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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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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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100 NE Adams Street
Peoria,
Illinois 61629
Notice of Annual Meeting of
Stockholders
Wednesday, June 11,
2008
1:30 p.m. - Central Daylight
Time
Northern
Trust Building
50
South LaSalle Street
Chicago,
Illinois 60675
May 2, 2008
Fellow stockholder:
On behalf of the board of directors, you
are cordially invited to attend the 2008 Caterpillar Inc. annual meeting of
stockholders (annual meeting) 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.
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Conduct any other business
properly brought before the
meeting.
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We have elected to furnish materials for
the 2008 annual meeting to stockholders via the Internet. We
believe the use of the Securities and Exchange Commission (SEC) e-proxy rule
will expedite stockholders’ receipt of the 2008 Proxy Statement, 2007 Annual
Report and 2007 Sustainability Report (proxy materials) and lower the costs and
reduce the environmental impact of our annual meeting. On May 2,
2008, we mailed a notice of Internet availability (notice) to most stockholders
containing instructions on how to access the proxy materials and to vote
online. All other stockholders were sent a copy of the proxy
materials by mail or e-mail. See page 1 of this proxy statement for more
information on e-proxy and instructions on how you can (i) receive a paper
copy of the proxy materials if you received a notice by mail, or (ii) elect
to receive your proxy materials over the Internet or by e-mail, if you received
them by mail this year.
You must have an admission ticket to
attend. Procedures for requesting the admission ticket are detailed
on page 52 of this proxy
statement. Attendance and voting is limited to stockholders of record
at the close of business on April 14, 2008.
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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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As permitted by rules adopted by the SEC
in 2007, Caterpillar Inc. (Caterpillar or the company)
is providing the proxy
materials for our 2008 annual meeting to stockholders electronically via the
Internet. On May
2, 2008, we initiated delivery of proxy materials to our stockholders of record
as of the close of business on April 14, 2008 via 1) a notice containing
instructions on how to access proxy materials online, 2) paper copy mailing or
3) e-mail distribution. If you received a notice by mail, you
will not receive a printed copy of the proxy materials in the
mail. Instead, the notice we sent provides instructions on how to
access and review all of the important information contained in the proxy
materials. The notice also provides instructions on how you may
submit your proxy over the Internet or by telephone. If you received
a notice by mail and would like to receive a printed copy of our proxy materials
or elect to receive the materials via e-mail in the future, please follow the
instructions included in the notice. If you received a printed copy
of proxy materials by mail and would like to register to receive a notice of
Internet availability of proxy materials or an e-mail regarding availability of
proxy materials in the future, you can do so by any of the following
methods:
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Internet – Access the
Internet and go to www.eproxyaccess.com/cat.
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Telephone – Call us free
of charge at 1-866-580-7648 from within the United States or
Canada.
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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 state
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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New rules adopted by the SEC in
2007 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. We believe utilizing the
notice method of delivery under the e-proxy rules 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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Who can attend the annual meeting
of stockholders?
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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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Stockholders of record on April
14, 2008 and one immediate family member guest.
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Authorized proxy holder of a
stockholder of record.
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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 specific
requirements for obtaining an admission ticket are specified in the
“Admission &
Ticket Request Procedure” on page 52.
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Page 1
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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 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 set April 14, 2008 as
the record date for the 2008 annual meeting. Holders of
Caterpillar common stock on that date are entitled to one vote per
share. As of April 14, 2008, there were
615,133,255 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:
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In
person – stockholders
of record who obtain an admission ticket (following the specified
procedure) and attend the meeting will receive a ballot for
voting.
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By
mail –
using the proxy
and/or voting instruction card provided.
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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 via the
Internet, please have your notice card or 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.
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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 52.
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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 11,
2008 (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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Page 2
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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
Internet or 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 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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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 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 notice
(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 2009 annual meeting?
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A:
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To be considered for inclusion in
the 2009 proxy statement, stockholder proposals must be received in
writing no later than January 2, 2009. 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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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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Page 3
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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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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 acted upon at the meeting other than those discussed in this proxy
statement. If any other matter is properly presented, 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.
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Our board has adopted
Guidelines on Corporate
Governance Issues (guidelines), 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. 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 and the categorical standards described under “Director
Independence Determinations” on page 7.
Page 4
Directors elected at the 2008 annual
meeting will hold office for a three-year term expiring at the 2011 annual
meeting. Directors in the other two classes will continue in office
for the remainder of their terms. See pages 14 and 15 for proposal information regarding
directors up for election this year.
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
classes is as follows:
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Class I – Directors
nominated for election this
year
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W.
FRANK BLOUNT,
69, 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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JOHN
R. BRAZIL, 62,
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, 67, 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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GAIL
D. FOSLER, 60, President and Trustee of The
Conference Board (research and business membership). Prior to
her current position, Ms. Fosler served as Chief Economist, Executive Vice
President and 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, 66, 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
with terms expiring in
2009
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DANIEL
M. DICKINSON, 46, Managing Partner of Thayer
Capital Partners (private equity investment). Other
directorship: BFI Canada Income Fund. Mr. Dickinson
has been a director of the company since
2006.
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DAVID
R. GOODE, 67, 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, 62,
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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CHARLES
D. POWELL, 66,
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: 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, 67,
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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Page 5
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Class III – Directors with terms
expiring in 2010
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JOHN
T. DILLON, 69, 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, 60, 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 SA. Mr.
Gallardo has been a director of the company since
1998.
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WILLIAM
A. OSBORN,
60, 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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EDWARD
B. RUST, JR.,
57, 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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Caterpillar’s board adopted a written process
governing the approval of related party transactions in April
2007. Under the process, all related party transactions must be
approved in advance by the Governance Committee (committee) whenever practicable, and, if
not practicable, must be ratified as promptly as practicable
thereafter. Any transactions that are determined to be directly or
indirectly material to the company or a related person will be disclosed in the
company’s proxy statement. A related
party includes directors and executive officers and their immediate family
members.
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:
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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.
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The overall fairness of the
transaction to the company.
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Page 6
There were no transactions reported under the process for
2007, nor were there any transactions considered by the board that qualified as
a related party transaction.
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:
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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 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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(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 five years, exceeds the
greater of $1 million or 2 percent of the consolidated gross revenues of
that company;
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(4)
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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;
|
|
(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;
|
|
(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;
|
|
(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.
|
Page 7
Using these standards, on April 9, 2008,
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). Applying the listed standards, the board determined
that each of the following directors met the independence standards: W. Frank
Blount, John R. Brazil, Daniel M. Dickinson, John T. Dillon, Eugene V. Fife,
Gail D. Fosler, Juan Gallardo, David R. Goode, Peter A. Magowan, William A.
Osborn, Charles D. Powell, Edward B. Rust, Jr. and Joshua I.
Smith. In making its independence determination, the board considered
the following transactions, relationships or
arrangements, which the board determined did not affect the applicable
director’s independence. The
Conference Board, for which Ms. Fosler is the president and a trustee, received
payments from the company. The board determined that Ms. Fosler’s independence was not affected by such
payments because the payments and the underlying services were made in the
ordinary course of business and the amount of the payments received was below
the greater of $1 million or 2% of the Conference Board’s consolidated gross revenues.
Additionally, the board considered Mr. Powell’s brother’s position on the advisory board of
PricewaterhouseCoopers LLP, the company’s external auditor. The board determined
that Mr. Powell’s brother’s position does not affect Mr. Powell’s independence because Mr.
Powell’s brother is not directly involved with
PricewaterhouseCoopers LLP’s business relationship with the
company. The board also considered payments made to The Northern Trust Company,
where Mr. Osborn is the chairman. The board determined
that Mr. Osborn’s independence was not affected because
the applicable transactions were made in the ordinary course of business and the
amount of the payments received was below the greater of $1 million or 2% of
The Northern Trust Company’s consolidated gross
revenues. The board also considered various matching contributions
made by the Caterpillar Foundation to non-profit organizations where directors
or immediate family members are employed, however, none of the contributions
affected the independence of any of the applicable directors. The board also
determined that Mr. Owens is not independent based on the listed standards,
because he is the Chief Executive Officer of the company.
In 2007, our full board met six times
and regularly scheduled executive sessions, led by the presiding director, were held without
management present. In addition to those
meetings, directors attended meetings of individual board
committees. Overall attendance for our directors at full board and
committee meetings held in 2007 was 93.57 percent. For board meetings only,
attendance was 94.04 percent in 2007. No director attended fewer that
75 percent of the total meetings held in 2007. 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
2007.
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 Caterpillar Inc. c/o the Corporate Secretary at 100 NE Adams Street,
Peoria, Illinois 61629.
Following is a description of each
committee of the board. Committee memberships as of December 31,
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
auditors, 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 2007, the committee met
eleven times and overall attendance for meetings of the
committee was 88.64 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 compensation plans, 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 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 2007, the committee met four times and overall
attendance for meetings of the committee was 93.75 percent.
Page 8
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” section 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 2007, the committee met five times and overall
attendance for meetings of the committee was
100 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 2007, the committee met four times and overall
attendance for meetings of the committee was 100 percent.
|
Committee
Membership
(as of December 31,
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 e-mail 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,
a 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 inquiries, 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 e-mail 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
Our Values in Action – Caterpillar’s Worldwide Code of Conduct, is a code
of ethics (code) we have adopted that applies to all members of the board,
management, employees, and
our subsidiaries 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 values-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
|
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 control 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 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
The committee has discussed with the
company’s auditors the overall scope and execution of the independent audit and
has reviewed and discussed the audited financial statements with
management. 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 2007; (v) updates
on the implementation of the internal audit plan for 2007; (vi) the
company’s information technology systems and the controls in place within those
systems for compliance with the Sarbanes-Oxley Act of 2002; (vii) the
applicability of new accounting releases; (viii) the company’s
critical accounting policies; (ix) risk management initiatives and
controls for various business units within the company; and (x) the
company’s compliance with the internal controls requirements under Section 404
of the Sarbanes-Oxley Act of 2002.
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
discussions 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, 2007, filed with the SEC on February 22,
2008.
|
By the current members of
the
Audit Committee consisting
of:
|
|||||
|
Eugene V. Fife
(Chairman)
|
John T.
Dillon
|
||||
|
John R.
Brazil
|
David R.
Goode
|
||||
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
2007, the pre-approval limits were as follows:
Page 11
|
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
|
||
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.
Independent Registered Public Accounting
Firm Fee Information
Fees for professional services provided
by our auditors were comprised of the following (in
millions):
|
2007
Actual
|
2006
Actual
|
||||||||
|
Audit
Fees
|
$
|
21.4
|
$
|
20.2
|
1
|
||||
|
Audit-Related Fees2
|
4.7
|
3.0
|
|||||||
|
Tax Compliance Fees3
|
2.2
|
2.2
|
|||||||
|
Tax Planning and Consulting
Fees4
|
2.7
|
2.6
|
|||||||
|
All Other Fees5
|
0.1
|
0.2
|
|||||||
|
TOTAL
|
$
|
31.1
|
$
|
28.2
|
|||||
|
1
|
Actual
2006 “Audit Fees” exceeded the “Pre-Approval”
limit due to acquisitions and additional statutory audit
requirements. Each of these services was 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,
pre- or post- implementation reviews of processes or systems and audit of
employee benefit plan financial statements. Total fees paid
directly by the benefit plans, and not by the company, were $0.4 and $0.6
in 2006 and 2007, 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, 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, a copy of which is available on our Internet site (www.CAT.com/governance). 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 the annual meeting of stockholders.
Presiding Director
The board elects a presiding director to
fulfill the following clearly delineated responsibilities. For 2007,
the independent directors of the board unanimously elected W. Frank Blount,
an independent director, as the presiding director.
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 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 the following procedures 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 officer of a 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 and the
ability to assimilate relevant information on a broad range of complex
topics.
Page 13
The committee also believes that certain
characteristics are desirable, such as 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. Moreover, candidates should have the
ability to devote the time necessary to meet director responsibilities and serve on no more than
five public company boards in addition to the Caterpillar
board. Candidates must also have the ability to commit to stock
ownership requirements according to the company’s Guidelines on Corporate Governance
Issues.
Stockholder Nominations
While the company does not have a formal
policy for stockholders to recommend director candidates, stockholders may
nominate a director candidate to serve on the board by providing advance written
notice to Caterpillar Inc. c/o the Corporate Secretary at 100 NE
Adams Street, Peoria, Illinois 61629. 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 Caterpillar
Inc. c/o
the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois
61629 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 nominating 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.
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
2011. The nominees were evaluated and recommended by the Governance
Committee in accordance with the process for nominating directors as found on
pages 13 and 14 of this
proxy statement.
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.
Page 14
|
Class I – Directors
nominated for election this
year
|
|
§
|
W.
FRANK BLOUNT,
69, 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.
|
|
§
|
JOHN
R. BRAZIL, 62,
President of Trinity University (San Antonio, Texas). Dr.
Brazil has been a director of the company since
1998.
|
|
§
|
EUGENE
V. FIFE, 67, 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.
|
|
§
|
GAIL
D. FOSLER, 60, President and Trustee of The
Conference Board (research and business membership). Prior to
her current position, Ms. Fosler served as Chief Economist, Executive Vice
President and Senior Vice President of The Conference
Board. Other directorship: Baxter International
Inc. Ms. Fosler has been a director of the company since
2003.
|
|
§
|
PETER
A. MAGOWAN, 66,
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.
|
YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE “FOR” THE NOMINEES PRESENTED IN PROPOSAL
1.
 |
PROPOSAL 2 – Ratification of
Independent Registered Public Accounting
Firm
|
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 2008.
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 2008 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 2008 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 AND AUDIT
COMMITTEE UNANIMOUSLY RECOMMEND A VOTE “FOR” PROPOSAL 2.
Page 15
|
|
PROPOSAL 3 – Annual Election
of Directors
|
Pursuant to Rule
14a-8(l)(1) of the Securities Exchange Act of 1934, we will provide the name,
address and number of company securities held by the proponent of this
stockholder proposal 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
RESOLVED, that the
shareowners of Caterpillar Inc. (CAT) ask that the Company take the steps
necessary to reorganize the Board of Directors into one class subject to
election each year.
Supporting Statement of
Stockholder
This proposal seeks
to reorganize the Board of Directors of the Company so that each director stands
before the shareowners for re-election each year. We hope to
eliminate the Company’s so-called “classified board”, whereby the directors are
divided into three classes, each serving a three-year term. Under the
current structure, shareowners can only vote on one-third of the Board at any
given time.
We believe that
corporate governance procedures and practices, and the level of accountability
they impose, are closely related to financial performance. It is
intuitive that when directors are accountable for their actions, they perform
better. We also believe that shareowners are willing to pay a premium
for corporations with excellent corporate governance. If the Company
were to take the steps necessary to declassify its Board, it would be a strong
statement that this Company is committed to good corporate governance and its
long-term financial performance.
We seek to improve
that performance and ensure the Company’s continued viability through this
structural reorganization of the Board. If passed, shareowners would
have the opportunity to register their views at each annual meeting – on
performance of the Board as a whole and of each director as an
individual.
We urge you to join
us in urging the Company to take the steps necessary to declassify the election
of directors, as a powerful tool for management incentive and
accountability. We urge your support FOR this proposal.
Caterpillar
Response - Statement in Opposition to Proposal
After thoughtful
consideration, 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 have an
excellent and qualified board that is committed to Caterpillar’s long-term financial
health. With that in mind, the board has considered the most
effective structure for the board and determined that the current classified
board structure is in the best interests of the company and its stockholders for
the following reasons.
Stability
and Continuity. In accordance with Caterpillar’s
articles of incorporation, its board is divided into three classes that serve
staggered three-year terms. The board is structured this way to provide board
stability, continuity and independence, while also enhancing long-term planning
and ensuring that, at any given time, there are experienced directors serving on
the board who are familiar with the company and its business and strategic
goals. A classified board also benefits the company and its stockholders because
it helps attract and retain director candidates who are willing to make
long-term commitments of their time and energy. This commitment is necessary to
achieve the goals established under our Vision 2020 strategic plan - a
commitment that stretches over several years and one that will be best fulfilled
by a stable and continuous board.
Page 16
Independence. Electing directors to three-year terms
enhances the independence of non-management directors by providing them with a
longer term of office. This longer term provides a certain amount of
independence from management or from special interest groups who may have an
agenda contrary to the long-term interests of all stockholders. As a result,
independent directors are able to make decisions that are in the best interest
of the company without having to consider annual elections.
Accountability
to Stockholders. Directors elected to three-year terms
are equally accountable to stockholders as directors elected annually, since all
directors are required to uphold their fiduciary duties to the company and its
stockholders regardless of term. Additionally, under the company’s policies and
procedures, specifically the Director Resignation Policy adopted in
2007 by the board, the company’s classified board structure does not compromise
the directors’ accountability to shareholders. The Director Resignation
Policy, which is set forth in the company's Guidelines on Corporate Governance
Issues (www.CAT.com/governance),
provides that any director nominee who receives a greater number of votes
"withheld" than votes "for" will tender his or her resignation to the Governance
Committee. The Governance Committee will then consider the resignation and
recommend to the board whether or not to accept such resignation. The board will
then publicly disclose its decision. The Director Resignation Policy provides
the stockholder a meaningful role in the election of directors as well as acting
as a way of holding directors accountable for their actions or failure to
act.
Financial
Results and Stockholder Value. The proposal intimates that a
declassified board is necessary to help improve a company’s financial
performance. However, with respect to Caterpillar, such an argument is
misplaced. Full year 2007
results marked the fifth straight year of record sales and revenues and the
fourth consecutive year of record profit for the company, including sales and
revenues of $44.958 billion and profit of $3.541 billion — or $5.37
per share. We believe that these financial results are a direct benefit of
having a board of experienced directors who are knowledgeable about the company
and are pursuing the company’s long-term business plans and
goals.
Protection
Against Takeovers. Our classified board structure strongly
encourages potential acquirers to deal directly with the board if they are
interested in acquiring the company and better positions the board to negotiate
effectively on behalf of stockholders to realize the greatest possible
stockholder value. The classified board structure is designed to safeguard
against a hostile purchaser gaining control of the company and its assets
without paying fair market value for them by removing our directors at a single
annual meeting. Because only one-third of the directors are elected at any
annual meeting of stockholders, it is impossible to elect an entirely new board
or even a majority of the board at a single meeting. A classified board provides
the incumbent directors at least two annual stockholder meetings to negotiate
the best results for our stockholders without a change in control of the board
in any one year. A classified board does not preclude a takeover, but rather, it
provides a company with time and leverage to evaluate the adequacy and fairness
of any takeover proposal, negotiate on behalf of all stockholders and weigh
alternative methods of maximizing stockholder value for all stockholders. In
fact, recent studies suggest that target shareholders of companies with
classified boards receive a larger proportional share of the total value gains
from a merger. See Bates, Becker and Lemmon, Board Classification
and Managerial Entrenchment: Evidence from the Market for Corporate Control, (April 2007) at p.
3.
It is important to note that stockholder
approval of this proposal would not in itself declassify the board. Approval of
this proposal would advise the board that a majority of the company’s
stockholders voting at the meeting favor a change and would prefer that the
board take the necessary steps to end the staggered system of electing
directors. However, under Delaware law, to change the class structure of the
board, the board must first authorize amendments to the company’s articles of
incorporation and bylaws. Stockholders would then have to approve each of those
amendments with an affirmative vote of not less than 75 percent of the total
voting power of all outstanding shares of company stock entitled to vote
generally in the election of directors.
After careful consideration of this
proposal, the Governance Committee and the entire board have determined that
retention of a classified board structure remains in the best interests of the
company and its stockholders. The board believes that the benefits of a
classified board structure do not come at the expense of director
accountability. Moreover, the strong financial performance of the company along
with the various corporate governance measures implemented by the board,
validates the board's commitment to the company and its
stockholders.
FOR THESE REASONS, YOUR BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” PROPOSAL
3.
Page 17
Pursuant to Rule
14a-8(l)(1) of the Securities Exchange Act of 1934, we will provide the name,
address and number of company securities held by the proponent of this
stockholder proposal 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
Resolved: 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
Stockholder
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 the nation’s leading companies, including Intel, General
Electric, Motorola, Hewlett-Packard, Morgan Stanley, Wal-Mart, Home Depot,
Gannett, Marathon Oil and recently Pfizer have adopted a majority vote standard
in company bylaws or articles of incorporation. 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, including our
Company, 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 than “for”
votes.
We believe that a post-election director
resignation policy without a majority vote standard in company bylaws or
articles is an inadequate reform. The critical first step in
establishing a meaningful majority vote policy is the adoption of a majority
vote standard. 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 majority vote standard combined with a
post-election director resignation policy would establish a meaningful right for
shareholders to elect directors, and reserve 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.
Caterpillar
Response - Statement in Opposition to Proposal
After thoughtful
consideration, 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.
Page 18
Caterpillar is
incorporated under the laws of Delaware, and stockholders currently elect its
directors by plurality voting. Plurality voting is the default standard under
Delaware law and has long been the accepted standard among most large public
companies. Consequently, the rules governing plurality voting are well
established and understood. However, the board is cognizant of recent
developments with respect to majority voting in the election of directors. In
fact, in 2007, in response to a similar proposal, the board adopted a policy
(Director Resignation Policy) that addresses the concerns presented in the
proposal. The Director Resignation Policy, which is set forth in the company's
Guidelines on Corporate Governance Issues (www.CAT.com/governance),
provides that any director nominee who receives a greater number of "withheld"
votes than votes "for" will tender his or her resignation to the Governance
Committee. The Governance Committee will then consider the resignation and
recommend to the board whether or not to accept such resignation. The board will
then publicly disclose its decision. We believe that the Director
Resignation Policy provides stockholders a meaningful and significant role in
the election of directors, while preserving the board’s ability to exercise its
independent judgment - on a case-by-case basis. Stockholders at other S&P
500 companies have consistently rejected similar stockholder proposals when
those companies followed a policy similar to the Director Resignation
Policy, including Johnson & Johnson, Kellogg Co. and Paccar
Inc.
Further, the
adoption of the proposal is unwarranted in the case of Caterpillar, because 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 voting process. In addition, we maintain a rigorous director
nomination and election process that gives due consideration to stockholder
nominees. The Governance Committee, in conjunction with the Chairman and Chief
Executive Officer, periodically reviews the board and the attributes that it
would like to see in future members of the board, including the following: (i)
integrity, honesty and accountability, with a willingness to express independent
thought; (ii) successful leadership experience and stature in an individual’s
primary field, with a background that demonstrates an understanding of business
affairs as well as the complexities of a large, publicly held company; (iii)
demonstrated ability to think strategically and make decisions with a
forward-looking focus, and the ability to assimilate relevant information on a
broad range of complex topics; (iv) 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; (v) independence and absence of
conflicts of interest; (vi) ability to devote necessary time to meet director
responsibilities; and (vii) the ability to commit to company stock ownership.
These same criteria are applied to evaluate candidates nominated by
stockholders. The nomination and election process has been instrumental in the
construction of a board that is comprised of highly qualified directors from
diverse backgrounds, and currently, with the exception of the Chairman, all
directors are independent as defined under New York Stock Exchange
regulations. Since our stockholders have a strong history of
electing highly qualified and independent directors and because of the company’s
rigorous director nomination and election process, a change in the director
election process is not necessary to improve the company’s performance or the
company’s corporate governance.
We are committed to
strong corporate governance and it is our fiduciary duty to act in the best
interests of our stockholders. We demonstrated this by the adoption of
the Director Resignation Policy. However, we will continue to monitor the
majority vote issue and may take additional steps in the future consistent with
our commitment to act in the best interests of our stockholders. The proposal at
issue would not further enhance the ability of stockholders to impact the
outcome of director elections, and, for that and the reasons presented above, we
do not believe that the proposal is in the best interests of the company or its
stockholders.
FOR THESE REASONS, YOUR BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” PROPOSAL
4.
Pursuant to Rule
14a-8(l)(1) of the Securities Exchange Act of 1934, we will provide the name,
address and number of company securities held by the proponent of this
stockholder proposal 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 19
Resolution Proposed by
Stockholder
WHEREAS the United
States exports weapons and related military equipment and services through
foreign military sales (government-to-government), direct commercial weapons
sales (U.S. companies to foreign buyers), equipment leases, transfers of excess
defense material and emergency drawdowns of weaponry.
In 2006, the U.S.
ranked first in arms transfer agreements with developing nations, including
those in the Near East and Asia, with nearly $10.3 billion or 35.8% of these
agreements. The U.S. also ranked first in the value of arms deliveries to
developing nations at nearly $8 billion or 40.2% of all such
deliveries. The weapons sold range from ammunition to tanks,
supersonic combat aircraft, missiles and submarines. (“Conventional Arms
Transfers to Developing Nations, 1999-2006,” Congressional Research Service,
Report for Congress, September 26, 2007)
Although it does
not produce weapons systems, Caterpillar has, in the past, sold dual use
equipment such as bulldozers through foreign military sales; however, the
frequency and volume of sales is unknown. Nor is there precise
information on which countries have received Caterpillar equipment.
RESOLVED: Shareholders
request that, within six months of the annual meeting, the Board of Directors
provide a comprehensive report, at reasonable cost and omitting proprietary and
classified information, on Caterpillar’s foreign sales of weapons-related
products, and other equipment and services related to those products for the
past 10 years, including the country of destination for the
products.
Supporting Statement of
Stockholder
We believe with the
American Red Cross that “the greater the availability of arms, the greater the
violations of human rights and international humanitarian law.” Global security
is the security of all people. We are seeing, too, an increase in human rights
abuses inflicted on women and children, people of minority ethnicities,
personnel of NGOs offering medical and other human services as well as employees
of corporations servicing DOD contracts. Use of Caterpillar equipment
by foreign militaries in actions that violate human rights and international
humanitarian law raises issues for Caterpillar corporate policy and risks damage
to the company’s reputation.
Therefore, we
believe it is reasonable that the report include:
|
|
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.
|
Statement in
Opposition to Proposal
After thoughtful consideration, the
board has determined that this proposal is not in the best interests of the
company or its stockholders, and does not believe that the company’s resources
are best spent preparing the requested report.
Caterpillar does
not manufacture or sell weapons or weapon systems. Rather, the company sells a
limited quantity of commercial equipment, as well as commercial equipment that
has been modified for military purposes (Modified Equipment), to foreign
governments predominantly under federally sponsored programs – most notably the
Foreign Military Sales Program (Program). Under the Program, the U.S. government
offers to sell defense articles and services and ordinary commercial products in
response to specific requests from authorized representatives from foreign
governments or eligible organizations. The U.S. government then sources such
requests with U.S. manufacturers and administers the resulting contract. Sales
of equipment and Modified Equipment under the Program may be made only when the
United States Government has determined that the sale is consistent with the
national security, foreign policy and economic interests of the United States.
Caterpillar has procedures and processes in place to ensure that product sales
are made in accordance with the Program and all other United States laws and
regulations.
Page 20
While the majority of sales of equipment
and Modified Equipment for foreign governments in 2007 were performed through
the Program, Caterpillar did, albeit on a very limited basis (less than $2.3
million in sales), sell Modified Equipment to Caterpillar dealers who then sold
such equipment directly to foreign governments. Additionally, in the
past, Caterpillar did sell equipment and Modified Equipment directly to foreign
governments, however, this practice has essentially been replaced by the Program
process.
Any sales of equipment and Modified
Equipment by Caterpillar under the Program are a matter of public record through
U.S. government provided information. The Department of Defense and Department
of State provide notification of such sales to Congress and to the media.
Accordingly, the board believes that producing a report as requested under the
proposal would be duplicative and unnecessary because such information is
already publicly available.
Further, given the
company’s relative small volume of sales of equipment and Modified Equipment for
foreign governments in 2007, it would be an inappropriate use of the company’s
resources to complete the requested report. The company’s total revenue derived
from the sale of equipment and Modified Equipment for foreign governments under
the Program in 2007 was approximately $3.7 million, or approximately 0.008% of
the company’s 2007 gross revenues of $44.96 billion. The board believes that to
allocate the resources to complete a detailed report addressing an insignificant
portion of the company’s business is an inappropriate use of company resources
and not in the best interests of the company and its stockholders. As a result,
the board recommends a vote against the proposal.
FOR THESE REASONS, YOUR BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” PROPOSAL
5.
|
PART FOUR
– Other Important
Information
|
|
(as of December 31,
2007)
|
|
|
|
Voting
Authority
|
Dispositive
Authority |
Total
Amount
of
Beneficial
|
Percent
of
|
|||
|
Name
and Address
|
Sole
|
Shared
|
Sole
|
Shared
|
Ownership
|
Class
|
|
Capital
World Investors, a division of
Capital
Research and Management Company
333
South Hope Street, Los Angeles, CA 90071
|
2,630,500
|
0
|
43,326,500
|
0
|
43,326,500
|
6.94
|
|
(1)
|
This information
is based upon Schedule 13Gs filed with the SEC for year end December 31,
2007, except Percent of Class adjusted from 6.8 percent reported in the
Schedule 13G filed by Capital World Investors to 6.94 percent (calculated
using Caterpillar’s actual outstanding shares (623,986,134) at December
31, 2007).
|
Page 21
|
(as of December 31,
2007)
|
|
Blount
|
76,430
|
1
|
Magowan
|
330,943
|
11
|
|||
|
Brazil
|
40,803
|
2
|
Oberhelman
|
784,816
|
12
|
|||
|
Burritt
|
130,479
|
3
|
Osborn
|
48,631
|
13
|
|||
|
Dickinson
|
783
|
4
|
Owens
|
1,805,089
|
14
|
|||
|
Dillon
|
74,189
|
5
|
Powell
|
45,010
|
15
|
|||
|
Fife
|
46,000
|
6
|
Rust
|
28,933
|
16
|
|||
|
Fosler
|
24,515
|
7
|
Shaheen
|
883,821
|
17
|
|||
|
Gallardo
|
268,110
|
8
|
Smith
|
43,205
|
18
|
|||
|
Goode
|
102,675
|
9
|
Vittecoq
|
519,964
|
19
|
|||
|
Levenick
|
425,352
|
10
|
Wunning
|
520,550
|
20
|
|
||
|
All directors and executive
officers as a group
|
7,175,973
|
21
|
||||||
|
1
|
Blount
- Includes 64,000 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, 2007, in 1,210 shares of
common stock.
|
|||||||
|
2
|
Brazil
- Includes 32,000 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, 2007, in
426 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, 2007, in 1,312 shares of
common stock.
|
|||||||
|
5
|
Dillon
- 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, 2007, in
610 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 64,000 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, 2007, in
3,028 shares of common stock.
|
|||||||
|
9
|
Goode
- Includes 64,000 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, 2007, in
36,393 shares of common stock.
|
|||||||
|
10
|
Levenick
- Includes 364,000 shares subject to stock options exercisable within 60
days.
|
|||||||
|
11
|
Magowan
- Includes 64,000 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, 2007, in
14,046 shares of common stock.
|
|||||||
|
12
|
Oberhelman
- Includes 699,410 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,
2007, in 31,696 shares of common stock.
|
|||||||
|
13
|
Osborn
- Includes 32,000 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, 2007, in
116 shares of common stock.
|
|||||||
|
14
|
Owens
- Includes 1,498,000 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, 2007, in 6,507 shares of common
stock.
|
|||||||
|
15
|
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, 2007, in
116 shares of common stock.
|
|||||||
|
16
|
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, 2007, in
6,875 shares of common stock.
|
|||||||
|
17
|
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 SDCP, SEIP and/or DEIP
representing an equivalent value as if such compensation had been invested
on December 31, 2007, in 5,947 shares of common
stock.
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18
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Smith
- Includes 27,000 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, 2007, in
1,324 shares of common stock.
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19
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Vittecoq
- Includes 435,968 shares subject to stock options exercisable within 60
days.
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20
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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 SDCP, SEIP and/or DEIP
representing an equivalent value as if such compensation had been invested
on December 31, 2007, in 19,724 shares of common
stock.
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21
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This
group includes directors, named executive officers (NEOs) and five
additional executive officers subject to Section 16 filing requirements
(group). Amount includes 5,612,548 shares subject to stock
options exercisable within 60 days and 127,624 shares for which voting and
investment power is shared. The group beneficially owns 1.15
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 group have been
pledged.
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Page 22
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. After
reading this we hope you will recognize a few vital points:
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We have a
thorough compensation review
process.
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We have a
competitive compensation plan that aligns executive performance and
stockholder interests.
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We
consistently and appropriately provide equity grants and do not backdate
or re-price grants.
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We believe
the best way to compensate our executives is to base their rewards on
performance.
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We have no
special executive severance packages. Change in Control
provisions are found within existing compensation plans and apply equally
to all participants in those plans.
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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 34 years. Our reputation is a reflection
of our employees’ ethical performance, and the values that guide Caterpillar
have in turn 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:
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James W.
Owens, Chairman and CEO
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Stuart L.
Levenick, Group President
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Douglas R.
Oberhelman, Group President
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Gerald L.
Shaheen, Group President
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Gerard R.
Vittecoq, Group President
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Steven H.
Wunning, Group President
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David B.
Burritt, Vice President and Chief Financial
Officer
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During most of
fiscal year 2007, Caterpillar was organized into five groups, each led by a
group president. Because the five group presidents had comparable
responsibilities and were similarly compensated in 2007, we are including all
five of the group presidents as NEOs. The group president structure
was expanded (to include six group presidents) in late 2007. However,
this new structure did not impact the determination of NEOs for
2007.
Compensation
Philosophy and Objectives
Two primary
components define Caterpillar’s compensation philosophy: Pay for performance and Pay at risk.
As any employee’s responsibility
increases, so does the amount of “at risk” pay. This is especially true for our
executives who have direct responsibility for overall company performance. A
significant portion of executive pay depends on meeting certain performance
goals, which is fundamental to aligning executive pay with stockholder
interests.
The Compensation
Committee (committee) established three principles to drive this philosophy
through the company’s compensation design.
Page 23
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1.
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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.
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2.
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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.
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3.
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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.
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In following these
principles and tying employee compensation to both individual performance and
the long-term performance of the company, Caterpillar links the interests of
management and stockholders. 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 committee
regularly reviews Caterpillar’s compensation practices, including the
methodologies for setting NEO salaries. The 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 committee has
the flexibility to exercise its independent judgment when establishing
compensation policies, especially when rewarding individual
performance. The responsibilities of the committee are described more
fully in its charter available at www.CAT.com/governance.
How
Caterpillar Determines Compensation for Executives
Performance
Evaluation: CEO
The full board
participates in the CEO’s evaluation. The board’s evaluation includes
both objective and subjective criteria of the CEO’s performance
including:
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Caterpillar’s
financial performance.
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The
accomplishment of Caterpillar’s long-term strategic
objectives.
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The
achievement of individual goals set at the beginning of each
year.
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The
development of Caterpillar’s top management
team.
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The committee also
reviews total compensation benchmark information, and then makes recommendations
to the board regarding the CEO’s compensation based on the benchmark information
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 to the
committee for each of the other NEOs. The performance evaluation is
based on factors such as:
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Achievement
of individual and company
objectives.
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Contribution
to the company’s performance.
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Leadership
accomplishments.
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The committee also
reviews total compensation benchmark information, with respect to the other
NEOs, and has the discretion to increase or decrease the CEO’s
recommendation.
Page 24
Compensation
Consultant
The committee
retains John L. Anderson of Hewitt Associates to provide ongoing advice and
information regarding design and implementation of Caterpillar’s executive
compensation programs, and to update the committee about regulatory and other
technical developments that may affect the company’s executive compensation
programs. In addition, Mr. Anderson and his team provide the committee with
competitive market information, analyses and trends on base salary, short-term
incentives, long-term incentives, executive benefits and
perquisites.
With the knowledge
of the committee, Caterpillar has retained a separate and distinct unit of
Hewitt to be the third-party administrator for Caterpillar’s U.S. retirement
plans and beginning in the fall of 2008 or early 2009, Caterpillar’s U.S. Health
& Welfare plans.
The committee
believes that Mr. Anderson (and the team working with him from Hewitt
Associates) provides candid, direct and objective advice to the committee, which
is not influenced by any other Hewitt professionals or services provided by
Hewitt. To that end:
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The committee
directly selected and retained Mr.
Anderson.
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Mr. Anderson
is engaged by and reports directly to the committee and the
chair.
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Mr. Anderson
meets regularly and as needed with the committee in executive sessions
that are not attended by any of the company’s
officers.
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Mr. Anderson
and his team at Hewitt have direct access to the chair and members of the
committee during and between
meetings.
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Mr. Anderson
is not the Hewitt client relationship manager for
Caterpillar.
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Neither Mr.
Anderson nor any member of his team participates in any activities related
to the administration services provided to Caterpillar by other business
units at Hewitt.
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Interactions
between Mr. Anderson and management generally are limited to discussions
on behalf of the committee and information presented to the committee for
approval.
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Annual
Review of Consultant Independence
The committee is
solely responsible for retaining and terminating compensation consultants and
determining their terms and conditions, including the fees. They do
so without the input or influence of management. Hewitt provides the
committee an annual update on its services and related fees. The committee
determines whether the compensation consultant’s advice is objective and free
from the influence of management. It also closely examines the
safeguards and steps Hewitt takes to ensure that its executive compensation
consulting services are independent and objective. The committee recognizes
that:
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Hewitt has
separated the executive compensation consulting services into a single,
segregated business unit within
Hewitt.
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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.
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Mr. Anderson
does own shares in Hewitt, however he does not receive stock options or
other equity-related awards from
Hewitt.
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The total
amount of fees for consulting services to the committee in 2007 was in the
range of $400,000 to $500,000.
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The total
amount of fees paid to Hewitt in 2007 for all other services, excluding
committee services was in the range of $8 million to $10 million. This is
compared to total Hewitt 2007 revenues of approximately $3
billion.
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Other
services are provided under a separate contractual arrangement and by a
separate business unit at Hewitt. These administrative fees will increase
as Hewitt provides more administration
services.
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For these reasons,
the committee does not believe Hewitt’s role in administering Caterpillar’s
benefit plans compromises Mr. Anderson’s ability to provide the committee with
perspective and advice that is independent and objective.
Page 25
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Peer
Group Benchmarking
Caterpillar’s
2007 comparator group was the Hewitt Core Group 1 (HCG1). The
HCG1 includes 22 large public companies, which are listed
below. 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 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 committee monitors the HCG1 to ensure that it
continues to provide a reasonable comparison basis for executive
compensation.
The HCG1’s
median annual revenue is less than Caterpillar’s. To account
for differences in the size of the companies in that group, the 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:
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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 median level of the comparator
group. The committee believes that targeting at the 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.
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Peer Group
Benchmarking Changes for 2008
Caterpillar’s
revenues have risen sharply and far exceed the median annual revenue for
the comparator group (HCG1). To better align the comparator
group with the company’s increased size and future plans for growth, the
committee revised the comparator group for 2008. The 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. The
updated comparator group includes 28 large public companies that represent
a cross section of industries, not just heavy manufacturing companies, and
is more in line with Caterpillar’s median sales and
revenues. The updated comparator group will be used for
compensation decisions made during 2008 and reported in next year’s
CD&A.
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Page 26
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Total
compensation is a mix of total cash and long-term
incentives.
Total
cash includes base salary and the Executive Short-Term Incentive
Plan (ESTIP) or Short-Term Incentive Plan (STIP).
ESTIP
and 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 the Long-Term Cash
Performance Plan (LTCPP). 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.
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Components
of Caterpillar’s Compensation Program
Compensation
for all NEOs is a mix of annual total cash and long-term
incentives.
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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 2007 Total Compensation mix (based on targeted
compensation).
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Page 27
Total
Annual Cash Compensation
The company’s
review of 2007 market data showed total annual cash compensation structures for
the CEO and vice presidents were below the median level of the HCG1, primarily
due to an upward shift in the market. Consequently, management
recommended adjustments to the base salary compensation structures (not
individual base salaries) for the CEO and vice presidents to bring total annual
cash compensation in line with the median level of the HCG1. In
February 2007, the committee approved the adjustments to base salary structures
as shown in the following table.
No adjustments were
made to the short-term incentive target opportunities as shown in the following
table.
Base
Salary
Base salary
increases are performance-driven. The committee uses the criteria
described in the “Performance Evaluation” section to assess performance.
These criteria have no particular weighting. Base salary increases,
however, are dependent upon assessment of these factors. 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. Base salaries for the NEOs are not increased above the
midpoint of their respective structures without meeting certain performance
requirements. If NEOs reach the midpoint of their salary structure,
any amount awarded above midpoint must be re-earned annually and approved by the
committee. This amount is called variable base pay and is paid in the
form of an annual lump sum cash award (disclosed in the “Bonus” column of the
Summary Compensation Table on page 41). This reinforces the
performance component of the compensation program for NEOs.
Page 28
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Executive Short-Term
Incentive Plan
The CEO and
group presidents (NEOs, excluding Mr. Burritt) participated in the 2007
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
2007, the committee reviewed and approved two enterprise-focused measures
for the 2007 ESTIP. 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% Machinery and Engines Return on
Assets (ROA)
§25% Enterprise Quality (Product
Quality)
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Machinery
and Engines Return on Assets (ROA) is Machinery and Engines profit
after tax (Cat Financial on an equity basis) plus short-term incentive
compensation after tax expense, divided by a 13-month average of Machinery
and Engines assets.
Enterprise
quality was measured by a roll-up 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 (EPS).
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Prior to any
ESTIP payout a “trigger” must be achieved. The trigger is based
on the company’s PPS. The committee approved a PPS trigger of
$2.50 for ESTIP. The committee chose a PPS trigger of $2.50
because Caterpillar is committed to maintain a PPS of at least $2.50
during a trough or economic downturn. If the trigger is not
achieved, there is no ESTIP payout.
As with all
components of Caterpillar’s compensation program, the ESTIP rewards
performance. For both measures listed above, the committee
established 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.
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 |
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Return On
Assets
The committee
approved ROA as the largest portion of 2007 ESTIP. ROA 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 committee reviewed ten years of Caterpillar
forecasted versus actual ROA results to determine the appropriate target
for the 2007 ROA measure. The calculation of corporate ROA was
determined using the after-tax ROA excluding the Short-Term Incentive Plan
expense. The profit and assets for each individual business
unit were rolled up to create the corporate ROA and the Short-Term
Incentive Plan expense was excluded so business units were not penalized
for the expense. The corporate ROA slope ranged from a
threshold of 6.87 percent to the maximum of 16.91 percent, with a target
of 14.94 percent. The following chart illustrates ROA
performance levels and the related PPS.
 At the close
of 2006, the reported outlook for Caterpillar’s 2007 PPS was $5.20 to
$5.70.
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Page 29
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Enterprise
Quality
The committee
approved enterprise quality as the other factor under the 2007
ESTIP. Enterprise quality was measured by a roll-up of the
various business unit quality performance factors. Some
examples of business unit quality measures were Mean Dealer Repair
Frequency (MDRF), Very Early Hour Reliability (VEHR), Significant Part
Numbers (SPN) and MQ12005 Certification (MQ12005). Each
business unit’s quality performance factor or factors were weighted based
on its applicable 2007 net sales and transfers (an inter-company
sale). The results were averaged to determine the enterprise
quality result.
|
Mean
Dealer Repair Frequency (MDRF) 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 (VEHR) 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 (SPN) 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 Reman
part).
MQ12005 certification
focuses on safety, quality, velocity and cost for factory
manufacturing and assembly. MQ12005 evaluates
both the timing and quality of MQ12005 certification plan submissions
against the current year certification
requirements.
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The
2007 results are:
 |
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The final 2007 ESTIP ROA
was 13.8 percent resulting in a payout factor of 90.13
percent. The enterprise quality payout factor was 110.11
percent. The resulting weighted payout factors from ROA
and enterprise quality were added together to calculate the total cash payout factor of
95.13 percent, which resulted in a total payout of $5.5 million to the
NEOs, except for Mr. Burritt. The committee has discretion to
reduce ESTIP awards based on performance, but individual increases are not
permitted. There were no adjustments made to the 2007
ESTIP payouts to the applicable NEOs. Individual amounts are
disclosed in the Summary Compensation Table on page 41 of this proxy
statement, in the “Non-Equity Incentive Plan Compensation”
column.
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Short-Term Incentive
Plan
As a vice
president, our CFO, Mr. Burritt, participated in Caterpillar’s 2007
STIP. Vice presidents are not only measured on the achievement
of their business unit goals, but also on corporate performance factors
such as ROA and enterprise quality. Mr. Burritt was eligible
for a target opportunity of 90 percent of base salary. His
weighting was:
§60% Machinery and Engines Return on
Assets (ROA)
§20% Enterprise Quality (Product
Quality)
§20% Business Unit
Measure
PPS was also
the “trigger” for the 2007 STIP. The same methodology applies
for STIP as described previously for ESTIP. The 2007 results
are included in the following table.
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Page 30
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The resulting
weighted payout factors from ROA, enterprise quality and Mr. Burritt’s
business unit measures were added together to calculate the total cash
payout factor of 116.10 percent under the 2007 STIP. Mr.
Burritt’s individual STIP
award amount is disclosed in the Summary Compensation Table on
page 41 of this proxy statement, in the
“Non-Equity Incentive Plan Compensation” column.
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The Long-Term
Incentive Plan (LTIP) includes both equity and the Long-Term Cash
Performance Plan (LTCPP). 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.
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 (SARs), Restricted Stock Units
(RSUs) and restricted stock.
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.
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Level of
Difficulty
The committee sets the ESTIP and
STIP threshold, target and maximum levels for all measures, including
enterprise quality, so the relative difficulty of achieving the target
level is consistent from year to year. The objective is
to achieve target (100 percent payout), on average over a period of years,
but to make it difficult to achieve the maximum payout in any given
year. Over the past three years, our NEOs have not reached
maximum payout during any year. So, even during this
three-year period of record sales and profits, the average payout for our
NEOs has been 94 percent of target.
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Long-Term
Incentive Plan
In the fall
of 2006, at the request of the committee, management conducted an LTIP
market data review using the HCG1. The same process was
followed in 2004 and 2005. The market data indicated that the
value and proportion of each component of executive total compensation has
shifted in recent years. Portfolio approaches, where two or more long-term
incentive compensation vehicles are used in some combination, are now
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.
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Caterpillar
uses all three vehicles in our executive compensation
package. Instead of awarding all long-term compensation in the
form of equity, the 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 shareholder
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 our share run rate, and preserve the available pool
of shares authorized for issuance under the equity plan. The
2007 LTIP vehicle mix is in the following table.
 Equity
Each year, we
benchmark against our comparator group to determine our standard equity
award for each salary grade, including our 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
2006, the committee approved the 2007 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.
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Page 31
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The 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 used
to reward employees.
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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 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.
The 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.
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At the
February 2007 committee meeting, Mr. Owens discussed his recommendations
with respect to standard equity award adjustments for all other
NEOs. Grant value adjustments were made and were based upon
individual performance (discussed in “Other NEOs Compensation Decisions”
section of this CD&A). At the February 2007 board meeting
the Chairman of the committee, Mr. Osborn, in consultation with the board,
and in accordance with the following “Equity Grant Timing” section,
established the grant for Mr. Owens based on exceptional performance
(discussed in “Compensation Decisions in 2007 and 2008” section of this
CD&A).
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The final
2007 SAR & RSU awards are disclosed in the Grants of Plan-Based Awards
Table on page 43.
Restricted
Stock Award Program
The CEO
submits restricted stock grant recommendations to the committee at each
committee meeting. The committee reviews the amount of the
proposed grants as well as the CEO’s reasoning.
At the
February 2007 meeting, the board awarded Mr. Owens 5,000 shares of
restricted stock. The committee also approved a targeted grant
of 2,000 shares of restricted stock for Mr. Vittecoq. These
awards were granted due to Mr. Owens’ and Mr. Vittecoq’s exceptional
performance, which is described in the “Chairman and CEO Compensation
Decisions” and “Other NEOs Compensation Decisions” sections of this
CD&A.
Equity
Grant Timing
The grant
date for equity awards has historically been in mid-February to early
March. The committee uses this timing for grants because it is well after
Caterpillar announces year-end financial results and allows sufficient
time for stock price stabilization. Caterpillar does not backdate,
re-price or grant equity awards retroactively. The committee approved the
valuation of the 2007 equity awards at the February 12, 2007 meeting and
delegated its authority to finalize the individual grants on the grant
date to the committee chair. The grant price was the closing price for
Caterpillar stock as reported on the New York Stock Exchange on March 2,
2007 (grant date).
All 2007
equity grants for the NEOs are disclosed in the Grants of Plan-Based
Awards Table on page 43 of this proxy
statement.
Stock
Ownership Requirements
Equity
compensation encourages our executives to have an owner’s perspective in
managing the company. Due to the importance of ownership, the
committee has set a minimum Caterpillar stock ownership requirement for
all participants receiving equity compensation.
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. For the
NEOs, only 10 percent of vested unexercised equity awards count toward
target ownership. In 2008, no vested unexercised awards count
toward ownership requirements for the NEOs. 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.
|
Page 32
|
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. 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 PPS growth
and ROE, each weighted 50 percent. 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 there is
for 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 committee selected the
following Standard & Poor’s 500 companies (S&P group) to compare
Caterpillar’s performance against the performance of our specific
industry. This S&P group is utilized because market cycle
fluctuations are minimized when compared to similar
companies. The S&P group is used only for the relative PPS
growth measure, not for setting levels of compensation under the
LTCPP.
|
The Long-Term
Cash Performance Plan (LTCPP) award focuses on sustained financial
results over a three-year cycle. It 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.
Relative
Profit Per Share (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 shareholders have
invested. This is one of two measures in the 2005-2007
LTCPP.
|
The companies in this S&P group
are:
|
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
|
Page 33
The 2007 LTCPP
payout was based on a three-year cycle, which began in 2005 and ended in
2007. The 2005-2007 cycle evaluated two
components: relative PPS growth, measured against the S&P Peer
Group, and ROE, again each weighted 50 percent. In the February 2005
meeting, the committee determined that the targets (shown in the following
table) were very challenging and that achieving the targets during this cycle
would put the company far ahead of historical benchmark levels at other
companies, including the HCG1, the S&P Peer Group and the S&P 500
overall.
|
2005-2007
LTCPP Measures
|
|||
|
Relative
PPS Growth
|
ROE
|
||
|
Threshold
|
25th
percentile
|
20%
|
|
|
Target
|
50th
percentile
|
30%
|
|
|
Maximum
|
75th
percentile
|
40%
|
|
The final 2007
LTCPP ROE was 36.6 percent, resulting in a payout factor of 132.90
percent. The relative PPS growth percentile rank was 64, resulting in
a payout factor of 128.00 percent. The resulting weighted payout
factors were added together to calculate the total cash payout factor of 130.45
percent, which resulted in a payout of $7.8 million for all of the
NEOs.
|
2005-2007
LTCPP
|
Payout
Factor
|
Measurement
|
|
Return
on Equity
|
132.90
|
Enterprise
Return on Equity
|
|
Relative
PPS Growth
|
128.00
|
Relative Profit Per Share Growth
measured against S&P Peer
Group
|
The committee has
the discretion to reduce individual LTCPP awards based on performance, but
individual increases are not permitted. No adjustments were made to
the 2007 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.
|
Compensation
Decisions in 2007 and 2008
The Executive
Office (CEO and five group presidents) works as a team to drive our
corporate strategy and deliver the annual business plan. Our
Executive Short-Term Incentive Plan is based on corporate ROA and
enterprise quality metrics and is the same for each executive
officer. Our Long-Term Incentive Plan is the same for each
executive officer and is based on corporate PPS growth relative to our
peer group and ROE. Annual merit pay adjustment and equity
grants are based on the NEOs achievement of their goals set at the
beginning of the year. Both elements of compensation are
benchmarked with peer companies and therefore keep the total compensation
package competitive.
Chairman
and CEO Compensation Decisions
The CEO is
evaluated on company and individual performance metrics. In
February of 2008, the committee reviewed the board’s assessment of Mr.
Owens’ individual goals (which were created at the beginning of 2007) and
his performance against those goals. The most critical results
for Mr. Owens for 2007 were as follows:
|
A Voluntary
Employees' Beneficiary Association (VEBA) is
a trust fund established pursuant to Section 501(c)(9) of the Internal
Revenue Code of 1986, as amended, that provides life, sickness, accident
or similar welfare benefits to employees, retirees and their
dependents.
The
Caterpillar
Production System (CPS) is
the common Order-To-Delivery process being implemented enterprise-wide to
achieve our safety, quality, velocity, earnings and
growth goals for 2010 and beyond.
|
|
|
§
Sales and revenues
exceeded the 2007 goal ($42.5 billion) by more than 4
percent. EPS exceeded 2006 but fell short of the 2007 goal
($5.45) primarily due to higher than planned costs, such as raw material
costs.
§
Operating cash flow
(before pension & VEBA) was $5.5 billion — $833 million higher than
last year and $18 million higher than the goal.
§
CPS Executive
Scorecard, which measures the successful deployment of CPS, was introduced
and implemented.
|
Page 34
|
§
Period cost (23.2 percent), as a
percentage of sales, was better than the goal of 24
percent.
§
Integrated service businesses
related sales and revenue exceeded the 2007 goal of $16
billion.
|
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.
|
|
|
In recognition of Mr. Owens’
strong performance, as evidenced by the company’s record financial
results, the committee recommended a lump sum discretionary bonus for
exceptional 2007 performance at the February 2008 meeting. The
board approved the bonus. Mr. Owens’ base salary remained well
below the median of the HCG1. Mr. Owens’ 2007 calendar year
compensation is disclosed in the Summary Compensation Table on page 41 of
this proxy statement.
|
Other NEOs’ Compensation
Decisions
The CEO presents
each NEO’s performance evaluation to the committee. The focus of the
evaluation for other NEOs is based upon product and business unit metrics in
their respective areas of responsibility. The committee noted the
following key points for each named executive officer in making compensation
decisions in 2007 and 2008:
Stuart
L. Levenick, Group President
|
|
§
|
Reporting divisions recorded sales
and profit above aggressive
plans.
|
|
|
§
|
Asia-Pacific Operations and Solar
were among leading divisions for Caterpillar Production System (CPS)
deployment.
|
|
|
§
|
Provided executive leadership in
finalizing plans to become the majority owner of Shin Caterpillar
Mitsubishi (Japanese joint
venture).
|
|
|
§
|
Highly engaged with China
management team in obtaining governmental approval for acquisition of SEM
(Chinese wheel loader manufacturer) — one of few approvals for 100 percent
foreign ownership.
|
|
|
§
|
Developed distribution (lane)
strategy to support CPS initiative — marketing companies aligned for
deployment.
|
|
|
§
|
Worked with leadership in Human
Services Division to deliver effective cost management for period expenses
and health care coverage.
|
|
|
§
|
Served as management's interface
with the Public Policy
Committee.
|
Douglas
R. Oberhelman, Group President
|
|
§
|
Delivered record results in
reciprocating engine business despite demand collapse in on-highway
segment.
|
|
|
§
|
Recorded markedly better financial
results in acquired engine business units — MaK and
Perkins.
|
|
|
§
|
Safety performance in engine
manufacturing units continued to show good
progress.
|
|
|
§
|
Developed and launched an Asian
sourcing plan for engines.
|
|
|
§
|
Developed strategies for
participation in various engine business
segments.
|
|
|
§
|
Provided executive leadership
support for effective cash deployment, investor relations, business risk
management and management's interface with the Audit
Committee.
|
Page 35
Gerald
L. Shaheen, Group President
|
|
§
|
Effectively worked with divisions
to meet customer shipment commitments despite numerous supply chain
disruptions.
|
|
|
§
|
Provided executive leadership
interface for the booming global mining
industry.
|
|
|
§
|
Worked with North American
Commercial Division to hold percent of industry sales, assisted dealers
with inventory reduction efforts and mitigated price erosion in very
difficult market conditions.
|
|
|
§
|
Represented the company very
effectively externally through his chairmanship of U.S. Chamber of
Commerce Board.
|
Gerard
R. Vittecoq, Group President
|
|
§
|
Significant increase in sales
& revenue in Europe, Africa & Middle East (EAME); and profit
contribution from the region was up
markedly.
|
|
|
§
|
Executive Office champion for the
vitally important CPS development and launch — notable company-wide
traction achieved.
|
|
|
§
|
Passionately drove enterprise
product quality improvement initiative, which yielded solid
gains.
|
|
|
§
|
Sponsored development of global
capacity plan which looks beyond current tactical needs to a planned
footprint for the 2020
timeframe.
|
|
|
§
|
Restructured infrastructure
product management team to drive market
leadership.
|
Steven
H. Wunning, Group President
|
|
§
|
Reporting divisions delivered
sales/revenues and accountable profit above
plan.
|
|
|
§
|
Provided strong executive support
for Global Purchasing Division, which managed material cost increases to
1.4 percent — above plan levels, but well below inflationary
pressures.
|
|
|
§
|
Championed Progress Rail
acquisition, which in its first full year exceeded
expectations.
|
|
|
§
|
Led velocity initiative with
strong support for CPS deployment and supporting
logistics.
|
|
|
§
|
Launched strategically important
"simplification initiative", which seeks to reduce the number of model
configurations offered, suppliers in our value chain and part
numbers.
|
|
|
§
|
Launched the Mach 1 strategic
initiative, the multi-year plan to deliver new global finance and order
fulfillment information systems capability across the
enterprise.
|
David
B. Burritt, Vice President and Chief Financial Officer
|
|
§
|
Delivered functional excellence
through leadership of Global Finance & Strategic Support
Transformation.
|
|
|
§
|
Maintained very high employee
engagement while leading dramatic improvements in cost management across
the finance function.
|
|
|
§
|
Continued superior 6 Sigma
results.
|
|
|
§
|
Actively engaged in re-shaping the
finance function through benchmarking and external advisory
roles.
|
In February 2008,
the committee approved base salary increases for the individuals named in the
“Other NEOs’ Compensation Decisions” section, effective April
2008. The committee also approved lump sum discretionary bonuses for
Mr. Levenick and Mr. Oberhelman based on exceptional 2007 performance (see
discussion above, “Other NEOs Compensation Decisions”). All
compensation paid to or earned by NEOs in 2007 is disclosed in the Summary
Compensation Table on page 41
of this proxy statement.
Page 36
|
Retirement
and Other Benefits
The defined
contribution and defined benefit plans 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 following U.S. retirement
plans.
|
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.
|
|
|
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 a
four percent reduction before age 60.
|
||
 |
||
|
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. Owens, Mr.
Oberhelman, Mr. Wunning and Mr. Levenick are currently eligible for early
retirement, with a four percent benefit reduction, per year, from age
62. Mr. Shaheen retired effective February 1, 2008, with
more than 40 years of distinguished service.
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.
|
Page 37
Savings
Plans
Caterpillar
401(k) Plan
Most U.S. salaried
and management employees, including the NEOs, are eligible to participate in the
401(k) plan.
|
|
§
|
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.
|
Supplemental
Deferred Compensation Plan (SDCP)
In addition to the
401(k) plan, all NEOs are allowed to participate in SDCP, which provides the
opportunity to increase deferrals of base salary and to elect deferrals of STIP
and LTCPP awards.
|
|
§
|
The plan was
created in March of 2007 with a retroactive effective date of January 1,
2005. It effectively replaces SEIP and DEIP (both defined
below). The change allows us 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.
|
|
|
§
|
All
contributions vest immediately.
|
Supplemental
Employees’ Investment Plan (SEIP) and Deferred Employees’ Investment Plan
(DEIP)
In addition to the
401(k) plan, all NEOs were previously allowed to participate in SEIP and
DEIP. These plans were frozen to new participants and new salary
deferrals in March of 2007. Pay deferred into SEIP and DEIP prior to
January 1, 2005 remains in SEIP and DEIP. Pay deferred on and after
January 1, 2005 was transferred to SDCP.
Page 38
Perquisites
The company
provides NEOs a very limited number of perquisites that it and the committee
believe are reasonable and consistent with its overall compensation program, and
necessary to remain competitive. The committee annually 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
42 of this proxy statement. 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 an NEO on the company aircraft
while he or she is traveling for company
business.
|
|
|
§
|
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.
|
|
|
§
|
The
Director’s Charitable Award program will be discontinued for new directors
after April 1, 2008; current directors will be grandfathered under the
plan.
|
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 change in
control provisions are within our long-term and short-term plans and are
standard provisions for these types of plans, which apply to all participants in
those plans. Both plans are stockholder-approved. Our
change in control provisions have no direct correlation with other compensation
decisions.
The change in
control provisions generally provide accelerated vesting and maximum payout
under the incentive plans. The provisions do not provide any extra
stand-alone payments in the event of termination of employment without cause or
for good reason within 12 months following a change in control. They
are intended to ensure that executives evaluate business opportunities in the
best interests of stockholders. By having these provisions in place,
executives have the ability to make sound business decisions that, without these
provisions, could have an adverse impact on their personal
situations. The terms of the change in control provisions are
applicable to all
employees covered by these plans and are not specific to the
NEOs. Additionally, no payments are made for voluntary separation,
resignation and termination for cause.
In the event of a
change in control, maximum payout factors are assumed for amounts payable under
the 1996 and 2006 Stock Option and Long-Term Incentive Plan (LTIP).
|
|
§
|
LTIP allows
for the maximum performance level, 150 percent payout factor, to be paid
under each open plan cycle of the Long-Term Cash Performance
Plan. 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 Executive
Short-Term Incentive Plan (ESTIP) is assumed to achieve the maximum payout
factor, 200 percent, under a change in
control.
|
Change in control
information is disclosed in the “Potential Payments Upon Termination of
Employment or Change in Control” section on page 46 of this proxy
statement.
Page 39
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 who 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 negligence, gross negligence or intentional
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 all of the
following apply:
|
|
§
|
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 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.
Page 40
|
2007
Summary Compensation Table
|
|||||||||||||||||||||||||
|
Name
and
Principal
Position
|
Year
|
Salary
|
Bonus
(1)
|
Stock
Awards
(2)
|
Option
Awards
(3)
|
Non-Equity Incentive Plan
Compensation (4)
|
Change in Pension Value and
Nonqualified Deferred Compensation Earnings
(5)
|
All Other Compensation
(6)
|
Total
|
||||||||||||||||
|
J.W.
Owens
|
2007
|
$
|
1,512,504
|
$
|
300,000
|
$
|
918,626
|
$
|
7,136,911
|
$
|
4,442,998
|
$
|
2,575,395
|
$
|
221,307
|
$
|
17,107,741
|
||||||||
|
Chairman &
CEO
|
2006
|
$
|
1,350,003
|
$
|
300,000
|
$
|
—
|
$
|
7,029,846
|
$
|
3,723,703
|
$
|
2,171,992
|
$
|
243,077
|
$
|
14,818,621
|
||||||||
|
S.L.
Levenick
|
2007
|
$
|
712,248
|
$
|
110,000
|
$
|
260,667
|
$
|
3,379,672
|
$
|
1,560,817
|
$
|
531,446
|
$
|
85,148
|
$
|
6,639,998
|
||||||||
|
Group
President
|
2006
|
$
|
641,253
|
$
|
120,000
|
$
|
16,090
|
$
|
1,076,445
|
$
|
1,441,021
|
$
|
487,228
|
$
|
83,084
|
$
|
3,865,121
|
||||||||
|
D.R.
Oberhelman
|
2007
|
$
|
729,996
|
$
|
198,000
|
$
|
260,667
|
$
|
3,412,413
|
$
|
1,666,505
|
$
|
568,400
|
$
|
100,431
|
$
|
6,936,412
|
||||||||
|
Group
President
|
2006
|
$
|
721,248
|
$
|
183,000
|
$
|
16,090
|
$
|
1,082,596
|
$
|
1,633,854
|
$
|
575,150
|
$
|
122,180
|
$
|
4,334,118
|
||||||||
|
G.L.
Shaheen
|
2007
|
$
|
729,996
|
$
|
62,000
|
$
|
289,631
|
$
|
2,270,803
|
$
|
1,674,387
|
$
|
446,786
|
$
|
94,214
|
$
|
5,567,817
|
||||||||
|
Group
President
|
2006
|
$
|
721,248
|
$
|
135,000
|
$
|
—
|
$
|
2,226,118
|
$
|
1,633,854
|
$
|
557,644
|
$
|
99,411
|
$
|
5,373,275
|
||||||||
|
G.R.
Vittecoq
(5)
|
2007
|
$
|
826,177
|
$
|
82,618
|
$
|
315,710
|
$
|
2,270,803
|
$
|
1,896,463
|
$
|
1,228,584
|
$
|
43,047
|
$
|
6,663,402
|
||||||||
|
Group
President
|
2006
|
$
|
753,981
|
$
|
114,870
|
$
|
—
|
$
|
2,226,118
|
$
|
1,707,398
|
$
|
1,532,982
|
$
|
40,159
|
$
|
6,375,508
|
||||||||
|
S.H.
Wunning
|
2007
|
$
|
715,746
|
$
|
24,000
|
$
|
289,631
|
$
|
2,585,518
|
$
|
1,581,445
|
$
|
708,727
|
$
|
86,678
|
$
|
5,991,745
|
||||||||
|
Group
President
|
2006
|
$
|
657,747
|
$
|
130,000
|
$
|
—
|
$
|
2,226,118
|
$
|
1,501,523
|
$
|
621,107
|
$
|
78,674
|
$
|
5,215,169
|
||||||||
|
D.B.
Burritt
|
2007
|
$
|
454,503
|
$
|
—
|
$
|
43,190
|
$
|
647,601
|
$
|
930,660
|
$
|
352,648
|
$
|
63,152
|
$
|
2,491,754
|
||||||||
|
Vice President
& CFO
|
2006
|
$
|
405,750
|
$
|
40,000
|
$
|
—
|
$
|
328,059
|
$
|
861,783
|
$
|
275,049
|
$
|
56,047
|
$
|
1,966,688
|
||||||||
|
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 2007 performance, NEOs earned the
following: Mr. Owens — $300,000/LSDB; Mr. Levenick —
$110,000/LSDB; Mr. Oberhelman — $110,000/LSDB and $88,000/VBP; Mr. Shaheen
— $62,000/VBP; Mr. Vittecoq — $82,618/VBP; Mr. Wunning —
$24,000/VBP. 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, 2007 (1 Swiss Franc = .88837 US
Dollar).
|
|
2
|
The following
RSUs were granted to NEOs on March 2, 2007: Mr. Owens — 14,238;
Mr. Levenick — 4,832; Mr. Oberhelman — 4,832; Mr. Shaheen —
4,832; Mr. Vittecoq — 4,832; Mr. Wunning — 4,832; and Mr.
Burritt — 2,594. The amounts included in this column represent
the amortized expense 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, 2007 included
in Form 10-K filed with the SEC on February 22, 2008. In
addition to the $853,429 of RSUs granted to Mr. Owens, he was also awarded
5,000 shares of restricted stock on April 2, 2007. The fair
market value (average of high and low trading price) of Caterpillar stock
on the award date was $66.585 per share. The restricted stock
amount of $65,198 is also included in this column and is based upon the
year 2007 amortized expense recognized for financial reporting
purposes. In addition to the $289,631 of RSUs granted to Mr.
Vittecoq, he was also awarded 2,000 equivalent shares of restricted stock
on April 2, 2007. The fair market value (average of high and
low trading price) of Caterpillar stock on the award date was $66.585 per
share. The restricted stock amount of $26,079 is also included
in this column and is based upon the year 2007 amortized expense
recognized for financial reporting
purposes.
|
|
3
|
The following
SARs were granted to NEOs on March 2, 2007: Mr. Owens —
344,198; Mr. Levenick — 124,396; Mr. Oberhelman — 125,884; Mr. Shaheen —
109,516; Mr. Vittecoq — 109,516; Mr. Wunning — 124,694; and Mr. Burritt —
47,342. 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, 2007 included in Form 10-K filed with the
SEC on February 22, 2008.
|
|
4
|
The
amounts in this column reflect cash payments made to NEOs under ESTIP or
STIP in 2008 with respect to 2007 performance and under the LTCPP with
respect to performance over a three year plan cycle from 2005 through 2007
as follows: Mr.
Owens — $1,942,998/ESTIP
and $2,500,000/LTCPP; Mr. Levenick — $677,757/ESTIP
and $883,060/LTCPP; Mr. Oberhelman — $694,409/ESTIP
and $972,096/LTCPP; Mr. Shaheen — $694,409/ESTIP
and $979,978/LTCPP; Mr. Vittecoq —$787,060/ESTIP
and $1,109,403/LTCPP; Mr.
Wunning — $681,039/ESTIP
and $900,406/LTCPP; and Mr. Burritt — $475,089/STIP
and $455,571/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, 2007
(1 Swiss Franc = .88837 US Dollar).
|
|
5
|
Because NEOs
do not receive “preferred or above market” earning on compensation
deferred into SDCP, 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, 2006 and November 30,
2007. 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, 2006 and September 30,
2007. 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 42: Matching contributions to the company’s
401(k) plan, matching contributions to SDCP, SEIP and/or DEIP, travel on
corporate aircraft, financial counseling, home security and life insurance
premiums for the Directors’ Charitable Award
Program.
|
Page 41
|
2007
All Other Compensation Table
|
||||||||||||||||||||||||||||
|
Name
|
Year
|
Matching
Contributions
401(k)
|
Matching
Contributions SDCP
|
Financial
Counseling
|
Corporate Aircraft
(2)
|
Tax
Gross-Up
on Corporate Aircraft
|
Home Security
(3)
|
Director’s
Charitable Award Insurance Premiums (4)
|
Other
(5)
|
Total
All Other Compensation
|
||||||||||||||||||
|
J. W.
Owens
|
2007
|
$
|
13,500
|
$
|
168,672
|
$
|
4,545
|
$
|
—
|
$
|
3,660
|
$
|
919
|
$
|
30,011
|
$
|
—
|
$
|
221,307
|
|||||||||
|
2006
|
$
|
13,200
|
$
|
150,876
|
$
|
14,000
|
$
|
5,805
|
$
|
3,694
|
$
|
25,491
|
$
|
30,011
|
$
|
—
|
$
|
243,077
|
||||||||||
|
S. L.
Levenick
|
2007
|
$
|
13,500
|
$
|
62,265
|
$
|
8,000
|
$
|
—
|
$
|
464
|
$
|
919
|
$
|
—
|
$
|
—
|
$
|
85,148
|
|||||||||
|
2006
|
$
|
13,200
|
$
|
55,541
|
$
|
8,000
|
$
|
1,376
|
$
|
603
|
$
|
2,150
|
$
|
—
|
$
|
2,214
|
$
|
83,084
|
||||||||||
|
D. R.
Oberhelman
|
2007
|
$
|
13,500
|
$
|
72,726
|
$
|
4,975
|
$
|
—
|
$
|
4,795
|
$
|
4,435
|
$
|
—
|
$
|
—
|
$
|
100,431
|
|||||||||
|
2006
|
$
|
13,200
|
$
|
68,314
|
$
|
6,925
|
$
|
4,610
|
$
|
3,004
|
$
|
26,127
|
$
|
—
|
$
|
—
|
$
|
122,180
|
||||||||||
|
G. L.
Shaheen
|
2007
|
$
|
13,500
|
$
|
69,066
|
$
|
2,284
|
$
|
—
|
$
|
8,445
|
$
|
919
|
$
|
—
|
$
|
—
|
$
|
94,214
|
|||||||||
|
2006
|
$
|
13,200
|
$
|
68,435
|
$
|
345
|
$
|
10,042
|
$
|
6,542
|
$
|
847
|
$
|
—
|
$
|
—
|
$
|
99,411
|
||||||||||
|
G. R. Vittecoq
(1)
|
2007
|
N/A
|
$
|
33,047
|
$
|
10,000
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
43,047
|
||||||||||
|
2006
|
N/A
|
$
|
30,159
|
$
|
10,000
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
40,159
|
|||||||||||
|
S. H.
Wunning
|
2007
|
$
|
13,500
|
$
|
65,178
|
$
|
8,000
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
86,678
|
|||||||||
|
2006
|
$
|
13,200
|
$
|
57,474
|
$
|
8,000
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
78,674
|
||||||||||
|
D. B.
Burritt
|
2007
|
$
|
13,500
|
$
|
39,647
|
$
|
7,500
|
$
|
—
|
$
|
1,586
|
$
|
919
|
$
|
—
|
$
|
—
|
$
|
63,152
|
|||||||||
|
2006
|
$
|
13,200
|
$
|
29,127
|
$
|
11,000
|
$
|
—
|
$
|
—
|
$
|
2,720
|
$
|
—
|
$
|
—
|
$
|
56,047
|
||||||||||
|
1
|
Mr.
Vittecoq participates in a non-U.S. Employee Investment
Plan.
|
|
2
|
There
was no personal use of corporate aircraft by NEOs in 2007. In
some cases, space permitting, a spouse accompanied an NEO on a business
trip in 2007. There was no “incremental cost” to the company
associated with the spousal accompany travel on corporate aircraft, except
for the tax gross-up associated with the spousal
travel. 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 for the year 2006 were 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 Directors’ 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 42
|
Grants
of Plan-Based Awards in 2007
|
||||||||||||||||||||
|
Name
|
Grant
Date
|
Estimated
Future Payouts Under
Non-Equity Incentive Plan
Awards (1)
|
All
Other
Stock
Awards: Number of
Shares of Stock or Units (2) |
All
Other Option Awards: Number of Securities Underlying Options
(3)
|
Exercise
or Base Price of Option Awards ($/share)
|
Grant
Date
Fair Value of Stock and Option Awards ($) (4) |
||||||||||||||
|
Threshold
|
Target
|
Maximum
|
||||||||||||||||||
|
J.W.
Owens
|
$
|
1,306,878
|
$
|
2,613,757
|
$
|
3,920,635
|
—
|
—
|
$
|
—
|
$
|
—
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
14,238
|
—
|
$
|
—
|
$
|
853,429
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
—
|
344,198
|
$
|
63.04
|
$
|
7,136,911
|
||||||||
|
04/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
5,000
|
—
|
$
|
—
|
$
|
332,925
|
||||||||
|
S.L.
Levenick
|
$
|
398,244
|
$
|
796,488
|
$
|
1,194,732
|
—
|
—
|
$
|
—
|
$
|
—
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
4,832
|
—
|
$
|
—
|
$
|
289,631
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
—
|
124,396
|
$
|
63.04
|
$
|
2,579,339
|
||||||||
|
D.R.
Oberhelman
|
$
|
401,498
|
$
|
802,996
|
$
|
1,204,493
|
—
|
—
|
$
|
—
|
$
|
—
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
4,832
|
—
|
$
|
—
|
$
|
289,631
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
—
|
125,884
|
$
|
63.04
|
$
|
2,610,192
|
||||||||
|
G.L.
Shaheen
|
$
|
144,985
|
$
|
289,971
|
$
|
434,956
|
—
|
—
|
$
|
—
|
$
|
—
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
4,832
|
—
|
$
|
—
|
$
|
289,631
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
—
|
109,516
|
$
|
63.04
|
$
|
2,270,803
|
||||||||
|
G.R.
Vittecoq
|
$
|
454,398
|
$
|
908,797
|
$
|
1,363,195
|
—
|
—
|
$
|
—
|
$
|
—
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
4,832
|
—
|
$
|
—
|
$
|
289,631
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
—
|
109,516
|
$
|
63.04
|
$
|
2,270,803
|
||||||||
|
04/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
2,000
|
—
|
$
|
—
|
$
|
145,120
|
||||||||
|
S.H.
Wunning
|
$
|
398,885
|
$
|
797,771
|
$
|
1,196,656
|
—
|
—
|
$
|
—
|
$
|
—
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
4,832
|
—
|
$
|
—
|
$
|
289,631
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
—
|
124,694
|
$
|
63.04
|
$
|
2,585,518
|
||||||||
|
D.B.
Burritt
|
$
|
208,277
|
$
|
416,553
|
$
|
624,830
|
—
|
—
|
$
|
—
|
$
|
—
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
2,594
|
—
|
$
|
—
|
$
|
155,485
|
||||||||
|
03/02/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
—
|
47,342
|
$
|
63.04
|
$
|
981,632
|
||||||||
|
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 assets) 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 2007
were used to calculate the estimated dollar value of future payments for
the 2007 to 2009 performance cycle. The CD&A discusses in
greater detail the performance metrics utilized in the LTCPP cycle.
The actual
ESTIP and STIP cash payouts for the 2007 plan year are reported in the
column "Non-Equity Incentive Plan Compensation" of the Summary
Compensation Table.
|
|
2
|
All RSUs
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 RSU will depend on
the fair market value of Caterpillar stock at the time of
vesting. In addition to the 14,238 RSUs granted to Mr. Owens,
he was awarded 5,000 shares of restricted stock on April 2,
2007. The restricted stock vests 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 the final third vesting on the
fifth year from the grant date. In addition to the 4,832
RSUs granted to Mr. Vittecoq, he was also awarded 2,000 equivalent shares
of restricted stock on April 2, 2007. The restricted stock
vests 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 the final third vesting on the fifth year from the grant
date.
|
|
3
|
Amounts
reported represent SARs granted under the LTIP. The exercise
price for all SARs granted to the NEOs is the closing price of Caterpillar
stock on the grant date. The grant price was based upon the
closing price ($63.04) for Caterpillar stock on the grant date of March 2,
2007. All SARs and RSUs 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 value of the RSU will depend on the fair
market value of Caterpillar stock at the time of
vesting.
|
|
4
|
The amounts
shown do not reflect realized compensation by the NEO. The
amounts shown represent the value of the SAR, RSU, and restricted stock
based upon the fair value on the granting date as determined in accordance
with FAS123R.
|
Page 43
|
Outstanding
Equity Awards at 2007 Fiscal Year-End
|
||||||||||||
|
Name
|
Grant
Date
|
Vesting
Date
|
Option
Awards
|
Stock
Awards
|
||||||||
|
Number
of Securities Underlying Unexercised SARs/Options
|
SAR
/ Option
Exercise
Price
|
SAR
/ Option
Expiration
Date
(1)
|
Number
of Shares or Units of Stock That Have Not Vested (2)
|
Market
Value of Shares or Units of Stock That Have Not Vested
(3)
|
||||||||
|
Exercisable
|
Unexercisable
|
|||||||||||
|
J.W. Owens
|
06/08/1999
|
06/08/2002
|
100,000
|
—
|
$
|
31.1719
|
06/08/2009
|
—
|
—
|
|||
|
06/12/2000
|
06/12/2003
|
108,000
|
—
|
$
|
19.2032
|
06/12/2010
|
—
|
—
|
||||
|
06/12/2001
|
06/12/2004
|
108,000
|
—
|
$
|
26.7650
|
06/12/2011
|
—
|
—
|
||||
|
06/11/2002
|
06/11/2005
|
122,000
|
—
|
$
|
25.3575
|
06/11/2012
|
—
|
—
|
||||
|
06/10/2003
|
06/10/2006
|
140,000
|
—
|
$
|
27.1425
|
06/10/2013
|
—
|
—
|
||||
|
06/08/2004
|
12/31/2004
|
460,000
|
—
|
$
|
38.6275
|
06/08/2014
|
—
|
—
|
||||
|
02/18/2005
|
02/18/2005
|
460,000
|
—
|
$
|
45.6425
|
02/18/2015
|
—
|
—
|
||||
|
02/17/2006
|
02/17/2009
|
—
|
300,000
|
$
|
72.05
|
02/17/2016
|
—
|
—
|
||||
|
03/02/2007
|
03/02/2010
|
—
|
344,198
|
$
|
63.04
|
03/02/2017
|
—
|
—
|
||||
|
—
|
—
|
—
|
—
|
$
|
—
|
—
|
14,238
|
$
|
1,033,109
|
|||
|
—
|
—
|
—
|
—
|
$
|
—
|
—
|
25,000
|
$
|
1,814,000
|
|||
|
S.L.
Levenick
|
06/11/2002
|
06/11/2005
|
54,000
|
—
|
$
|
25.3575
|
06/11/2012
|
—
|
—
|
|||
|
06/10/2003
|
06/10/2006
|
54,000
|
—
|
$
|
27.1425
|
06/10/2013
|
—
|
—
|
||||
|
06/08/2004
|
12/31/2004
|
126,000
|
—
|
$
|
38.6275
|
06/08/2014
|
—
|
—
|
||||
|
02/18/2005
|
02/18/2005
|
130,000
|
—
|
$
|
45.6425
|
02/18/2015
|
—
|
—
|
||||
|
02/17/2006
|
02/17/2009
|
—
|
105,000
|
$
|
72.05
|
02/17/2016
|
—
|
—
|
||||
|
03/02/2007
|
03/02/2010
|
—
|
124,396
|
$
|
63.04
|
03/02/2017
|
—
|
—
|
||||
|
—
|
—
|
—
|
—
|
$
|
—
|
—
|
4,832
|
$
|
350,610
|
|||
|
—
|
—
|
—
|
—
|
$
|
—
|
—
|
1,000
|
$
|
72,560
|
|||
|
D.R.
Oberhelman
|
06/09/1998
|
06/09/2001
|
19,410
|
—
|
$
|
27.8438
|
06/09/2008
|
—
|
—
|
|||
|
06/08/1999
|
06/08/2002
|
42,000
|
—
|
$
|
31.1719
|
06/08/2009
|
—
|
—
|
||||
|
06/12/2000
|
06/12/2003
|
48,000
|
—
|
$
|
19.2032
|
06/12/2010
|
—
|
—
|
||||
|
06/12/2001
|
06/12/2004
|
48,000
|
—
|
$
|
26.7650
|
06/12/2011
|
—
|
—
|
||||
|
06/11/2002
|
06/11/2005
|
122,000
|
—
|
$
|
25.3575
|
06/11/2012
|
—
|
—
|
||||
|
06/10/2003
|
06/10/2006
|
140,000
|
—
|
$
|
27.1425
|
06/10/2013
|
—
|
—
|
||||
|
06/08/2004
|
12/31/2004
|
140,000
|
—
|
$
|
38.6275
|
06/08/2014
|
—
|
—
|
||||
|
02/18/2005
|
02/18/2005
|
140,000
|
—
|
$
|
45.6425
|
02/18/2015
|
—
|
—
|
||||
|
02/17/2006
|
02/17/2009
|
—
|
110,000
|
$
|
72.05
|
02/17/2016
|
—
|
—
|
||||
|
03/02/2007
|
02/17/2010
|
—
|
125,884
|
$
|
63.04
|
03/02/2017
|
—
|
—
|
||||
|
—
|
—
|
—
|
—
|
$
|
—
|
—
|
4,832
|
$
|
350,610
|
|||
|
—
|
—
|
—
|
—
|
$
|
—
|
—
|
7,000
|
$
|
507,920
|
|||
|
G.L.
Shaheen
|
06/09/1998
|
06/09/2001
|
38,410
|
—
|
$
|
27.8438
|
06/09/2008
|
—
|
—
|
|||
|
06/08/1999
|
06/08/2002
|
96,792
|
—
|
$
|
31.1719
|
06/08/2009
|
—
|
—
|
||||
|
06/11/2002
|
06/11/2005
|
122,000
|
—
|
$
|
25.3575
|
06/11/2012
|
—
|
—
|
||||
|
06/10/2003
|
06/10/2006
|
140,000
|
—
|
$
|
27.1425
|
06/10/2013
|
—
|
—
|
||||
|
06/08/2004
|
12/31/2004
|
140,000
|
—
|
$
|
38.6275
|
06/08/2014
|
—
|
—
|
||||
|
02/18/2005
|
02/18/2005
|
140,000
|
—
|
$
|
45.6425
|
02/18/2015
|
—
|
—
|
||||
|
02/17/2006
|
02/17/2009
|
—
|
95,000
|
$
|
72.05
|
02/17/2016
|
—
|
—
|
||||
|
03/02/2007
|
03/02/2010
|
—
|
109,516
|
$
|
63.04
|
03/02/2017
|
—
|
—
|
||||
|
—
|
—
|
—
|
—
|
$
|
—
|
—
|
4,832
|
$
|
350,610
|
|||
|
G.R.
Vittecoq
|
06/12/2000
|
06/12/2003
|
23,968
|
—
|
$
|
19.2032
|
06/12/2010
|
—
|
—
|
|||
|
06/12/2001
|
06/12/2004
|
48,000
|
—
|
$
|
26.7650
|
06/12/2011
|
—
|
—
|
||||
|
06/11/2002
|
06/11/2005
|
54,000
|
—
|
$
|
25.3575
|
06/11/2012
|
—
|
—
|
||||
|
06/10/2003
|
06/10/2006
|
54,000
|
—
|
$
|
27.1425
|
06/10/2013
|
—
|
—
|
||||
|
06/08/2004
|
12/31/2004
|
126,000
|
—
|
$
|
38.6275
|
06/08/2014
|
—
|
—
|
||||
|
02/18/2005
|
02/18/2005
|
130,000
|
—
|
$
|
45.6425
|
02/18/2015
|
—
|
—
|
||||
|
02/17/2006
|
02/17/2009
|
—
|
95,000
|
$
|
72.05
|
02/17/2016
|
—
|
—
|
||||
|
03/02/2007
|
03/02/2010
|
—
|
109,516
|
$
|
63.04
|
03/02/2017
|
—
|
—
|
||||
|
—
|
—
|
—
|
—
|
$
|
—
|
—
|
4,832
|
$
|
350,610
|
|||
|
—
|
—
|
—
|
—
|
$
|
—
|
—
|
2,723
|
$
|
197,581
|
|||
|
S.H.
Wunning
|
06/12/2000
|
06/12/2003
|
48,000
|
—
|
$
|
19.2032
|
06/12/2010
|
—
|
—
|
|||
|
06/12/2001
|
06/12/2004
|
48,000
|
—
|
$
|
26.7650
|
06/12/2011
|
—
|
—
|
||||
|
06/11/2002
|
06/11/2005
|
60,000
|
—
|
$
|
25.3575
|
06/11/2012
|
—
|
—
|
||||
|
06/10/2003
|
06/10/2006
|
54,000
|
—
|
$
|
27.1425
|
06/10/2013
|
—
|
—
|
||||
|
06/08/2004
|
12/31/2004
|
126,000
|
—
|
$
|
38.6275
|
06/08/2014
|
—
|
—
|
||||
|
02/18/2005
|
02/18/2005
|
130,000
|
—
|
$
|
45.6425
|
02/18/2015
|
—
|
—
|
||||
|
02/17/2006
|
02/17/2009
|
—
|
95,000
|
$
|
72.05
|
02/17/2016
|
—
|
—
|
||||
|
03/02/2007
|
03/02/2010
|
—
|
124,694
|
$
|
63.04
|
03/02/2017
|
—
|
—
|
||||
|
—
|
—
|
—
|
—
|
$
|
—
|
—
|
4,832
|
$
|
350,610
|
|||
|
D.B.
Burritt
|
06/10/2003
|
06/10/2006
|
23,100
|
—
|
$
|
27.1425
|
06/10/2013
|
—
|
—
|
|||
|
06/08/2004
|
12/31/2004
|
23,100
|
—
|
$
|
38.6275
|
06/08/2014
|
—
|
—
|
||||
|
02/18/2005
|
02/18/2005
|
54,000
|
—
|
$
|
45.6425
|
02/18/2015
|
—
|
—
|
||||
|
02/17/2006
|
02/17/2009
|
—
|
48,000
|
$
|
72.05
|
02/17/2016
|
—
|
—
|
||||
|
03/02/2007
|
03/02/2010
|
—
|
47,342
|
$
|
63.04
|
03/02/2017
|
—
|
—
|
||||
|
—
|
—
|
—
|
—
|
$
|
—
|
—
|
2,594
|
$
|
188,221
|
|||
|
1
|
SARs granted
in 2007 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
|
In addition to
the RSUs and restricted stock granted in 2007 to the NEOs (reported in the
2007 Summary Compensation Table), the amounts shown also include the
portion of any prior grants that were not vested as of December 31,
2007.
|
|
3
|
The market
value of the non-vested RSUs and restricted shares (or equivalent shares
in the case of Mr. Vittecoq) is calculated using the closing price of
Caterpillar common stock on December 31, 2007 ($72.56 per
share).
|
Page 44
|
2007
Option Exercises and Stock Vested
|
||||||||||||
|
Option
Awards (1)
|
Stock
Awards (2)
|
|||||||||||
|
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
|
$
|
4,513,120
|
—
|
$
|
—
|
||||||
|
S.L.
Levenick
|
75,042
|
$
|
3,770,308
|
—
|
$
|
—
|
||||||
|
D.R.
Oberhelman
|
60,722
|
$
|
2,941,608
|
2,000
|
$
|
133,170
|
||||||
|
G.L.
Shaheen
|
—
|
$
|
—
|
—
|
$
|
—
|
||||||
|
G.R.
Vittecoq
|
19,360
|
$
|
985,387
|
686
|
$
|
43,281
|
||||||
|
S.H.
Wunning
|
—
|
$
|
—
|
—
|
$
|
—
|
||||||
|
D.B.
Burritt
|
—
|
$
|
—
|
—
|
$
|
—
|
||||||
|
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.
|
|
2007
Pension Benefits
|
||||||||
|
Name
|
Plan
Name (1)
|
Number
of Years of Credited Service (2)
|
Present
Value of
Accumulated
Benefit (3)
|
Payments
During Last Fiscal Year
|
||||
|
J.W.
Owens
|
RIP
|
35.00
|
$
|
1,980,724
|
$
|
—
|
||
|
SERP
|
35.00
|
$
|
11,686,795
|
$
|
—
|
|||
|
S.L.
Levenick
|
RIP
|
30.42
|
$
|
1,100,136
|
$
|
—
|
||
|
SERP
|
30.42
|
$
|
2,238,068
|
$
|
—
|
|||
|
D.R.
Oberhelman
|
RIP
|
32.42
|
$
|
1,187,366
|
$
|
—
|
||
|
SERP
|
32.42
|
$
|
3,267,872
|
$
|
—
|
|||
|
G.L.
Shaheen
|
RIP
|
35.00
|
$
|
1,938,736
|
$
|
—
|
||
|
SERP
|
35.00
|
$
|
5,986,404
|
$
|
—
|
|||
|
G.R.
Vittecoq
|
Caprevi,
Prevoyance
|
31.92
|
$
|
9,200,385
|
$
|
—
|
||
|
S.H.
Wunning
|
RIP
|
34.50
|
$
|
1,410,738
|
$
|
—
|
||
|
SERP
|
34.50
|
$
|
3,081,652
|
$
|
—
|
|||
|
D.B.
Burritt
|
RIP
|
29.83
|
$
|
951,702
|
$
|
—
|
||
|
SERP
|
29.83
|
$
|
757,285
|
$
|
—
|
|||
|
1
|
RIP is a noncontributory U.S.
qualified defined benefit pension plan and SERP 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
SERP. SERP is not funded. The formula used to
calculate the benefit payable in the SERP 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 can be received in a 100 percent
lump sum payment or annuity.
|
|
2
|
Mr. Owens and Mr. Shaheen have
both accumulated more than 35 years of service with the
company. Amounts payable under both RIP and SERP are based upon
a maximum of 35 years of service. All RIP and SERP 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 retired effective February 1, 2008, but was eligible for early
retirement with no reduction as of December 31,
2007. 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, 2007, assuming benefits are payable at each NEO’s earliest unreduced retirement
age based upon current level of pensionable income. The
interest rate of 5.84 percent and the RP2000 mortality table used in the
calculations are based upon the U.S. FAS 87 disclosure at
November 30, 2007. Mr. Vittecoq’s lump sum present value
accumulated benefit is based upon the Swiss pension measurement date of
September 30, 2007. The EVK 2000 mortality table and the Swiss
FAS 87 interest rate of 3.5 percent were used to calculate Mr.
Vittecoq’s
benefit.
|
Page 45
|
2007
Nonqualified Deferred Compensation (1)
|
||||||||||||
|
Name
|
Executive
Contributions
in
2007 (1)
|
Registrant
Contributions
in
2007 (2)
|
Aggregate
Earnings
in
2007
(3)
|
Aggregate
Balance
at
12/31/07 (1)
|
||||||||
|
J.W.
Owens
|
$
|
168,672
|
$
|
168,672
|
$
|
282,507
|
$
|
3,425,613
|
||||
|
S.L.
Levenick
|
$
|
196,168
|
$
|
62,265
|
$
|
357,060
|
$
|
5,321,390
|
||||
|
D.R.
Oberhelman
|
$
|
212,465
|
$
|
72,726
|
$
|
357,974
|
$
|
2,300,071
|
||||
|
G.L.
Shaheen
|
$
|
442,897
|
$
|
69,066
|
$
|
774,841
|
$
|
4,238,942
|
||||
|
G.R.
Vittecoq
|
$
|
49,571
|
$
|
33,047
|
$
|
383,999
|
$
|
2,387,009
|
||||
|
S.H.
Wunning
|
$
|
377,884
|
$
|
65,178
|
$
|
315,837
|
$
|
3,048,335
|
||||
|
D.B.
Burritt
|
$
|
39,647
|
$
|
39,647
|
$
|
25,795
|
$
|
355,537
|
||||
|
1
|
SDCP is a non-qualified deferred
compensation plan that was created in March of 2007 with a
retroactive effective date of January 1, 2005 and effectively replaced the
existing plans, SEIP and DEIP. All future contributions will be
made under SDCP and the aggregate balance at 12/31/07 column includes any
amounts deferred under SEIP and/or DEIP prior to the creation of
SDCP.
|
|
2
|
SDCP allows
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 2007
for base salary, short-term incentive pay and/or long-term cash
performance payouts are included in the 2007 Summary Compensation
Table. Matching contributions in non-qualified deferred
compensation plans made by Caterpillar in 2007 are also included in
the 2007 All Other Compensation Table under the Matching Contributions
SDCP column. SDCP participants may elect a lump sum payment, or
an installment distribution payable for up to 15 years after
separation.
|
|
3
|
Aggregate earnings comprise interest,
dividends, capital gains and appreciation/depreciation of investment
results.
|
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, 2007. 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
or termination without
cause)
|
|
|
§
|
Termination for Cause
(termination)
|
|
|
§
|
Long-Service Separation
(retirement)
|
Page 46
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 48. These terms are applicable
to all employees covered by the long-term incentive plan.
Short-term
incentive pay
In the event of retirement at December
31, 2007, NEOs would be eligible to receive the amount otherwise payable to them
for the 2007 plan year under their applicable STIP. In the case of
termination or resignation at December 31, 2007, 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
48.
Long-term
performance awards
In the event of retirement at December
31, 2007, NEOs would be
eligible to receive amounts otherwise payable to them under the LTCPP feature of
the Caterpillar Inc. 2006 Long-Term Incentive Plan and the 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 48. These terms are applicable
to all employees covered by the long-term plan.
Deferred
compensation
The Non-Qualified Deferred Compensation
Table on page
48 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 Non-Qualified Deferred Compensation column of the
Potential Payments Table assumes the NEO terminated
employment at December 31, 2007 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 48 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. Potential payment amounts
and assumptions are included in the Potential Payments Table on page
48. These change in
control provisions are designed so that employees are not harmed 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 47
|
Potential
Payments Upon Termination or
Change in Control
|
||||||||||||||||||||
|
Equity
Awards
|
Incentive
|
|||||||||||||||||||
|
Name
|
Termination
Scenario
|
Stock
Options/
SARs
(1)
|
Restricted
Stock/
RSUs (2)
|
Short-term
Incentive
(3)
|
Long-term
Incentive
(4)
|
Non-Qualified
Deferred
Comp.
(5)
|
Total
|
|||||||||||||
|
J.
W. Owens
|
Voluntary
Separation/Resignation
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
3,425,613
|
$
|
3,425,613
|
|||||||
|
Long-Service
Separation/Retirement
|
$
|
3,429,765
|
$
|
2,847,109
|
$
|
1,942,998
|
$
|
2,537,919
|
$
|
3,425,613
|
$
|
14,183,404
|
||||||||
|
Termination
for Cause
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
3,425,613
|
$
|
3,425,613
|
||||||||
|
Change
in Control
|
$
|
3,429,765
|
$
|
2,847,109
|
$
|
4,000,000
|
$
|
2,973,545
|
$
|
3,425,613
|
$
|
16,676,032
|
||||||||
|
S.
L. Levenick
|
Voluntary
Separation/Resignation
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
5,321,390
|
$
|
5,321,390
|
|||||||
|
Long-Service
Separation/Retirement
|
$
|
1,237,800
|
$
|
423,170
|
$
|
677,757
|
$
|
774,795
|
$
|
5,321,390
|
$
|
8,434,912
|
||||||||
|
Termination
for Cause
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
5,321,390
|
$
|
5,321,390
|
||||||||
|
Change
in
Control
|
$
|
1,237,800
|
$
|
423,170
|
$
|
1,424,496
|
$
|
1,162,193
|
$
|
5,321,390
|
$
|
9,569,049
|
||||||||
|
D.
R. Oberhelman
|
Voluntary
Separation/Resignation
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
2,300,071
|
$
|
2,300,071
|
|||||||
|
Long-Service
Separation/Retirement
|
$
|
1,254,516
|
$
|
858,530
|
$
|
694,409
|
$
|
800,857
|
$
|
2,300,071
|
$
|
5,908,383
|
||||||||
|
Termination
for Cause
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
2,300,071
|
$
|
2,300,071
|
||||||||
|
Change
in Control
|
$
|
1,254,516
|
$
|
858,530
|
$
|
1,459,992
|
$
|
1,201,286
|
$
|
2,300,071
|
$
|
7,074,395
|
||||||||
|
G.
L. Shaheen
|
Voluntary
Separation/Resignation
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
4,238,942
|
$
|
4,238,942
|
|||||||
|
Long-Service
Separation/Retirement
|
$
|
1,091,042
|
$
|
350,610
|
$
|
694,409
|
$
|
466,276
|
$
|
4,238,942
|
$
|
6,841,279
|
||||||||
|
Termination
for Cause
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
4,238,942
|
$
|
4,238,942
|
||||||||
|
Change
in Control
|
$
|
1,091,042
|
$
|
350,610
|
$
|
1,459,992
|
$
|
699,414
|
$
|
4,238,942
|
$
|
7,840,000
|
||||||||
|
G.
R. Vittecoq
|
Voluntary
Separation/Resignation
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
2,387,009
|
$
|
2,387,009
|
|||||||
|
Long-Service
Separation/Retirement
|
$
|
1,091,042
|
$
|
546,159
|
$
|
787,060
|
$
|
878,773
|
$
|
2,387,009
|
$
|
5,690,043
|
||||||||
|
Termination
for Cause
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
2,387,009
|
$
|
2,387,009
|
||||||||
|
Change
in Control
|
$
|
1,091,042
|
$
|
546,159
|
$
|
1,652,358
|
$
|
1,318,159
|
$
|
2,387,009
|
$
|
6,994,727
|
||||||||
|
S.
H. Wunning
|
Voluntary
Separation/Resignation
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
3,048,335
|
$
|
3,048,335
|
|||||||
|
Long-Service
Separation/Retirement
|
$
|
1,235,537
|
$
|
350,610
|
$
|
681,039
|
$
|
780,110
|
$
|
3,048,335
|
$
|
6,095,631
|
||||||||
|
Termination
for Cause
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
3,048,335
|
$
|
3,048,335
|
||||||||
|
Change
in Control
|
$
|
1,235,537
|
$
|
350,610
|
$
|
1,431,492
|
$
|
1,170,165
|
$
|
3,048,335
|
$
|
7,236,139
|
||||||||
|
D.
B. Burritt
|
Voluntary
Separation/Resignation
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
355,537
|
$
|
355,537
|
|||||||
|
Long-Service
Separation/Retirement
|
$
|
475,176
|
$
|
188,221
|
$
|
475,089
|
$
|
404,303
|
$
|
355,537
|
$
|
1,898,326
|
||||||||
|
Termination
for Cause
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
355,537
|
$
|
355,537
|
||||||||
|
Change
in Control
|
$
|
475,176
|
$
|
188,221
|
$
|
475,089
|
$
|
606,454
|
$
|
355,537
|
$
|
2,100,477
|
||||||||
|
1
|
In
the event of termination of employment due to a change in control, maximum
payout factors are assumed for amounts payable under The
Caterpillar Inc. 2006 Long-Term Incentive Plan (LTIP) and the prior plan
The 1996 Stock Option and Long-Term Incentive Plan 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 both the 2007 and
2006 SAR grant were “in
the money” as
of 12/31/2007, as the grant price of $63.04 and $72.05 was less than the
year-end stock price of
$72.56. Both grants were not fully vested as of
12/31/2007. 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 and
restricted stock
units 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 31, 2007, which was $72.56 per
share.
|
|
3
|
ESTIP
provisions provide for the maximum payout allowed under the plan in the
event of a change in control. The plan provisions limit the
payout to a maximum of $4 million in any single year. Mr.
Owens’ payout for a change in control is capped at $4
million. This amount is less than his plan payout at
maximum. 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 2006-2008 and 2007-2009, both of which are open
cycles as of 12/31/2007. Plan provisions in effect for
the 2006-2008 performance cycle restrict Mr. Owens’ payout to a $2.5
million cap per plan cycle. The $2.5 million cap was
increased to $5 million beginning with the 2007-2009 performance cycle
granted under the Caterpillar Inc. 2006 Long-Term Incentive
Plan. The 2005-2007 plan cycle amounts are not shown as
this
cycle was fully vested
as of 12/31/2007. 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 2006-2008 and
2007-2009, both of which were open cycles as of
12/31/2007. Participants forfeit any benefit upon a voluntary
separation or a termination for cause that occurs prior to the
completion
of the performance period. Mr. Shaheen retired on
February 1, 2008, and his Long-Term Incentive amounts have been prorated
for his period of active employment.
|
|
5
|
Amounts
assume Termination or Change in Control separation occurring on December
31,
2007, with no further deferral of available
funds.
|
Page 48
Of our current board members, only Mr.
Owens is a salaried employee of Caterpillar. Non-employee directors are
compensated for board service. For 2007, 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):
|
5,833 SARs – 2007
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 (DDCP),
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 50 for non-employee directors and on
page 41 for Mr.
Owens.
Page 49
|
Director
Compensation for 2007
|
||||||||||||
|
Director
|
Fees
Earned or
Paid
in Cash
|
Option
Awards
(1)
|
All
Other
Compensation
(2)
|
Total
|
||||||||
|
W.
Frank Blount
|
$
|
97,500
|
$
|
120,947
|
$
|
9,472
|
$
|
227,919
|
||||
|
John
R. Brazil
|
$
|
99,996
|
$
|
127,057
|
$
|
24,776
|
$
|
251,829
|
||||
|
Daniel
M. Dickinson
|
$
|
90,000
|
$
|
33,596
|
$
|
4,390
|
$
|
127,986
|
||||
|
John
T. Dillon
|
$
|
99,996
|
$
|
151,117
|
$
|
5,949
|
$
|
257,062
|
||||
|
Eugene
V. Fife
|
$
|
115,008
|
$
|
87,233
|
$
|
34,902
|
$
|
237,143
|
||||
|
Gail
D. Fosler
|
$
|
90,000
|
$
|
87,233
|
$
|
—
|
$
|
177,233
|
||||
|
Juan
Gallardo
|
$
|
90,000
|
$
|
197,335
|
$
|
30,760
|
$
|
318,095
|
||||
|
David
R. Goode
|
$
|
100,008
|
$
|
120,947
|
$
|
55,098
|
$
|
276,053
|
||||
|
Peter
A. Magowan
|
$
|
90,000
|
$
|
120,947
|
$
|
25,527
|
$
|
236,474
|
||||
|
William
A. Osborn
|
$
|
100,008
|
$
|
87,233
|
$
|
26,088
|
$
|
213,329
|
||||
|
Charles
D. Powell
|
$
|
96,000
|
$
|
87,233
|
$
|
35,966
|
$
|
219,199
|
||||
|
Edward
B. Rust, Jr.
|
$
|
90,000
|
$
|
87,233
|
$
|
38,028
|
$
|
215,261
|
||||
|
Joshua
I. Smith
|
$
|
90,000
|
$
|
120,947
|
$
|
10,143
|
$
|
221,090
|
||||
|
1
|
Each
non-employee director was awarded 5,833 stock settled SARs on March 2,
2007. The grant date fair market value for each SAR was
$20.7349. 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, 2007 included in Form 10-K filed with
the SEC on February 22, 2008. As of December 31, 2007, the
number of shares of stock / vested and non-vested options held by
each non-employee director was: Mr. Blount: 12,430/
76,833; Mr. Brazil: 8,803/ 44,833; Mr. Dickinson:
783/ 5,833; Mr. Dillon: 18,189/ 68,833; Mr. Fife:
22,000/ 36,833; Ms. Fosler: 4,515/ 32,833; Mr.
Gallardo: 204,110/ 76,833; Mr. Goode: 38,675/
76,833; Mr. Magowan: 266,943/ 76,833; Mr.
Osborn:
16,631/ 44,833; Mr. Powell: 5,010/ 52,833; Mr. Rust:
4,933/ 36,833; and Mr. Smith: 16,205/ 39,833. 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, 2007: 307,089 /
2,156,436.
|
|
2
|
All
Other Compensation represents reinvested earning for assets held in DDCP
and premium plus administrative costs associated with the
Directors’ Charitable
Award Program.
|
|
2007
All Other Director Compensation
Table
|
|||||||||||
|
Earnings
on the Director’s
Deferred Compensation Plan (1)
|
Director’s
Charitable Award Program - Insurance Premiums and Administrative Costs
(2)
|
Total
|
|||||||||
|
W.
Frank Blount
|
$
|
7,972
|
$
|
1,500
|
$
|
9,472
|
|||||
|
John
R. Brazil
|
$
|
3,297
|
$
|
21,479
|
$
|
24,776
|
|||||
|
Daniel
M. Dickinson
|
$
|
890
|
$
|
3,500
|
$
|
4,390
|
|||||
|
John
T. Dillon
|
$
|
4,449
|
$
|
1,500
|
$
|
5,949
|
|||||
|
Eugene
V. Fife
|
$
|
—
|
$
|
34,902
|
$
|
34,902
|
|||||
|
Gail
D. Fosler
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||
|
Juan
T. Gallardo
|
$
|
5,736
|
$
|
25,024
|
$
|
30,760
|
|||||
|
David
R. Goode
|
$
|
53,598
|
$
|
1,500
|
$
|
55,098
|
|||||
|
Peter
A. Magowan
|
$
|
24,027
|
$
|
1,500
|
$
|
25,527
|
|||||
|
William
A. Osborn
|
$
|
1,065
|
$
|
25,023
|
$
|
26,088
|
|||||
|
Charles
D. Powell
|
$
|
1,065
|
$
|
34,901
|
$
|
35,966
|
|||||
|
Edward
B. Rust, Jr.
|
$
|
8,016
|
$
|
30,012
|
$
|
38,028
|
|||||
|
Joshua
I. Smith
|
$
|
8,643
|
$
|
1,500
|
$
|
10,143
|
|||||
|
1
|
Represents
dividends on equivalent shares held in DDCP.
|
|
2
|
The
amounts listed represent the named directors’ year
2007 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. Mr. Dickinson’s
administrative fee included an initial account set-up
cost.
|
Page 50
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 required to be filed pursuant to Section 16(a) of the Securities
Exchange Act of 1934 were filed on a timely basis, except for the following
transactions. These transactions occurred prior to 2007 and were inadvertently not
reported. The transactions were indentified in 2007 as a result of
account reconciliations.
|
|
§
|
One Form 4 was filed with the SEC
on July 30, 2007 reporting 1,000 shares that were gifted in a single
transaction by Mr. Levenick in
2006.
|
|
|
§
|
One Form 4 was filed with the SEC
on August 14, 2007 reporting 120 shares that were received by Mr. Magowan
in a single
transition in 2003 and a corresponding 120 shares issued as a result of
the company’s July 2005 two-for-one stock
split.
|
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 properly presented, 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 notice of
the annual meeting was provided.
Page 51
Admission
Admission is limited to stockholders of
record on April 14, 2008 and one immediate family member guest, or one
individual designated as a stockholder’s authorized proxy holder or one representative designated
in writing to present a stockholder proposal. In each case, the
individual must have an admission ticket and valid government issued 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 15, 2008. No requests
will be processed after that date.
To Submit
Request
Submit ticket requests by mail to James
B. Buda, Corporate Secretary, 100 NE Adams Street, Peoria, Illinois 61629
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.
Proponent of Stockholder
Proposal
For each stockholder proposals
included in this proxy
statement, the stockholder sponsor should notify the company in writing of the
individual authorized to present the proposal on behalf of the stockholder at
the annual meeting. One admission ticket will be issued for the
designated representative.
Press
Members of the press must register with
the company prior to the annual meeting. To register, please contact
Jim Dugan by phone (309) 494-4100 or e-mail
(Dugan_Jim@cat.com).
Analysts
Analysts must register with the company
prior to the annual
meeting. To register, please contact Mike DeWalt by phone (309)
675-4549 or e-mail (CATir@CAT.com).
|
Registered
Stockholders
|
Beneficial
Holders
|
|
|
For ownership
verification provide:
|
For ownership
verification provide:
|
|
|
ØName(s) of
stockholder
ØAddress
ØPhone
number
ØSocial security
number and/or stockholder account key; or
ØA copy of your
proxy card or notice showing stockholder name and
address
|
ØA copy of your
April brokerage account statement showing Caterpillar stock ownership as
of the record date
(4/14/08);
ØA letter from your
broker, bank or other nominee verifying your record date (4/14/08)
ownership; or
ØA copy of your
brokerage account voting instruction card showing stockholder name and
address
|
|
|
Also
include:
|
Also
include:
|
|
|
ØName of immediate
family member guest, if other than stockholder
ØName of authorized
proxy representative, if one appointed
ØAddress where
tickets should be mailed and phone number
|
ØName of immediate
family member guest if other than stockholder
ØName of authorized
proxy representative, if one appointed
ØAddress where
tickets should be mailed and phone
number
|
Page 52
Important
Notice Regarding the Availability of
Proxy
Materials for the Caterpillar Inc.
Annual
Meeting of Stockholders to Be Held on June 11, 2008
Under new U.S. Securities and Exchange
Commission rules, you are receiving this notice that the proxy materials for the
Caterpillar Inc. 2008 Annual Meeting of Stockholders, including the proxy
statement, 2007 annual report and 2007 sustainability reports are available on
the Internet. Follow the instructions below to view the proxy materials and vote
online or request paper or e-mail copies. Information about the annual meeting,
including the items to be voted on, is provided on the reverse side of this
notice.
THIS IS NOT A PROXY CARD. If you wish to
cast your vote on a traditional proxy card, you must request that a paper copy
of the proxy materials be mailed to you by following the instructions at the
bottom of this page.
This communication presents only an
overview of the more complete proxy materials that are available to you on the
Internet. We encourage you to access and review all of the important information
contained in the proxy materials before voting.
|
[Control
Number]
|
To view the proxy materials, please have
this notice available and visit: www.eproxyaccess.com/cat
Please have this notice available when
you access the voting website. Follow the instructions on the screen to log into
the website to vote. Your Internet vote authorizes the named proxies to vote
your shares in the same manner as if you marked, signed and returned a proxy
card.
If you want to receive a paper or e-mail
copy of the proxy materials, you must request one by following the instructions
below:
|
|
§
|
Internet
– Access the Internet
and go to www.eproxyaccess.com/cat.
|
|
|
§
|
Telephone
– Call us free of
charge at 1-866-580-7648 from within the United States or
Canada.
|
|
|
§
|
E-mail
– Send us an e-mail
at cat@eproxyaccess.com, using the number in the box
above as the subject line, and state 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.
|
There is no charge to you for requesting
a copy. Please make your request for a copy as instructed above on or before
June 1, 2008 to facilitate timely delivery.
Caterpillar
Inc.
Notice
of Annual Meeting of Stockholders
The annual meeting of stockholders of
Caterpillar Inc. will be held on Wednesday, June 11, 2008 at 1:30 p.m., Central
Daylight Time, at the Northern Trust Building, 50 South LaSalle Street, Chicago,
Illinois.
The matters intended to be acted upon at
the meeting are listed below:
1. Election of directors: W. Frank Blount,
John R. Brazil, Eugene V. Fife, Gail D. Fosler, Peter A.
Magowan.
2. Proposal to ratify the appointment of
the independent registered public accounting firm for the 2008 fiscal
year.
3. Stockholder Proposal - Annual Election
of Directors.
4. Stockholder Proposal - Director Election
Majority Vote Standard.
5. Stockholder Proposal - Foreign Military
Sales.
6. To consider such other business as may
properly come before the meeting.
The Board of Directors recommends that
you vote FOR the election of each of the nominees for director and FOR the
ratification of the appointment of the independent registered public accounting
firm for the 2008 fiscal year, and AGAINST the three stockholder
proposals.
THIS IS NOT A PROXY CARD. If you wish to
cast your vote on a traditional proxy card, you must request that a paper copy
of the proxy materials be mailed to you by following the instructions on the
reverse side of this notice.
These items of business are more fully
described in the proxy materials relating to the annual meeting. Follow the
instructions on the reverse side of this notice to view the proxy materials and
vote via the Internet or to request a paper or e-mail copy of the proxy
materials. Any action on the items of business described above may be considered
at the annual meeting at the time and on the date specified above or at any time
and date to which the annual meeting may be properly adjourned or
postponed.
You are entitled to vote at the annual
meeting only if you were a stockholder of Caterpillar Inc. as of the close of
business on April 14, 2008, which is the record date for the annual
meeting.
If you are a stockholder as of the
record date, you are invited to attend the annual meeting and you may vote in
person.
You must have an admission ticket to
attend. Procedures for requesting the admission ticket are included in the proxy
statement. Directions to attend the meeting will be provided along with any
issued admission tickets.
PROXY AND VOTING INSTRUCTION
ANNUAL MEETING OF STOCKHOLDERS—JUNE
11, 2008
This proxy is solicited on behalf of
the Board of Directors
At the Annual
Meeting of Stockholders of Caterpillar Inc. (the Company) on June 11, 2008,
or at any adjournments thereof, the undersigned hereby
(i) appoints C.C. SPEARS 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 C.C. SPEARS 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 14, 2008, 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 8:00 a.m. Eastern Time, on
June 9, 2008, 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 Class I - Directors
|
|
|
|
|
||
|
|
|
nominated for election this year
|
FOR
|
|
WITHHOLD
|
|
|
|
|
|
|
|
|
o
|
|
o
|
|
|
|
|
|
Nominees:
01. W.
Frank Blount
02. John R.
Brazil
03. Eugene V.
Fife
04. Gail D.
Fosler
05.
Peter A. Magowan
|
|
|
|
|
|
|
|
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—Annual
Election of Directors
|
o
|
|
o
|
|
o
|
|
4.
|
|
Stockholder Proposal—Director
Election Majority Vote Standard
|
o
|
|
o
|
|
o
|
| 5. |
Stockholder
Proposal—Foreign Military Sales
|
o
|
o
|
o
|
|
SIGNATURE
|
|
|
DATE
|
|
|
,
2008
|
|
SIGNATURE
|
|
|
DATE
|
|
|
,
2008
|
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.