OMB
APPROVAL
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OMB Number: 3235-0059
Expires: January 31,
2008
Estimated
average
burden hours per
response14
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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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§
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Elect
directors.
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§
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Ratify Independent Registered
Public Accounting Firm.
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§
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Act on stockholder proposals, if
properly presented.
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§
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Conduct any other business
properly brought before the
meeting.
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Sincerely
yours,
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James W. Owens
Chairman
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§
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Internet – Access the
Internet and go to www.eproxyaccess.com/cat2009.
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§
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Telephone – From within
the United States or Canada, call us free of charge at
1-888-216-1280.
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§
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E-mail – Send us an
e-mail at cat@eproxyaccess.com,
using the control number on the card as the subject line, and indicate
whether you wish to receive a paper or e-mail copy of the proxy materials
and whether your request is for this meeting only or all future
meetings.
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Q:
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Why am I receiving this proxy
statement?
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A:
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You have received these proxy
materials because Caterpillar’s board of directors (board) is soliciting
your proxy to vote your shares at the annual meeting. This
proxy statement includes information that we are required to provide to
you under SEC rules and is designed to assist you in voting your
shares.
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Q:
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What is e-proxy and why did
Caterpillar choose to use it this year?
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A:
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SEC rules allow companies to
choose the method for delivery of proxy materials to
stockholders. For most stockholders, we have elected to mail a notice
regarding the availability of proxy materials rather than sending a full
set of these materials in the mail. Utilizing this method of
delivery will expedite receipt of proxy materials by our stockholders and
lower the costs and reduce the environmental impact of our annual
meeting.
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Q:
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Why didn’t I receive an annual
report or sustainability report with my proxy
materials?
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A:
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Our 2008 annual report and 2008
sustainability report
are available exclusively online (www.CAT.com/investor). The online,
interactive format of the reports furthers our efforts to lower costs and reduce the
environmental impact of our annual meeting. Complete financial statements,
financial statement notes and management’s discussion and analysis for
2008 are included in the proxy materials as an appendix to the proxy
statement.
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Q:
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Who can attend the annual
meeting?
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A:
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Anyone wishing to attend the
annual meeting must have an admission ticket issued in his or her
name. Admission is limited
to:
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§
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Stockholders of record on April
13, 2009 and one immediate family member.
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§
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Authorized proxy holder of a
stockholder of record.
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§
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Authorized representative of a
stockholder of record who has been designated to present a stockholder
proposal.
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You must provide evidence of your
ownership of shares with your ticket request. The requirements
for obtaining an admission ticket are specified in the “Admission & Ticket Request
Procedure” on page
61. Notwithstanding the
above, members of the media and analysts are permitted to attend the
annual meeting pursuant to the directions provided in the “Admission & Ticket Request
Procedure” on page
61.
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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, BNY Mellon Shareowner 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 street name, the stockholder of record is your bank, broker or
other intermediary. Caterpillar only has access to ownership
records for the registered shares. So, if you are not a
stockholder of record, 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 set April 13, 2009 as
the record date for the 2009 annual meeting. Holders of
Caterpillar common stock on that date are entitled to one vote per
share. As of April 13, 2009, there were 601,751,560 shares of
Caterpillar common stock outstanding.
A list of all registered
stockholders 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:
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§
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In
person – stockholders
of record and stockholders with shares held in street name that obtain an
admission ticket (following the specified procedure) and attend the
meeting will receive a ballot for voting. If you hold shares in
street name, you must also obtain a legal proxy from your broker to vote
in person at the meeting and submit it along with your
ballot.
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§
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By
mail –
signing and returning
the proxy and/or voting instruction card
provided.
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§
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By phone or
via the Internet – following the instructions on your notice card,
proxy and/or voting instruction card or e-mail
notice.
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If you vote by phone or the
Internet, please have your notice, proxy and/or voting instruction card
available. The control number appearing on your notice or 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.
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Q:
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How can I authorize someone else
to attend the meeting or vote for me?
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A:
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Stockholders of record can
authorize someone
other than the individual(s) named on the proxy and/or voting instruction
card to vote on their behalf by crossing out the individual(s) named on
the card and inserting the name of the individual being authorized or by
providing a written authorization to the individual being authorized to
attend or vote.
Street name holders can contact
their broker to obtain documentation with authorization to attend or vote
at the meeting.
To obtain an admission ticket for
an authorized proxy representative, see the requirements specified in the
“Admission & Ticket Request Procedure” on page 61.
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Q:
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How can I change or revoke my
vote?
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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 to Caterpillar Inc. c/o
the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629 or
by submitting another vote on or before June 10, 2009 (including a vote
via the Internet or by telephone). For all methods of voting,
the last vote cast will supersede all previous
votes.
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,
Internet and telephone votes 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 annual
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. 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 generally occurs when a nominee (such as broker) holding
shares for a beneficial owner does not receive instructions from the
beneficial owner on how to vote on a discretionary matter. Because the
nominee does not have discretionary voting power (as provided under New
York Stock Exchange (NYSE) rules), he or she will not be able to vote on
the matter.
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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 director
nominees with the most affirmative votes are elected to fill the available
seats. All other actions presented for a vote of the
stockholders at the 2009 annual meeting require an affirmative vote of the
majority of shares present or represented 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.
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Q:
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When are stockholder proposals due
for the 2010 annual meeting?
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A:
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To be considered for inclusion in
the company’s 2010 proxy statement, stockholder proposals must be received
in writing no later than January 1, 2010. Stockholder proposals
should be sent to Caterpillar Inc. by mail c/o the Corporate Secretary at
100 NE Adams Street, Peoria, Illinois 61629. Additionally, we
request that you also forward all stockholder proposals via facsimile to
the following facsimile
number: 309-494-1467.
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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 for each notice, proxy and/or voting instruction
card or e-mail notification you receive that has a unique control number
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. 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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Are there any matters to be voted
on at the meeting that are not included in this proxy
statement?
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A:
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We do not know of any matters to
be voted on by stockholders at the meeting other than those discussed in
this proxy statement. If any other matter is properly presented
at the annual meeting, proxy holders will vote on the matter in their
discretion.
Under Caterpillar bylaws, a
stockholder may bring a matter to vote 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 qualify as
adequate, the 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. However, if less than 60 days notice of the
annual 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 for consideration in advance of the annual meeting may do so by
sending an e-mail to the Corporate Secretary at Directors@CAT.com or by mail to Caterpillar Inc.
c/o the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois
61629. At the annual meeting, the chairman will alternate
taking live questions with questions submitted in advance, if
any.
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PART TWO — Corporate
Governance
Information
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Class I – Directors with terms
expiring in 2011
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§
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W.
FRANK BLOUNT,
70, Chairman and CEO
of JI Ventures, Inc. (venture capital). Other directorships:
Alcatel-Lucent S.A.; Entergy Corporation; and KBR, Inc. Mr.
Blount has been a director of the company since
1995.
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§
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JOHN
R. BRAZIL, 63,
President of Trinity University (San Antonio, Texas). Dr.
Brazil has been a director of the company since
1998.
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§
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EUGENE
V. FIFE, 68, Managing
Principal of Vawter Capital LLC (private investment). Mr. Fife
served as the interim CEO and President of Eclipsys Corporation
(healthcare information services) 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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§
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GAIL
D. FOSLER, 61, President and Trustee of The
Conference Board (research and business membership). Prior to
her current position, Ms. Fosler served as Executive Vice President,
Senior Vice President and Chief Economist of The Conference
Board. Other directorship: Baxter International
Inc. Ms. Fosler has been a director of the company since
2003.
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§
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PETER
A. MAGOWAN, 67,
former President and Managing General Partner of the San Francisco Giants
(major league baseball team). Mr. Magowan has been a director
of the company since 1993.
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Class II – Directors nominated
for election this
year
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§
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DANIEL
M. DICKINSON, 47,
Managing Partner of Thayer | Hidden Creek (private equity
investment). Other directorship: BFI Canada
Ltd. Mr. Dickinson has been a director of the company since
2006.
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§
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DAVID
R. GOODE, 68, 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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§
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JAMES
W. OWENS, 63,
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
Corporation. Mr. Owens has been a director of the company since
2004.
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§
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CHARLES
D. POWELL, 67,
Chairman of Capital Generation Partners (asset and investment management),
LVMH Services Limited (luxury goods) and Magna Holdings (real estate
investment). Prior to his current positions, Lord Powell was
Chairman of Sagitta Asset Management Limited (asset
management). Other directorships: Hongkong Land Holdings
Limited; LVMH Moet-Hennessy Louis Vuitton; Mandarin Oriental International
Ltd.; Textron Corporation; Schindler Holding Ltd.; and Yell Group
plc. Lord Powell has been a director of the company since
2001.
Consistent with the company’s corporate governance guidelines requiring directors to serve on no more than five public company boards in addition to the company’s board, on March 29, 2009 Charles Powell tendered notice of his resignation as a member of the Yell Group plc board of directors, effective July 24, 2009. |
§
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JOSHUA
I. SMITH, 68,
Chairman and Managing Partner of the Coaching Group, LLC (management
consulting). Other directorships: Comprehensive Care
Corporation, Federal Express Corporation and The Allstate
Corporation. Mr. Smith has been a director of the company since
1993.
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Class III – Directors with
terms expiring in
2010
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§
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JOHN
T. DILLON, 70, 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 and Kellogg Co. Mr. Dillon
has been a director of the company since
1997.
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§
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JUAN
GALLARDO, 61, Chairman 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), former
Chairman of Grupo Azucarero Mexico, S.A. de C.V. (sugar mills) and former
Chairman of Mexico Fund Inc. (mutual fund). Other
directorships: Grupo Mexico, S.A. de C.V. and Lafarge S.A. Mr.
Gallardo has been a director of the company since
1998.
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§
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WILLIAM
A. OSBORN,
61, Chairman and
former CEO of Northern Trust Corporation (multibank holding company) and
The Northern Trust Company (bank). Other directorship: Abbott
Laboratories. Mr. Osborn has been a director of the company
since 2000.
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§
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EDWARD
B. RUST, JR.,
58, 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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§
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SUSAN C.
SCHWAB (effective June 1, 2009),
54, Professor, University of Maryland School of Public Policy.
Prior to her current position, Ambassador Schwab held various positions
including United States Trade Representative (member of the President’s
cabinet), Deputy United States Trade Representative and President and
Chief Executive Officer of the University System of Maryland Foundation
and Vice-Chancellor of Advancement, University System of
Maryland.
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§
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The nature of the related
person’s interest in the
transaction.
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§
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The material terms of the
transaction, including, without limitation, the amount and type of
transaction.
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§
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The importance of the transaction
to the related person.
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§
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The importance of the transaction to the
company.
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§
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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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§
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The alternatives to entering into
the transaction.
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§
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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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§
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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.
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§
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The overall fairness of the
transaction to the company.
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(1)
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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)
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Is not currently, or within the
past three years, employed by the company, or an immediate family member
is not currently, or for the past three years, employed as an executive
officer of the company;
|
(3)
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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 three years, exceeds the greater of $1
million or 2 percent of the
consolidated gross revenues of that
company;
|
(4)
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Has not received, nor has an
immediate family member received, during any twelve month period within
the last three years, direct remuneration in excess of $120,000 from the
company other than
director and committee fees and pension or other forms of deferred
compensation for prior
services;
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(5)
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(i) is not a current partner or
employee of a firm that is the company's internal or external auditor;
(ii) does not have an immediate family member who is a current partner
of such a firm; (iii) does not have an immediate family member who is a
current employee of such a firm and personally works on the company's
audit; or (iv) has not, nor has an immediate family member, been a partner
or employee of such a firm and
personally worked on the listed company's audit within the last three
years;
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(6)
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Is not part of an “interlocking
directorate,” whereby
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 three
years;
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(7)
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Is free of any relationships with
the company that may impair, or appear to impair his or her ability to
make independent judgments;
and
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(8)
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Is not employed by a non-profit organization
where a substantial portion of funding for the past three 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.
|
§
|
The Conference Board, for which
Ms. Fosler is the president and a trustee, received payments from the
company for research, subscriptions, conferences, webcasts,
etc. The board determined that Ms. Fosler’s independence was not affected by
these payments because the amount of the payments made by the company was
below the greater of $1 million or 2 percent of The Conference
Board’s consolidated gross
revenues.
|
§
|
The Northern Trust
Company, for which
Mr. Osborn is the chairman, received payments from the company primarily
for trustee services related to the administration of benefit
plans. The board determined that Mr. Osborn’s independence was not affected by
these payments because the amount of the payments made by the
company was below the greater of $1 million or 2 percent of The Northern
Trust Company’s consolidated gross
revenues.
|
§
|
Various matching contributions
made by the Caterpillar Foundation to non-profit organizations where
directors or immediate family members are employed were also considered,
however, none of the contributions affected the independence of any of the
applicable
directors.
|
Committee
Membership
(as of March 2,
2009)
|
||||
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
|
|
§
|
Direct
Telephone: 309-494-4393 (English
only)
|
|
§
|
Call Collect
Helpline: 770-582-5275 (language translation
available)
|
|
§
|
Confidential
Fax: 309-494-4818
|
|
§
|
E-mail: BusinessPractices@cat.com
|
|
§
|
Internet: www.CAT.com/obp
|
By the current members of
the
Audit Committee consisting
of:
|
|||||
John T. Dillon
(Chairman)
|
Eugene V.
Fife
|
||||
Daniel M.
Dickinson
|
William A.
Osborn
|
||||
Type of
Service
|
Pre-Approval Limits
(in
thousands)
|
||||||||
Per Project
|
Aggregate
Limit
|
||||||||
Audit
Services
|
$
|
500
|
$
|
25,000
|
|||||
Audit-Related
Services
|
$
|
500
|
$
|
10,000
|
|||||
Tax
Services
|
$
|
500
|
$
|
15,000
|
|||||
All Other
Services
|
$
|
500
|
$
|
1,000
|
|||||
2008
Actual
|
2007
Actual
|
|||||||||
Audit
Fees 1
|
$
|
22.2
|
$
|
21.4
|
||||||
Audit-Related Fees 2
|
5.5
|
4.7
|
||||||||
Tax Compliance Fees 3
|
2.8
|
2.2
|
||||||||
Tax Planning and Consulting Fees
4
|
2.3
|
2.7
|
||||||||
All Other Fees 5
|
0.3
|
0.1
|
||||||||
TOTAL
|
$
|
33.1
|
$
|
31.1
|
||||||
1
|
Actual 2008 “Audit Fees” include
$1.1 of audit fees related to Caterpillar Japan Ltd. following the
consolidation of this entity in 2008.
|
|||||||||
2
|
“Audit-Related Fees” principally
includes agreed upon procedures for securitizations, attestation services
requested by management, accounting consultations, pre- or post-
implementation reviews of processes or systems and audits of employee
benefit plan financial statements. Total fees paid directly by
the benefit plans, and not by the company, were $0.6 and $0.6 in 2007 and
2008, 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.
|
|
§
|
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 acts as a liaison between the Chairman & CEO and the independent directors
by providing guidance and feedback and reviewing action items from those
meetings.
|
|
§
|
Approves board meeting agendas and
information provided to directors prior to board
meetings.
|
|
§
|
Approves meeting schedules to
assure that there is
sufficient time for discussion of all agenda
items.
|
|
§
|
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.
|
Class II – Directors nominated
for election this
year
|
§
|
DANIEL
M. DICKINSON, 47,
Managing Partner of Thayer | Hidden Creek (private equity
investment). Other directorship: BFI Canada
Ltd. Mr. Dickinson has been a director of the company since
2006.
|
§
|
DAVID
R. GOODE, 68, 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.
|
§
|
JAMES
W. OWENS, 63,
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
Corporation. Mr. Owens has been a director of the company since
2004.
|
§
|
CHARLES
D. POWELL, 67,
Chairman of Capital Generation Partners (asset and investment management),
LVMH Services Limited (luxury goods) and Magna Holdings (real estate
investment). Prior to his current positions, Lord Powell was
Chairman of Sagitta Asset Management Limited (asset
management). Other directorships: Hongkong Land Holdings
Limited; LVMH Moet-Hennessy Louis Vuitton; Mandarin Oriental International
Ltd.; Textron Corporation; Schindler Holding Ltd.; and Yell Group
plc. Lord Powell has been a director of the company since
2001.
Consistent with the company’s
corporate governance guidelines requiring directors to serve on no more
than five public company boards in addition to the company’s board, on
March 29, 2009 Charles Powell tendered notice of his resignation as a
member of the Yell Group plc board of directors, effective July
24, 2009.
|
§
|
JOSHUA
I. SMITH, 68,
Chairman and Managing Partner of the Coaching Group, LLC (management
consulting). Other directorships: Comprehensive Care
Corporation, Federal Express Corporation and The Allstate
Corporation. Mr. Smith has been a director of the company since
1993.
|
|
1.
|
Processes
used to determine and promote foreign
sales;
|
|
2.
|
Criteria for
choosing countries with which to do
business;
|
|
3.
|
A description
of procedures used to negotiate foreign arms sales,
government-to-government and direct commercial sales and the percentage of
sales for each category;
|
|
4.
|
For the past
ten years, categories of military equipment or components, including dual
use items exported for the past five years, with as much statistical
information as permissible; contracts for servicing/maintaining equipment;
offset agreements; and licensing and/or co-production with foreign
governments.
|
|
·
|
The Corporate
Library www.thecorporatelibrary.com,
an independent investment research firm, rated our
company:
|
“D” in governance.
“High Governance Risk Assessment.”
“Very High Concern” in Executive Pay with $17 million for
James Owens.
|
|
·
|
Our directors
served on 8 boards rated “D” by the Corporate Library:
|
James
Owens Alcoa
(AA)
James
Owens International
Business Machines (IBM)
William
Osborn Abbott
Laboratories (ABT)
William
Osborn Northern
Trust (NTRS)
Edward
Rust Helmerich
& Payne (HP)
Edward
Rust McGraw-Hill
(MHP)
Joshua
Smith FedEx
(FDX)
Eugene
Fife Eclipsys
(ECLP)
|
|
·
|
James Owens
and William Osborn were designate “Accelerated Vesting” directors by The
Corporate Library due to their accelerating of stock option vesting to
avoid recognizing the related cost.
|
|
·
|
Two directors
were “Problem Directors” according to The Corporate
Library:
|
David Goode
due to his involvement with Delta Air Lines and its
bankruptcy.
Frank Blount
(our lead Director no less) due to his involvement with Entergy
Corporation and its bankruptcy.
|
|
·
|
Three
directors had more than 15-years tenure (independence
concern):
|
David
Goode
Joshua
Smith
Peter
Magowan
|
|
·
|
Our directors
still had a $1 million gift plan – Conflict of interest
concern.
|
|
·
|
We had no
shareholder right to:
|
Annual
election of each director.
An
independent Chairman.
Cumulative
voting.
To act by
written consent.
To Call
a special meeting.
Elect
directors by a majority vote – one yes-vote can now elect a director for
3-years.
|
|
1.
|
Describe the
process by which the Company identifies, evaluates and prioritizes public
policy issues of interest to the
Company;
|
|
2.
|
Identify and
describe public policy issues of interest to the
Company;
|
|
3.
|
Prioritize
the issues by importance to creating shareholder value;
and
|
|
4.
|
Explain the
business rationale for
prioritization.
|
(as
of December 31,
2008)
|
Blount
|
73,571
|
1
|
Magowan
|
329,002
|
12
|
|||
Brazil
|
32,803
|
2
|
Oberhelman
|
716,349
|
13
|
|||
Burritt
|
124,316
|
3
|
Osborn
|
48,657
|
14
|
|||
Dickinson
|
783
|
4
|
Owens
|
1,717,537
|
15
|
|||
Dillon
|
70,625
|
5
|
Powell
|
45,400
|
16
|
|||
Fife
|
46,000
|
6
|
Rapp
|
318,699
|
17
|
|||
Fosler
|
24,515
|
7
|
Rust
|
28,933
|
18
|
|||
Gallardo
|
268,110
|
8
|
Smith
|
36,345
|
19
|
|||
Goode
|
100,531
|
9
|
Vittecoq
|
522,215
|
20
|
|||
Lavin
|
240,775
|
10
|
Wunning
|
476,233
|
21
|
|||
Levenick
|
423,135
|
11
|
All
directors and executive officers as a group
|
5,981,641
|
22
|
|||
1
|
Blount - Includes 56,000 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 the Directors’ Deferred Compensation Plan (DDCP)
representing an equivalent value as if such compensation had been invested
on December 31, 2008, in 1,382 shares of common
stock.
|
|||||||
2
|
Brazil - Includes 24,000 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 DDCP representing an equivalent value as if such
compensation had been invested on December 31, 2008, in 497 shares of
common stock.
|
|||||||
3
|
Burritt - Includes 100,200 shares
subject to stock options exercisable within 60
days.
|
|||||||
4
|
Dickinson - 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, 2008, in 2,848 shares of common
stock.
|
|||||||
5
|
Dillon - Includes 52,000 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 DDCP representing an equivalent value as if such
compensation had been invested on December 31, 2008, in 706 shares of
common stock.
|
|||||||
6
|
Fife - Includes 24,000 shares
subject to stock options exercisable within 60
days.
|
|||||||
7
|
Fosler - Includes 20,000 shares
subject to stock options exercisable within 60
days.
|
|||||||
8
|
Gallardo - Includes 56,000 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 DDCP representing an equivalent value as if such
compensation had been invested on December 31, 2008, in 4,671 shares of
common stock.
|
|||||||
9
|
Goode - Includes 56,000 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 DDCP representing an equivalent value as if such
compensation had been invested on December 31, 2008, in 39,240 shares of
common stock.
|
|||||||
10
|
Lavin - Includes 202,132 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 the Supplemental Deferred Compensation Plan (SDCP),
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, 2008, in 8,747 shares
of common stock.
|
|||||||
11
|
Levenick - Includes 364,000 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 SDCP, SEIP and/or DEIP representing an equivalent
value as if such compensation had been invested on December 31, 2008, in
5,611 shares of common stock.
|
|||||||
12
|
Magowan - Includes 56,000 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 DDCP representing an equivalent value as if such
compensation had been invested on December 31, 2008, in 16,086 shares of
common stock.
|
|||||||
13
|
Oberhelman - Includes 638,000
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 SDCP, SEIP and/or DEIP representing an equivalent
value as if such compensation had been invested on December 31, 2008, in
35,404 shares of common stock.
|
|||||||
14
|
Osborn - Includes 24,000 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 DDCP representing an equivalent value as if such
compensation had been invested on December 31, 2008, in 139 shares of
common stock.
|
|||||||
15
|
Owens - Includes 1,398,000 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 SDCP, SEIP and/or DEIP representing an equivalent
value as if such compensation had been invested on December 31, 2008, in
6,732 shares of common stock.
|
|||||||
16
|
Powell - Includes 40,000 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 DDCP representing an equivalent value as if such
compensation had been invested on December 31, 2008, in 139 shares of
common stock.
|
|||||||
17
|
Rapp - Includes 281,202 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 SDCP, SEIP and/or DEIP representing an equivalent
value as if such compensation had been invested on December 31, 2008, in
8,985 shares of common stock.
|
|||||||
18
|
Rust - Includes 24,000 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 DDCP representing an equivalent value as if such
compensation had been invested on December 31, 2008, in 8,569 shares of
common stock.
|
|||||||
19
|
Smith - Includes 20,000 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 DDCP representing an equivalent value as if such
compensation had been invested on December 31, 2008, in 1,511 shares of
common stock.
|
|||||||
20
|
Vittecoq - Includes 435,968 shares
subject to stock options exercisable within 60
days.
|
|||||||
21
|
Wunning - Includes 435,968 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 SDCP, SEIP and/or DEIP representing an equivalent
value as if such compensation had been invested on December 31, 2008, in
20,406 shares of common stock.
|
|||||||
22
|
This group includes directors,
named executive officers and five additional executive officers subject to
Section 16 filing requirements (group). Amount includes
4,577,752 shares subject to stock options exercisable within 60 days and
364,551 shares for which voting and investment power is
shared. The group beneficially owns less than one percent of
the company’s outstanding common stock. None of the shares held
by the group have been
pledged.
|
|
§
|
We have a
thorough compensation review
process
|
|
§
|
We have a
competitive compensation plan that aligns executive performance and
long-term stockholder interests
|
|
§
|
We do not
backdate or re-price equity grants
|
|
§
|
We believe
the best way to compensate our executives is to base their rewards on
performance
|
|
§
|
We have no
severance packages that apply solely to executives. Change in
Control provisions are found within existing compensation plans and apply
equally to all participants in those
plans.
|
|
§
|
James W.
Owens, Chairman and CEO
|
|
§
|
Richard P.
Lavin, Group President
|
|
§
|
Stuart L.
Levenick, Group President
|
|
§
|
Douglas R.
Oberhelman, Group President
|
|
§
|
Edward J.
Rapp, Group President
|
|
§
|
Gerard R.
Vittecoq, Group President
|
|
§
|
Steven H.
Wunning, Group President
|
|
§
|
David B.
Burritt, Vice President and Chief Financial
Officer
|
|
1.
|
Base salary, as a percentage of
total direct compensation, should decrease 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 the company’s performance should have profitable
growth for the company as their main priority. 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.
|
|
§
|
Caterpillar’s
financial performance
|
|
§
|
The
accomplishment of Caterpillar’s long-term strategic
objectives
|
|
§
|
The
achievement of individual goals set at the beginning of each
year
|
|
§
|
The
development of Caterpillar’s top management
team
|
|
§
|
Achievement
of individual and company
objectives
|
|
§
|
Contribution
to the company’s performance
|
|
§
|
Leadership
accomplishments
|
|
§
|
The
Compensation Committee directly hired and has the authority to terminate
Mr. Anderson
|
|
§
|
Mr. Anderson
is engaged by and reports directly to the Compensation Committee and the
chair
|
|
§
|
Mr. Anderson
meets regularly and as needed with the Compensation Committee in executive
sessions that are not attended by any of the company’s
officers
|
|
§
|
Mr. Anderson
and his team at Hewitt have direct access to all members of the
Compensation Committee during and between
meetings
|
|
§
|
Mr. Anderson
is not the Hewitt client relationship manager for
Caterpillar
|
|
§
|
Neither Mr.
Anderson nor any member of his team participates in any activities related
to the administration services provided to Caterpillar by other Hewitt
business units
|
|
§
|
Interactions
between Mr. Anderson and management generally are limited to discussions
on behalf of the Compensation Committee and information presented to the
Compensation Committee for approval
|
|
§
|
Hewitt has
separated its executive compensation consulting services into a single,
segregated business unit within
Hewitt
|
|
§
|
Hewitt pays
its executive compensation consultants solely on their individual results
and the results of its executive compensation consulting
practice. Mr. Anderson receives no incentives based on other
services Hewitt provides to
Caterpillar.
|
|
§
|
Mr. Anderson
does own shares in Hewitt; however, he does not receive stock options or
other equity-related awards from
Hewitt
|
|
§
|
The total
amount of fees for consulting services to the Compensation Committee in
2008 was in the range of $250,000 to
$300,000
|
|
§
|
The total
amount of fees paid by Caterpillar to Hewitt in 2008 for all other
services, excluding Compensation Committee services, was in the range of
$8 million to $10 million. This is compared to total Hewitt 2008 revenues
of approximately $3 billion.
|
|
§
|
Other
services are provided under a separate contractual arrangement and by a
separate business unit at Hewitt
|
Peer
Group Benchmarking
|
Caterpillar
uses a comparator
group to benchmark (compare) all components of compensation to
other companies within the group. Caterpillar targets the
executive total cash compensation package, as well as the long-term
incentive compensation components, at the size-adjusted median level of
the comparator group. The Compensation Committee believes that
targeting at the size-adjusted median level of the comparator group is
necessary to attract and retain high-caliber employees. This
ensures that Caterpillar remains competitive while maximizing its
resources for stockholders.
|
|
In an effort
to attract and retain high-performing talent, the Compensation Committee
uses benchmarking data when setting executive
compensation. Caterpillar’s revenues have risen sharply and far
exceeded the median annual revenue for its previous comparator group –
Hewitt Core Group 1 (HCG1). To better align the comparator
group with the company’s increased size and future plans for growth, the
Compensation Committee revised the comparator group for
2008. The Compensation Committee considered factors such as
gross revenues and sales, global presence and positive earnings growth to
determine what companies should be included in the comparator
group. Larger companies with higher revenues were added to
provide a better basis for comparison.
For 2008,
Caterpillar used the comparator group Caterpillar Compensation Comparator
Group (CCCG), which includes 28 large public companies, listed
below. Because we compete for executive talent from a variety
of industries, the 28 companies represent a cross section of industries,
not just heavy manufacturing companies. 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 CCCG to ensure
that it continues to provide a reasonable comparison basis for executive
compensation.
The CCCG’s
median annual revenue 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 CCCG:
|
||
|
Components
of Caterpillar’s Compensation Program
|
Total
compensation is a mix of total cash and long-term
incentives.
Executive
Short-Term Incentive Plan (ESTIP) and Short-Term
Incentive Plan (STIP) are annual incentive plans that deliver a
targeted percentage of base salary (excluding any variable base pay) based
on performance against predetermined enterprise goals. The
plans are designed to focus the NEOs on the shorter-term critical issues
that are indicative of improved year-over-year performance.
The Long-Term
Incentive Plan (LTIP) includes both equity and cash under the
Long-Term Cash Performance Plan (LTCPP). LTIP is designed to reward
the company’s key employees for achieving and exceeding the company’s
long-term goals, to drive stockholder return and to foster stock
ownership.
|
|
Total
compensation for all NEOs is a mix of annual total cash and long-term
incentives.
|
||
|
||
Annual base
salary represents a small 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 2008 Total Compensation mix (based on targeted
compensation).
|
Total
Annual Cash Compensation
The
Compensation Committee’s review of 2008 market data showed total annual
cash compensation structures for all NEOs were in line with the median
level of the CCCG. The Compensation Committee made no
adjustments to the base salary compensation structures, or to the
short-term incentive target opportunities shown below.
|
Total
cash includes base salary and the Executive Short-Term Incentive
Plan or Short-Term Incentive Plan.
|
|
|
Executive Short-Term
Incentive Plan
The NEOs,
excluding Mr. Burritt, participated in the 2008 ESTIP. The CEO
was eligible for a target opportunity of 135 percent of base salary and
the group presidents were eligible for a target opportunity of 100 percent
of base salary.
In February
2008, the Compensation Committee reviewed and approved two
enterprise-focused measures for the 2008 ESTIP. As further
described below, these two measures link the CEO and group presidents
directly to the overall performance of Caterpillar. The
measures and their relative weights in determining ESTIP are as
follows:
§ 75% Corporate Return on
Assets
§ 25% Enterprise
Quality
Prior to any
ESTIP payout a “trigger” must be achieved, which is based on the company’s
PPS. If the trigger is not achieved, there is no ESTIP
payout. The Compensation Committee approved a PPS trigger of
$2.50 for ESTIP because Caterpillar has a strategic goal of maintaining a
PPS of at least $2.50 during a “trough” or economic downturn.
As with all
components of Caterpillar’s compensation program, ESTIP rewards
performance. For both measures listed above, the Compensation
Committee established the threshold, target and maximum performance
levels. If the threshold level is not achieved for a given
measure, there is no ESTIP payout on that measure. Increasingly
larger payouts are awarded for achievement of target and maximum
performance levels. The following table outlines the
payout factor range that applies to each performance level. The
payout factor for each measure does not exceed 200
percent.
|
Corporate
Return on Assets (ROA) is Machinery and Engines profit after tax
plus short-term incentive compensation expense (after tax) divided by
average monthly Machinery and Engines assets.
Enterprise
quality is a weighted average of the business unit quality
performance factors.
Profit Per
Share (PPS) is the portion of a company's profit allocated to each
outstanding share of common stock, diluted by the assumed exercise of
stock-based compensation awards. PPS serves as an indicator
of a company's profitability. This is also known as
Earnings Per Share.
|
|
|
Return On
Assets
The
Compensation Committee approved ROA as the largest portion of 2008
ESTIP. The Compensation Committee selected ROA because it is a
good indication of how efficiently the company is using its assets to
generate earnings and, if successful, it ultimately drives value to our
stockholders. The Compensation Committee reviewed forecasted
versus actual ROA results to determine the appropriate target for the 2008
measure. The corporate ROA slope ranged from a threshold of
6.50 percent to the maximum of 17.70 percent, with a target of 13.80
percent. The following chart illustrates ROA performance
levels.
|
Mean
Dealer Repair Frequency measures the dealer repair
frequency for a collection of products over a period of time approximately
equal to their first year of operation.
Very
Early Hour Reliability captures the number of
dealer-performed repairs to a product that occur from the pre-delivery
inspection through the initial hours of machine
operation.
Significant
Part Numbers are part
numbers that have had failures in the last three years on products built
in the last five years (unless the part is a remanufactured
part).
Cat
Production System (CPS) Assessment is the common Order-To-Delivery
process to achieve our safety, quality, velocity, earnings and growth
goals for 2010 and beyond.
|
|
|
||
Enterprise
Quality
The
Compensation Committee approved enterprise quality as the other 2008 ESTIP
factor. The Compensation Committee selected enterprise quality
because Caterpillar must continue to place an increased emphasis on
quality across the entire organization to meet our long-term
goals. Enterprise quality was measured by the weighted average
of the various business unit quality performance factors, which are Mean
Dealer Repair Frequency, Very Early Hour Reliability, Significant Part
Numbers and Cat Production System (CPS) Assessment. Each
business unit’s quality performance factor or factors were weighted based
on its applicable 2008 net sales and transfers (an inter-company
sale). The results were averaged to determine the enterprise
quality result.
The 2008 ESTIP results were as
follows:
|
||
|
||
The final 2008 ESTIP ROA was 12.6
percent, resulting in a payout factor of 88.62 percent. The
enterprise quality payout factor was 88.40 percent. The
resulting weighted payout factors from ROA and enterprise quality were
added together to calculate the total cash payout factor of
88.57 percent, which resulted in a total payout of $5.6 million to the
NEOs, excluding Mr. Burritt. 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 2008 ESTIP payouts to the applicable
NEOs. Individual amounts paid under ESTIP are disclosed in the
Summary Compensation Table on page 49 of this proxy
statement, in the “Non-Equity Incentive Plan Compensation”
column.
|
|
§
|
77.5%
|
Corporate Return on
Assets
|
|
§
|
12.5%
|
Enterprise
Quality
|
|
§
|
10%
|
Business Unit Cost Reduction
Measure
|
2008 STIP
|
Payout
Factor
|
Measurement
|
Corporate
Return on Assets
|
88.62
|
Enterprise
after-tax Return on Assets
|
Enterprise
Quality
|
88.40
|
Based on a weighted average of
several quality measures
|
Business
Unit Measure
|
162.46
|
Composite of
specific cost reduction goals for Global Finance & Strategic
Services
|
2008 Short-term
Payout
Factor
|
2007 Short-term
Payout
Factor
|
2006 Short-term
Payout
Factor
|
Three-year
Average
|
|
Chairman
and CEO
|
88.57
|
95.13
|
67.11
|
83.60
|
Group
President
|
88.57
|
95.13
|
67.11
|
83.60
|
Chief
Financial Officer
|
95.98
|
116.10
|
107.11
|
106.40
|
Long-Term
Incentive Plan
The
Compensation Committee annually analyzes market data on portfolio
approaches for long-term incentive plans. Portfolio approaches,
where two or more long-term incentive compensation awards are used in some
combination, are common practice. For example, SARs reward share
appreciation; time-vested restricted units strengthen and enhance
retention; and cash performance awards reinforce a long-term
pay-for-results culture.
Caterpillar
uses all three awards in its executive compensation
package. Instead of awarding all long-term compensation in the
form of equity, the Compensation Committee has decided to award a portion
in cash. The mix between cash and equity is based on the market
comparison. The cash award is tied to long-term stockholder
performance due to the measures within the plan. Providing a
portion of long-term incentive in the form of cash also allows Caterpillar
the ability to manage its share run rate, and preserve the available pool
of shares authorized for issuance under its equity plan. The
2008 LTIP award mix is in the following table.
|
Run
rate measures the rate
at which companies grant equity. It is the number of shares
granted under LTIP in any one year divided by the number of common shares
outstanding.
An
equity award is a stock award representing ownership in the
company. Equity for Caterpillar currently consists of
stock-settled Stock Appreciation Rights, Restricted Stock Units and
restricted stock.
|
|
|
Equity
Each year,
the Compensation Committee benchmarks against the CCCG to determine a
competitive equity award for each salary grade, including
NEOs. Our process benchmarks total equity value for all salary
grades. Consistent with the company’s compensation philosophy,
individuals at higher levels receive a greater proportion of total pay in
the form of equity.
In December
2007, the Compensation Committee approved the 2008 equity design, which
consisted of a mix of SARs and RSUs. This equity design
supports our Pay for Performance and Pay at Risk
philosophy. RSUs represent actual shares of stock and therefore
carry less risk than SARs.
The
Compensation Committee has the discretion to make positive or negative
adjustments to equity awards based on a subjective assessment of an
individual’s performance, provided these adjustments do not increase the
total number of awards issued to employees.
At the
February 2008 Compensation Committee meeting, Mr. Owens discussed his
recommendations with respect to standard equity award adjustments for all
other NEOs. Equity award adjustments were made and were based
upon individual performance (discussed in “Other NEOs Compensation
Decisions” section of this CD&A). At the February 2008 board meeting
the Chairman of the Compensation Committee, Mr. Osborn, in consultation
with the board and in accordance with the following “Annual Equity Grant
Timing” section, established the equity award for Mr. Owens based on
exceptional performance (discussed in “Compensation Decisions in 2008 and
2009” section of this CD&A).
The final
2008 SAR & RSU awards are disclosed in the Grants of Plan-Based Awards
Table on page 51.
Annual
Equity Grant Timing
The grant
date for annual equity awards has historically been between mid-February
to early March. The Compensation Committee has used this timing for annual
equity awards because it was well after Caterpillar announced year-end
financial results and allowed sufficient time for the company’s stock
price to stabilize. For the 2008 equity grant, the Compensation Committee
assigned March 3, 2008 as the grant date. Caterpillar does not
backdate, re-price or grant equity awards retroactively. The Compensation
Committee approved the valuation of the 2008 equity awards at the February
12, 2008 meeting and delegated its authority to finalize the individual
grants on the grant date to the Compensation Committee chair. The grant
price ($73.20) was the closing price for Caterpillar stock as reported on
the NYSE on March 3, 2008 (grant date). All 2008 equity grants
for the NEOs are disclosed in the Grants of Plan-Based Awards Table on
page 51 of this proxy
statement.
At the
October 2008 meeting, the Compensation Committee approved a formal policy
for the timing of the annual equity date. As a result,
beginning in 2009, the grant date for the annual equity grant will be the
first Monday in March.
|
The standard
equity award is the equity value determined each year by the
Compensation Committee. Each year, we benchmark against our
comparator group to determine our standard award level, which is set at
the median level of the comparator group.
A Stock
Appreciation Rights (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 were introduced in 2006 because they extend the life
of the Caterpillar stock option pool and minimize stockholder
dilution.
A Restricted
Stock Unit (RSU) is a grant valued in terms of company stock. At
the time of the grant, no company stock is issued. The grant entitles the
recipient to receive Caterpillar common shares at the time of
vesting. RSUs were introduced in 2007 because they reduce the
share run rate and may be more tax efficient for equity-eligible employees
outside the United States.
|
|
Chairman’s
Restricted Stock Award Program
The CEO
submits restricted stock grant recommendations to the Compensation
Committee at each Compensation Committee meeting. The
Compensation Committee reviews the amount of the proposed grants as well
as the CEO’s reasoning and approves or rejects the requested restricted
stock grants.
At the
February 2008 meeting, the board awarded Mr. Lavin 1,000 shares and Mr.
Rapp 500 shares of restricted stock. These awards were granted
due to Mr. Lavin’s and Mr. Rapp’s exceptional performance, which is
described in the “Other NEOs Compensation Decisions” section of this
CD&A.
Stock
Ownership Requirements
Equity
compensation encourages our executives to have an owner’s perspective in
managing the company. Accordingly, the Compensation Committee
approved stock ownership guidelines for all participants receiving equity
compensation.
Specifically,
NEOs are required to own shares equal to a minimum of 50 percent of the
average (based on number of shares) of the last five grants
received. Failure to meet these guidelines results in automatic
grant reductions, unless compelling personal circumstances prevent an
employee from meeting his or her targeted ownership
requirement.
Even though
Caterpillar targets all officers’ total compensation at the median level
of the CCCG, its stock ownership guidelines are much higher than the
median level, reaching well into the upper quartile of practices of the
companies examined. At present, all NEOs exceed stock ownership
guidelines.
Long-Term Cash
Performance Plan
The LTCPP is
a Pay at Risk plan that delivers a targeted percentage of base salary to
each participant based on performance against the goals of the entire
company. The LTCPP is offered to NEOs and other key
employees. A three-year performance cycle is established each
year for determining compensation under the LTCPP. The
Compensation 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 have payouts under the
LTCPP be at target, on average, over a period of years.
Each year the
Compensation Committee specifies two measures, such as relative PPS growth
and ROE, each weighted 50 percent for the LTCPP. The threshold
performance levels must be met under each measure before a payout is made
under that particular measure; however, there is no overall trigger as
there is under 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 range
that applies to each performance level.
|
The Chairman’s
restricted stock award program 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 1) selected performance and
retention-based grants can be made to officers and other key employees, as
well as prospective employees; 2) restricted shares have three to five
year vesting schedules; and 3) restricted shares are forfeited if the
grantee leaves Caterpillar prior to vesting.
Relative
PPS growth
is one of two
measures in the LTCPP. It measures Caterpillar’s PPS growth against those
companies in the Standard & Poor’s peer group.
Return On Equity
(ROE)
is a
profitability measure that reveals how much profit a company
generates with the money stockholders have invested. This
is one of two measures in the 2006-2008 LTCPP.
|
|
|
Standard & Poor’s
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
|
2006-2008
LTCPP Measures
|
||
Relative
PPS Growth
|
ROE
|
|
Threshold
|
25th
percentile
|
20%
|
Target
|
50th
percentile
|
30%
|
Maximum
|
75th
percentile
|
40%
|
2006-2008
LTCPP
|
Payout
Factor
|
Measurement
|
Return
on Equity
|
127.41
|
Enterprise
Return on Equity
|
Relative
PPS Growth
|
84.80
|
Relative PPS Growth measured
against S&P Peer Group
|
Chairman
and CEO Compensation Decisions
The CEO is
evaluated by the board on company and individual performance
metrics. In February of 2009, the board reviewed the
Compensation Committee’s assessment of Mr. Owens’ individual goals (which
were created at the beginning of 2008) and his performance against those
goals. The most critical results for Mr. Owens for 2008 were as
follows:
|
Integrated
service businesses
are service businesses containing an important
service component. These businesses include, but are not
limited to, aftermarket parts, Cat Financial, Cat Insurance, Cat
Logistics, Cat Reman, Progress Rail, OEM Solutions and Solar Turbine
Customer Services.
6
Sigma is a
term used to describe
Process Improvement methodology using data driven process measures to
strive for 6 sigma level performance (3.4 defects for every one million
opportunities or operations).
|
||
§
|
Sales and revenues exceeded the
2008 goal ($48.6 billion) by 5.6 percent. PPS was higher than
2007, but below the 2008 goal ($6.00). Strong sales and
revenues growth and improved price realization were offset by higher than
planned costs, such as material and freight.
|
||
§
|
Integrated service related sales
and revenue exceeded the 2008 goal by more than $600
million. Growth in service businesses continued to stabilize
earnings in peaks and troughs.
|
||
§
|
Overall employee engagement score
was a record 81 percent favorable. Achieved a world-class
participation rate of 92 percent (over 103,000
participants).
|
||
§
|
Overall safety improved by nearly
25 percent over 2007
|
||
§
|
As-delivered quality on machines,
measured by our Very Early Hour Reliability metric, improved 8 percent
over 2007
|
|
§
|
Aggressively implemented the Cat
Production System across the Asia Pacific
region
|
|
§
|
Made
significant progress toward profitable growth targets in emerging
markets
|
|
§
|
Successfully executed capacity
expansion goals throughout the Asia Pacific
region
|
|
§
|
Exceeded 2008 employee engagement
goals in the Asia Pacific Marketing Division as well as overall safety for
his business units
|
|
§
|
Provided leadership for the
re-structuring of Caterpillar’s earthmoving machine business into five
end-to-end machinery business
divisions
|
|
§
|
Aggressively deployed CPS across
divisions, creating operational improvements in variable labor efficiency
and inventory turns
|
|
§
|
Substantial improvement in
engagement and safety among U.S. production
employees
|
|
§
|
Significant
focus on strategic acquisitions to position the company for future growth
opportunities
|
|
§
|
Effectively managed period costs as a percent of
sales and increased accountable profit for his business
units
|
|
§
|
Significantly
improved employee engagement and safety for his business
units
|
|
§
|
Improved reciprocating engine
inventory turnover in 2008 for his business
units
|
|
§
|
Successfully expanded engine
capacity in Asia
|
|
§
|
Significantly improved Building
Construction Products’ overall quality
metrics
|
|
§
|
Deployed a structured approach to
manage the company’s liquidity as financial markets were severely
disrupted
|
|
§
|
Provided leadership for long-term
capacity planning
initiatives
|
|
§
|
Effectively lowered inventory in
the Building Construction Products Division through the deployment of
CPS
|
|
§
|
Instrumental in providing
leadership for CPS initiatives, which resulted in improved safety, employee engagement and
quality for 2008
|
|
§
|
Increased focus on inventory turns
and provided leadership to the Corporate Supply Chain
Director
|
|
§
|
Markedly increased accountable
profit from 2007 to 2008 for his business
units
|
|
§
|
Strongly supported Caterpillar’s
Emerging Market strategy with an emphasis on
Russia
|
|
§
|
Championed the company’s long-term
product technology strategy, including a more effective R&D
prioritization process, and led the development plan for the Tier 4
emissions product programs
|
|
§
|
Provided leadership to the
enterprise simplification initiative, significantly reducing the number of
suppliers and part numbers
|
|
§
|
Increased accountable profit
through focus on 6 Sigma, and continued to deliver exceptional performance
from the Progress Rail
Division
|
|
§
|
Supported the deployment of CPS
across reporting manufacturing operations, which resulted in higher
delivery performance and improved safety and quality
levels
|
|
§
|
Exceeded challenging cost
containment goals in 2008
|
|
§
|
Demonstrated leadership excellence
while reorganizing business
units
|
|
§
|
Delivered excellent cash flow
benefits to the corporation and strengthened internal controls through
continued focus on 6 Sigma
|
|
§
|
Maintained strong working rapport
with the Executive Office and the external financial
community
|
Retirement
and Other Benefits
The defined
contribution and defined benefit plans available to the NEOs (excluding
Mr. Vittecoq for the reasons described below) are also available to most
U.S. Caterpillar salaried and management employees. All of the
NEOs (excluding Mr. Vittecoq) participate in all of the following U.S.
retirement plans.
Mr. Vittecoq
is not eligible for the U.S. benefit plans because he is on the Swiss
payroll and 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 no
reduction.
|
A defined
contribution savings plan is a retirement plan that provides for an
individual account for each participant and for benefits based solely upon
the amount contributed to the participant’s account, and any income,
expenses, gains and losses.
A defined
benefit pension plan is a retirement plan in which benefits must be
definitely determinable. Plan formulas are geared to retirement
benefits, not contributions. The plan is funded by
contributions to a trust account that are separate from the general assets
of the company. The Pension Benefit Guarantee Corporation
insures certain benefits.
A qualified
retirement plan is afforded special tax treatment for meeting a
host of requirements of the Internal Revenue Code.
A nonqualified
plan is designed primarily to provide retirement income for
essential employees. There are no limits on benefits or
contributions, and there are no reporting requirements so long as it is
not funded.
|
|
|
||
Pension
Plans
Caterpillar
Inc. Retirement Income Plan (RIP)
Most U.S.
salaried and management employees are eligible to participate in
RIP. Benefit amounts are not offset for any Social Security
benefits. Plan participants may choose among several payment
options, such as a single life annuity, term-certain or various joint and
survivor annuity benefits. Of the NEOs, Mr. Lavin, Mr.
Levenick, Mr. Oberhelman, Mr. Wunning and Mr. Burritt are currently
eligible for early retirement, with a four percent benefit reduction, per
year, from age 62. Mr. Owens is currently eligible to retire
with no reduction in benefits.
Supplemental
Retirement Plan (SERP)
If an
employee’s annual compensation or retirement income benefit under RIP
exceeds the Internal Revenue Service tax code limitations, the excess
benefits are paid from the SERP. The formula used to calculate
the benefit payable in SERP is the same as that used under
RIP.
|
|
§
|
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 six percent of pay contributed to the
savings plan
|
|
§
|
All
contributions vest immediately
|
|
§
|
The plan was
created in March 2007 with a retroactive effective date of January 1,
2005. It effectively replaces SEIP and DEIP (both defined
below). The change allows the company to comply with the
American Jobs Creation Act of 2004, which added Internal Revenue Code
Section 409A.
|
|
§
|
Contributions
are made on a pre-tax basis and are comprised of four possible
contribution types:
|
|
•
|
Supplemental
Base Pay Deferrals (maximum 70 percent deferral
election)
|
|
•
|
Supplemental
STIP Deferrals (maximum 70 percent deferral
election)
|
|
•
|
Supplemental
LTCPP Deferrals (maximum 70 percent deferral
election)
|
|
•
|
Excess Base
Pay Deferrals (flat six percent deferral
election)
|
|
§
|
Supplemental
Base Pay Deferrals earn matching contributions at a rate of six percent of
the deferred amount
|
|
§
|
Supplemental
STIP Deferrals up to six percent are matched
dollar-for-dollar
|
|
§
|
Supplemental
LTCPP Deferrals are not eligible for an employer matching
contribution
|
|
§
|
Excess Base
Pay Deferrals are matched 100 percent by the company. This is
provided to restore the matching opportunity that is not available under
the qualified plan due to IRS
limits.
|
|
§
|
All
contributions vest immediately
|
|
§
|
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 a NEO on the company aircraft
while he or she is traveling for company business. Effective
January 1, 2009, the tax gross-up on the spousal accompany travel
perquisite was eliminated.
|
|
§
|
Home security
systems are provided to ensure the safety of our
NEOs
|
|
§
|
During 2008,
the NEOs were provided an annual financial counseling
allowance. This perquisite has been discontinued effective
January 1, 2009.
|
|
§
|
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.
|
|
§
|
The
Director’s Charitable Award program was discontinued for new directors
after April 1, 2008. Directors as of that date were
grandfathered under the program.
|
|
§
|
LTIP allows
for the maximum performance level, 150 percent payout factor, to be paid
under each open plan cycle of the LTCPP. This is prorated based
on the time of active employment during the performance
cycle.
|
|
§
|
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
|
|
§
|
The ESTIP is
assumed to achieve the maximum payout factor, 200 percent, under a change
in control
|
|
§
|
The amount of
the bonus or incentive compensation was calculated based on the
achievement of certain financial results that were subsequently the
subject of a restatement
|
|
§
|
The officer
engaged in intentional misconduct that caused or partially caused the need
for the restatement
|
|
§
|
The amount of
the bonus 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
|
2008
Summary Compensation Table
|
||||||||||||||||||||||||||
Name
and
Principal
Position
|
Year
|
Salary
|
Bonus2
|
Stock
Awards3
|
Option
Awards4
|
Non-Equity
Incentive Plan Compensation5 |
Change
in
Pension Value and Nonqualified Deferred Compensation Earnings6 |
All
Other Compensation7
|
Total
|
|||||||||||||||||
J.W.
Owens
|
2008
|
$
|
1,550,004
|
$
|
—
|
$
|
1,068,724
|
$
|
7,461,609
|
$
|
4,353,227
|
$
|
2,932,489
|
$
|
288,369
|
$
|
17,654,422
|
|||||||||
Chairman &
CEO
|
2007
|
$
|
1,512,504
|
$
|
300,000
|
$
|
918,626
|
$
|
7,136,911
|
$
|
4,442,998
|
$
|
2,575,395
|
$
|
221,307
|
$
|
17,107,741
|
|||||||||
2006
|
$
|
1,350,003
|
$
|
300,000
|
$
|
—
|
$
|
7,029,846
|
$
|
3,723,703
|
$
|
2,171,992
|
$
|
243,077
|
$
|
14,818,621
|
||||||||||
R.P.
Lavin 1
|
2008
|
$
|
584,004
|
$
|
10,000
|
$
|
317,172
|
$
|
2,484,182
|
$
|
1,071,222
|
$
|
381,424
|
$
|
619,217
|
$
|
5,467,221
|
|||||||||
Group
President
|
||||||||||||||||||||||||||
S.L.
Levenick
|
2008
|
$
|
729,996
|
$
|
10,000
|
$
|
351,818
|
$
|
3,161,374
|
$
|
1,457,336
|
$
|
699,119
|
$
|
161,532
|
$
|
6,571,175
|
|||||||||
Group
President
|
2007
|
$
|
712,248
|
$
|
110,000
|
$
|
260,667
|
$
|
3,379,672
|
$
|
1,560,817
|
$
|
531,446
|
$
|
85,148
|
$
|
6,639,998
|
|||||||||
2006
|
$
|
641,253
|
$
|
120,000
|
$
|
16,090
|
$
|
1,076,445
|
$
|
1,441,021
|
$
|
487,228
|
$
|
83,084
|
$
|
3,865,121
|
||||||||||
D.R.
Oberhelman
|
2008
|
$
|
729,996
|
$
|
60,000
|
$
|
351,818
|
$
|
3,270,500
|
$
|
1,495,186
|
$
|
619,845
|
$
|
111,227
|
$
|
6,638,572
|
|||||||||
Group
President
|
2007
|
$
|
729,996
|
$
|
198,000
|
$
|
260,667
|
$
|
3,412,413
|
$
|
1,666,505
|
$
|
568,400
|
$
|
100,431
|
$
|
6,936,412
|
|||||||||
2006
|
$
|
721,248
|
$
|
183,000
|
$
|
16,090
|
$
|
1,082,596
|
$
|
1,633,854
|
$
|
575,150
|
$
|
122,180
|
$
|
4,334,118
|
||||||||||
E.J. Rapp 1
|
2008
|
$
|
584,004
|
$
|
10,000
|
$
|
155,032
|
$
|
1,365,517
|
$
|
1,071,010
|
$
|
312,921
|
$
|
45,890
|
$
|
3,544,374
|
|||||||||
Group
President
|
||||||||||||||||||||||||||
G.R.
Vittecoq 5
|
2008
|
$
|
880,993
|
$
|
20,000
|
$
|
319,010
|
$
|
2,484,182
|
$
|
1,735,385
|
$
|
843,600
|
$
|
45,240
|
$
|
6,328,410
|
|||||||||
Group
President
|
2007
|
$
|
826,177
|
$
|
82,618
|
$
|
315,710
|
$
|
2,270,803
|
$
|
1,896,463
|
$
|
1,228,584
|
$
|
43,047
|
$
|
6,663,402
|
|||||||||
2006
|
$
|
753,981
|
$
|
114,870
|
$
|
—
|
$
|
2,226,118
|
$
|
1,707,398
|
$
|
1,532,982
|
$
|
40,159
|
$
|
6,375,508
|
||||||||||
S.H.
Wunning
|
2008
|
$
|
729,996
|
$
|
10,000
|
$
|
284,238
|
$
|
2,484,182
|
$
|
1,465,075
|
$
|
777,695
|
$
|
109,237
|
$
|
5,860,423
|
|||||||||
Group
President
|
2007
|
$
|
715,746
|
$
|
24,000
|
$
|
289,631
|
$
|
2,585,518
|
$
|
1,581,445
|
$
|
708,727
|
$
|
86,678
|
$
|
5,991,745
|
|||||||||
2006
|
$
|
657,747
|
$
|
130,000
|
$
|
—
|
$
|
2,226,118
|
$
|
1,501,523
|
$
|
621,107
|
$
|
78,674
|
$
|
5,215,169
|
||||||||||
D.B.
Burritt
|
2008
|
$
|
494,751
|
$
|
25,000
|
$
|
112,443
|
$
|
1,068,634
|
$
|
858,879
|
$
|
436,890
|
$
|
68,015
|
$
|
3,064,612
|
|||||||||
Vice President
& CFO
|
2007
|
$
|
454,503
|
$
|
—
|
$
|
43,190
|
$
|
647,601
|
$
|
930,660
|
$
|
352,648
|
$
|
63,152
|
$
|
2,491,754
|
|||||||||
2006
|
$
|
405,750
|
$
|
40,000
|
$
|
—
|
$
|
328,059
|
$
|
861,783
|
$
|
275,049
|
$
|
56,047
|
$
|