disciplined execution of the Operating & Execution model, including further structural cost reductions and footprint restructuring.
Focused on Lean and improved safety, quality and inventory turns performance.
   

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THE COMPENSATION PROCESS

THE COMPENSATION AND HUMAN RESOURCES 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, regarding 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.

COMPENSATION CONSIDERATIONS

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

Long-term shareholder value creation.
The cyclical nature of the business.
Performance relative to financial guidance provided throughout the year.
Enterprise and Business Unit operational performance.
Performance relative to peers and competitors.
Historic absolute and relative performance.
Key areas management can influence over the short and long term.
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 (“Meridian”) as its independent compensation consultant. Meridian provides executive and director compensation consulting services to the Committee, including advice regarding the design and implementation of compensation programs, market information, regulatory updates and analyses and trends on executive compensation and benefits. Interactions between Meridian and management are generally limited to discussions on behalf of the Committee or as required to fulfill requests at the Committee’s direction. During 2017, 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

2017 Compensation Peer Group – The Committee regularly assesses the market competitiveness of the Company’s executive compensation programs based on peer group data. The 2017 Compensation Peer Group was established based on the following criteria:

Total sales and revenues and market capitalization of the peer companies relative to Caterpillar;
Competitors and industry segment;
Global presence with a significant portion of revenues coming from non-U.S. operations;
Geographic footprint

2017 COMPENSATION PEER GROUP*
3M Company Fluor Corporation
Alcoa         Ford Motor Company
Archer Daniels Midland Company General Electric Company
The Boeing Company Halliburton Company
Cisco Systems, Inc. Honeywell International Inc.
Cummins Inc. Intel Corporation
Deere & Company Johnson Controls, Inc.
E.I. du Pont de Nemours Paccar Inc.
       and Company United Technologies
Emerson Electric Co.        Corporation
FedEx Corporation

* During 2016, the Committee removed four companies from the prior benchmarking peer group: Coca-Cola, Procter & Gamble, General Dynamics and Raytheon.

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.

2017 Competitor Peer Group – For 2017, 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 uses the Competitor Peer Group (along with the 2017 Compensation Peer Group) to assess relative performance when awarding long-term incentive awards. The 2017 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

2017 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. The CEO presents a performance evaluation and makes compensation recommendations to the Committee for all other NEOs.

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



AVERAGE OF OTHER NEOS


BASE SALARY

Base salary is the only fixed component of NEO compensation. The Committee targets base salaries at the size-adjusted median level of the peer group. Each NEO’s base salary is determined by the individual’s level of responsibility and historic performance with reference to the market median. 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.

Upon his appointment to the position of CEO, Mr. Umpleby’s 2017 salary was set at $1.2 million, which was below the peer group median. In setting Mr. Umpleby’s base salary, the Committee considered several factors including market data of other recently appointed CEOs relative to peer group medians. Effective April 1, 2018, the Committee increased Mr. Umpleby’s annual salary to $1,500,000. The Committee specifically noted Mr. Umpleby’s strong performance in his first year as CEO and sought to align his salary more closely to the peer group median.

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Effective April 2017, the Committee approved adjustments for the CFO and other NEOs. All salaries are at or below the peer group median.

ANNUAL INCENTIVE

2017 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 annual cash compensation at risk and aligns the interests of executives and shareholders.

The 2017 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 2017. 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 enterprise operating profit to the prior year’s actual enterprise operating profit. Based on this comparison, the Committee annually determines whether the current year will be an “up year” (improved performance) or “down year” (weaker performance) versus the prior year’s actual enterprise operating profit results.

“Up Year”

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

     

Maximum


Business
Plan
          The payout for achievement of maximum performance level is capped at 150% of the target award opportunity.
Target Achievement target level enterprise operating profit performance goal will result in a payout of 100% of the target.
Threshold performance level is set at 87% of target.
Performance at threshold will result in a payout of 50% of the target opportunity for the year.

Performance below threshold will result in no annual incentive payout.




 

“Down Year”

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

 

Target


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

Threshold performance level is set at 87% of target.

 

Performance at threshold will result in a payout of 50% of the reduced target.

Performance below threshold will result in no annual incentive payout.






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

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Consistent with this design process, after reviewing the Company’s 2017 business plan, the Committee determined that 2017 would be a “down year,” as Enterprise Operating Profit was forecasted to be 14.4% below 2016 Enterprise Operating Profit. As a result, each NEO’s target AIP opportunity was reduced by 14.4%, and the AIP payout was capped at target.

2017 ANNUAL INCENTIVE PERFORMANCE MEASURES AND RESULTS

At its February 2017 meeting, the Committee approved the performance measures described below to be used for determining actual payouts under the AIP. The largest portion (ranging from 55 percent to 100 percent) of each NEO’s 2017 AIP opportunity was based on Enterprise Operating Profit and the Operating Profit After Capital Charge (OPACC) for their respective businesses. The remaining portion of each NEO’s annual incentive award opportunity was determined based on the achievement of specific operational goals, as described below.

When establishing the performance targets for 2017, the Committee reviewed the Company’s business plan, 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 2017 AIP for each NEO.


In early 2018, 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

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

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

 

OPERATING PROFIT AFTER CAPITAL CHARGE (OPACC)

For each segment, OPACC is calculated as operating profit (excluding restructuring costs) less the capital charge. In 2017, 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 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 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.

 

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2017 ANNUAL INCENTIVE PAYMENTS

2017 was initially forecasted to have lower enterprise operating profit than 2016, resulting in a “down year” incentive plan structure. However, actual enterprise operating profit in 2017 significantly exceeded 2016 enterprise operating profit by 93%, and since enterprise operating profit improved, 2017 was an “up year”. Results for 2017 also exceeded 2015 enterprise operating profit, despite 2015 having higher sales and revenues. In recognition of management’s outstanding performance and strong improvements in results throughout the year, and to recognize the recovery of profitability well beyond 2015 performance levels, the Committee, consistent with its authority under the AIP, elected to award the 2017 AIP payouts based on the “up year” incentive plan structure. The Committee determined that these adjustments were reflective of its pay-for-performance philosophy, and in the best interest of the Company and its shareholders. Therefore the Committee approved the following AIP payments for 2017:

TARGET
OPPORTUNITY
SALARY1 WEIGHTED
PERFORMANCE
FACTOR
PAYMENT
Umpleby 150%      X      $ 1,200,000      X      1.35   =   $ 2,430,000
Halverson 115%      X      $ 804,159      X      1.50   = $ 1,387,174
Charter 115%      X      $ 756,313      X      1.43   = $ 1,244,626
Pellette 115%      X      $ 756,313      X      1.50   = $ 1,304,639
De Lange 115%      X      $ 664,232      X      1.20   = $ 916,640

1 AIP payment calculated using a daily weighted average salary.

In addition, the Committee sought to reward Mr. Umpleby’s superior performance, by providing an additional discretionary cash award of $1,070,000. In determining the appropriate level of the award, the Committee noted Mr. Umpleby’s superior performance in his first full year as CEO and the Company’s strong financial results, intense focus on operational excellence and profitable growth.

LONG-TERM INCENTIVE

2017 DESIGN AND SIZING OF GRANT

In 2017, the Committee granted one-half of each NEO’s total long-term incentive (LTI) value in PRSUs and one-half in non-qualified stock options (Options). For the 2017 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 2017-2019 performance period based on average ROE over the full three-year period. The Options vest equally in one-third increments beginning on the first anniversary of the grant date.

In February 2017 and 2018, the Committee approved LTI awards that were initially sized at the 50th and 75th percentile, respectively, of the benchmarked LTI values for the Company’s compensation peer group. The Committee viewed these levels of LTI award as appropriate in view of the Company’s 1, 3 and 5-year relative TSR and financial performance at the end of 2016 and 2017, respectively. The Committee further adjusted the LTI awards to reflect the individual performance of each NEO. In light of the Company’s strong financial results and Mr. Umpleby’s superior performance in 2017, in March 2018 the Committee awarded Mr. Umpleby a LTI award that was sized at the 80th percentile of the Company’s peer group.

1, 3 AND 5-YEAR TSR




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The Committee’s process for awarding LTI grant values for NEOs is as follows:

1Benchmark the median LTI value for the Company’s compensation peer group.
 
2Review and consider 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.
 
3Adjust award values to reflect individual performance including consistency of performance against goals, leadership contributions, time in role and other relevant factors.

2015 – 2017 Performance Restricted Stock Units (PRSUs)

For the 2015 grant, one-third of the PRSUs were eligible to vest annually based on three annual 18% ROE hurdles. In addition, any PRSUs that did not vest based on the annual performance hurdle had the opportunity to vest based on the achievement of a three-year average ROE of 18% during the performance period. 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.

In each of 2015 and 2016, the Company achieved (respectively) 13.3% and 14.3% adjusted ROE, and accordingly none of the PRSUs vested in those years. In 2017, the Company’s adjusted ROE was 30.6% and the three-year average was 19.4%. As a result, 100% of the 2015 PRSU award vested. The table below describes the Company’s ROE performance and PRSU vesting results for the 2015 – 2017 performance period:

2015-2017 PRSUs                                     

The Committee annually reviews the Company’s ROE performance including any one-time, non-operational or other special items that might impact the ROE result. The Committee recognizes that although certain of these items may significantly impact the Company’s reported financial results, they are not always indicative of the underlying operational performance of the Company or its management. To that end, in its evaluation of the Company’s ROE results, the Committee used its discretion to make adjustments to ROE to align compensation outcomes with the operating performance of the Company. For the 2015 – 2017 performance period, the Committee made adjustments to ROE to account for restructuring costs, the impact of a goodwill impairment charge, the effect of

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an accounting principle change impacting the accounting for pension and other post-employment benefits and the impact of the 2017 tax reform legislation in the U.S. The Committee also excluded gains from divestitures as well as deferred tax valuation allowance adjustments. In each case, the Committee determined that these adjustments were an appropriate use of discretion and in the best interest of the Company and its shareholders.

STRATEGIC PERFORMANCE PLAN (SPP)

Mr. De Lange is the only NEO to participate in the 2015 – 2017 SPP since he was not an executive officer in 2015. The 2015 – 2017 SPP performance cycle was the final SPP cycle prior to the Company’s introduction of PRSUs.

The 2015-2017 SPP performance cycle concluded in 2017 with a weighted-average performance factor of 1.17. The measures in this performance cycle were established in February 2015 and were comprised of two components  – Earnings Per Share (EPS) and Relative TSR (versus S&P Industrials). In its evaluation of the results, the Committee noted the impact of a goodwill impairment charge, the effect of an accounting principle change impacting the accounting for pension and other post-employment benefits and the impact of the 2017 tax reform legislation in the U.S. 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 both the accounting change and the tax legislation were not contemplated when the 2015-2017 SPP was developed. Accordingly, the Committee excluded the impact of these expenses, as well as excluding gains from divestitures and deferred tax valuation allowance adjustments from EPS when evaluating and approving the results below. Had the Committee not excluded these items, the overall payout factor for the 2015 – 2017 performance period would have been 0.50.

PERFORMANCE MEASURE WEIGHTING    THRESHOLD
(30% PAYOUT)
   TARGET
(100% PAYOUT)
   MAXIMUM
(200% PAYOUT)
   RESULTS      PAYOUT
FACTOR
Adjusted EPS1 75% $3.50 $4.75 $5.70 $4.57 0.90
Relative TSR vs. S&P Industrials 25% 25th Percentile 55th Percentile 75th Percentile 91st Percentile 2.00
Overall Weighted Factor: 1.17

1 Average of 2015-2017 adjusted EPS. All EPS figures are adjusted to exclude the following: restructuring costs, 2016 goodwill impairment, 2016 and 2017 effect of an accounting principle change effective January 1, 2016 impacting the accounting for pension and other post-employment benefits, 2017 gain on divestitures, 2016 and 2017 deferred tax valuation allowance adjustments, and 2017 impact of U.S. tax reform.

2015 – 2017 PERFORMANCE PERIOD PAYMENTS

NEO TARGET OPPORTUNITY1 FINAL FACTOR PAYOUT
De Lange 80% of Salary      X      1.17      =      $ 465,277

1 Based on pro-rated salary during the performance period.

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OTHER COMPENSATION, BENEFITS AND CONSIDERATIONS

RETIREMENT OF BRADLEY M. HALVERSON

On July 31, 2017, Bradley M. Halverson provided notice of his decision to retire as Group President and Chief Financial Officer of the Company. In connection with Mr. Halverson’s retirement, the Company entered into a Retention and Retirement Agreement with Mr. Halverson (the “Agreement”), dated July 31, 2017. Pursuant to the terms of the Agreement as amended, (i) Mr. Halverson will receive a cash payment of $2,612,250 payable as soon as practicable after his retirement effective May 4, 2018, and (ii) Mr. Halverson’s outstanding equity awards will be treated in accordance with their terms, except that the performance-based restricted stock award granted to Mr. Halverson in 2017 will not be prorated. The Agreement also contains various covenants, including restrictive covenants relating to non-competition, non-solicitation, non-disparagement, confidentiality and cooperation.

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” beginning 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
   
 
RETIREMENT INCOME
PLAN (RIP)

Defined benefit pension plan under which benefit amounts are calculated based on years of service and final average monthly earnings and offer annuity payments. RIP was closed to new entrants, effective January 1, 2011. All U.S.-based NEOs, except (i) Mr. Charter who participates in the Company’s Australian-based defined benefit pension plan and (ii) Mr. De Lange who became a U.S. based employee after the plan was frozen to new entrants, participate in this plan and, subject to the Company’s right to amend or terminate the plan, continue to earn benefits under RIP until the earlier of separation or December 31, 2019.

SUPPLEMENTAL RETIREMENT
PLAN (SERP)

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

 



 
CATERPILLAR 401(K)
PLANS
U.S.-based NEOs who participate in a pension plan 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. Mr. De Lange, who does not participate in a pension plan, also participates in the Caterpillar 401(k) Savings Plan, under which the Company matches 100 percent of the first 6 percent of eligible pay contributed by the participant, 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) plans 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 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 “2017 All Other Compensation Table” on page 43.

Additionally, in connection with the Company’s relocation of its corporate headquarters to Deerfield, Illinois, certain employees who also relocated to Deerfield received benefits pursuant to the Company’s corporate relocation program. Pursuant to this relocation program, during 2017, each NEO received relocation benefits. These relocation benefits were deemed to be important in retaining our employees in connection with our corporate relocation.

CLAWBACK POLICY

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

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

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

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

TAX IMPLICATIONS: DEDUCTIBILITY OF NEO COMPENSATION

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

COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT

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

By the members of the Compensation and Human Resources Committee:

Miles D. White
(Chairman)
David L. Calhoun Debra L. Reed

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2017 SUMMARY COMPENSATION TABLE

NAME AND
PRINCIPAL POSITION
   YEAR    SALARY    BONUS    STOCK
AWARDS
2
   OPTION
AWARDS3
   NON-EQUITY
INCENTIVE PLAN
COMPENSATION4
   CHANGE IN
PENSION VALUE
AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS5
   ALL OTHER
COMPENSATION6
   SEC TOTAL SEC TOTAL
WITHOUT
CHANGE IN
PENSION
VALUE7
D. James Umpleby, III
CEO
2017 $ 1,200,000 $ 1,070,000 1  $ 3,288,528 $ 5,361,394        $ 2,430,000               $                $ 685,287         $ 14,035,209 $ 14,035,209
2016 $ 825,636 $ $ 1,166,657 $ 2,353,971 $ 858,138 $ 62,688 $ 27,097 $ 5,294,187 $ 5,231,499
2015 $ 815,805 $ $ 1,264,698 $ 4,154,987 $ 247,726 $ 2,582,073 $ 83,085 $ 9,148,374 $ 6,566,301
Bradley M. Halverson
Group President & CFO
2017 $ 804,078 $ $ 2,367,6838 $ 2,218,512 $ 1,387,174 $ 444,299 $ 380,950 $ 7,602,696 $ 7,158,397
2016 $ 786,312 $ $ 1,080,269 $ 2,179,625 $ 852,957 $ 231,289 $ 96,250 $ 5,226,702 $ 4,995,413
2015 $ 786,312 $ $ 1,127,963 $ 3,705,673 $ 244,440 $ 2,293,173 $ 90,933 $ 8,248,494 $ 5,955,321
Robert B. Charter
Group President
2017 $ 756,192 $ $ 1,678,238 $ 2,736,169 $ 1,244,626 $ 397,794 9  $ 714,835 $ 7,527,854 $ 7,130,060
2016 $ 729,768 $ 500,000 $ 984,692 $ 1,986,744 $ 818,510 $ 189,327 $ 247,311 $ 5,456,352 $ 5,267,025
2015 $ 729,768 $ 300,000 $ 1,046,232 $ 3,437,148 $ 190,994 $ 845,918 $ 541,566 $ 7,091,626 $ 6,245,708
Bob De Lange
Group President

2017 $ 664,221 $ $ 1,224,639 $ 1,996,648 $ 1,381,917 $ 10  $ 2,455,278 $ 7,722,703 $ 7,722,703
 
Thomas Pellette
Group President
2017 $ 756,192 $ $ 1,587,553 $ 2,588,260 $ 1,304,639 $ 478,939 $ 621,423 $ 7,337,006 $ 6,858,067

1 This amount represents a $1,070,000 discretionary cash award described on page 36 under the heading “2017 Annual Incentive Payments.”
2 Except as otherwise described for Mr. Halverson in footnote 8 below, the amounts reported in this column represent PRSUs granted in 2017 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, 2017, included in the Company’s Form 10-K filed with the SEC on February 15, 2018.
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, 2017, included in the Company’s Form 10-K filed with the SEC on February 15, 2018.
4 The amounts in this column reflect the AIP payments for 2017. The amount for Mr. De Lange also includes a cash incentive payment for the 2015-2017 performance cycle of $465,277.
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, 2016 and December 31, 2017. The amount assumes the pension benefit is payable at each NEO’s earliest unreduced retirement age based upon the NEO’s current pensionable earnings.
6 All Other Compensation detail for 2017 is shown in a separate table appearing on the next page.
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 For Mr. Halverson, this amount also includes the incremental fair value associated with the modification to his outstanding 2017 PRSU award totaling $1,006,886 as described under the heading “Retirement of Bradley M. Halverson.” Pursuant to the SEC disclosure rules, removal of the pro-rata vesting provision is considered a modification resulting in additional compensation being reported in the year of modification. Under ASC 718, the incremental fair value associated with such modification is calculated based on the value of the company’s common stock at the time of modification.
9 The amount reported for Mr. Charter has been converted to U.S. dollars using the exchange rate in effect on December 31, 2017 (1 Australian dollar = 0. 78015 U.S. dollar).
10 Mr. De Lange ceased participation in the Swiss pension plan effective December 31, 2016. Mr. De Lange received a distribution of his entire plan benefit, based on a December 31, 2016 valuation, in January 2017 and no longer has a balance in the Swiss plan.

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2017 ALL OTHER COMPENSATION TABLE

NAME       MATCHING
CONTRIBUTIONS
401(K)
      MATCHING
CONTRIBUTIONS
SDCP
      CORPORATE
AIRCRAFT/
TRANSPORTATION
1
      HOME
SECURITY2
      OTHER3       TOTAL ALL OTHER
COMPENSATION
D. James Umpleby, III           $   8,078                  $   34,493                   $   18,611                $   39,000    $   585,105          $   685,287         
Bradley M. Halverson $ 8,009 $ 22,460 $ 5,788 $ 44,454 $ 300,239 $ 380,950
Robert B. Charter $ 7,386 $ 23,263 $ 189 $ 772 $ 683,225 $ 714,835
Bob De Lange $ 3,309 $ 33,235 $ 107 $ 45,125 $ 2,373,502 4  $ 2,455,278
Thomas Pellette $ 8,100 $ 7,237 $ 197 $ 7,651 $ 598,238 $ 621,423

1 The value of personal aircraft usage reported above is based on Caterpillar’s incremental cost per flight hour, including the weighted average variable operating cost of fuel, oil, aircraft maintenance, landing and parking fees, related ground transportation, catering and other smaller variable costs. Mr. Umpleby and the Company have a time-sharing lease agreement, pursuant to which certain costs associated with personal flights are reimbursed by Mr. Umpleby to the Company in accordance with the agreement.
2 Amounts reported for home security represent the cost provided by an outside security provider for hardware and monitoring service. The incremental cost associated with the home security services is determined based upon the amounts paid to the outside service provider.
3 Amounts reported in this column include allowances and reimbursements related to relocation expenses in connection with the Company’s corporate headquarters relocation to Deerfield, Illinois. All NEOs received the same benefits, and were subject to the same relocation policy, as all other employees who relocated in connection with the corporate headquarters move.
4 Mr. De Lange was an International Service Employee (ISE) based in Singapore. The amount shown includes foreign service allowances typically paid by the Company on behalf of the ISE, including allowances paid for moving expenses, housing, mobility premium, home leave, foreign and U.S. taxes. Company paid taxes, relating to this ISE assignment of $1,881,403 were included in this amount, pursuant to the Company’s tax equalization policy for ISEs. These allowances are intended to ensure the Company’s ISEs are in the same approximate financial position as they would have been if they lived in their home country during the time of their international service. These ISE related expenses were valued based on the aggregate incremental cost to the Company and represent the amount accrued for payment or paid to the service provider or the NEO, as applicable.

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GRANTS OF PLAN-BASED AWARDS IN 2017

ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY INCENTIVE
PLAN AWARDS
1
 
ESTIMATED
FUTURE PAYOUTS
UNDER EQUITY
INCENTIVE PLAN
AWARDS2
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
(#)
  
D. James Umpleby, III 03/06/2017                           37,895                   $               $   3,288,528      
03/06/2017 214,370 $ 95.66 $ 5,361,394
AIP5 $   900,000 $   1,800,000 $   2,700,000 $ $
Bradley M. Halverson 03/06/2017 15,681 $ $ 1,360,797
03/06/2017 88,705 $ 95.66 $ 2,218,512
7/31/2017 9,583 $ 1,006,8866
AIP5 $ 462,392 $ 924,783 $ 1,387,174 $ $
Robert B. Charter 03/06/2017 19,339 $ $ 1,678,238
03/06/2017 109,403 $ 95.66 $ 2,736,169
AIP5 $ 434,880 $ 869,760 $ 1,304,639 $ $
Bob De Lange 03/06/2017 14,112 $ $ 1,224,639
03/06/2017 79,834 $ 95.66 $ 1,996,648
AIP5 $ 381,933 $ 763,866 $ 1,145,799 $ $
Thomas Pellette 03/06/2017 18,294 $ $ 1,587,553
03/06/2017 103,489 $ 95.66 $ 2,588,260
AIP5 $ 434,880 $ 869,760 $ 1,304,639 $ $

1 The amounts reported in this column represent estimated potential awards under the 2017 AIP.
2 The amounts reported in this column represent estimated potential awards under the LTIP. PRSUs were granted on March 6, 2017 under the LTIP for the 2017-2019 performance period. PRSUs vest at the end of a three-year performance period subject to the Company’s achievement of an average ROE performance hurdle during that period. There is no threshold or maximum payout opportunity with respect to these PRSUs.
3 Amounts reported represent stock options granted under the LTIP. The exercise price for all stock options granted to the NEOs is the closing price of Caterpillar stock on the grant date ($95.66). 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.
4 The amounts shown do not reflect realized compensation by the NEO. As reported in this column, the value of PRSUs granted in 2017 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 2017 AIP estimates shown are based upon each executive’s base salary for 2017. The actual payout was based on the achievement of corporate and business unit performance metrics. Please refer to page 34 of the CD&A for a detailed explanation of the various performance metrics. Payments under the AIP are limited by a plan cap set at $15 million. The cash payouts for the 2017 plan year are included in the column “Non-Equity Incentive Plan Compensation” of the “2017 Summary Compensation Table.”
6 This amount represents the incremental fair value associated with the modification to Mr. Halverson’s 2017 PRSU award in connection with his retirement and does not reflect a new equity grant.

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OUTSTANDING EQUITY AWARDS AT 2017 FISCAL YEAR END

OPTION AWARDS     STOCK AWARDS
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SARs/OPTIONS
EQUITY INCENTIVE
PLAN AWARDS:
NAME    GRANT DATE     EXERCISABLE     UNEXERCISABLE     SAR /
OPTION
EXERCISE
PRICE
    SAR /
OPTION
EXPIRATION
DATE
1
NUMBER OF
SHARES OR
UNITS
OF STOCK
THAT HAVE
NOT
VESTED2
   MARKET VALUE
OF SHARES
OR UNITS OF
STOCK
THAT HAVE
NOT
VESTED3
   NUMBER OF
UNEARNED
SHARES,
UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED4
   MARKET OR
PAYOUT VALUE OF
UNEARNED
SHARES, UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED5
D. James Umpleby, III 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 $ $ 16,3256 $ 2,572,494
03/02/2015 115,081 57,540 $ 83.00 03/02/2025 $ $
03/07/2016 $ $ 18,0297 $ 2,841,010
03/07/2016 38,017 76,032 $ 74.77 03/07/2026 $ $
03/06/2017 $ $ 37,8957 $ 5,971,494
03/06/2017 214,370 $ 95.66 03/06/2027 $ $
Bradley M. Halverson 03/03/2014 81,061 $ 96.31 03/03/2024 $ $
02/27/2015 $ $ 14,5606 $ 2,294,365
03/02/2015 51,318 $ 83.00 03/02/2025 $ $
03/07/2016 $ $ 16,6947 $ 2,630,641
03/07/2016 35,201 70,401 $ 74.77 03/07/2026 $ $
03/06/2017 $ $ 15,6817 $ 2,471,012
03/06/2017 88,705 $ 95.66 03/06/2027 $ $
Robert B. Charter 03/07/2011 23,379 $ 102.13 03/07/2021 $