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APPROVAL
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OMB
Number: 3235-0059
Expires: January
31, 2008
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average
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange
Act
of 1934 (Amendment No. )
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Filed
by the
Registrant:
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X
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Filed
by a
Party other than the Registrant:
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Check
the
appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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X
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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Caterpillar
Inc.
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(Name
of
Registrant as Specified In Its Charter)
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(Name
of
Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment
of
Filing Fee (Check the appropriate box):
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X
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No
fee
required.
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Fee
computed
on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each
class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price
or other underlying value of transaction computed pursuant to Exchange
Act
Rule 0-11 (set forth the amount on which the filing fee is calculated
and
state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee
paid:
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Fee
paid
previously with preliminary materials.
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Check
box if
any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously.
Identify the previous filing by registration statement number,
or the Form
or Schedule and the date of its filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule
or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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SEC
1913
(04-05)
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Persons
who are to respond to the collection of information contained in
this form
are not required to respond unless the form displays a currently
valid OMB
control number.
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100 NE Adams Street
Peoria,
Illinois
61629
Notice
of
Annual Meeting of Stockholders
Wednesday,
June 13, 2007
1:30
p.m. -
Central Daylight Time
Q
Center
1450
N.
5th
Avenue
St.
Charles, IL 60174
April
30,
2007
Fellow
stockholder:
On
behalf of the
board of directors, you are cordially invited to attend the 2007 Caterpillar
Inc. annual meeting of stockholders to:
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elect
directors;
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ratify
Independent Registered Public Accounting
Firm;
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act
on
stockholder proposals, if properly presented;
and
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conduct
any
other business properly brought before the
meeting.
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You
must have an
admission ticket to attend. Procedures for requesting the admission ticket
are
detailed on page 47 of this proxy statement. Attendance and voting is limited
to
stockholders of record at the close of business on April 16, 2007.
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Sincerely
yours,
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James
W.
Owens
Chairman
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Table
of Contents
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Q:
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Who
can attend the annual meeting of stockholders?
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A:
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Anyone
wishing to attend the Caterpillar Inc. (Caterpillar or the company)
2007
annual meeting of stockholders (annual meeting) must have an admission
ticket issued in his or her name. Admission is limited
to:
§ stockholders
of record on April 16, 2007 and one guest or
§ a
stockholder’s authorized proxy holder or representative designated to
present a stockholder proposal.
You
must
provide evidence of your ownership of shares with your ticket request.
The
specific requirements for obtaining an admission ticket are specified
in
the “Admission & Ticket Request Procedure” on page 47.
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Q:
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What
is a stockholder of record?
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A:
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A
stockholder
of record or registered stockholder is a stockholder whose ownership
of
Caterpillar stock is reflected directly on the books and records
of our
transfer agent, Mellon Investor Services (transfer agent). If you
hold
stock through a bank, broker or other intermediary, you hold your
shares
in street name and are not a stockholder of record. For shares held
in a
street position, the record owner of the shares is your bank, broker
or
other intermediary. Caterpillar only has access to ownership records
for
the registered shares so, if you are not a registered stockholder,
the
company needs additional documentation to evidence your stock ownership
as
of the record date, such as, a copy of your brokerage account statement,
a
letter from your broker, bank or other nominee or a copy of your
voting
instruction card.
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Q:
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When
is the record date and who is entitled to
vote?
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A:
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The
board of
directors (board) set April 16, 2007 as the record date for the 2007
annual meeting. Holders of Caterpillar stock on that date are entitled
to
one vote per share. As of April 16, 2007, there were approximately
640
million shares of Caterpillar common stock outstanding.
A
list of all
registered holders will be available for examination by stockholders
during normal business hours at 100 NE Adams Street, Peoria, Illinois
61629, at least ten days prior to the annual meeting and will also
be
available for examination at the annual
meeting.
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Q:
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How
do I vote?
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A:
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You
may vote
by any of the following methods:
§ in
person
-
stockholders who obtain an admission ticket (following the specified
procedure) and attend the meeting will receive a ballot for
voting
§ by
mail - using
the
proxy and/or voting instruction card provided
§ by
phone or via the Internet,
following
the instructions on the enclosed proxy and/or voting instruction
card.
If
you vote
by phone or via the Internet, please have your proxy and/or voting
instruction card available. The control number appearing on your
card is
necessary to process your vote. A phone or Internet vote authorizes
the
named proxies in the same manner as if you marked, signed and returned
the
card by mail. In the opinion of counsel, voting by phone or via the
Internet are valid proxy voting methods under Delaware law and
Caterpillar’s bylaws.
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Page
1
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Q:
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How
can I authorize someone else to vote for me?
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A:
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If
you want
to authorize someone other than the individual(s) named on the proxy
card
to vote for you:
§ cross
out the
individual(s) named and insert the name of the individual you are
authorizing to vote; or
§ provide
a
written authorization to the individual you are authorizing to vote
along
with your proxy card.
To
obtain an
admission ticket for your authorized proxy representative, see the
requirements specified in the “Admission & Ticket Request Procedure”
on page 47.
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Q:
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Can
I
change or revoke my proxy?
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A:
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For
stockholders of record:
You may
change or revoke your vote by submitting a written notice of revocation
with Caterpillar c/o the Corporate Secretary at 100 NE Adams Street,
Peoria, IL 61629 or by submitting another proxy on or before June
12, 2007
(including a proxy via the Internet or by telephone) that is dated
later
than the previously submitted vote.
For
holders in street name:
You may
change or revoke your voting instructions by following the specific
directions provided to you by your bank or
broker.
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Q:
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Is
my
vote confidential?
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A:
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Yes.
Proxy
cards, ballots and voting tabulations that identify stockholders
are kept
confidential. There are exceptions for contested proxy solicitations
or
when necessary to meet legal requirements. Innisfree M&A, the
independent proxy tabulator used by Caterpillar, counts the votes
and acts
as the inspector of election for the
meeting.
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Q:
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What
is the quorum for the meeting?
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A:
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A
quorum of
stockholders is necessary to hold a valid meeting and consists of
a
majority of the outstanding shares, present or represented by proxy.
For
Caterpillar, at least one-third of all stockholders must be present
in
person or by proxy at the annual meeting to constitute a quorum.
Abstentions and broker non-votes are counted as present for establishing
a
quorum. A broker non-vote occurs when a nominee holding shares for
a
beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power with respect to
that item
and has not received instructions from the beneficial
owner.
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Q:
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What
vote is necessary for action to be taken on
proposals?
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A:
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Directors
are
elected by a plurality vote of the shares present at the meeting,
meaning
that the director nominees with the most affirmative votes are elected
to
fill the available seats. All other actions require an affirmative
vote of
the majority of shares present at the meeting. Abstentions and broker
non-votes have the effect of a vote against matters other than director
elections.
Votes
submitted by mail, telephone or Internet will be voted by the individuals
named on the card (or the individual properly authorized) in the
manner
indicated. If you do not specify how you want your shares voted,
they will
be voted in accordance with management’s recommendations. If you hold
shares in more than one account, you must vote each proxy and/or
voting
instruction card you receive to ensure that all shares you own are
voted.
You may change your vote by voting in person at the annual meeting
or by
submitting another proxy prior
to the
polls closing. For all methods of voting, the last vote cast will
supersede
all previous
votes.
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Page
2
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Q:
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What
does it mean if I receive more than one proxy card?
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A:
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Whenever
possible, registered shares and plan shares for multiple accounts
with the
same registration will be combined into the same card. Shares with
different registrations cannot be combined and as a result, the
stockholder may receive more than one proxy card. For example, registered
shares held individually by John Smith will not be combined on the
same
proxy card as registered shares held jointly by John Smith and his
wife.
Street
shares
are not combined with registered or plan shares and may result in
the
stockholder receiving more than
one proxy
card. For example, street shares held by a broker for John Smith
will not
be combined with registered shares for John Smith.
If
you hold
shares in more than one account, you must vote each proxy and/or
voting
instruction card you receive to ensure that all shares you own are
voted.
If
you
receive more than one card for accounts that you believe could be
combined
because the registration is the same, contact our stock transfer
agent
(for registered shares) or your broker (for street shares) to request
that
the accounts be combined for future
mailings.
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Q:
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Who
pays for the solicitation of proxies?
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A:
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Caterpillar
pays the cost of soliciting proxies. Proxies will be solicited on
behalf
of the board of directors. This solicitation is being made by mail,
but
also may be made by telephone or in person. We have hired Innisfree
M&A Incorporated for $15,000, plus out-of-pocket expenses, to assist
in the solicitation. We will reimburse brokerage firms and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses for sending proxy materials to stockholders and obtaining
their
votes.
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Q:
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When
are stockholder proposals due for the 2008 annual
meeting?
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A:
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To
be
considered for inclusion in the 2008 proxy statement, stockholder
proposals must be received in writing at our principal executive
offices
no later than December 19, 2007. Stockholder proposals should be
sent to
Caterpillar Inc. by mail c/o the Corporate Secretary at 100 NE Adams
Street, Peoria, Illinois 61629.
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Q:
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Are
there any matters to be voted on at the meeting that are not included
in
the proxy?
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A:
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We
do not
know of any matters to be acted upon at the meeting other than those
discussed in this statement. If any other matter is presented, proxy
holders will vote on the matter in their discretion.
Under
Caterpillar bylaws, a stockholder may bring a matter to vote upon
at the
annual meeting by giving adequate notice to Caterpillar Inc. by mail
c/o
the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois
61629. To
be adequate, that notice must contain information specified in our
bylaws
and be received by us not less than 45 days nor more than 90 days
prior to
the annual meeting. If, however, less than 60 days notice of the
meeting
date is given to stockholders, notice of a matter to be brought before
the
annual meeting may be provided to us up to the 15th
day
following the date the notice of the annual meeting was provided.
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Q:
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Can
I
submit a question in advance of the annual
meeting?
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A:
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Stockholders
wishing to submit a question in advance of the annual meeting to
be
considered for a response during the annual meeting may do so by
sending
an email to the Corporate Secretary at Directors@CAT.com
or by mail
c/o the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois
61629.
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Page
3
Our
board has
adopted Guidelines
on
Corporate Governance Issues, which are available on our Internet site
(www.CAT.com/governance)
and also
available in print upon written request to Caterpillar Inc. c/o the Corporate
Secretary at 100 NE Adams Street, Peoria, Illinois 61629. These guidelines
reflect the board’s commitment to oversee the effectiveness of policy and
decision-making both at the board and management level, with a view to enhancing
stockholder value over the long term.
Structure
Our
board consists
of fourteen directors and is divided into three classes for purposes of
election, i.e Class 1, Class 2 and Class 3. Currently, Classes 1 and 2 both
have
five directors, while Class 3 has four directors. One class is elected at each
annual meeting to serve for a three-year term. With the exception of the
Chairman, all directors are independent as determined in accordance with the
New
York Stock Exchange (NYSE) listing standards.
Directors
elected
at the 2007 annual meeting will hold office for a three-year term expiring
at
the 2010 annual meeting. Directors in the other two classes that are not up
for
election this year will continue in office for the remainder of their
terms.
If
a nominee is
unavailable for election, proxy holders will vote for another nominee proposed
by the board or, as an alternative, the board may reduce the number of directors
to be elected at the meeting.
The
current
composition of the board is as follows:
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Class
I
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W.
FRANK BLOUNT, 68,
Chairman
and CEO of JI Ventures, Inc. (venture capital) and TTS Management
Corporation (private equity management). Prior to his current positions,
Mr. Blount served as Chairman and CEO of Cypress Communications Inc.
(telecommunications). Other directorships: Alcatel-Lucent S.A.; Entergy
Corporation; and Hanson PLC. Mr. Blount has been a director of the
company
since 1995.
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JOHN
R. BRAZIL,
61,
President of Trinity University (San Antonio, Texas). Dr. Brazil
has been
a director of the company since
1998.
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EUGENE
V. FIFE,
66,
Managing Principal of Vawter Capital LLC (private investment). Mr.
Fife
served as the interim CEO and President of Eclipsys Corporation
(healthcare information technology) from April to November of 2005.
He
currently serves as the non-executive Chairman of Eclipsys Corporation.
Mr. Fife has been a director of the company since
2002.
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GAIL
D. FOSLER,
59,
Executive Vice President and Chief Economist of The Conference Board
(research and business membership). Prior to her current position,
Ms.
Fosler was Senior Vice President of The Conference Board. Other
directorship: Baxter International Inc. Ms. Fosler has been a director
of
the company since 2003.
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| § |
PETER
A. MAGOWAN,
65,
President and Managing General Partner of the San Francisco Giants
(major
league baseball team). Other directorships: DaimlerChrysler AG. Mr.
Magowan has been a director of the company since
1993.
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Page
4
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Class
II
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| § |
DANIEL
M. DICKINSON,
45,
Managing Partner of Thayer Capital Partners (private equity investment).
Other
directorships: BFI Canada Income Fund. Mr.
Dickinson
became a director of the company effective December 13,
2006.
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| § |
DAVID
R. GOODE,
66, former
Chairman, President and CEO of Norfolk Southern Corporation (holding
company engaged principally in surface transportation). Other
directorships: Delta Air Lines, Inc. and Texas Instruments Incorporated.
Mr. Goode has been a director of the company since
1993.
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| § |
JAMES
W. OWENS,
61,
Chairman and CEO of Caterpillar Inc. (machinery, engines, and financial
products). Prior to his current position, Mr. Owens served as Vice
Chairman and as Group President of Caterpillar. Other directorships:
Alcoa
Inc. and International Business Machines Inc. Mr. Owens has been
a
director of the company since 2004.
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| § |
CHARLES
D. POWELL,
65,
Chairman of Safinvest Limited (asset and investment management) and
LVMH
Services Limited (luxury goods) and Magna Holdings (real estate
investment). Prior to his current positions, Lord Powell was Chairman
of
Phillips Fine Art Auctioneers (art, jewelry, and furniture auction)
and
Chairman of Sagitta Asset Management Limited (asset management).
Other
directorships: LVMH Moet-Hennessy Louis Vuitton; Mandarin Oriental
International Ltd.; Northern Trust Global Services Limited, Textron
Corporation; Schindler Holding Ltd.; and Yell Group plc. Lord Powell
has
been a director of the company since
2001.
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| § |
JOSHUA
I. SMITH,
66,
Chairman and Managing Partner of the Coaching Group, LLC (management
consulting). Other directorships: Federal Express Corporation and
The
Allstate Corporation. Mr. Smith has been a director of the company
since
1993.
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Class
III
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| § |
JOHN
T. DILLON,
68, former
Chairman and CEO of International Paper (paper and forest products).
Mr.
Dillon serves as Vice Chairman of Evercore Capital Partners (advisory
and
investment firm) and Senior Managing Director of the firm’s investment
activities and private equity business. Other directorships: E. I.
du Pont
de Nemours and Company, Kellogg Co., and Vertis Inc. Mr. Dillon has
been a
director of the company since 1997.
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| § |
JUAN
GALLARDO,
59,
Chairman
and
CEO
of Grupo
Embotelladoras Unidas S.A. de C.V. (bottling). Former Vice Chairman
of
Home Mart de Mexico, S.A. de C.V. (retail trade), Chairman and
CEO
of
Grupo
Azucarero Mexico, S.A. de C.V. (sugar mills), and former Chairman
of
Mexico Fund Inc. (mutual fund). Other directorships: Lafarge SA and
Grupo
Mexico, S.A. de C.V. Mr. Gallardo has been a director of the company
since
1998.
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| § |
WILLIAM
A. OSBORN, 59,
Chairman
and CEO of Northern Trust Corporation (multibank holding company)
and The
Northern Trust Company (bank). Other directorships: Tribune Company.
Mr.
Osborn has been a director of the company since
2000.
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| § |
EDWARD
B. RUST, JR., 56,
Chairman,
President and CEO of State Farm Mutual Automobile Insurance Company
(insurance). He is also President and CEO of State Farm Fire and
Casualty
Company, State Farm Life Insurance Company and other principal State
Farm
affiliates as well as Trustee and President of State Farm Mutual
Fund
Trust and State Farm Variable Product Trust. Other directorships:
Helmerich & Payne, Inc. and The McGraw-Hill Companies, Inc. Mr. Rust
has been a director of the company since
2003.
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Page
5
All
related party
transactions must be approved in advance by the Governance Committee (committee)
of the board whenever practicable, and if not practicable, must be ratified
as
promptly as practicable thereafter. Transactions that are determined to be
directly or indirectly material to the company or a related person are disclosed
in the company’s proxy statement.
Prior
to entering
into such a transaction, the related person must submit a form to the company’s
General Counsel providing the details of the proposed transaction and whether
(i) the aggregate amount involved will or may be expected to exceed $120,000
in
any calendar year; (ii) the company is a party; or (iii) 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 then determines, based on the facts and circumstances of the
transaction, whether the company or the related person has a direct or indirect
material interest in the transaction. If so, the General Counsel submits the
form to the committee to consider:
| § |
The
nature of
the related person’s interest in the
transaction
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The
material
terms of the transaction, including, without limitation, the amount
and
type of transaction
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The
importance of the transaction to the related
person
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| § |
The
importance of the transaction to the
company
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| § |
Whether
the
transaction would
impair the
judgment of the
director or
executive officer to act in the best interest of the
company
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| § |
The
alternatives to entering into the
transaction
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| § |
Whether
the
transaction is on terms comparable to those available to third parties,
or
in the case of employment relationships, to employees
generally
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| § |
The
potential
for the transaction to lead to an actual or apparent conflict of
interest
and any safeguards imposed to prevent such actual or apparent
conflicts
and
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The
overall
fairness of the transaction to the
company
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The Guidelines on Corporate Governance Issues provide that no more than two non-independent directors shall 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 affiliates. Annually, the board makes an affirmative determination regarding the independence of each director, based upon the recommendation of the Governance Committee (committee). The board makes its independence determination on a case-by-case basis, after consideration of all relevant facts and circumstances. However, to assist the board in making the independence determination, the board has adopted the following standards, which conform to and are more exacting than the applicable NYSE rules. Under these standards, a director shall be considered independent if he or she:
| (1) |
has
no
material relationship with the company, either directly or as a partner,
stockholder or officer of an organization that has a relationship
with the
company, and does not have any relationship that precludes independence
under the NYSE director independence standards;
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| (2) |
is
not
currently, or within the past five years, employed by the company
(or an
immediate family member is not currently, or for the past five years,
employed as an executive officer of the company);
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Page
6
| (3) |
is
not a
current employee, nor is an immediate family member a current executive
officer of, a company that has made payments to, or received payments
from, the company for property or services in an amount which, in
any of
the past five years, exceeds the greater of $1 million or 2 percent
of the
consolidated gross revenues of that company;
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| (4) |
has
not
received, nor has an immediate family member received, direct remuneration
in excess of $100,000 from the company in any twelve-month period
within
the past five years other than director and committee fees and pension
or
other forms of deferred compensation for prior services;
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| (5) |
is
not
currently nor for the past five years, and an immediate family member
is
not currently nor for the past five years, affiliated with or employed
by
a present or former auditor (or an affiliate of such auditor) of
the
company;
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| (6) |
is
not part
of an interlocking directorate in which an executive officer of the
company simultaneously served on the compensation committee of another
company that employed the director as an executive officer during
the last
five years;
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| (7) |
is
free of
any relationships with the company that may impair, or appear to
impair
his or her ability to make independent judgments; and
|
| (8) |
is
not
employed by a nonprofit organization where a substantial portion
of
funding for the past five years (representing at least a greater
of $1
million or 2 percent of the organization’s annual consolidated gross
revenues) comes from the company or the Caterpillar Foundation.
|
Using
these
standards, on April 11, 2007, the board reviewed all transactions, relationships
or arrangements of each director (and those of their immediate family members)
and any potential conflict of interests with the company (as disclosed in each
director’s response to an annual questionnaire prepared for this purpose).
Reported transactions included personal charitable contributions matched by
the
Caterpillar Foundation and services provided to Caterpillar in the ordinary
course of business. Following the review, the board determined that each outside
director is independent because none of the relationships reviewed compromise
his or her independence. The board also determined that Mr. Owens is not
independent, based on these standards, because he is the Chief Executive Officer
of the company.
In
2006, our board
met six times and regularly scheduled executive sessions were held without
management present and were led by the presiding
director.
In addition to
those meetings, directors attended meetings of individual board committees.
Overall attendance for all board and committee meetings held in 2006 was 96.86
percent. For board meetings in 2006 attendance was 98.78 percent. Company
policy, posted on our Internet site, states that absent unavoidable conflict,
all directors are expected to attend the annual stockholder meeting. All of
our
directors attended the annual meeting in June 2006, except Mr. Juan Gallardo,
who was unable to attend due to such a conflict.
Our
board has four
standing committees, an Audit
Committee,
Compensation
Committee,
Governance
Committee
and Public
Policy Committee.
Copies of written
charters for each of these committees are available on our Internet site
(www.CAT.com/governance)
or are available
in print upon written request to the Corporate Secretary at 100 NE Adams Street,
Peoria, Illinois 61629.
Page
7
Below
is a
description of each committee of the board. Committee memberships as of February
14, 2007, are listed in the Committee Membership table on page 9.
The
Audit
Committee
assists the board
in fulfilling its oversight responsibilities with respect to the integrity
of
Caterpillar’s financial statements, Caterpillar’s compliance with legal and
regulatory requirements, the qualifications and independence of Caterpillar’s
Independent Registered Public Accounting Firm (auditors), the performance of
Caterpillar’s internal audit function and the auditor, the effectiveness of
Caterpillar’s internal controls and the implementation and effectiveness of
Caterpillar’s ethics and compliance program. The committee performs this
function by monitoring Caterpillar’s financial reporting process and internal
controls and by assessing the audit efforts of the auditors and the internal
auditing department. The committee has ultimate authority and responsibility
to
appoint, retain, compensate, evaluate, and, where appropriate, replace the
auditors. The committee also reviews updates on emerging accounting and auditing
issues provided by the auditors and by management to assess their potential
impact on Caterpillar. During 2006, the committee met eleven times and overall
attendance for meetings of the committee was 96.43 percent. All members of
the
committee meet the standards for independence set forth in the NYSE listing
standards and meet financial literacy guidelines adopted by the board.
Additionally, the board has determined that each member of the committee
qualifies as an “audit committee financial expert” as defined under SEC rules.
The
Compensation
Committee assists
the board
in fulfilling its responsibilities in connection with the compensation of
company directors, officers and employees. It performs this function by
establishing and overseeing compensation programs, recommending to the board
the
compensation of directors who are not officers of the company, administering
the
company’s equity award stock option plans and options and restricted stock
grants, furnishing an annual Compensation Committee Report on executive
compensation and approving the filing of a Compensation Discussion &
Analysis section in accordance with applicable rules and regulations of the
Securities and Exchange Commission (SEC) for inclusion in the company’s proxy
statement.
All members of the
committee meet the standards for independence set forth in the NYSE listing
standards. During 2006, the committee met four times and overall attendance
for
meetings of the committee was 93.33 percent.
The
Governance Committee assists the board by making
recommendations regarding the size and composition of the board and the criteria
to be used for the selection of candidates to serve on the board. The committee
discusses and evaluates the qualifications of directors up for re-election
and
recommends the slate of director candidates to be nominated for election
at the
annual meeting. Stockholders who are interested in nominating a director
candidate can do so in accordance with the policy discussed in the Governance
Committee Report on page 13. In addition, the committee recommends to the
board
candidates for election as officers of the company. The committee also oversees
the Guidelines on Corporate Governance Issues and leads the board in its
annual
self-evaluation process and shares the results thereof with the board for
discussion and deliberation. All members of the committee meet the standards
for
independence set forth in the NYSE listing standards. During 2006, the committee
met six times and overall attendance for meetings of the committee was 92.59
percent.
The
Public
Policy Committee
assists the board
in general oversight with respect to matters of national and international
public policy affecting the company’s business, trade policy and international
trade negotiations impacting the company, major global legislative and
regulatory developments both in the U.S. and internationally affecting the
company, investor, consumer and community relations issues, employee relations,
implementation of policies promoting diversity within the company, sustainable
development initiatives, and charitable and political contributions by the
company or by any committee or foundation affiliated with the company. All
members of the committee meet the standards for independence set forth in the
NYSE listing standards. During 2006, the committee met three times and overall
attendance for meetings of the committee was 100 percent.
Page
8
|
Committee
Membership
(as
of
February 14, 2007)
|
||||
|
|
Audit
|
Compensation
|
Governance
|
Public
Policy
|
|
W.
Frank
Blount
|
|
|
Ö*
|
|
|
John
R.
Brazil
|
Ö
|
|
|
|
|
Daniel
M.
Dickinson
|
|
Ö
|
|
|
|
John
T.
Dillon
|
Ö
|
|
|
|
|
Eugene
V.
Fife
|
Ö*
|
|
|
|
|
Gail
D.
Fosler
|
|
|
Ö
|
|
|
Juan
Gallardo
|
|
|
|
Ö
|
|
David
R.
Goode
|
Ö
|
|
|
|
|
Peter
A.
Magowan
|
|
|
Ö
|
|
|
William
A.
Osborn
|
|
Ö*
|
|
|
|
James
W.
Owens
|
|
|
|
|
|
Charles
D.
Powell
|
|
|
|
Ö*
|
|
Edward
B.
Rust, Jr.
|
|
Ö
|
|
|
|
Joshua
I.
Smith
|
|
|
|
Ö
|
|
* Chairman of committee |
||||
You
may communicate
with any of our directors, our board as a group, our non-management directors
as
a group or any board committee as a group by sending an email to a particular
director, the board or a committee at Directors@CAT.com
or by mail to
Caterpillar Inc. c/o the Corporate Secretary at 100 NE Adams Street, Peoria,
Illinois 61629. The board has delegated to the Corporate Secretary, or his
designee, responsibility for determining in his discretion whether the
communication is appropriate for consideration by the presiding director, an
individual director, the committee or the board. According to the policy adopted
by the board, the Corporate Secretary is required to direct all communications
regarding personal grievances, administrative matters, the conduct of the
company’s ordinary business operations, billing issues, product or service
related inquires, order requests and similar issues to the appropriate
individual within the company. All other communications are to be submitted
to
the board as a group, to the particular director to whom it is directed or,
if
appropriate, to the presiding director or committee the Corporate Secretary
believes to be the most appropriate recipient, as the case may be. If a
legitimate business concern is sent by email or letter to the presiding
director, a specific director, the board or a board committee, you will receive
a written acknowledgement from the Corporate Secretary’s office confirming
receipt of your communication.
Page
9
The company has adopted Our Values in Action - Caterpillar’s Worldwide Code of Conduct, a code of ethics (code) that applies to all members of the board, management and employees of the company, its subsidiaries and affiliates worldwide. The code defines our values in action and what we believe in, documenting the uncompromisingly high ethical standards we have upheld since formation in 1925 and describing our value-based culture across our global operations. The code is available on our Internet site (www.CAT.com/governance) and is available in print upon written request to Caterpillar Inc. c/o the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629.
The
Audit Committee
has established a means for employees, customers, suppliers, stockholders and
other interested parties to submit confidential and anonymous reports of
suspected or actual violations of the code or our enterprise policies or
applicable laws, including those related to accounting practices, internal
controls or auditing matters and procedures; theft or fraud of any amount;
insider trading; performance and execution of contracts; conflicts
of
interest;
violation of
securities and antitrust laws; and violation of the Foreign Corrupt Practices
Act.
Any
employee,
stockholder or other interested party can submit a report via the following
methods:
| § |
Direct
Telephone: 309-494-4393 (English
only)
|
| § |
Call
Collect
Helpline: 770-582-5275 (language translation
available)
|
| § |
Confidential
Fax: 309-494-4818
|
On
May 11, 2000,
the First Circuit Court in Mexico City granted Grupo Azucarero México, S.A. de
C.V., a public company of which Juan Gallardo is the controlling stockholder,
suspension of payments protection, which was at that time a legal protection
under Mexican law similar to Chapter 11 of the U.S. Bankruptcy Code. This
protection enabled the company to continue its operations pending a debt
restructuring. In
August 2006, the
company and its subsidiaries reached an agreement with its creditors and such
agreement was approved by the Mexican Court. As a result of the foregoing Grupo
Azucarero México, S.A. de C.V. is no longer under the suspension of payments
protection. Pursuant to the agreed debt restructuring, the company shall pay
80
percent of its debt on August 30, 2008.
The
Audit Committee
(committee) is comprised entirely of independent directors (as defined for
members of an audit committee in the NYSE listing standards) and operates under
a written charter adopted by the board, a copy of which is available on our
Internet site (www.CAT.com/governance).
The current
members of the committee are listed at the end of this report. Management is
responsible for the company’s internal controls and the financial reporting
process. The Independent Registered Public Accounting Firm (auditors) are
responsible for performing an independent audit of the company’s consolidated
financial statements and internal controls over financial reporting in
accordance with standards established by the Public Company Accounting Oversight
Board in the United States and issuing a report thereon. The committee’s
responsibility is to monitor these processes. In this regard, the committee
meets periodically with management, the internal auditors and external auditors.
The committee has the authority to conduct or authorize investigations into
any
matters within the scope of its responsibilities and the authority to retain
such outside counsel, experts and other advisors as it determines appropriate
to
assist it in conducting any such investigations. The committee is responsible
for selecting and, if appropriate, replacing the current auditors
(PricewaterhouseCoopers LLP).
Page
10
Pre-Approval
Process
The
committee
pre-approves all audit and non-audit services to be performed by the auditors.
It has policies and procedures in place to ensure that the company and its
subsidiaries are in full compliance with the requirements for pre-approval
set
forth in the Sarbanes-Oxley Act of 2002 and the SEC rules regarding auditor
independence. These policies and procedures provide a mechanism by which
management can request and secure pre-approval of audit and non-audit services
in an orderly manner with minimal disruption to normal business operations.
The
policies and procedures are detailed as to the particular service and
do
not
delegate
the
committee’s responsibility to management. These policies and procedures address
any service provided by the auditors, and any audit or audit-related services
to
be provided by any other audit service provider. The pre-approval process
includes an annual and interim component.
Annual
Pre-Approval Process
Annually,
but no
later than the April committee meeting, management and the auditors jointly
submit a Service Matrix of the types of audit and non-audit services that
management may wish to have the auditors perform for the year. The Service
Matrix categorizes the types of services by Audit, Audit-Related, Tax and All
Other. Approval of a service is merely an authorization that this type of
service is permitted by the committee, subject to pre-approval of specific
services. Management and the auditors jointly submit an Annual Pre-Approval
Limits Request. The request lists individual project and aggregate pre-approval
limits by service category. The request also lists known or anticipated services
and associated fees. The committee approves or rejects the pre-approval limits
and each of the listed services. For 2006, the pre-approval limits were as
follows:
|
Pre-Approval
Limits
(in
thousands)
|
||||||
|
Type
of Service
|
Per
Project
|
Aggregate
Limit
|
||||
|
|
|
|||||
|
Audit
Services
|
$
|
500
|
$
|
17,000
|
||
|
Audit
Related Services
|
|
500
|
|
3,000
|
||
|
Tax
Services
|
|
500
|
|
15,000
|
||
|
All
Other Services
|
|
500
|
|
1,000
|
||
Interim
Pre-Approval Process
During
the course
of the year, the committee chairman has the authority to pre-approve requests
for services that were not approved in the Annual Pre-Approval Process.
Committee approval is not required for individual projects below the
pre-approval project limits. However, all services, regardless of fee amounts,
are subject to restrictions on the services allowable under the Sarbanes-Oxley
Act of 2002 and SEC rules regarding auditor independence. In addition, all
fees
are subject to on-going monitoring by the committee.
On-Going
Monitoring
At
each committee
meeting subsequent to the board of directors’ meeting at which the Service
Matrix and Annual Pre-Approval Limits Request are approved, the chairman reports
any interim pre-approvals since the last meeting. Also, at each of these
meetings, management and the auditor provide the committee with an update of
fees expected to be incurred for the year compared to amounts initially
pre-approved.
The
committee has
discussed with the company’s auditors the overall scope and execution of the
independent audit. Management represented to the committee that the company’s
consolidated financial statements were prepared in accordance with generally
accepted accounting principles in the United States. Discussions about the
company’s audited financial statements included the auditors’ judgments about
the quality, not just the acceptability of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in the
financial statements. The committee also discussed with the auditors other
matters required by Statement on Auditing Standards No. 61 Communication
with Audit Committees,
as amended by SAS
No. 90 Audit
Committee
Communications.
Management and
the auditors also made presentations to the committee throughout the year on
specific topics of interest, including: (i) management’s philosophy, asset
allocation levels, risk management and oversight of the company’s pension funds;
(ii) accounting for the company’s pension funding obligations; (iii) the
company’s derivatives policy and usage review; (iv) the internal audit plan for
2006; (v) updates on the implementation of the internal audit plan for 2006;
(vi) the company’s information technology systems and the controls in place
within those systems for compliance with the Sarbanes-Oxley Act of 2002; (vi)
the applicability of new accounting releases; (vii) the company’s critical
accounting policies; (viii) risk management initiatives and controls for various
business units within the company; and (ix) the company’s compliance with the
internal controls requirements under Section 404 of the Sarbanes-Oxley Act
of
2002.
Page
11
The auditors provided to the committee the written disclosures required by Independence Standards Board Standard No. 1 Independence Discussions with Audit Committees, and the committee discussed the auditors’ independence with management and the auditors. The committee concluded that the auditors’ independence had not been impaired.
Based
on: (i) the
committee’s discussion with management and the auditors; (ii) the committee’s
review of the representations of management; and (iii) the report of the
auditors to the committee, the 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, 2006, filed with the SEC
on
February 23, 2007.
|
By
the current members of the
Audit
Committee consisting of:
|
|||||
|
Eugene
V. Fife (Chairman)
|
John
T. Dillon
|
||||
|
John
R. Brazil
|
David
R. Goode
|
||||
Independent
Registered Public Accounting Firm Fee Information
Fees
for
professional services provided by our auditors were comprised of the following
(in millions):
|
|
2005
Actual
|
|
2006
Actual
|
|||||
|
|
|
|
|
|||||
|
Audit
Fees
|
$
|
15.7
|
|
|
$
|
20.2
|
1
|
|
|
Audit
Related Fees2
|
|
3.0
|
|
|
|
3.0
|
|
|
|
Tax
Compliance Fees3
|
|
2.3
|
|
|
|
2.2
|
|
|
|
Tax
Planning and Consulting
Fees4
|
|
6.4
|
|
|
|
2.6
|
|
|
|
All
Other Fees5
|
|
0.1
|
|
|
|
0.2
|
|
|
|
TOTAL
|
|
$
|
27.5
|
|
|
$
|
28.2
|
|
|
|
|
|
|
|
||||
|
|
||||||||
|
1
Actual 2006 “Audit Fees” exceeded the “Pre-Approval” limit due to
acquisitions and additional statutory audit requirements. Each of
these
services were approved in accordance with the company’s Interim
Pre-Approval Process as previously described.
|
||||||||
|
2
“Audit Related Fees” principally includes agreed upon procedures for
securitizations, attestation services requested by management, accounting
consultations, internal control reviews and examination of employee
benefit plan financial statements. Total fees paid directly by the
benefit
plans, and not by the company, were $.3 and $.4 in 2005 and 2006,
respectively.
|
||||||||
|
3
“Tax Compliance Fees” includes, among other things, statutory tax return
preparation and review and advising 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” principally includes subscriptions to knowledge
tools and attendance at training
classes/seminars.
|
||||||||
Page
12
The
Governance
Committee (committee) is composed of three directors, identified at the end
of
this report, all of whom meet the independence requirements for nominating
committee members as defined in the NYSE listing standards and determined by
the
board in its business judgment. The committee operates under a written charter
adopted by the board. As part of its mandate, the committee evaluates and makes
recommendations regarding proposed candidates to serve on the board, including
recommending the slate of nominees for election at annual meetings of
stockholders.
Presiding
Director
At
the
recommendation of the committee last year, the board created the role of a
presiding director with clearly delineated responsibilities. In February of
2007, the independent directors of the board unanimously elected W. Frank
Blount, an independent director, as the presiding director for the upcoming
year.
As
presiding
director, Mr. Blount:
| § |
Presides
at
all meetings of the board at which the Chairman & CEO is not present,
including executive sessions of the independent directors, and has
the
authority to call meetings of the independent directors if
necessary
|
| § |
Meets
separately with the Chairman & CEO immediately following the meetings
of the independent directors, and essentially acts as a liaison between
the Chairman & CEO and independent directors by providing guidance and
feedback and reviewing action items from those
meetings
|
| § |
Reviews,
discusses and provides input to the Chairman & CEO and typically
approves board meeting agendas, schedules and general information
provided
to directors prior to board
meetings
|
| § |
Is
available
for consultation and direct communication with major
stockholders
|
| § |
Provides
the
Chairman & CEO with the results of the annual performance review in
conjunction with the Chairman of the Compensation
Committee
|
Director
Resignation Policy
Our
Guidelines on
Corporate Governance Issues reflect the company’s principles on corporate
governance matters, including our policy that any director who receives more
“withheld” votes than “for” votes in an election shall tender his or her
resignation.
The Governance
Committee will then recommend to the board whether to accept such tendered
resignation, and the board will publicly disclose its decision.
Process
for Nominating Directors
The
committee
solicits and receives recommendations for potential director candidates from
other directors and Caterpillar management and may also utilize the services
of
a third party consultant to identify and evaluate potential nominees. The
committee also considers unsolicited inquiries or nominees recommended by
stockholders in accordance with procedures outlined below and in compliance
with
the company’s bylaws.
When
considering a
candidate, the committee believes that certain characteristics are essential.
For example, candidates must be individuals of high integrity, honesty and
accountability, with a willingness to express independent thought. Candidates
must also 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. Particular
consideration will be given to candidates with experience as chief executive
officers of successful, capital-intensive businesses with international
operations. In addition, candidates must have a demonstrated ability to think
strategically and make decisions with a forward-looking focus, with the ability
to assimilate relevant information on a broad range of complex
topics.
Page
13
The
committee also
believes that certain characteristics are desirable. This includes being a
team
player with a demonstrated willingness to ask tough questions in a constructive
manner that adds to the decision-making process of the board. At the same time,
candidates should be independent, with an absence of conflicts of interests,
and
have the ability to devote the time necessary to meet director responsibilities;
in particular, serve on no more than five public company boards in addition
to
the Caterpillar board. Candidates must also have the ability to commit to
company stock ownership according to the company’s Guidelines on Corporate
Governance Issues.
Stockholder
Nominations
Stockholders
wishing to recommend a director candidate to serve on the board may do so by
providing advance written notice to the company. Such written notice of an
intent to nominate a director candidate at an annual meeting of stockholders
must be given either by personal delivery or by United States mail, postage
prepaid, to the Corporate Secretary no later than ninety (90) days in advance
of
such meeting. The notice must set forth: (i) the name and address of the
stockholder who intends to make the nomination and of the person or persons
to
be nominated; (ii) a representation that the nominating stockholder is a
stockholder of record of the company’s stock entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the stockholder and each nominee and
any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (iv) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the SEC, had the nominee been nominated, or intended to be nominated, by
the
board; and (v) the consent of each nominee to serve as a director of the company
if so elected. The presiding officer of the annual meeting of stockholders
may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure. If you are interested in recommending a director
candidate, you may request a copy of the company’s bylaws by writing the
Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629.
|
By
the current members of the
Governance
Committee consisting of:
|
|||
|
W.
Frank Blount (Chairman)
|
|||
|
Gail
D. Fosler
|
|||
|
Peter
A. Magowan
|
The
board of
directors has nominated the following directors to stand for re-election for
a
three-year term expiring at the annual meeting in 2010. The nominees were
evaluated and recommended by the Governance Committee in accordance with the
process for nominating directors as found of page 13 of this proxy statement.
Directors
are
elected by a plurality vote of the shares present at the meeting, meaning that
the director nominees with the most affirmative votes are elected to fill the
available seats.
Page
14
Class
III Directors Up for Election This Year
| § |
JOHN
T. DILLON,
68, former
Chairman and CEO of International Paper (paper and forest products).
Mr.
Dillon serves as Vice Chairman of Evercore Capital Partners (advisory
and
investment firm) and Senior Managing Director of the firm’s investment
activities and private equity business. Other directorships: E. I.
du Pont
de Nemours and Company, Kellogg Co., and Vertis Inc. Mr. Dillon has
been a
director of the company since 1997.
|
| § |
JUAN
GALLARDO,
59, Chairman
and
CEO
of
Grupo
Embotelladoras Unidas S.A. de C.V. (bottling). Former Vice Chairman
of
Home Mart de Mexico, S.A. de C.V. (retail trade), Chairman and
CEO
of
Grupo
Azucarero Mexico, S.A. de C.V. (sugar mills), and former Chairman
of
Mexico Fund Inc. (mutual fund). Other directorships: Lafarge SA and
Grupo
Mexico, S.A. de C.V. Mr. Gallardo has been a director of the company
since
1998.
|
| § |
WILLIAM
A. OSBORN, 59,
Chairman
and CEO of Northern Trust Corporation (multibank holding company)
and The
Northern Trust Company (bank). Other directorships: Tribune Company.
Mr.
Osborn has been a director of the company since
2000.
|
| § |
EDWARD
B. RUST, JR., 56,
Chairman,
President and CEO of State Farm Mutual Automobile Insurance Company
(insurance). He is also President and CEO of State Farm Fire and
Casualty
Company, State Farm Life Insurance Company and other principal State
Farm
affiliates as well as Trustee and President of State Farm Mutual
Fund
Trust and State Farm Variable Product Trust. Other directorships:
Helmerich & Payne, Inc. and The McGraw-Hill Companies, Inc. Mr. Rust
has been a director of the company since
2003.
|
YOUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE NOMINEES PRESENTED IN
PROPOSAL 1.
The
board seeks an
indication from stockholders of their approval or disapproval of the Audit
Committee’s appointment of PricewaterhouseCoopers LLP (PricewaterhouseCoopers)
as Independent Registered Public Accounting Firm (auditors) for
2007.
PricewaterhouseCoopers
has been our auditors since 1925. For additional information regarding the
company’s relationship with PricewaterhouseCoopers, please refer to the Audit
Committee Report on page 10 and the Audit Fees disclosure on page
12.
If
the appointment
of PricewaterhouseCoopers as auditors for 2007 is not approved by the
stockholders, the adverse vote will be considered a direction to the Audit
Committee to consider other auditors for next year. However, because of the
difficulty in making any substitution of auditors so long after the beginning
of
the current year, the appointment for the year 2007 will stand, unless the
Audit
Committee finds other good reason for making a change.
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.
YOUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” PROPOSAL
2.
Pursuant
to Rule
14a-8(l)(1) of the Securities Exchange Act of 1934, the company will provide
the
name, address and number of company securities held by the proponent of this
stockholder proposal promptly upon receipt of a written or oral
request.
This
proposal
requires an affirmative vote of the majority of shares present at the meeting
to
pass. Abstentions and broker non-votes have the effect of a vote against this
proposal.
Resolution
Proposed by Stockholder
The
shareholders of
Caterpillar request that the Board of Directors establish a policy of, whenever
possible, separating the roles of Chairperson and Chief Executive Officer,
so
that an independent director who has not served as an executive officer of
the
Company serves as Chair of the Board of Directors.
This
proposal shall
not apply to the extent that complying would necessarily breach any contractual
obligations in effect at the time of the 2006 shareholder meeting.
Supporting
Statement of Proponent
The
principle of
the separation of the roles of Chairperson and Chief Executive Officer is a
basic element of sound corporate governance practice. The primary purpose of
the
Board of Directors is to protect shareholders’ interests by providing
independent oversight of management and the CEO. The Board gives strategic
direction and guidance to our Company.
Given
these
different roles and responsibilities, we believe:
| § |
An
independent Board Chair - separated from the CEO - is the preferable
form
of corporate governance.
|
| § |
It
is the
role of the Chief Executive Officer and management to run the business
of
the company.
|
| § |
An
independent Chair and vigorous Board will bring greater focus to
ethical
imperatives, and be better able to forge solutions for shareholders
and
consumers.
|
| § |
Separating
the roles of Chair and CEO at Caterpillar would result in greater
independence and accountability which would allow the company to
have
greater focus and thereby better address issues of environmental,
social
and health impacts of the company’s
products.
|
The
Board will
likely achieve its goals more effectively by separating the roles of Chair
and
CEO. An independent Chair will enhance investor confidence in our Company and
strengthen the integrity of the Board of Directors.
A
number of
respected institutions recommend such separation. CaIPER’s Corporate Core
Principles and Guidelines state: “the independence of a majority of the Board is
not enough” and that “the leadership of the board must embrace independence, and
it must ultimately change the way in which directors interact with
management.”
An
independent
board structure will also help the board address policy issues and other complex
issues facing our company, among them:
| § |
Reputational
risk associated with an exponential growth in negative media coverage
and
international protests targeting the company.
|
| § |
A
highly
publicized debate among religious institutional shareholders regarding
divestment from Caterpillar.
|
Page
16
| § |
Lawsuits
by
the Federal government (EEOC) alleging sexual and racial
discrimination.
|
| § |
Membership
in
a trade association that funded a political candidate criticized
for
running “racist” ads in a state election campaign.
|
| § |
Facilities
that were cited by OSHA as having some of the worst health and safety
records.
|
| § |
Three
product
recalls between 2001 and February
2006.
|
| § |
History
of
labor difficulties.
|
| § |
Lack
of
disclosure - Innovest Strategic Advisors reports that “Caterpillar is one
of the lowest rated companies in the sector because of its very limited
disclosures….”
|
| § |
Innovest
further states that CAT’s “environmental strategies and management systems
are one of the worst in this sector”, and the CAT’s “commitment to
sustainable development appears to fall far behind sector
leaders”.
|
In
order to ensure
that our Board can provide the proper strategic direction for our Company with
independence and accountability, we urge a vote FOR this
resolution.
Statement
in Opposition to Proposal
Our
current
governance structure is consistent with sound corporate governance practices.
The effective leadership of our chairman of the board and chief executive
officer (Chairman & CEO), along with the independent oversight by the board
and board committees, protects our stockholders’ interests and results in
superior stockholder returns.
Our
corporate
governance guidelines (guidelines), available on our Internet site, provide
for
the Chairman & CEO role to be combined to promote unified leadership and
direction for the company and the board. The combined role allows for a single,
clear focus for the chain of command to execute the company’s strategy and
business plans to maximize stockholder value.
This
leadership
model has led to the continued growth and success of the company. Under the
Chairman & CEO, 2006 marked the company’s fourth straight year of
double-digit profit growth and third consecutive year of record sales and
profit. In addition, the company’s stockholder return has consistently increased
as we have outperformed our peer group and S&P 500 index on one-year,
three-year and five-year return basis. As of March 1, 2007, the Institutional
Shareholder Services, Inc. Corporate Governance Quotient indicated that the
company outperformed 86.2 percent of the companies in the S&P 500 and 97.6
percent of the companies in the capital goods group. This results from the
Chairman & CEO successfully carrying out the company’s strategic initiatives
and confronting its challenges with the oversight of a strong, independent
board.
With
the exception
of the Chairman & CEO, the board consists entirely of independent directors
pursuant to the standards adopted by the board in accordance with the NYSE
rules
as outlined in the guidelines. All members of the Audit, Compensation,
Governance and Public Policy Committees consist entirely of independent
directors as well. Our board committees provide vigorous oversight on key
issues.
The
Audit Committee
provides objective oversight of the company’s financial reporting and
disclosures, compliance with legal and regulatory requirements, and
implementation and effectiveness of the ethics and compliance program. In
February 2006, the Audit Committee recommended, and the board approved, the
creation of the role of Chief Ethics and Compliance Officer. This role provides
an additional check and balance to the dual role of the Chairman &
CEO.
The
Compensation
Committee evaluates the compensation and performance of all executive officers
of the company, including the Chairman & CEO. In September 2006, Glass,
Lewis & Co. ranked the company #4 out of the S&P 500 for the best pay
for performance for top executives, and gave us an “A” for our
pay-for-performance ratings.
Page
17
The
Governance
Committee takes an active leadership role in shaping the corporate governance
of
the company by monitoring emerging trends and formulating recommendations to
guide the company in anticipating rather than reacting to changes. In October
2006, the Governance Committee recommended, and the board approved, the adoption
of a clawback policy, which allows the company to recoup executive officer
bonuses in the event of a financial restatement.
The
Public Policy
Committee provides oversight for matters
affecting
the company’s business including, but not limited to: national and international
public policy; trade policy and international trade negotiations impacting
the
company; major global legislative and regulatory developments both in the U.S.
and internationally; investor, consumer and community relations issues; employee
relations; and sustainable development initiatives. Last year, the Public Policy
Committee recommended, and the board approved, the publication of the company’s
first-ever Sustainability Report that included advice and input from advisors
from academia, business, governmental and non-governmental
organizations.
In
addition to the
oversight provided by the independent directors, there is a presiding
director.
In February 2007,
the independent directors unanimously elected the Chairman of the Governance
Committee by and from the ranks of the independent board members as the
presiding director with clearly delineated duties. In conjunction with the
Chairman of the Compensation Committee, the presiding director provides the
Chairman & CEO with the results of the annual performance review. The
presiding director also presides at all meetings of the board at which the
Chairman & CEO is not present, including executive sessions of the
independent directors. While the guidelines specify that the board must meet
in
executive session involving only independent directors at least twice each
year,
the presiding director has the authority to call executive sessions of the
independent directors when necessary. In 2006, the independent directors met
after each board meeting for a total of six executive sessions. Immediately
following the executive session meetings of the independent directors, the
presiding director met separately with the Chairman & CEO and provided
feedback and reviewed action items and guidance from those sessions.
While
the board
feels it is imperative that all directors have access to, and be able to
communicate regularly with, the Chairman & CEO, the presiding director
reviews, discusses and provides input to the Chairman & CEO on board meeting
agendas, schedules and generally the information provided to directors prior
to
board meetings. The company also has a published procedure enabling stockholders
and other third parties to communicate directly with the presiding director
and
other board members. The board has delegated the Secretary of the board with
determining whether the communication is appropriate for the presiding director,
another director, committee or board consideration. If legitimately requested
by
major stockholders, the Secretary ensures that the presiding director is
available for consultation and direct communication.
The
company’s
continued superior performance illustrates that the combination of the Chairman
& CEO is currently the most effective leadership model for the company.
Given the independence of our board, the oversight structure of the board
committees and the counterbalancing role of the presiding director, it is in
the
best interests of the stockholders for the company to maintain the combined
role
of the Chairman & CEO.
FOR
THESE REASONS, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST”
PROPOSAL 3.
Pursuant
to Rule
14a-8(l)(1) of the Securities Exchange Act of 1934, the company will provide
the
name, address and number of company securities held by the proponent of this
stockholder proposal promptly upon receipt of a written or oral
request.
This
proposal
requires an affirmative vote of the majority of shares present at the meeting
to
pass. Abstentions and broker non-votes have the effect of a vote against this
proposal.
Page
18
Resolution
Proposed by Stockholder
That
the
shareholders of Caterpillar Inc. (“Company”) hereby amend Article II, Section
1(e) (Stockholder Meetings- Quorum) of the Company’s Bylaws to provide for a
majority vote standard for director elections. Specifically, the following
sentence will be added after the current first sentence of Section 1(e) of
the
Bylaws:
“Elections
of
directors shall be decided by a majority of the votes cast, with a plurality
vote standard used in those director elections in which the number of nominees
exceeds the number of directors to be elected.”
Supporting
Statement of Proponent
In
order to provide
shareholders a meaningful role in director elections, our company’s director
election vote standard should be changed to a majority vote standard. A majority
vote standard would require that a nominee receive a majority of the votes
cast
in order to be elected. The standard is particularly well-suited for the vast
majority of director elections in which only board nominated candidates are
on
the ballot. We believe that a majority vote standard in board elections would
establish a challenging vote standard for board nominees and improve the
performance of individual directors and entire boards. Our Company presently
uses a plurality vote standard in all director elections. Under the plurality
vote standard, a nominee for the board can be elected with as little as a single
affirmative vote, even if a substantial majority of the votes cast are
“withheld” from the nominee.
In
response to
strong shareholder support for a majority vote standard in director elections,
an increasing number of companies, including Intel, Dell, Motorola, Texas
Instruments, Wal-Mart, Safeway, Home Depot, Gannett, Marathon Oil, and
Supervalu, have adopted a majority vote standard in company by-laws.
Additionally, these companies have adopted director resignation policies in
their bylaws or corporate governance policies to address post-election issues
related to the status of director nominees that fail to win election. Other
companies have responded only partially to the call for change by simply
adopting post-election director resignation policies that set procedures for
addressing the status of director nominees that receive more “withhold” votes
that “for” votes. At the time of the submission of this proposal, our Company
and its board had not taken either action.
We
believe the
critical first step in establishing a meaningful majority vote policy is the
adoption of a majority vote standard in Company governance documents. Our
Company needs to join the growing list of companies that have taken this action.
With a majority vote standard in place, the board can then consider action
on
developing post election procedures to address the status of directors that
fail
to win election. A combination of a majority vote standard and a post-election
director resignation policy would establish a meaningful right for shareholders
to elect directors, while reserving for the board an important post-election
role in determining the continued status of an unelected director. We feel
that
this combination of the majority vote standard with a post-election policy
represents a true majority vote standard.
Statement
in
Opposition to Proposal
Adherence
to sound
corporate governance policies and practices is important so that the company
is
governed and managed with the highest standards of responsibility, ethics and
integrity and in the best interest of stockholders. After careful consideration
of this proposal, the board has determined that this proposal is not in the
best
interests of the company or its stockholders and, accordingly, recommends a
vote
against it.
We
are incorporated
under Delaware law, and stockholders currently elect our directors by plurality
voting. Plurality voting is the default standard under Delaware state law and
has long been the accepted standard among most large public companies. The
rules
governing plurality voting are well established and understood. This proposal
seeks to amend the company's bylaws to change the standard for electing
directors in uncontested elections to majority voting. This is a binding
proposal, and we believe that it is not in the company's best interests to
remove all discretion from the board in this regard.
Page
19
Our stockholders have an excellent history of electing strong and independent directors by plurality voting. In the past ten years, the average affirmative vote for directors has been greater than 96 percent of the shares voted through the plurality process. In addition, we maintain a rigorous director nomination and election process that gives due consideration to stockholder nominees. Our Governance Committee, which is responsible for recommending director nominees to the board, is composed entirely of independent directors. The Governance Committee recommends nominees that will enhance the board's ability to effectively manage and direct the affairs and business of the company. The Governance Committee applies rigorous criteria to select candidates. The same criteria are applied to evaluate candidates nominated by stockholders. The company's commitment to effective and independent board leadership is shown by our governance guidelines, available on our Internet site. With the exception of the chairman, all directors are independent as defined in the NYSE listing standards. Thus, we believe that the company already maintains appropriate mechanisms for electing an effective board committed to delivering long-term stockholder value.
Nevertheless,
the
board has determined that it is in the company's best interests to adopt a
policy (majority
vote
policy) that
we believe
addresses the concerns expressed in this stockholder proposal.
The majority vote
policy, which is set forth in the company's Guidelines on Corporate Governance
Issues, provides that any director nominee who receives a greater number of
votes "withheld" from his or her election than votes "for" such election will
tender his or her resignation for consideration by the Governance Committee.
The
Governance Committee will then recommend to the board whether to accept such
tendered resignation, and the board will publicly disclose its decision. The
Guidelines on Corporate Governance Issues, including the majority vote
policy,
are available on
our Internet site (www.CAT.com/governance).
We believe that
the majority vote policy gives stockholders a more meaningful role in the
election of directors. Moreover, stockholders at other large public companies
have rejected similar stockholder proposals when those companies had a policy
similar to the company's majority vote policy, including American Express
Company, Eli Lilly and Company, Johnson
&
Johnson,
Medtronic,
Inc. and
Pfizer
Inc.
We
are committed to
strong corporate governance and it is our fiduciary duty to act in the best
interests of our stockholders, including adopting the most appropriate director
election standard. We will continue to monitor trends that develop in the area
of majority voting and take any additional appropriate steps consistent with
our
commitment to act in the best interests of our stockholders.
FOR
THESE REASONS, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST”
PROPOSAL 4.
|
(as
of December 31,
2006)
|
|
|
Voting
Authority
|
Dispositive
Authority
|
|
|
||
|
|
|
|
|
|
||
|
Name
and Address
|
Sole
|
Shared
|
Sole
|
Shared
|
Total
Amount
of
Beneficial Ownership
|
Percent
of Class
|
|
|
|
|
|
|
|
|
|
Capital
Research and Management Company
333
South Hope
Street
Los
Angeles,
CA 90071
|
1,340,000
|
0
|
36,406,000
|
0
|
36,406,000
|
5.6
|
Page
20
|
(as
of December 31,
2006)
|
|
Blount
|
73,663
|
1
|
|
Magowan
|
335,553
|
10
|
|
Brazil
|
38,137
|
2
|
|
Oberhelman
|
820,710
|
11
|
|
Burritt
|
134,074
|
3
|
|
Osborn
|
45,948
|
12
|
|
Dickinson
|
783
|
|
|
Owens
|
1,866,781
|
13
|
|
Dillon
|
81,647
|
4
|
|
Powell
|
42,035
|
14
|
|
Fife
|
43,334
|
5
|
|
Rust
|
26,267
|
15
|
|
Fosler
|
23,334
|
6
|
|
Shaheen
|
883,081
|
16
|
|
Gallardo
|
265,443
|
7
|
|
Smith
|
48,189
|
17
|
|
Goode
|
101,917
|
8
|
|
Vittecoq
|
525,631
|
18
|
|
Levenick
|
473,055
|
9
|
|
Wunning
|
520,971
|
19
|
|
All
directors
and executive officers as a group
|
6,720,773
|
20
|
||||
|
|
||||||
|
1
Blount - Includes 61,334 shares subject to stock options exercisable
within 60 days. In addition to the shares listed above, a portion
of
compensation has been deferred pursuant to the Directors’ Deferred
Compensation Plan (DDCP) representing an equivalent value as if such
compensation had been invested on December 31, 2006, in 1,097 shares
of
common stock.
|
||||||
|
2
Brazil - Includes 29,334 shares subject to stock options exercisable
within 60 days. In addition to the shares listed above, a portion
of
compensation has been deferred pursuant to DDCP representing an equivalent
value as if such compensation had been invested on December 31, 2006,
in
380 shares of common stock.
|
||||||
|
3
Burritt - Includes 100,200 shares subject to stock options exercisable
within 60 days. In addition to the shares listed above, a portion
of
compensation has been deferred pursuant to the Supplemental Employees’
Investment Plan (SEIP) and/or the Deferred Employees’ Investment Plan
(DEIP) representing an equivalent value as if such compensation had
been
invested on December 31, 2006, in 858 shares of common
stock.
|
||||||
|
4
Dillon - Includes 69,334 shares subject to stock options exercisable
within 60 days. In addition to the shares listed above, a portion
of
compensation has been deferred pursuant to DDCP representing an equivalent
value as if such compensation had been invested on December 31, 2006,
in
547 shares of common stock.
|
||||||
|
5
Fife - Includes 21,334 shares subject to stock options exercisable
within
60 days.
|
||||||
|
6
Fosler - Includes 21,334 shares subject to stock options exercisable
within 60 days.
|
||||||
|
7
Gallardo - Includes 61,334 shares subject to stock options exercisable
within 60 days. In addition to the shares listed above, a portion
of
compensation has been deferred pursuant to DDCP representing an equivalent
value as if such compensation had been invested on December 31, 2006,
in
1,709 shares of common stock.
|
||||||
|
8
Goode - Includes 69,334 shares subject to stock options exercisable
within
60 days. In addition to the shares listed above, a portion of compensation
has been deferred pursuant to DDCP representing an equivalent value
as if
such compensation had been invested on December 31, 2006, in 34,261
shares
of common stock.
|
||||||
|
9
Levenick - Includes 439,042 shares subject to stock options exercisable
within 60 days.
|
||||||
|
10 Magowan
- Includes 69,334 shares subject to stock options exercisable within
60
days. In addition to the shares listed above, a portion of compensation
has been deferred pursuant to DDCP representing an equivalent value
as if
such compensation had been invested on December 31, 2006, in 12,470
shares
of common stock.
|
||||||
|
11 Oberhelman
- Includes 760,132 shares subject to stock options exercisable within
60
days. In addition to the shares listed above, a portion of compensation
has been deferred pursuant to SEIP and/or DEIP representing an equivalent
value as if such compensation had been invested on December 31, 2006,
in
27,016 shares of common stock.
|
||||||
|
12 Osborn
- Includes 37,334 shares subject to stock options exercisable within
60
days. In addition to the shares listed above, a portion of compensation
has been deferred pursuant to DDCP representing an equivalent value
as if
such compensation had been invested on December 31, 2006, in 101
shares of
common stock.
|
||||||
|
13 Owens
- Includes 1,598,000 shares subject to stock options exercisable
within 60
days. In addition to the shares listed above, a portion of compensation
has been deferred pursuant to SEIP and/or DEIP representing an equivalent
value as if such compensation had been invested on December 31, 2006,
in
6,406 shares of common stock.
|
||||||
|
14 Powell
- Includes 37,334 shares subject to stock options exercisable within
60
days. In addition to the shares listed above, a portion of compensation
has been deferred pursuant to DDCP representing an equivalent value
as if
such compensation had been invested on December 31, 2006, in 101
shares of
common stock.
|
||||||
|
15 Rust
- Includes 21,334 shares subject to stock options exercisable within
60
days. In addition to the shares listed above, a portion of compensation
has been deferred pursuant to DDCP representing an equivalent value
as if
such compensation had been invested on December 31, 2006, in 5,525
shares
of common stock.
|
||||||
|
16 Shaheen
- Includes 677,202 shares subject to stock options exercisable within
60
days. In addition to the shares listed above, a portion of compensation
has been deferred pursuant to SEIP and/or DEIP representing an equivalent
value as if such compensation had been invested on December 31, 2006,
in
48,134 shares of common stock.
|
||||||
|
17 Smith
- Includes 37,334 shares subject to stock options exercisable within
60
days. In addition to the shares listed above, a portion of compensation
has been deferred pursuant to DDCP representing an equivalent value
as if
such compensation had been invested on December 31, 2006, in 1,202
shares
of common stock.
|
||||||
|
18 Vittecoq
- Includes 455,328 shares subject to stock options exercisable within
60
days.
|
||||||
|
19 Wunning
- Includes 466,000 shares subject to stock options exercisable within
60
days. In addition to the shares listed above, a portion of compensation
has been deferred pursuant to SEIP and/or DEIP representing an equivalent
value as if such compensation had been invested on December 31, 2006,
in
19,418 shares of common stock.
|
||||||
|
20 Group
includes directors, named executive officers (NEOs) and two additional
executive officers subject to Section 16 filing requirements (executive
group). Amount includes 5,360,392 shares subject to stock options
exercisable within 60 days and 117,006 shares for which voting and
investment power is shared. The executive group beneficially owns
1.04
percent of the company’s outstanding common stock, however, each
individual within the group beneficially owns less than one percent.
None
of the shares held by the executive group have been
pledged.
|
||||||
Page
21
At
Caterpillar,
integrity is one of our core values. We believe in the power of honesty and
know
the only way to build and strengthen our reputation is through trust. We hold
ourselves to the highest standard of integrity and ethical behavior and strive
for transparency. We welcome the opportunity to share this Compensation
Discussion and Analysis (CD&A) with our stockholders.
We
understand that
investors have a vested interest in executive compensation and after reading
this we hope you will recognize a few vital points:
| § |
We
have a
thorough compensation review
process.
|
| § |
We
have a
competitive compensation plan that aligns executive performance and
stockholder interests.
|
| § |
We
consistently and appropriately provide equity grants and do not backdate
or re-price grants.
|
| § |
We
believe
the best way to compensate our executives is to base their rewards
on
performance.
|
| § |
We
have no
special executive severance packages. Our only Change in Control
provisions are found within existing compensation plans and apply
to all
participants in those plans.
|
We
are fortunate to
have executives who are “career employees” with a strong commitment to the
long-term success of Caterpillar. In fact, the average tenure of our named
executive officers (NEOs) is 33 years. The reputation of the enterprise reflects
the ethical performance of the people who work here. The values that guide
Caterpillar have rewarded our employees and stockholders with a successful
and
profitable company.
This
CD&A
describes the overall compensation practices at Caterpillar and specifically
describes total compensation for the following NEOs:
| § |
James
W.
Owens, Chairman and CEO
|
| § |
Stuart
L.
Levenick, Group President
|
| § |
Douglas
R.
Oberhelman, Group President
|
| § |
Gerald
L.
Shaheen, Group President
|
| § |
Gerard
R.
Vittecoq, Group President
|
| § |
Steven
H.
Wunning, Group President
|
| § |
David
B.
Burritt, Vice President and Chief Financial Officer
|
Caterpillar
is
currently organized into five groups, each led by a group president. The five
group presidents have comparable responsibilities and are similarly compensated.
We are including all five even though we are only required to include the three
highest paid.
Compensation
Philosophy and Objectives
Two
primary
components define Caterpillar’s compensation philosophy: Pay
for
performance and
Pay at
risk.
The
more
responsibility executives have for the company’s performance over time, the more
their pay is determined by the degree to which certain performance goals are
reached. That part of compensation is generally referred to as “at risk” pay and
is one of the fundamental ways in which the company aligns executive pay with
stockholder interests.
Page
22
The Compensation Committee established three principles to drive this philosophy through the company’s compensation design.
| 1. |
Base
salary should decrease as a percentage of total direct compensation
as
salary grade levels increase. As
employees
move to higher levels of responsibility with more direct influence
over
the company’s performance, they have a higher percentage of pay at
risk.
|
| 2. |
The
ratio of long-term incentive compensation to short-term incentive
compensation should increase as salary grade levels increase.
Caterpillar
expects executives to focus on the company’s long-term success. The
compensation program is designed to motivate executives to take actions
that are best for the company’s long-term
viability.
|
| 3. |
Equity
compensation should increase as salary grade levels increase.
Employees
in
positions that most directly affect corporate performance should
have as
their main priority profitably growing the company. Receiving part
of
their compensation in the form of equity reinforces the link between
their
actions and stockholders’ investment. Equity ownership encourages
executives to behave like owners and provides a clear link with
stockholders’ interests.
|
By
following these
principles,
Caterpillar links
the interests of management and stockholders while tying employee compensation
to both individual performance and the long-term performance of the company.
In
addition, the compensation program is designed to attract and retain
high-caliber, talented employees who will guide the company in continuing to
meet and exceed its performance goals.
Overview
of Compensation Practices
The
Compensation
Committee regularly reviews Caterpillar’s compensation practices, including the
methodologies for setting employee and officer salaries. The Compensation
Committee also strives to make Caterpillar’s compensation competitive by
benchmarking Caterpillar’s practices and compensation levels against comparable
companies within our industry and across multiple industries. However, the
Compensation Committee has the flexibility to exercise its independent judgment
when establishing compensation policies, especially when rewarding individual
performance.
How
Caterpillar Determines Compensation for Executives
Performance
Evaluation: CEO
The
board evaluates
the CEO’s performance based on:
| § |
Caterpillar’s
financial performance
|
| § |
The
accomplishment of Caterpillar’s long-term strategic
objectives
|
| § |
The
CEO’s
individual goals
|
| § |
The
development of Caterpillar’s top management
team
|
The
Compensation
Committee also reviews total compensation benchmark information and then makes
recommendations to the board regarding the CEO’s compensation based on the
market comparison and performance assessment. The board has the authority to
exercise its discretion regarding the CEO’s compensation. The board, excluding
the CEO who is not present during these discussions, makes final decisions
regarding the CEO’s compensation.
Performance
Evaluations: NEOs other than CEO
Each
year the CEO
submits a performance assessment and compensation recommendation for each of
the
other NEOs to the Compensation Committee. The performance evaluation is based
on
factors such as:
| § |
Achievement
of individual and company
objectives
|
| § |
Contribution
to the company’s performance
|
| § |
Leadership
accomplishments
|
The
Compensation
Committee also reviews total compensation benchmark information and either
approves or adjusts the CEO’s recommendation. The committee has the authority to
exercise discretion regarding individual performance awards.
Page
23
Compensation
Consultant
The
Compensation
Committee retains Hewitt Associates (Hewitt) to provide advice and ongoing
recommendations regarding executive compensation. In addition, Hewitt provides
to the committee market information and analyses regarding base salary,
short-term incentives, long-term incentives, executive benefits and perquisites.
Hewitt is also the third-party administrator for Caterpillar’s U.S. retirement
plans. However, the firm currently provides no other services for Caterpillar.
The Compensation Committee does not believe Hewitt’s role in administering the
retirement plans compromises Hewitt’s ability to provide the Compensation
Committee with an independent perspective.
Peer
Group
Benchmarking
To
ensure
Caterpillar is competitive in the marketplace, the company benchmarks itself
against a comparator group, the Hewitt Core Group 1 (HCG1). The HCG1 includes
22
large public companies. Because we compete for executive talent from a variety
of industries, the 22 companies represent a cross section of industries, not
just heavy manufacturing companies. The HCG1 has been used to compare executive
compensation and long-term incentive compensation at Caterpillar since the
early
1990’s. The
peer group
study methodology is consistent each year, which makes it easier to isolate
how
Caterpillar’s executive compensation is changing in relation to the market. The
Compensation Committee monitors the HCG1 to ensure that it continues to provide
a reasonable comparison basis for executive compensation.
All
components of
the Caterpillar executive total cash compensation package, as well as the
long-term incentive compensation components, are targeted at the median level
of
the HCG1, which is necessary to attract and retain high-caliber employees.
This
ensures that Caterpillar remains competitive while maximizing its resources
for
stockholders. The median annual revenue for the HCG1 is less than Caterpillar’s.
To account for differences in the size of the companies in that group, the
Compensation Committee conducts a regression analysis with each comparison.
Regression analysis adjusts the compensation data for differences in the
companies’ revenue, allowing Caterpillar to compare its compensation levels to
similarly sized companies. The following companies compose the
HCG1:
|
Hewitt
Core Group 1
|
||
|
§ 3M
Company
|
§ H.J.
Heinz Company
|
§ The
Procter & Gamble Company*
|
|
§ Alcoa
Inc.
|
§ Hewlett-Packard
Company
|
§ Rockwell
International Company
|
|
§ Altria
Group, Inc.
|
§ Honeywell
International Inc.
|
§ Sara
Lee Corporation
|
|
§ BP
p.l.c.
|
§ Johnson
Controls, Inc.
|
§ United
Technologies Corporation
|
|
§ The
Coca-Cola Company
|
§ Lockheed
Martin Corporation
|
§ Weyerhaeuser
Company
|
|
§ Eli
Lilly and Company
|
§ Motorola,
Inc.
|
§ Whirlpool
Corporation
|
|
§ General
Electric Company
|
§ Pfizer
Inc.
|
§ Xerox
Corporation
|
|
§ The
Goodyear Tire & Rubber Company
|
||
|
*
The Procter
& Gamble Company purchased Gillette, which was part of the HCG1 in
2005.
|
||
Components
of Caterpillar’s Compensation Program
Compensation
for
all NEOs is a mix of annual total cash and long-term incentives. Total cash
includes base salary and the Executive Short-Term Incentive Plan (ESTIP) for
all
NEOs except Mr. Burritt. Total cash for Mr. Burritt includes base salary and
the
Short-Term Incentive Plan (STIP). The Long-Term Incentive Plan (LTIP) includes
both equity and long-term cash. Equity for all NEOs consists of stock-settled
stock appreciation rights (SARs) and restricted stock. Our long-term cash
performance plan (LTCPP) is based on a three-year cycle. (See discussion on
the
following pages for more detail regarding each specific plan.)
Page
24
Annual
base salary
represents a small (less than 25 percent) portion of our NEOs’
compensation. In fact, on average, 82 percent of annual compensation for our
NEOs varies each year based on Caterpillar’s performance. The following chart
shows the 2006 Total Compensation mix (based on targeted compensation).
Total
Annual Cash Compensation
Total
annual cash
compensation consists of market-competitive, performance-driven base salary
and
our annual short-term incentive pay. Total annual cash compensation for our
NEOs
is targeted at the median level of the HCG1 because Caterpillar believes
targeting at that level is necessary to attract and retain high-caliber
employees. Base salary structures for Caterpillar executives are designed with
a
midpoint set at the median level of the HCG1. For all employees, the minimum
of
the base salary structure is 80 percent of the midpoint and the maximum is
120
percent of the midpoint.
The
company’s
review of 2006 market data showed total annual cash compensation structures
for
all officer groups were below the median level of the HCG1, primarily due to
an
upward shift in the market. Consequently, management recommended adjustments
to
the total cash compensation structures for all of the officer groups in order
to
bring total annual cash compensation in line with the median level of the HCG1.
In February 2006, the Compensation Committee approved adjustments to base salary
structures and short-term incentive target opportunities as shown in the
following two tables.
|
Total
Cash Compensation Structure Changes
Base
Salary Midpoint
|
||
|
Percent
Increase from
2005
to 2006
|
||
|
|
||
|
CEO
|
10%
|
|
|
Group
Presidents
|
5%
|
|
|
Vice
Presidents
|
5%
|
|
|
Total
Cash Compensation Structure Changes
ESTIP
or STIP Target Opportunity
|
||||
|
2006
|
2005
|
|||
|
|
|
|||
|
CEO
(ESTIP)
|
135%
|
110%
|
||
|
Group
Presidents (ESTIP)
|
100%
|
80%
|
||
|
Vice
Presidents (STIP)
|
90%
|
70%
|
||
Page
25
Base
Salary
Base
salary
increases are performance-driven. At Caterpillar, we believe in paying for
performance, as demonstrated by our base salary administration practice called
the Performance Award Process. The Performance Award Process results in salary
increases based upon the performance of the individual and provides for greater
increases to the highest-performing employees. Consistently high-performing
employees, other than NEOs, will have the opportunity to significantly exceed
the target (midpoint) of the base salary structures.
Base
salaries for
the NEOs are not increased above the midpoint of their respective structures
without meeting certain performance parameters. If NEOs reach the midpoint
of
their salary structure, any amount awarded above midpoint must be re-earned
annually and approved by the Compensation Committee. This amount is called
variable base pay and is paid in the form of an annual lump sum award. This
reinforces the performance component of the program for NEOs.
Executive
Short-Term Incentive Plan
The
CEO and group
presidents (NEOs, excluding Mr. Burritt) participated in the 2006 ESTIP. This
annual incentive plan delivers a targeted percentage of base salary (excluding
any variable base pay) to each named executive officer based on performance
against enterprise goals.
In
February 2006,
the Compensation Committee reviewed and approved three enterprise-focused
measures for the 2006 ESTIP. These measures link the CEO and group presidents
directly to the overall performance of Caterpillar. The measures and their
relative weights in determining the ESTIP are as follows:
| § |
60% Profit
Per Share (PPS)
|
| § |
20% Enterprise
Quality (Product Quality)
|
| § |
20% Enterprise
Velocity (Inventory
Turnover)
|
As
with all
components of Caterpillar’s compensation program, the ESTIP rewards performance.
For each of the measures previously listed, the Compensation Committee
established minimum (threshold), target and maximum performance levels. PPS
is
the “trigger” required for the ESTIP to provide a payout. If the threshold level
of PPS is not achieved, no payout is made under ESTIP. After the “trigger” is
met, each measure must meet its own respective threshold performance level
for a
payout to occur under each measure. If the threshold level is not achieved
for a
given measure, no ESTIP payout will be made based on that measure. Increasingly
larger payouts are awarded for achievement of target and maximum performance
levels.
Generally,
the
committee sets the threshold, target and maximum levels so that the relative
difficulty of achieving the target level is consistent from year to year. Even
though the payout amount can vary greatly from year to year, the objective
is to
be at target, on average, over a period of years. The table below outlines
the
payout factor (or range) that applies to each performance level. The payout
factor for each measure does not exceed 200 percent.
|
Performance
Level
|
Payout
Factor
|
|
|
|
|
Greater
than
Threshold but Less than Target
|
30%
-
99.99%
|
|
Target
to
Maximum
|
100%
-
200%
|
|
Maximum
and
Greater
|
200%
|
Page
26
At
the close of
2005, the reported outlook for Caterpillar’s 2006 PPS was $4.65 to $5.00. Based
on that range, the Compensation Committee approved the 2006 PPS target for
ESTIP
at $4.96. The 2006 results are below.
|
2006
ESTIP
|
Payout
|
Measurement
|
|
|
|
|
|
PPS
|
Yes
|
The
PPS target
was $4.96. Caterpillar reported PPS at $5.17 at the end of
2006
|
|
Enterprise
Quality
|
No
|
Based
on a
single quality measure
|
|
Enterprise
Velocity
|
No
|
Measured
by
inventory turnover during 2006
|
The
resulting
payout factors from PPS, enterprise quality and enterprise velocity measures
were added together in order to calculate the total cash payout factor of 67.11
percent under the 2006 ESTIP, which resulted in a payout of $3.6 million. The
Compensation Committee has discretion to reduce ESTIP awards based on
performance, but individual increases are not permitted. There were no
adjustments made to the 2006 ESTIP payouts to the NEOs. Individual amounts
are
disclosed in the Summary Compensation Table on page 36 of this proxy, in the
“Non-Equity Incentive Plan Compensation” column.
Short-Term
Incentive Plan
Vice
presidents,
along with most other employees, participate in Caterpillar’s STIP. This plan
constitutes team-based pay at risk that delivers a target percentage of base
salary to each participant based on performance against team goals at both
the
enterprise and business unit levels. The following guiding principles apply
to
this plan:
| § |
Percentage
of
pay at risk is to remain at market competitive
levels
|
| § |
Employees
are
rewarded for the delivery of results against measurable
goals
|
| § |
Awards
drive
behavior aligned with both enterprise and business unit
results
|
| § |
The
company’s
payout objective under the plans is to be at target on average over
a
period of years
|
As
a vice
president, our CFO Mr. Burritt, participated in Caterpillar’s 2006 STIP. Vice
presidents are not only measured on the achievement of their business unit
goals, but also on corporate performance factors such as PPS and enterprise
quality and velocity. Consequently for 2006, 50 percent of each vice president’s
STIP payment was based on the achievement of business unit goals and the
remaining 50 percent was tied to corporate goals. Mr. Burritt was eligible
for a
target opportunity of 90 percent of base salary. His weighting was:
| § |
60% Profit
Per Share (PPS)
|
| § |
10% Enterprise
Quality (Product Quality)
|
| § |
10% Enterprise
Velocity (Inventory
Turnover)
|
| § |
20% 6
Sigma Value Proposition
|
PPS
was also the
“trigger” for the 2006 STIP. The same methodology applies for STIP as described
previously for ESTIP. The 2006 results are below.
|
2006
STIP
|
Payout
|
Measurement
|
|
|
|
|
|
PPS
|
Yes
|
The
PPS target
was $4.96. Caterpillar reported PPS at $5.17 at the end of
2006
|
|
Enterprise
Quality
|
No
|
Based
on a
single quality measure
|
|
Enterprise
Velocity
|
No
|
Measured
by
inventory turnover during 2006
|
|
6
Sigma Value Proposition
|
Yes
|
Measured
by
the net after-tax incremental benefit resulting from 6 Sigma projects
completed in 2006 in Mr. Burritt’s
unit
|
The
resulting
payout factors from PPS, enterprise quality, enterprise velocity and 6 Sigma
value proposition measures were added together to calculate the total cash
payout factor of 107.11 percent under the 2006 STIP. Mr. Burritt’s individual
STIP award amount is disclosed in the Summary Compensation Table on page 36
of
this proxy, in the “Non-Equity Incentive Plan Compensation” column.
Page
27
Discretionary
STIP
In
support of our
pay for performance philosophy, top performing vice presidents, management
employees and salaried employees are eligible for lump sum discretionary awards.
At the end of each plan year, the CEO, in consultation with the Compensation
Committee, decides whether any individual lump sum discretionary awards to
the
vice presidents are warranted. A portion ($40,000) of Mr. Burritt’s total 2006
STIP was from this lump sum discretionary award pool based on his outstanding
2006 performance. (See discussion in “Other NEOs’ Compensation Decisions”
section of this CD&A). This award was approved at the February 2007
Compensation Committee meeting.
Long-Term
Incentive Plan
The
goal of the
Long-Term Incentive Plan (LTIP) is to align the interests of officers and other
key employees with those of the stockholders. LTIP is composed of two elements:
an equity incentive plan and LTCPP. As with other components of executive pay,
Caterpillar targets long-term compensation to be at the median compared to
the
HCG1. Caterpillar’s LTIP is designed to reward the company’s key employees for
achieving and exceeding our long-term goals, to drive stockholder return and
to
foster stock ownership.
In
the fall of
2005, at the request of the Compensation Committee, management conducted an
LTIP
market data review based on the three-year weighted average of the HCG1. The
same process was followed in 2004. The market data indicated erosion in equity
market levels which, coupled with continued increases in the value of grants
tied to the increasing stock price, resulted in a high equity market position
for Caterpillar versus its comparator companies. The committee approved
management’s recommendation to reduce the NEOs’ standard equity grants by an
average of 27 percent, in line with the company’s market competitiveness
philosophy and in consideration of the current environment surrounding executive
pay. LTCPP target percentages were increased slightly (outlined below) to be
more in line with the median of the HCG1. The table shows the percentage of
base
salary each named executive officer is eligible to receive as part of the
LTCPP.
|
Long-Term
Cash Performance Plan Structure Changes
|
||||
|
2006
|
2005
|
|||
|
|
|
|||
|
LTCPP
Target Opportunity:
|
||||
|
CEO
|
170%
|
160%
|
||
|
Group
Presidents
|
110%
|
105%
|
||
|
Vice
Presidents
|
90%
|
85%
|
||
Equity
In
2006, the two
equity vehicles for the NEOs and other key employees were stock-settled SARs
and
restricted stock grants. SARs were introduced in 2006 because this type of
equity grant extends the life of the Caterpillar stock option pool and minimizes
stockholder dilution.
Stock
Appreciation Right
A
stock
appreciation right (SAR) is a right to receive Caterpillar common shares based
on the appreciation in value of a set number of shares of company stock between
the grant date and the exercise date. SARs expire on the tenth anniversary
of
the grant date and vest 100 percent three years from the grant date.
A
standard number
of SARs is granted based on an employee’s position in the company. Consistent
with the company’s compensation philosophy, individuals at higher levels receive
a greater proportion of total pay in the form of equity. The Compensation
Committee has the discretion to make positive or negative adjustments based
on a
subjective assessment of an individual’s performance, as long as these
adjustments do not increase the total number of SARs used to reward employees.
At
the February
2006 committee meeting, Mr. Owens discussed his recommendations with respect
to
adjustments for all other NEOs. Grant value adjustments were based upon
individual performance (discussed in “Other NEOs’
Compensation
Decisions” section of this CD&A). The Compensation Committee approved the
standard grants at the February 2006 meeting and delegated authority to the
committee chair to confirm and finalize the individual adjustment of grants
for
recipients on behalf of the committee. The final 2006 SAR awards are disclosed
in the Grants of Plan-Based Awards table in the “All Other Option Awards: Number
of Securities Underlying Options” column.
Page
28
At
the February
2006 board meeting the Chairman of the Compensation Committee, Mr. Osborn,
in
consultation with the board, established the grant for Mr. Owens based on
exceptional performance (discussed in “Chairman and CEO Compensation Decisions”
section of this CD&A).
Restricted
Stock Grants
The
restricted
stock award program, approved by the Compensation Committee in December 2000,
is
a tool that makes equity a part of the compensation program to help attract
and
retain outstanding performers. Key elements of the program are:
| § |
Selected
performance and retention-based grants can be made to officers and
other
key employees, as well as prospective
employees
|
| § |
Restricted
shares have three to five year vesting schedules
|
| § |
Restricted
shares are forfeited if the grantee leaves Caterpillar prior to
vesting
|
The
CEO submits
restricted stock grant recommendations to the Compensation Committee at each
committee meeting. The Compensation Committee reviews the amount of the proposed
grants as well as the CEO’s reasoning. The nominees can be current employees who
have demonstrated exceptional performance, high potential for promotion or
highly marketable skills for positions outside the company. Restricted stock
can
also be used to attract a new employee who has potential to be a significant
contributor, capabilities that present a potential competitive advantage, or
special talents or characteristics that meet a specific corporate need.
At
the February
2006 Compensation Committee meeting, the committee approved targeted grants
of
restricted stock for Mr. Levenick and Mr. Oberhelman for their outstanding
contributions to Caterpillar’s success. (See discussion in “Other
NEOs’
Compensation
Decisions” section of this CD&A.) Both received 1,000 shares of restricted
stock.
Equity
Grant
Timing
Equity
grants are
approved prior to or on the pre-determined grant date. The grant date is
consistently mid-February to early March, which is well after Caterpillar
announces year-end financial results, allowing time for stock price
stabilization. Caterpillar does not backdate, re-price or grant equity awards
retroactively. The committee approved the 2006 equity awards at the February
7,
2006 meeting and delegated authority to the committee chair to confirm and
finalize the individual adjustment of grants for recipients on behalf of the
committee. The grant price was the average of the high and low prices for
Caterpillar stock as reported on the NYSE on February 17, 2006 (the grant date).
All 2006 equity grants for the NEOs are disclosed in the Grants of Plan-Based
Awards Table on page 38 of this proxy.
Stock
Ownership
Requirements
Equity
compensation
encourages our executives to have an owner’s perspective in managing our
company. Due to the importance of ownership, the Compensation Committee has
set
a minimum Caterpillar stock ownership requirement for all participants receiving
equity compensation.
NEOs
are required
to own a number of shares equal to the average number of equity options and
SARs
awarded to them in the last five years. Twenty-five percent of vested
unexercised awards count toward the ownership requirement. Failure to meet
these
guidelines results in automatic grant reductions, absent compelling personal
circumstances that prevent an employee from meeting his or her targeted
ownership requirement.
The
committee
approved new target ownership requirements at the December 2005 meeting so
that
beginning in 2007, NEOs are required to own a number of shares at least equal
to
50 percent of the average number of options and SARs awarded in the last five
years. However, only 10 percent of vested unexercised options and SARs will
count toward target ownership. In 2008, no vested unexercised awards will count
toward ownership for the NEOs.
Page
29
Even
though
Caterpillar targets all officers’ total compensation at the median level of our
comparator group, our target ownership requirements are much higher than the
median level of that group, reaching well into the upper quartile of practices
of the companies examined. At present, all NEOs exceed target ownership
requirements.
Long-Term
Cash
Performance Plan
The
LTCPP is
offered to NEOs and other key employees. This pay at risk plan delivers a
targeted percentage of base salary to each participant based on performance
against the goals of the entire company.
For
the LTCPP, the
Compensation Committee benchmarks against the S&P peer group. The committee
uses the S&P peer group to compare Caterpillar’s performance against the
performance of our specific industry because market cycle fluctuations are
minimized when compared to similar companies. The companies in our S&P peer
group are:
|
S&P
Peer Group
|
||
|
§ 3M
Company
|
§ General
Electric Company
|
§ Navistar
International Corporation
|
|
§ Cummins
Inc.
|
§ Honeywell
International Inc.
|
§ PACCAR
Inc
|
|
§ Danaher
Corporation
|
§ Illinois
Tool Works Inc.
|
§ Pall
Corporation
|
|
§ Deere
& Company
|
§ Ingersoll-Rand
Company Limited
|
§ Parker-Hannifin
Corporation
|
|
§ Dover
Corporation
|
§ ITT
Industries, Inc.
|
§ Textron
Inc.
|
|
§ Eaton
Corporation
|
§ Johnson
Controls, Inc.
|
§ United
Technologies Corporation
|
A
three-year
performance cycle is established each year for determining compensation under
the LTCPP. The committee generally sets threshold, target and maximum levels
that make the relative difficulty of achieving the target level consistent
from
year to year. The payout amount can vary greatly from one year to the next.
The
objective is to be at target, on average, over a period of years. Typically
the
committee specifies two measures, such as relative profit per share growth
and
return on equity, each weighted 50 percent. (The actual measures are disclosed
in the tables below.) Each measure must meet its respective threshold
performance levels before a payout is made under that particular measure, but
there is no overall trigger as is the case for the ESTIP and STIP. In other
words, each measure triggers independently of the other. Increasingly larger
payments are awarded when the target and maximum performance levels are
achieved. The following table outlines the payout factor (or range) that applies
to each performance level.
|
Performance
Level
|
Payout
Factor
|
|
|
|
|
Greater
than
Threshold but Less than Target
|
50%
- 99.99
%
|
|
Target
to
Maximum
|
100%
-
150%
|
|
Maximum
and
Greater
|
150%
|
The
2006 LTCPP
payout was based on a three-year cycle, which began in 2004 and ended in 2006.
The 2004-2006 cycle evaluated two components: relative PPS growth, measured
against the S&P Peer Group, and return on equity (ROE), again each weighted
50 percent.
|
2004-2006
LTCPP Measures
|
|||
|
Relative
PPS Growth
|
ROE
|
||
|
|
|
||
|
Threshold
|
25th
percentile
|
20%
|
|
|
Target
|
50th
percentile
|
25%
|
|
|
Maximum
|
75th
percentile
|
30%
|
|
Page
30
Caterpillar
exceeded maximum levels for the ROE and relative PPS growth measures for the
2004-2006 cycle. The Compensation Committee has the discretion to reduce
individual LTCPP awards based on performance but individual increases are not
permitted. There were no adjustments made to the 2006 LTCPP payouts to the
NEOs.
Individual payouts were capped at $2.5 million and are disclosed in the Summary
Compensation Table in the “Non-Equity Incentive Plan Compensation”
column.
At
the February
2006 meeting, the committee set threshold, target and maximum performance levels
for each component of the 2006-2008 LTCPP. The 2006-2008 LTCPP cycle evaluates
two components: relative PPS growth, measured against the S&P Peer Group,
and return on equity (ROE). The ROE goals have been increased from the previous
LTCPP cycle, to further the company’s goal of keeping officers’ incentives in
line with the interests of stockholders. Individual payouts to any named
executive officer will be capped at $2.5 million.
|
2006-2008
LTCPP Cycle
|
|||
|
Relative
PPS Growth
|
ROE
|
||
|
|
|
||
|
Threshold
|
25th
percentile
|
20%
|
|
|
Target
|
50th
percentile
|
30%
|
|
|
Maximum
|
75th
percentile
|
40%
|
|
Compensation
Decisions in 2006 and 2007
Chairman
and CEO Compensation Decisions
The
CEO is
evaluated on company and individual performance metrics. In February of each
year, the Compensation Committee reviews the boards’ assessment of Mr. Owens’
individual goals and his performance against those goals. The board noted that
under Mr. Owens’ leadership, the company:
| § |
Exceeded
financial goals while improving the quality of
earnings
|
| § |
Delivered
double-digit profit growth and record sales
|
| § |
Focused
the
organization on improving quality, market leadership and velocity
while
encoding 6 Sigma
|
| § |
Championed
the new corporate Values in Action - realized record levels of employee
engagement
|
| § |
Hosted
worldwide dealer and supplier meetings to roll out the company’s new
strategy - Vision 2020
|
| § |
Increased
presence in China
|
| § |
Sustained
improvement toward World Class Safety
performance
|
| § |
Published
Caterpillar’s first-ever Sustainability
Report
|
| § |
Provided
corporate leadership for investor
relations
|
In
recognition of
Mr. Owens’ strong performance, as evidenced by the company’s record financial
results, the Compensation Committee recommended a 10.7 percent increase in
Mr.
Owens’ annual base salary, effective April 2007. The Compensation Committee also
recommended a lump sum discretionary bonus for exceptional 2006 performance.
The
board approved the increase and the bonus. However, even after the base salary
increase, Mr. Owens’ base salary remained well below the median of the HCG1. Mr.
Owens’ 2006 calendar year compensation is disclosed in the Summary Compensation
Table on page 36 of this proxy.
Page
31
Other
NEOs’
Compensation Decisions
The
CEO presents to
the Compensation Committee each NEO’s performance evaluation. The focus of the
evaluation for other NEOs is based upon product and business unit metrics in
their respective areas of responsibility. The Compensation Committee noted
the
following key points for each named executive officer in making compensation
decisions in 2006 and 2007:
Stuart
L.
Levenick, Group President
| § |
Coordinated
highly successful worldwide dealer meeting and rollout of Vision
2020
Strategy to dealerships
|
| § |
Developed
a
five-point dealer quality commitment
program
|
| § |
Displayed
leadership for major growth initiatives in Asia Pacific
region
|
| § |
Instrumental
in relationship building with key
suppliers
|
Douglas
R.
Oberhelman, Group President
| § |
Provided
strong leadership for corporate finance and accounting
activities
|
| § |
Drove
significant profitability improvement in the engine
business
|
| § |
Actively
involved in relationship building with key customers, dealers and
suppliers
|
| § |
Delivered
steady improvement of ACERT® engine
quality
|
Gerald
L.
Shaheen, Group President
| § |
Drove
innovation with significant increase in new product
introductions
|
| § |
Actively
engaged in defining global product manager
positions
|
| § |
Maintained
strong dealer and key customer
relationships
|
| § |
Instrumental
in launching the Product/Technology
Council
|
Gerard
R.
Vittecoq, Group President
| § |
Championed
manufacturing excellence and product
quality
|
| § |
Worked
diligently to refine quality metrics that drive the appropriate
behavior
|
| § |
Corporate
leader for external benchmarking on process
disciplines
|
| § |
Actively
involved with EAME regional dealers
|
Steven
H.
Wunning, Group President
| § |
Provided
strong leadership for driving growth of service
businesses
|
| § |
Instrumental
in organizing Remanufacturing Services into a separate
division
|
| § |
Implemented
the revised dealer business systems strategy which received favorable
response and lowered Caterpillar
expenses
|
| § |
Key
contributor in the Progress Rail
acquisition
|
David
B.
Burritt, Vice President and Chief Financial Officer
| § |
Led
efforts
to drive synergies and cost reduction across service
divisions
|
| § |
Delivered
record level 6 Sigma benefits supporting Vision
2020
|
| § |
Led
transparency initiative with investor relations and launched global
transformation efforts for accounting, tax, treasury, investor relations
and strategic support
|
| § |
Met
or
exceeded all unit financial and non-financial
metrics
|
Page
32
In February 2007, the Compensation Committee approved base salary increases for the executive officers named above, effective April 2007. The committee also approved lump sum discretionary bonuses for the executive officers named above (excluding Mr. Burritt) based on exceptional 2006 performance. All compensation paid to or earned by NEOs in 2006 is disclosed in the Summary Compensation Table on page 36 of this proxy.
Retirement
and Other Benefits
Defined
contribution and defined benefit plans that are available to the NEOs (excluding
Mr. Vittecoq) are also available to most U.S. Caterpillar salaried and
management employees. All of the NEOs (excluding Mr. Vittecoq) participate
in
all of the U.S. retirement plans listed below.
Mr.
Vittecoq is not
eligible for the U.S. benefit plans because he is on the Swiss payroll,
therefore making him eligible for the Swiss benefit programs. He participates
in
Caprevi, Prevoyance Caterpillar and the Swiss Employees’ Investment Plan. Both
are Swiss retirement plans that are available to all other Swiss management
employees. Mr. Vittecoq is eligible under Caprevi, Prevoyance Caterpillar for
an
early retirement benefit with a four
percent reduction
before age 60.
Pension
Plans
Caterpillar
Inc. Retirement Income Plan
The
Caterpillar
Retirement Income Plan (RIP) is a qualified defined benefit pension plan in
which most U.S. salaried and management employees are eligible to participate.
Benefit amounts are not offset for any Social Security benefits. Of the NEOs,
Mr. Owens, Mr. Oberhelman and Mr. Wunning are currently eligible for early
retirement, with a four percent benefit reduction, per year, from age 62. Mr.
Shaheen is currently eligible for retirement and an unreduced benefit. Plan
participants may choose among several payment options, such as a single life
annuity, term-certain or various joint and survivor annuity benefits.
Supplemental
Pension Benefit Plan
If
an employee’s
annual retirement income benefit under RIP exceeds the Internal Revenue Service
tax code limitations, the excess benefits are paid from the Supplemental Pension
Benefit Plan (SPBP). This is a non-qualified unfunded plan. The formula used
to
calculate the benefit payable in SPBP is the same as that used under RIP.
Savings
Plans
Caterpillar
401(k) Plan
The
Caterpillar
Inc. 401(k) Plan is a tax-qualified retirement savings plan in which most U.S.
salaried and management employees, including the NEOs, are eligible to
participate.
| § |
Contributions
are made on a pre-tax basis
|
| § |
Participants
can contribute up to 70 percent of their base salary and STIP
awards
|
| § |
Contributions
are limited by the tax code
|
| § |
Company
matches 100 percent of the first 6 percent of pay that is contributed
to
the savings plan
|
| § |
All
contributions vest immediately
|
Supplemental
Employees’ Investment Plan
In
addition to the
401(k) plan, all NEOs participate in SEIP, which is a non-qualified, unfunded
retirement savings plan.
| § |
Contributions
are made on a pre-tax basis
|
| § |
Participants
contribute 6 percent of base salary that exceeds the IRS compensation
limit
|
| § |
Company
matches 100 percent of the employees’ 6 percent
contributions
|
| § |
All
contributions vest immediately
|
Page
33
Deferred Employees’ Investment Plan
The
NEOs also
participate in the DEIP, which is a non-qualified, unfunded retirement savings
plan. This plan provides the opportunity to increase deferrals of base salary
and to elect deferrals of STIP and LTCPP awards.
| § |
Base
salary
deferrals earn matching contributions at a rate of 6 percent of the
deferral amount
|
| § |
STIP
deferrals up to 6 percent are matched
dollar-for-dollar
|
| § |
Deferrals
of
LTCPP awards are not eligible for an employer matching
contribution
|
| § |
All
contributions vest immediately
|
Perquisites
The
company
provides NEOs with a very limited number of perquisites that the company and
the
Compensation Committee believe are reasonable and consistent with its overall
compensation program, and necessary to remain competitive. The committee
periodically reviews the levels of perquisites provided to the NEOs. Costs
associated with perquisites provided by the company are included in the All
Other Compensation Table appearing on page 37 of this proxy. Descriptions of
these perquisites are provided below:
| § |
Limited
personal use of company aircraft is provided for security purposes
and to
enable the NEOs to devote additional time to Caterpillar business.
A
spouse may accompany the named executive officer traveling for business
purposes on company aircraft.
|
| § |
Home
security
systems are provided to ensure the safety of our NEOs.
|
| § |
The
NEOs are
provided an annual financial counseling
allowance.
|
| § |
Mr.
Owens
participates in the Director’s Charitable Award program, which is provided
to all directors of the company, and is funded by life insurance
arrangements for which the company pays the premiums. Mr. Owens derives
no
direct financial benefit from the program.
|
Change
in Control
Caterpillar
has no
special executive severance packages or contracts. Mr. Vittecoq has an
employment contract, which is required by Swiss law. Our only change in control
provisions are found in existing compensation plans and apply to all
participants in those plans.
In
the event of a
change in control, each NEO will receive their maximum payout factors for both
LTCPP
and ESTIP.
Additionally, all unvested stock options, SARs and restricted stock vest
immediately. Stock options and SARs remain exercisable over the normal life
of
the grant. Change in control is defined as when:
| § |
Someone
becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of the company’s securities, which
gives them 15 percent or more of the combined voting power of the
company’s then outstanding common stock. However, if the board issues a
resolution that overrides the situation because the resolution is
in the
best interests of company stockholders, it cancels the change of
control.
|
| § |
The
majority
of the board ceases to be comprised of individuals who were on the
board
at the beginning of any consecutive two-year period.
|
Page
34
| § |
The
company’s
stockholders approve a merger or consolidation that reduces the
voting
securities of the company outstanding to less than half of the
combined
voting power of the company or surviving entity outstanding immediately
after the merger or consolidation.
|
| § |
Company
stockholders approve a plan of complete liquidation of the company
or an
agreement for the sale or disposition by the company of all or
substantially all of its assets.
|
Change
in control
information is disclosed in the “Potential Payments Upon Termination of
Employment or Change in Control” section on page 42 of this proxy.
Tax
and
Accounting Implications
Deductibility
of Compensation
The
goal of the
committee is to comply with the requirements of Internal Revenue Code Section
162(m), to the extent possible, with respect to long-term and short-term
incentive programs to avoid losing the deduction for compensation in excess
of
$1 million paid to our NEOs. Caterpillar has generally structured
performance-based compensation plans with the objective that amounts paid under
those plans are tax deductible and the plans must be approved by the company’s
stockholders. However, the committee may elect to provide compensation outside
those requirements when necessary to achieve its compensation objectives.
Compensation
Recoupment Policy
If
the board learns
of any misconduct by an officer that contributed to the company restating all
or
a portion of its financial statements, it will do what is required to correct
the misconduct and prevent it from occurring again and, if appropriate, take
necessary remedial action.
To
determine the
corrective action, the board will review the situation to identify whether
the
restatement was the result of negligent, intentional or gross misconduct. The
board will require reimbursement of any bonus or incentive compensation awarded
to an officer or cancel unvested restricted or deferred stock awards previously
granted to the executive officer if:
| § |
The
amount of
the bonus or incentive compensation was calculated based upon the
achievement of certain financial results that were subsequently the
subject of a restatement
|
| § |
The
executive
engaged in intentional misconduct that caused or partially caused
the need
for the restatement
|
| § |
The
amount of
the bonus or incentive compensation that would have been awarded
to the
executive had the financial results been properly reported would
have been
lower than the amount actually
awarded
|
Additionally,
at
the board’s discretion, it may dismiss the officer, authorize legal action for
breach of fiduciary duty or take other action to enforce the executive’s
obligations to the company. In determining appropriate remedial action, the
board may take into account penalties or punishments imposed by third parties,
such as law enforcement agencies, regulators or other authorities. The board’s
power to determine the appropriate punishment for the wrongdoer is in addition
to, and not in replacement of, third party actions.
|
Name
and
Principal
Position
|
Year
|
Salary
|
Bonus1
|
Stock
Awards2
|
Option
Awards3
|
Non-Equity
Incentive Plan
Compensation4
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings5
|
All
Other Compensation6
|
Total
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
J.W.
Owens
|
2006
|
$
|
1,350,003
|
|
$
|
300,000
|
|
$
|
—
|
$
|
7,029,846
|
$
|
3,723,703
|
|
$
|
2,171,992
|
|
$
|
243,077
|
|
$
|
14,818,621
|
|
|
Chairman
&
CEO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
S.L.
Levenick
|
2006
|
|
641,253
|
|
|
120,000
|
|
|
16,090
|
|
1,076,445
|
|
1,441,021
|
|
|
487,228
|
|
|
83,084
|
|
|
3,865,121
|
|
|
Group
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
D.R.
Oberhelman
|
2006
|
|
721,248
|
|
|
183,000
|
|
|
16,090
|
|
1,082,596
|
|
1,633,854
|
|
|
575,150
|
|
|
122,180
|
|
|
4,334,118
|
|
|
Group
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
G.L.
Shaheen
|
2006
|
|
721,248
|
|
|
135,000
|
|
|
—
|
|
2,226,118
|
|
1,633,854
|
|
|
557,644
|
|
|
99,411
|
|
|
5,373,275
|
|
|
Group
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
G.R.
Vittecoq5
|
2006
|
|
753,981
|
|
|
114,870
|
|
|
—
|
|
2,226,118
|
|
1,707,398
|
|
|
1,532,982
|
|
|
40,159
|
|
|
6,375,508
|
|
|
Group
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
S.H.
Wunning
|
2006
|
|
657,747
|
|
|
130,000
|
|
|
—
|
|
2,226,118
|
|
1,501,523
|
|
|
621,107
|
|
|
78,674
|
|
|
5,215,169
|
|
|
Group
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
D.B.
Burritt
|
2006
|
|
405,750
|
|
|
40,000
|
|
|
—
|
|
328,059
|
|
861,783
|
|
|
275,049
|
|
|
56,047
|
|
|
1,966,688
|
|
|
Vice
President
& CFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
1 Amounts
include lump sum discretionary bonus (LSDB) payments authorized by
the
Compensation Committee of the board, lump sum discretionary award
(LSDA)
paid under STIP and variable base pay (VBP) that must be re-earned
annually. For 2006 performance, NEOs earned the following: Mr. Owens
—
$300,000/LSDB; Mr. Levenick — $120,000/LSDB; Mr. Oberhelman —
$135,000/LSDB and $48,000/VBP; Mr. Shaheen — $100,000/LSDB and
$35,000/VBP; Mr. Vittecoq — $82,050/LSDB and $32,820/VBP; Mr. Wunning —
$130,000/LSDB; and Mr. Burritt — $40,000/LSDA. All amounts reported for
Mr. Vittecoq were paid in Swiss Franc, and have been converted to
US
dollars using the exchange rate in effect on December 31, 2006 (1
Swiss
Franc = .82050 US Dollar).
|
|||||||||||||||||||||||
|
2 Mr.
Levenick and Mr. Oberhelman were awarded 1,000 shares of restricted
stock
on March 1, 2006. The fair market value (average of high and low
trading
price) of Caterpillar stock on the award date was $73.945 per share.
The
amount shown is based upon the amortized expense recognized for financial
reporting purposes.
|
|||||||||||||||||||||||
|
3 The
following SARs were granted to NEOs on February 17, 2006: Mr. Owens
—
300,000; Mr. Levenick — 105,000; Mr. Oberhelman — 110,000; Mr. Shaheen —
95,000; Mr. Vittecoq — 95,000; Mr. Wunning — 95,000; and Mr. Burritt —
48,000. The amounts shown reflect the expense recognized for financial
reporting purposes in accordance with FAS123R and not the compensation
realized by the named executive officer. Assumptions made in the
calculation of these amounts are included in Note 2 to the company’s
financial statements for the fiscal year ended December 31, 2006
included
on Form 10-K filed with the SEC on February 23, 2007.
|
|||||||||||||||||||||||
|
4 The
amounts in this column reflect cash payments made to NEOs under ESTIP
or
STIP in 2007 with respect to 2006 performance and under the LTCPP
with
respect to performance over a three year plan cycle from 2004 through
2006
as follows: Mr. Owens — $1,223,703/ESTIP and $2,500,000/LTCPP; Mr.
Levenick — $430,508/ESTIP and $1,010,513/LTCPP; Mr. Oberhelman —
$484,110/ESTIP and $1,149,744/LTCPP; Mr. Shaheen — $484,110/ESTIP and
$1,149,744/LTCPP; Mr. Vittecoq —$505,579/ESTIP and $1,201,819/LTCPP; Mr.
Wunning — $441,554/ESTIP and $1,059,969/LTCPP; and Mr. Burritt —
$391,288/STIP and $470,495/LTCPP. All amounts reported for Mr. Vittecoq
were paid in Swiss Franc, and have been converted to US dollars using
the
exchange rate in effect on December 31, 2006 (1 Swiss Franc = .82050
US
Dollar).
|
|||||||||||||||||||||||
|
5 Because
NEOs do not receive “preferred or above market” earning on compensation
deferred into SEIP and/or DEIP, the amount shown represents only
the
change between the actuarial present value of each officer’s total
accumulated pension benefit between November 30, 2005 and November
30,
2006. For Mr. Vittecoq, who is covered under a Swiss pension plan,
the
actuarial present value of his pension benefit change was calculated
between September 30, 2005 and September 30, 2006. The amount assumes
the
pension benefit is payable at each NEO’s earliest unreduced retirement age
based upon the officer’s current compensation.
|
|||||||||||||||||||||||
|
6 All
Other Compensation consists of the following items detailed in a
separate
table appearing on page 37: matching contributions to the company’s 401(k)
plan, matching contributions to SEIP and/or DEIP, travel on corporate
aircraft, financial counseling, home security and life insurance
premiums
for the Director’s Charitable Award program.
|
|||||||||||||||||||||||
Page
36
|
2006
All Other Compensation Table
|
|
Name
|
Matching
Contributions
401(k)
|
Matching
Contributions SEIP & DEIP
|
Financial
Counseling
|
Corporate
Aircraft2
|
Tax
Gross-Up
on Corporate Aircraft
|
Home
Security3
|
Director’s
Charitable Award Insurance
Premiums4
|
ISE
Allowances5
|
Total
All Other Compensation
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
J.
W.
Owens
|
$
|
13,200
|
$
|
150,876
|
$
|
14,000
|
$
|
5,805
|
$
|
3,694
|
$
|
25,491
|
$
|
30,011
|
$
|
—
|
$
|
243,077
|
|||||||||
|
S.
L.
Levenick
|
13,200
|
55,541
|
8,000
|
1,376
|
603
|
2,150
|
—
|
2,214
|
83,084
|
||||||||||||||||||
|
D.
R.
Oberhelman
|
13,200
|
68,314
|
6,925
|
4,610
|
3,004
|
26,127
|
—
|
—
|
122,180
|
||||||||||||||||||
|
G.
L.
Shaheen
|
13,200
|
68,435
|
345
|
10,042
|
6,542
|
847
|
—
|
—
|
99,411
|
||||||||||||||||||
|
G.
R.
Vittecoq1
|
N/A
|
30,159
|
10,000
|
—
|
—
|
—
|
—
|
—
|
40,159
|
||||||||||||||||||
|
S.
H.
Wunning
|
13,200
|
57,474
|
8,000
|
—
|
—
|
—
|
—
|
—
|
78,674
|
||||||||||||||||||
|
D.
B.
Burritt
|
13,200
|
29,127
|
11,000
|
—
|
—
|
2,720
|
—
|
—
|
56,047
|
||||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
1 Mr.
Vittecoq participates in a non-U.S. Employee Investment
Plan.
|
|||||||||||||||||||||||||||
|
2 Amounts
reported under Corporate Aircraft represent limited personal use
of
company aircraft by the Officer, or by the Officer’s spouse who
accompanies the officer on a business trip. Company aircraft is provided
for security purposes, and allows the NEOs to devote additional time
to
Caterpillar business. CEO approval is required for personal use of
corporate aircraft. The amounts shown are based upon the Standard
Industry
Fare Level (SIFL) formula.
|
|||||||||||||||||||||||||||
|
3 Amounts
reported for Home Security represent the cost provided by an outside
security provider for hardware and monitoring service.
|
|||||||||||||||||||||||||||
|
4 Mr.
Owens received no direct compensation for serving on the board, but
is
entitled to participate in the Director’s Charitable Award Program. Amount
reported includes company paid life insurance premium and administrative
fees for Mr. Owens.
|
|||||||||||||||||||||||||||
|
5 Mr.
Levenick was an International Service Employee (ISE) based in Japan
until
his return to the U.S. in July 2004. The 2006 amount contains a U.S.
tax
gross-up on moving expenses.
|
|||||||||||||||||||||||||||
Page
37
|
Grants
of Plan-Based Awards in 2006
|
|
|
|
Estimated
Future Payouts Under
Non-Equity
Incentive Plan
Awards1
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
Name
|
Grant
Date
|
Threshold
|
Target
|
Maximum
|
All
Other
Stock
Awards: Number of Shares of
Stock
or
Units2
|
All
Other Option Awards: Number of Securities Underlying
Options
|
Exercise
or Base Price of Option Awards ($/share)
|
Grant
Date Fair Value of Stock and Option Awards
($)3
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
J.W.
Owens
|
|
$
|
1,175,836
|
|
$
|
2,351,673
|
|
$
|
2,500,000
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
|
02/17/2006
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
300,000
|
|
$
|
72.05
|
|
7,029,846
|
|
|
|
|||||||||||||||||||
|
S.L.
Levenick
|
|
|
359,198
|
|
|
718,396
|
|
|
1,077,594
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
|
02/17/2006
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
105,000
|
|
|
72.05
|
|
2,460,446
|
|
|
|
03/01/2006
|
|
—
|
|
|
—
|
|
|
—
|
|
1,000
|
|
—
|
|
|
—
|
|
73,945
|
|
|
|
|||||||||||||||||||
|
D.R.
Oberhelman
|
|
|
399,894
|
|
|
799,788
|
|
|
1,199,682
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
|
02/17/2006
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
110,000
|
|
|
72.05
|
|
2,577,610
|
|
|
|
03/01/2006
|
|
—
|
|
|
—
|
|
|
—
|
|
1,000
|
|
—
|
|
|
—
|
|
73,945
|
|
|
|
|||||||||||||||||||
|
G.L.
Shaheen
|
|
|
399,894
|
|
|
799,788
|
|
|
1,199,682
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
|
02/17/2006
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
95,000
|
|
|
72.05
|
|
2,226,118
|
|
|
|
|||||||||||||||||||
|
G.R.
Vittecoq
|
|
|
417,880
|
|
|
835,760
|
|
|
1,253,640
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
|
02/17/2006
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
95,000
|
|
|
72.05
|
|
2,226,118
|
|
|
|
|||||||||||||||||||
|
S.H.
Wunning
|
|
|
367,352
|
|
|
734,704
|
|
|
1,102,056
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
|
02/17/2006
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
95,000
|
|
|
72.05
|
|
2,226,118
|
|
|
|
|||||||||||||||||||
|
D.B.
Burritt
|
|
|
185,963
|
|
|
371,925
|
|
|
557,888
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
|
02/17/2006
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
48,000
|
|
|
72.05
|
|
1,124,775
|
|
|
|
|||||||||||||||||||
|
1 The
amounts reported in this column are awards under the LTCPP based
upon an
executive’s base salary throughout the three-year cycle, a predetermined
percentage of that salary, and Caterpillar’s achievement of specified
performance levels (relative profit per share growth and return
on equity)
over the three-year period. The threshold amount will be earned
if 50
percent of the targeted performance level is achieved. The target
amount
will be earned if 100 percent of the targeted performance level
is
achieved. The maximum award amount will be earned at 150 percent
of
targeted performance level. Base salary levels for 2006 were used
to
calculate the estimated dollar value of future payments for the
2006 to
2008 performance cycle. Individual payouts to any named executive
officer
will be capped at $2.5 million dollars. The CD&A discusses in greater
detail the performance metrics utilized in the LTCPP
cycle.
|
|||||||||||||||||||
|
2 On
March 1, 2006, 1,000 restricted shares were granted to both Mr.
Levenick
and Mr. Oberhelman. The fair market value of the shares on the
grant date
was $73.945 per share. The shares vest over a five-year period,
with one
third vesting after three years from the grant date, one third
vesting on
the fourth year from the grant date, and final third vesting on
the fifth
year from the grant date.
|
|||||||||||||||||||
|
3 The
amounts shown do not reflect realized compensation by the NEO.
The amounts
shown represent the value of the SAR award based upon the fair
value on
the grant date of February 17, 2006 as determined in accordance
with
FAS123R. The exercise price for all SARs granted to the NEOs is
100
percent of the fair market value (average of high and low trading
price)
of Caterpillar stock on the grant date. All SARs granted to the
NEOs will
vest after three years from the grant date. Plan provisions exist
for
accelerated vesting in the event of terminations due to long-service
separation (age 55 with 10 or more years of company service), death,
total
disability or change in control. The actual realizable value of
the SAR
will depend on the fair market value of Caterpillar stock at the
time of
exercise. The grant price was based upon the average of the high
and low
price for Caterpillar stock on the grant date of February 17, 2006.
The
closing price on the grant date was the same value as the average
price,
$72.05.
|
|||||||||||||||||||
Page
38
|
Outstanding
Equity Awards at 2006 Fiscal Year-End
|
|
Number
of Securities Underlying Unexercised SARs/Options
|
|
|||||||||||
|
Name
|
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
|
||||||
|
|
|
|
|
|
|
|
||||||
|
J.W.
Owens
|
100,000
|
—
|
$
|
27.8438
|
06/09/2008
|
—
|
—
|
|||||
|
100,000
|
—
|
31.1719
|
06/08/2009
|
—
|
—
|
|||||||
|
108,000
|
—
|
19.2032
|
06/12/2010
|
—
|
—
|
|||||||
|
108,000
|
—
|
26.7650
|
06/12/2011
|
—
|
—
|
|||||||
|
122,000
|
—
|
25.3575
|
06/11/2012
|
—
|
—
|
|||||||
|
140,000
|
—
|
27.1425
|
06/10/2013
|
—
|
—
|
|||||||
|
460,000
|
—
|
38.6275
|
06/08/2014
|
—
|
—
|
|||||||
|
460,000
|
—
|
45.6425
|
02/18/2015
|
—
|
—
|
|||||||
|
—
|
300,000
|
72.05
|
02/17/2016
|
—
|
—
|
|||||||
|
—
|
—
|
—
|
—
|
20,000
|
$
|
1,226,600
|
||||||
|
|
||||||||||||
|
S.L.
Levenick
|
13,330
|
—
|
27.8438
|
06/09/2008
|
—
|
—
|
||||||
|
13,712
|
—
|
31.1719
|
06/08/2009
|
—
|
—
|
|||||||
|
48,000
|
—
|
26.7650
|
06/12/2011
|
—
|
—
|
|||||||
|
54,000
|
—
|
25.3575
|
06/11/2012
|
—
|
—
|
|||||||
|
54,000
|
—
|
27.1425
|
06/10/2013
|
—
|
—
|
|||||||
|
126,000
|
—
|
38.6275
|
06/08/2014
|
—
|
—
|
|||||||
|
130,000
|
—
|
45.6425
|
02/18/2015
|
—
|
—
|
|||||||
|
—
|
105,000
|
72.05
|
02/17/2016
|
—
|
—
|
|||||||
|
—
|
—
|
—
|
—
|
1,000
|
61,330
|
|||||||
|
|
||||||||||||
|
D.R.
Oberhelman
|
38,132
|
—
|
25.8281
|
06/10/2007
|
—
|
—
|
||||||
|
42,000
|
—
|
27.8438
|
06/09/2008
|
—
|
—
|
|||||||
|
42,000
|
—
|
31.1719
|
06/08/2009
|
—
|
—
|
|||||||
|
48,000
|
—
|
19.2032
|
06/12/2010
|
—
|
—
|
|||||||
|
48,000
|
—
|
26.7650
|
06/12/2011
|
—
|
—
|
|||||||
|
122,000
|
—
|
25.3575
|
06/11/2012
|
—
|
—
|
|||||||
|
140,000
|
—
|
27.1425
|
06/10/2013
|
—
|
—
|
|||||||
|
140,000
|
—
|
38.6275
|
06/08/2014
|
—
|
—
|
|||||||
|
140,000
|
—
|
45.6425
|
02/18/2015
|
—
|
—
|
|||||||
|
—
|
110,000
|
72.05
|
02/17/2016
|
—
|
—
|
|||||||
|
—
|
—
|
—
|
—
|
9,000
|
551,970
|
|||||||
|
|
||||||||||||
|
G.L.
Shaheen
|
38,410
|
—
|
27.8438
|
06/09/2008
|
—
|
—
|
||||||
|
96,792
|
—
|
31.1719
|
06/08/2009
|
—
|
—
|
|||||||
|
122,000
|
—
|
25.3575
|
06/11/2012
|
—
|
—
|
|||||||
|
140,000
|
—
|
27.1425
|
06/10/2013
|
—
|
—
|
|||||||
|
140,000
|
—
|
38.6275
|
06/08/2014
|
—
|
—
|
|||||||
|
140,000
|
—
|
45.6425
|
02/18/2015
|
—
|
—
|
|||||||
|
—
|
95,000
|
72.05
|
02/17/2016
|
—
|
—
|
|||||||
|
|
||||||||||||
|
G.R.
Vittecoq
|
19,360
|
—
|
31.1719
|
06/08/2009
|
—
|
—
|
||||||
|
23,968
|
—
|
19.2032
|
06/12/2010
|
—
|
—
|
|||||||
|
48,000
|
—
|
26.7650
|
06/12/2011
|
—
|
—
|
|||||||
|
54,000
|
—
|
25.3575
|
06/11/2012
|
—
|
—
|
|||||||
|
54,000
|
—
|
27.1425
|
06/10/2013
|
—
|
—
|
|||||||
|
126,000
|
—
|
38.6275
|
06/08/2014
|
—
|
—
|
|||||||
|
130,000
|
—
|
45.6425
|
02/18/2015
|
—
|
—
|
|||||||
|
—
|
95,000
|
72.05
|
02/17/2016
|
—
|
—
|
|||||||
|
—
|
—
|
—
|
—
|
1,365
|
83,715
|
|||||||
|
|
||||||||||||
|
S.H.
Wunning
|
48,000
|
—
|
19.2032
|
06/12/2010
|
—
|
—
|
||||||
|
48,000
|
—
|
26.7650
|
06/12/2011
|
—
|
—
|
|||||||
|
60,000
|
—
|
25.3575
|
06/11/2012
|
—
|
—
|
|||||||
|
54,000
|
—
|
27.1425
|
06/10/2013
|
—
|
—
|
|||||||
|
126,000
|
—
|
38.6275
|
06/08/2014
|
—
|
—
|
|||||||
|
130,000
|
—
|
45.6425
|
02/18/2015
|
—
|
—
|
|||||||
|
—
|
95,000
|
72.05
|
02/17/2016
|
—
|
—
|
|||||||
|
|
||||||||||||
|
D.B.
Burritt
|
23,100
|
—
|
27.1425
|
06/10/2013
|
—
|
—
|
||||||
|
23,100
|
—
|
38.6275
|
06/08/2014
|
—
|
—
|
|||||||
|
54,000
|
—
|
45.6425
|
02/18/2015
|
—
|
—
|
|||||||
|
—
|
48,000
|
72.05
|
02/17/2016
|
—
|
—
|
|||||||
|
|
||||||||||||
|
1 SARs
granted in 2006 are exercisable three years after the grant date.
The SARs
were granted with a 10-year term, subject to earlier termination
in the
event of separation from service.
|
||||||||||||
|
2 Mr.
Owens received a 20,000 restricted share grant on March 1, 2005.
Mr.
Levenick received a 1,000 restricted share grant on March 1, 2006.
Mr.
Oberhelman received a 6,000 restricted share grant on April 1,
2004, a
2,000 restricted share grant on March 1, 2005, and a 1,000 restricted
share grant on March 1, 2006. Mr. Vittecoq received a 1,900 restricted
share equivalent grant on March 3, 2003. Where applicable, grants
awarded
have been adjusted to reflect a 2 for 1 stock split which occurred
in July
2005.
|
||||||||||||
|
3 The
market value of the remaining non-vested restricted shares (or
equivalent
shares in the case of Mr. Vittecoq) is calculated using the closing
price
of Caterpillar common stock on December 29, 2006 ($61.33 per share).
|
||||||||||||
Page
39
|
2006
Option Exercises and Stock Vested
|
|
|
Option
Awards1
|
Stock
Awards2
|
||||||||||
|
|
|
|||||||||||
|
Name
|
Number
of Shares
Acquired
on Exercise
|
Value
Realized
on
Exercise
|
Number
of Shares
Acquired
on Vesting
|
Value
Realized
on
Vesting
|
||||||||
|
|
|
|
|
|
||||||||
|
J.W.
Owens
|
|
100,000
|
|
$
|
4,157,690
|
|
|
—
|
|
$
|
—
|
|
|
S.L.
Levenick
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
D.R.
Oberhelman
|
|
15,842
|
|
|
758,022
|
|
|
2,332
|
|
|
172,440
|
|
|
G.L.
Shaheen
|
|
154,542
|
|
|
5,324,635
|
|
|
—
|
|
|
—
|
|
|
G.R.
Vittecoq
|
|
—
|
|
|
—
|
|
|
665
|
|
|
49,763
|
|
|
S.H.
Wunning
|
|
58,920
|
|
|
2,166,304
|
|
|
2,332
|
|
|
172,440
|
|
|
D.B.
Burritt
|
|
50,832
|
|
|
1,921,023
|
|
|
—
|
|
|
—
|
|
|
|
||||||||||||
|
1 Upon
exercise, option holders may surrender shares to pay the option exercise
price and satisfy income tax-withholding requirements. The amounts
shown
are gross amounts absent netting for shares surrendered.
|
||||||||||||
|
2 Upon
release of the restricted stock, shares are surrendered to satisfy
income
tax-withholding requirements. The amounts shown are gross amounts
absent
netting for shares surrendered. Mr. Vittecoq received a cash payment
for
the value of his equivalent restricted shares. Equivalent restricted
shares are issued to Mr. Vittecoq as they provide a tax efficient
vehicle
under Swiss tax law.
|
||||||||||||
|
2006
Pension Benefits
|
|
Name
|
Plan
Name1
|
Number
of Years of Credited Service2
|
Present
Value of
Accumulated
Benefit3
|
Payments
During Last Fiscal Year
|
|||
|
|
|
|
|
|
|||
|
J.W.
Owens
|
RIP
|
34.25
|
$
|
1,837,348
|
|
—
|
|
|
SPBP
|
34.25
|
8,884,360
|
—
|
||||
|
|
|||||||
|
S.L.
Levenick
|
RIP
|
29.42
|
|
944,755
|
|
—
|
|
|
SPBP
|
29.42
|
1,836,373
|
—
|
||||
|
|
|||||||
|
D.R.
Oberhelman
|
RIP
|
31.42
|
|
1,118,197
|
|
—
|
|
|
SPBP
|
31.42
|
2,733,148
|
—
|
||||
|
|
|||||||
|
G.L.
Shaheen
|
RIP
|
35.00
|
|
1,998,347
|
|
—
|
|
|
SPBP
|
35.00
|
5,861,834
|
—
|
||||
|
|
|||||||
|
G.R.
Vittecoq
|
Caprevi,
Prevoyance
|
30.92
|
|
7,062,864
|
|
—
|
|
|
|
|||||||
|
S.H.
Wunning
|
RIP
|
33.50
|
|
1,322,949
|
|
—
|
|
|
SPBP
|
33.50
|
2,403,180
|
—
|
||||
|
|
|||||||
|
D.B.
Burritt
|
RIP
|
28.33
|
|
900,361
|
|
—
|
|
|
SPBP
|
28.33
|
453,473
|
—
|
||||
|
|
|||||||
|
1
RIP is a noncontributory U.S. qualified defined benefit pension plan
and
SPBP is a U.S. non-qualified pension plan. The benefit formula is
1.5
percent for each year of service (capped at 35 years) multiplied
by the
final average earnings during the highest five of the final ten years
of
employment. Final average earnings include base salary, short-term
incentive compensation and deferred compensation. If an employee’s annual
retirement income benefit under the qualified plan exceeds the internal
revenue code limitations, the excess benefits are paid from SPBP.
SPBP is
not funded. The formula used to calculate the benefit payable in
SPBP is
the same as that which is used under RIP. Mr. Vittecoq participates
in
Caprevi, Prevoyance Caterpillar, a Swiss pension benefit plan. The
Swiss
plan requires participants to contribute approximately 7 percent
of
pensionable income to the plan. The benefit formula is 1.75 percent
for
each year of service multiplied by the final average earnings for
the
highest three years of a participant’s career. Final average earnings
consist of base salary and short-term incentive pay, reduced by a
prescribed percentage to arrive at “salary considered for contribution.”
The benefit is payable in a 50 percent lump sum payment and 50 percent
annuity.
|
|||||||
|
2
Mr. Shaheen has accumulated 39 years of service with the company.
Amounts
payable under both RIP and SPBP are based upon a maximum of 35 years
of
service. All RIP and SPBP participants may receive their benefit
immediately following termination of employment, or may defer benefit
payments until any time between early retirement age and normal retirement
age. Normal retirement age is defined as age 65 with 5 years of service.
Early retirement is defined as: any age with 30 years of service,
age 55
with 15 years of service, age plus service = 85 points, or age 60
with 10
years of service. If a participant elects early retirement, benefits
are
reduced by 4 percent, per year, before age 62. Currently, Mr. Owens,
Mr.
Oberhelman, and Mr. Wunning are eligible for early retirement, with
a 4
percent reduction. Mr. Shaheen is eligible for early retirement with
no
reduction. Mr. Vittecoq is eligible under the Swiss pension plan
for an
early retirement benefit with a 4 percent reduction before age
60.
|
|||||||
|
3
The amount in this column represents the actuarial present value
for each
NEO’s accumulated pension benefit at November 30, 2006, assuming benefits
are payable at each NEO’s earliest unreduced retirement age based upon
current level of pensionable income. The interest rate of 5.53 percent
and
the RP2000 mortality table used in the calculations are based upon
the U.S
FAS 87 disclosure at November 30, 2006. Mr. Vittecoq’s lump sum present
value accumulated benefit is based upon the Swiss pension measurement
date
of September 30, 2006. The EVK 2000 mortality table and the Swiss
FAS87
interest rate of 3.5 percent were used to calculate Mr. Vittecoq’s
benefit.
|
|||||||
Page
40
|
2006
Nonqualified Deferred Compensation
|
|
Name
|
Executive
Contributions
in
20061
|
Registrant
Contributions
in
20061
|
Aggregate
Earnings
in
2006
2
|
Aggregate
Balance
at
12/31/06
|
||||||||
|
|
|
|
|
|
||||||||
|
J.W.
Owens
|
$
|
150,876
|
$
|
150,876
|
$
|
357,790
|
$
|
2,805,762
|
||||
|
S.L.
Levenick
|
|
578,877
|
|
55,541
|
|
477,885
|
|
4,705,897
|
||||
|
D.R.
Oberhelman
|
|
201,350
|
|
68,314
|
|
65,786
|
|
1,656,906
|
||||
|
G.L.
Shaheen
|
|
455,207
|
|
68,435
|
|
99,680
|
|
2,952,138
|
||||
|
G.R.
Vittecoq
|
|
45,239
|
|
30,159
|
|
123,556
|
|
1,920,392
|
||||
|
S.H.
Wunning
|
|
179,757
|
|
57,474
|
|
189,948
|
|
2,289,436
|
||||
|
D.B.
Burritt
|
|
50,743
|
|
29,127
|
|
11,427
|
|
250,447
|
||||
|
|
||||||||||||
|
1 Caterpillar
maintains two non-qualified deferred compensation plans, SEIP and
DEIP.
These plans allow eligible U.S. employees, including all NEOs (except
Mr.
Vittecoq) to voluntarily defer a portion of their base salary and
short-term Incentive pay into the plan and receive a company matching
contribution. LTCPP pay may also be deferred, but does not qualify
for any
company matching contributions. Mr. Vittecoq is a participant in
a
non-U.S. Employee Investment Plan that allows him to contribute a
portion
of his base salary to the plan and receive a company matching
contribution. Amounts deferred by executives in 2006 for base salary,
short-term incentive pay or long-term cash performance payouts are
included in the 2006 Summary Compensation Table. Matching contributions
in
non-qualified deferred compensation plans made by Caterpillar in
2006 are
also included in the 2006 All Other Compensation Table under the
Matching
Contributions SEIP and DEIP column. SEIP and DEIP participants may
elect a
lump sum payment, or an installment distribution payable for up to
15
years after separation.
|
||||||||||||
|
2 Aggregate
earnings comprise interest, dividends, capital gains and
appreciation/depreciation of investment
results.
|
||||||||||||
Potential
Payments Upon Termination or Change in Control
General
Caterpillar
does
not have any special severance agreements or packages (such as golden
parachutes) under which payments are to be made to any NEO. Potential payments
to NEOs may, however, be available under the terms of existing compensation
and
benefit programs in the case of 1) termination (including voluntary separation,
termination for cause or long-service
separation)
or 2) a change in control of the company. The terms applicable to these
potential payments in various termination scenarios are discussed below.
Any
payments that
would be provided to a named executive officer under plans generally available
to management employees similarly situated to the NEOs in age, years of service,
date of hire, etc. that do not discriminate in favor of the NEOs (such as death
and disability benefits, retiree medical and life insurance benefits) are not
quantified in the following tabular information. The discussion below assumes
that each NEO is eligible for benefits unless otherwise noted.
The
following
narrative and tabular information describes and quantifies certain payments
and
benefits that would become payable under existing plans and arrangements if
the
named executive’s employment had terminated on December 31, 2006. The
information is provided relative to the NEO’s compensation and service levels as
of the date specified. If applicable, they are based on the company’s closing
stock price on the specified date.
Terms
of
Potential Payments - Termination
The
terms of
potential payments to NEOs in each of the following termination scenarios under
existing compensation and benefit programs follows:
| § |
Voluntary
Separation (resignation)
|
| § |
Termination
for Cause (termination)
|
| § |
Long-Service
Separation (retirement)
|
Equity
awards
Unvested
equity
awards granted to NEOs in accordance with the long-term plan become fully vested
and exercisable upon retirement. In the event of resignation, NEOs keep vested
equity awards but forfeit any that are not yet vested. If terminated, equity
awards that are outstanding (whether vested or unvested) will expire. Potential
amounts and assumptions regarding equity awards are included in the Potential
Payments upon Termination or Change in Control Table (Potential Payments table)
on page 43. These terms are applicable to all employees covered by the long-term
plan.
Page
41
Short-term
incentive pay
In
the event of
retirement at December 31, 2006, NEOs would be eligible to receive the amount
otherwise payable to them for the 2006 plan year under their applicable STIP.
In
the case of termination or resignation at December 31, 2006, the NEO would
forfeit all short-term incentive pay. Potential amounts and assumptions
regarding the short-term incentive pay are included in the Potential Payments
table on page 43.
Long-term
performance awards
In
the event of
retirement at December 31, 2006, NEOs would be eligible to receive amounts
otherwise payable to them under the LTCPP feature of the Caterpillar Inc. 1996
Stock Option and Long-Term Incentive Plan (long-term plan). The NEOs’
eligibility and award amount would be determined at the conclusion of the
performance period, depending on the achievement of the established performance
criteria. Potential amounts and assumptions regarding the short-term incentive
pay are included in the Potential Payments table on page 43. These terms are
applicable to all employees covered by the long-term plan.
Deferred
compensation
The
Nonqualified
Deferred Compensation Table on page 41 describes unfunded, non-qualified
deferred compensation plans that permit the deferral of salary, bonus and
short-term cash performance awards by NEOs. These plans also provide for
matching contributions by the company. LTCPP pay may also be deferred, but
is
not eligible for a company matching contribution.
NEOs
are eligible
to receive the amount in their deferred compensation account following
termination under any termination scenario unless the named executive elects
to
further defer payment as permitted by the plans. The Nonqualified Deferred
Compensation column of the Potential Payments table assumes the NEO terminated
employment at December 31, 2006 with no further deferral of
payments.
Severance
pay
Other
than in
accordance with the terms of existing compensation and benefit programs, no
special severance payments will be made to any NEOs.
Perquisites
In
the event of
retirement, perquisites such as financial counseling or security may be provided
to the NEO.
Pension
benefits
The
footnotes to
the Pension Benefits Table on page 40 include a description of the defined
benefit pension plans (qualified and non-qualified) in which the NEOs
participate, including the years of credited service and the present value
of
each NEO’s accumulated pension benefit. These pension benefits are available to
management employees generally and are not quantified in the tabular information
in the Potential Payments table.
Terms
&
Potential Payments - Change in Control
Change
in control
provisions within our long and short-term plans generally provide for
accelerated vesting and do not provide for extra payments. Potential payment
amounts and assumptions are included in the Potential Payments table on page
43.
These change in control provisions are designed so that employees are neither
harmed nor given a windfall in the event of termination of employment without
cause or for good reason within 12 months following a change in control. The
provisions are intended to ensure that executives evaluate business
opportunities in the best interests of stockholders. The terms are applicable
to
all employees covered by these plans and there are no payments made for
voluntary separation, resignation and termination for cause.
Page
42
|
Potential
Payments Upon Termination or
Change in Control
|
|
Equity
Awards
|
Incentive
|
|||||||||||||||
|
|
|
|||||||||||||||
|
Name
|
Termination
Scenario
|
Stock
Options/
SARs1
|
Restricted
Stock/
RSUs2
|
Short-term
Incentive3
|
Long-term
Incentive4
|
Non-Qualified
Deferred
Comp.5
|
||||||||||
|
|
|
|
|
|
|
|
||||||||||
|
J.
W.
Owens
|
Voluntary
Separation/Resignation
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
2,805,762
|
|||||
|
Long-Service
Separation/Retirement
|
0
|
1,226,600
|
1,223,703
|
2,173,223
|
2,805,762
|
|||||||||||
|
Termination
for Cause
|
0
|
0
|
0
|
0
|
2,805,762
|
|||||||||||
|
Change
in
Control
|
0
|
1,226,600
|
3,645,008
|
2,500,000
|
2,805,762
|
|||||||||||
|
|
||||||||||||||||
|
S.
L.
Levenick
|
Voluntary
Separation/Resignation
|
0
|
0
|
0
|
0
|
4,705,897
|
||||||||||
|
Long-Service
Separation/Retirement
|
0
|
0
|
430,508
|
678,192
|
4,705,897
|
|||||||||||
|
Termination
for Cause
|
0
|
0
|
0
|
0
|
4,705,897
|
|||||||||||
|
Change
in
Control
|
0
|
61,330
|
1,282,506
|
1,017,287
|
4,705,897
|
|||||||||||
|
|
||||||||||||||||
|
D.
R.
Oberhelman
|
Voluntary
Separation/Resignation
|
0
|
0
|
0
|
0
|
1,656,906
|
||||||||||
|
Long-Service
Separation/Retirement
|
0
|
490,640
|
484,110
|
763,303
|
1,656,906
|
|||||||||||
|
Termination
for Cause
|
0
|
0
|
0
|
0
|
1,656,906
|
|||||||||||
|
Change
in
Control
|
0
|
551,970
|
1,442,496
|
1,144,955
|
1,656,906
|
|||||||||||
|
|
||||||||||||||||
|
G.
L.
Shaheen
|
Voluntary
Separation/Resignation
|
0
|
0
|
0
|
0
|
2,952,138
|
||||||||||
|
Long-Service
Separation/Retirement
|
0
|
N/A
|
484,110
|
767,387
|
2,952,138
|
|||||||||||
|
Termination
for Cause
|
0
|
0
|
0
|
0
|
2,952,138
|
|||||||||||
|
Change
in
Control
|
0
|
N/A
|
1,442,496
|
1,151,081
|
2,952,138
|
|||||||||||
|
|
||||||||||||||||
|
G.
R.
Vittecoq
|
Voluntary
Separation/Resignation
|
0
|
0
|
0
|
0
|
1,920,392
|
||||||||||
|
Long-Service
Separation/Retirement
|
0
|
83,715
|
505,579
|
810,434
|
1,920,392
|
|||||||||||
|
Termination
for Cause
|
0
|
0
|
0
|
0
|
1,920,392
|
|||||||||||
|
Change
in
Control
|
0
|
83,715
|
1,506,451
|
1,215,651
|
1,920,392
|
|||||||||||
|
|
||||||||||||||||
|
S.
H.
Wunning
|
Voluntary
Separation/Resignation
|
0
|
0
|
0
|
0
|
2,289,436
|
||||||||||
|
Long-Service
Separation/Retirement
|
0
|
N/A
|
441,554
|
694,941
|
2,289,436
|
|||||||||||
|
Termination
for Cause
|
0
|
0
|
0
|
0
|
2,289,436
|
|||||||||||
|
Change
in
Control
|
0
|
N/A
|
1,315,494
|
1,042,412
|
2,289,436
|
|||||||||||
|
|
||||||||||||||||
|
D.
B.
Burritt
|
Voluntary
Separation/Resignation
|
0
|
0
|
0
|
0
|
250,447
|
||||||||||
|
Long-Service
Separation/Retirement
|
0
|
N/A
|
391,288
|
349,650
|
250,447
|
|||||||||||
|
Termination
for Cause
|
0
|
0
|
0
|
0
|
250,447
|
|||||||||||
|
Change
in
Control
|
0
|
N/A
|
391,288
|
524,475
|
250,447
|
|||||||||||
|
|
||||||||||||||||
|
1
In the event of a change in control, maximum payout factors are assumed
for amounts payable under the 1996 Stock Option and Long-Term Incentive
Plan (LTIP) and ESTIP. Additionally, all unvested stock options,
SARs,
restricted stock and restricted stock units vest immediately. Stock
options and SARs remain exercisable over the normal life of the grant.
For
valuation purposes, the vesting of the 2006 SAR grant does not create
any
value on 12/31/2006, as the grant price of $72.05 exceeded the year-end
stock price of $61.33. The 2006 SAR grant was the only grant outstanding
that was not fully vested on 12/31/2006. For separations due to
Long-Service Separation/Retirement, death, and disability, the life
of the
equity grant is reduced to a maximum of 60 months from the date of
separation or 10 years from the original granting date, whichever
date
arrives first. For voluntary separations, the equity grant life is
reduced
to 60 days from the date of separation.
|
||||||||||||||||
|
2
The LTIP allows immediate vesting to occur on outstanding restricted
stock
in the event of a change in control. The valuation shown is based
upon the
number of shares vesting multiplied by the closing price of Caterpillar
common stock on December 29, 2006, which was $61.33 per share.
|
||||||||||||||||
|
3
ESTIP provisions provide for the maximum payout allowed under the
plan in
the event of a change in control. Therefore, amounts shown for change
in
control represent the maximum payout available under ESTIP for all
NEOs,
with the exception of Mr. Burritt. Mr. Burritt is a participant in
STIP,
which has no plan provisions for a change in control. Thus, Mr, Burritt’s
amount shown for change in control is his actual payout available
under
the plan. In the event of a voluntary separation or termination for
cause
before the completion of the performance period, both the ESTIP and
STIP
plan participant forfeit any benefit. Participants in both the ESTIP
and
STIP who separate via a long-service separation/retirement receive
a
prorated benefit based on the time of active employment during the
performance period.
|
||||||||||||||||
|
4
The LTCPP provisions provide for maximum payout allowed for each
open plan
cycle in the event of a change in control. Participants who separate
via a
change in control receive a prorated benefit based on the time of
active
employment during the performance period. Change in control amounts
shown
for all NEOs represent a prorated benefit at maximum payout for plan
cycles 2005-2007 and 2006-2008, both of which are open cycles as
of
12/31/2006. Plan provisions restrict Mr. Owens’ payout to a $2.5 million
cap per plan cycle, which is reflected in his prorated payout amount
shown
for change in control. This amount is less than his plan payout at
maximum. The 2004-2006 plan cycle amounts are not shown as this cycle
was
fully vested as of 12/31/2006. Participants who separate via a
long-service separation/retirement receive a prorated benefit based
on the
time of active employment during the performance period. The amount
shown
for long-service separation/retirement is the NEO’s prorated benefit based
on a target payout for plan cycles 2005-2007 and 2006-2008, both
of which
were open cycles as of 12/31/2006. Participants forfeit any benefit
upon a
voluntary separation or a termination for cause that occurs prior
to the
completion of the performance period.
|
||||||||||||||||
|
5
Amounts assume Termination or Change in Control separation occurring
on
December 31, 2006, with no further deferral of available
funds.
|
||||||||||||||||
Of
our current
board members, only Mr. Owens is a salaried employee of Caterpillar.
Non-employee directors are compensated for board service. For 2006, compensation
for non-employee directors was comprised of the following components:
|
Retainer:
|
$90,000
annually
|
||
|
Committee
Chairman Stipend:
|
Audit
|
$15,000
annually
|
|
|
Compensation
|
$10,000
annually
|
||
|
Governance
|
$
7,500
annually
|
||
|
Public
Policy
|
$
6,000
annually
|
||
|
Audit
Committee Members Stipend:
|
$10,000
annually
|
||
|
Stock
Appreciation Rights (SARS):
|
7,000
SARs -
2006 Grant
|
||
In
addition to the
above, the company reimburses expenses related to attendance of meetings to
non-employee directors.
Under
Caterpillar’s
Directors’ Deferred Compensation Plan, directors may defer 50 percent or more of
their annual retainer and stipend in an interest-bearing account or an account
representing equivalent shares of Caterpillar stock. Directors can also elect
to
receive all or a portion of their annual retainer and stipend in shares of
Caterpillar stock.
Eligible
directors
may also participate in a Charitable Award Program. Under the program, a
donation of up to $1 million will be made by the company, in the director’s
name, in 10 equal annual installments, with the first installment to be made
as
soon as practicable after the director’s death. Of the total donation, half will
be donated to the eligible tax-exempt organization(s) selected by the director,
and the remainder will be directed to the Caterpillar Foundation. The maximum
amount payable is $1 million on behalf of each eligible director. The sum is
based on the director’s length of service. The program is financed through the
purchase of life insurance policies. Directors derive no financial benefit
from
the program. Premiums paid by the company for this program are included in
the
All Other Compensation tables on page 45 for non-employee directors and on
page
37 for Mr. Owens.
Page
44
|
Director
Compensation for 2006
|
|
Director
|
Fees
Earned or
Paid
in Cash
|
Option
Awards1
|
All
Other
Compensation2
|
Total
|
||||||||
|
|
|
|
|
|
||||||||
|
W.
Frank
Blount
|
$
|
98,754
|
$
|
160,910
|
$
|
8,029
|
$
|
267,693
|
|
|||
|
John
R.
Brazil
|
|
97,998
|
|
36,066
|
|
24,050
|
|
158,114
|
||||
|
Daniel
M.
Dickinson
|
|
7,500
|
|
—
|
|
—
|
|
7,500
|
||||
|
John
T.
Dillon
|
|
103,752
|
|
130,740
|
|
5,144
|
|
239,636
|
||||
|
Eugene
V.
Fife
|
|
115,008
|
|
29,053
|
|
34,825
|
|
178,886
|
||||
|
Gail
D.
Fosler
|
|
90,000
|
|
29,053
|
|
—
|
|
119,053
|
||||
|
Juan
Gallardo
|
|
90,000
|
|
52,296
|
|
28,179
|
|
170,475
|
||||
|
David
R.
Goode
|
|
100,008
|
|
160,910
|
|
43,790
|
|
304,708
|
||||
|
Peter
A.
Magowan
|
|
90,000
|
|
160,910
|
|
19,733
|
|
270,643
|
||||
|
William
A.
Osborn
|
|
100,008
|
|
29,053
|
|
25,797
|
|
154,858
|
||||
|
Gordon
R.
Parker3
|
|
50,004
|
|
160,910
|
|
5,546
|
|
216,460
|
||||
|
Charles
D.
Powell
|
|
93,000
|
|
29,053
|
|
35,697
|
|
157,750
|
||||
|
Edward
B.
Rust, Jr.
|
|
95,004
|
|
29,053
|
|
35,106
|
|
159,163
|
||||
|
Joshua
I.
Smith
|
|
90,000
|
|
160,910
|
|
8,578
|
|
259,488
|
||||
|
|
||||||||||||
|
1
Each non-employee director was awarded 7,000 stock
settled SARs on June 14, 2006. The amounts shown do not reflect realized
compensation by the named director. The amounts shown is the expense
recognized for financial reporting purposes in accordance with FAS123R.
Assumptions made in the calculation of these amounts are included
in Note
2 to the company’s financial statements for the fiscal year ended December
31, 2006 included on Form 10-K filed with the SEC on February 23,
2007. As
of December 31, 2006, the number of shares of stock / vested and
non-vested options held by each non-employee director was: Mr. Blount:
12,329/ 71,000; Mr. Brazil: 8,803/ 39,000; Mr. Dickinson: 783/ 0;
Mr.
Dillon: 12,313/ 79,000; Mr. Fife: 22,000/ 31,000; Ms. Fosler: 2,000/
31,000; Mr. Gallardo: 204,109/ 71,000; Mr. Goode: 32,583/ 79,000;
Mr.
Magowan: 266,219/ 79,000; Mr. Osborn: 8,614/ 47,000; Mr. Powell:
4,701/
47,000; Mr. Rust: 4,933/ 31,000; and Mr. Smith: 10,855/ 47,000. In
addition, Mr. Owens, the only employee director serving on the board
held
the following number of shares of stock / vested and non-vested options
at
December 31, 2006: 268,781/ 1, 898,000.
|
||||||||||||
|
2
All Other Compensation represents reinvested earning
for assets held in the Director’s deferred compensation plan, and premium
plus administrative costs associated with the Director’s Charitable Award
Program.
|
||||||||||||
|
3
Mr. Parker retired from the board effective June
2006.
|
||||||||||||
|
2006
All Other Director Compensation Table
|
|
Earnings
on the Director’s Deferred Compensation
Plan1
|
Director’s
Charitable Award Program - Insurance Premiums and Administrative
Costs2
|
Total
|
|||||||||
|
|
|
|
|||||||||
|
W.
Frank
Blount
|
$
|
6,529
|
$
|
1,500
|
$
|
8,029
|
|||||
|
John
R.
Brazil
|
2,700
|
21,350
|
24,050
|
||||||||
|
Daniel
M.
Dickinson
|
—
|
—
|
—
|
||||||||
|
John
T.
Dillon
|
3,644
|
1,500
|
5,144
|
||||||||
|
Eugene
V.
Fife
|
—
|
34,825
|
34,825
|
||||||||
|
Gail
D.
Fosler
|
—
|
—
|
—
|
||||||||
|
Juan
T.
Gallardo
|
3,254
|
24,925
|
28,179
|
||||||||
|
David
R.
Goode
|
42,290
|
1,500
|
43,790
|
||||||||
|
Peter
A.
Magowan
|
18,233
|
1,500
|
19,733
|
||||||||
|
William
A.
Osborn
|
872
|
24,925
|
25,797
|
||||||||
|
Gordon
R.
Parker
|
4,046
|
1,500
|
5,546
|
||||||||
|
Charles
D.
Powell
|
872
|
34,825
|
35,697
|
||||||||
|
Edward
B.
Rust, Jr.
|
5,095
|
30,011
|
35,106
|
||||||||
|
Joshua
I.
Smith
|
7,078
|
1,500
|
8,578
|
||||||||
|
|
|||||||||||
|
1 Represents
dividends on equivalent shares held in the deferred compensation
plan.
|
|||||||||||
|
2
The amounts listed represent the named director’s year 2006 insurance
premium and administrative fee. For those directors whose policy
premiums
are fully paid up, the amount shown represents only the administrative
fee
of $1,500.
|
|||||||||||
Page
45
The
Compensation
Committee (committee) has reviewed and discussed the CD&A included in this
proxy statement with management. The committee is satisfied that the CD&A
fairly and completely represents the philosophy, intent, and actions of the
committee with regard to executive compensation. We recommend to the board
that
the CD&A be included in this proxy statement for filing with the
SEC.
|
By
the
current members of the Compensation Committee consisting of:
|
||||
|
William
A. Osborn (Chairman)
|
||||
|
Daniel
M. Dickinson
|
||||
|
Edward
B. Rust, Jr.
|
Based
upon a review
of our records, all reports that were required to be filed pursuant to Section
16(a) of the Securities Exchange Act of 1934 were filed on a timely
basis.
We
do not know of
any matters to be acted upon at the meeting other than those discussed in this
statement. If any other matter is presented, proxy holders will vote on the
matter in their discretion.
Under
Caterpillar
bylaws, a stockholder may bring a matter to vote upon at the annual meeting
by
giving adequate notice to our Corporate Secretary. To be adequate, that notice
must contain information specified in our bylaws and be received by us not
less
than 45 days nor more than 90 days prior to the annual meeting. If, however,
less than 60 days notice of the meeting date is given to stockholders, notice
of
a matter to be brought before the annual meeting may be provided to us up to
the
15th
day following the
date notice of the annual meeting was provided.
Page
46
Admission
Admission
is
limited
to
stockholders of record on April 16, 2007, and one guest, or a stockholder’s
authorized proxy holder or a representative designated in writing to present
a
stockholder proposal. In each case, the individual must have an admission ticket
and valid photo identification to be admitted to the meeting. In addition,
share
ownership will be verified.
Ticket
Request Deadline
Ticket
requests
must include all information specified in the applicable table below and be
submitted in writing and received by Caterpillar on or before May 30, 2007.
No
requests will be processed after that date.
To
Submit Request
Submit
requests by
mail to James B. Buda, Corporate Secretary, 100 NE Adams Street, Peoria, IL
61629-7310 or by facsimile to (309) 675-6620. Ticket requests by telephone
will
not be accepted.
Authorized
Proxy Representative
A
stockholder may
appoint a representative to attend the meeting and/or vote on his/her behalf.
The admission ticket must be requested by the stockholder but will be issued
in
the name of the authorized representative. Individuals holding admission tickets
that are not issued in their name will not be admitted to the meeting.
Stockholder information specified below and a written proxy authorization must
accompany the ticket request.
|
Registered
Stockholders
|
Beneficial
Holders
|
|
|
For
ownership verification provide:
|
For
ownership verification provide:
|
|
|
Ø name(s)
of stockholder
Ø address
Ø phone
number
Ø social
security number and/or stockholder account number; or
Ø a
copy of your proxy card showing stockholder name and
address
|
Ø a
copy of your April brokerage account statement showing Caterpillar
stock
ownership as of the record date (4/16/07);
Ø a
letter from your broker, bank or other nominee verifying your record
date
(4/16/07) ownership; or
Ø a
copy of your brokerage account voting instruction card showing stockholder
name and address
|
|
|
Also
include:
|
Also
include:
|
|
|
Ø name
of guest if other than stockholder
Ø name
of authorized proxy representative, if one appointed
Ø address
where tickets should be mailed and phone number
|
|
Ø name
of guest if other than stockholder
Ø name
of authorized proxy representative, if one appointed
Ø address
where tickets should be mailed and phone
number
|
Page
47
PROXY
AND
VOTING INSTRUCTION
ANNUAL
MEETING OF STOCKHOLDERS—JUNE 13, 2007
This
proxy
is solicited on behalf of the Board of Directors
At
the Annual
Meeting of Stockholders of Caterpillar Inc. (the Company) on June 13, 2007,
or at any adjournments thereof, the undersigned hereby (i) appoints D.E.
Kuper and J.J. Funk, and each of them, proxies with power of substitution
to
vote the common stock of the undersigned and/or (ii) directs THE NORTHERN
TRUST COMPANY or CIBC MELLON TRUST COMPANY, as Trustee, to appoint D.E. Kuper
and J.J. Funk, and each of them, proxies with power of substitution to vote
all
shares of the Company's stock credited to the accounts of the undersigned
under
any Caterpillar Inc. or subsidiary employee benefit plan at the close of
business on April 16, 2007, as directed hereon on the following matters,
and, in
their discretion, on any other matters that may come before the meeting.
To the
extent that the trustees have not received the directions from the undersigned
by June 11, 2007, the trustees will act in accordance with the employee benefit
plan documents.
You
are
encouraged to specify your choices by marking the appropriate boxes. However,
if
you wish to vote in accordance with the Board of Directors' recommendations,
simply sign and return this card.
|
|
|
SEE
REVERSE SIDE
|
|
|
|
|
|
^
TO VOTE BY
MAIL, PLEASE DETACH HERE ^
|
||
PLEASE
VOTE
TODAY!
SEE
REVERSE
SIDE FOR THREE EASY WAYS TO VOTE.
ELECTRONIC
DELIVERY OF PROXY MATERIALS
Sign
up to receive
next year's annual report and proxy materials via the Internet. To sign up
for
this optional service, visit https://www.proxyvotenow.com/cat.
Please note you
must type an "s" after "http".
|
ý
|
|
Please
mark
your vote as in this example
|
This
Proxy, when
properly executed, will be voted in the manner you have directed. If you
return
a signed proxy with no direction given, it will be voted in accordance with
the
Board of Directors' recommendations.
|
Directors
recommend a vote "FOR"
|
|
1.
|
|
Election
of Directors
|
|
|
|
|
||
|
|
|
|
|
FOR
|
|
WITHHOLD
|
|
|
|
|
|
|
|
o
|
|
o
|
|
|
|
|
|
Nominees:
01.
John T.
Dillon
02.
Juan
Gallardo
03.
William
A. Osborn
04.
Edward B.
Rust, Jr.
|
|
|
|
|
|
|
|
For,
except
vote withheld from the following nominee(s):
|
||||||||
|
|
||||||||
|
|
|
|
FOR
|
|
AGAINST
|
|
ABSTAIN
|
|
2.
|
|
Ratify
Auditors
|
o
|
|
o
|
|
o
|
|
Directors
recommend a vote "AGAINST"
|
|
|
|
|
FOR
|
|
AGAINST
|
|
ABSTAIN
|
|
3.
|
|
Stockholder
Proposal—Separate CEO & Chair
|
o
|
|
o
|
|
o
|
|
4.
|
|
Stockholder
Proposal—Majority Vote Standard
|
o
|
|
o
|
|
o
|
|
|
|||||||
|
SIGNATURE
|
|
|
DATE
|
|
|
,
2007
|
|
SIGNATURE
|
|
|
DATE
|
|
|
,
2007
|
NOTE:
Please sign
exactly as name appears hereon. If more than one owner, each must sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give
full title as such.
|
^
TO VOTE BY
MAIL, PLEASE DETACH HERE ^
|
YOUR
VOTE
IS IMPORTANT.
Please
take a
moment now to vote your shares of Caterpillar Inc.
common
stock for
the upcoming Annual Meeting of Stockholders.
YOU
CAN
VOTE TODAY IN ONE OF THREE WAYS:
1.
Vote
by
Telephone—Please
call
toll-free at 1-888-216-1363 on a touch-tone telephone
and follow the
simple recorded instructions. Then, if you wish to vote as recommended by
the
Board of Directors, simply press 1. If you do not wish to vote as the Board
recommends, you need only respond to a few simple prompts. Your vote will
be
confirmed and cast as you directed. (Telephone voting is available for residents
of the U.S. and Canada only.)
OR
2.
Vote
by
Internet—Please
access
https://www.proxyvotenow.com/cat
and follow the
simple instructions on the screen. Please note you must type an "s" after
"http".
You may vote by telephone or Internet 24 hours a day, 7 days a
week. Your telephone or Internet vote authorizes the named proxies in the
same manner as if you had executed a proxy card.
OR
3.
Vote
by
Mail—If
you do not have
access to a touch-tone telephone or to the Internet, please complete, sign,
date
and return the proxy card in the envelope provided to: Caterpillar Inc.,
c/o Innisfree M&A Incorporated, FDR Station, P.O. Box 5156, New York,
NY 10150-5156.