UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, DC 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Amendment No.     )

 

Filed by the Registrant

Filed by a Party other than the Registrant

 

Check the appropriate box:
	Preliminary Proxy Statement
	Confidential, for Use of the Commission Only (as permitted by Rule 14A-6(E)(2))
	Definitive Proxy Statement
	Definitive Additional Materials
	Soliciting Material under §240.14a-12

 

CATERPILLAR INC

 

 

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check all boxes that apply):
	No fee required.
	Fee paid previously with preliminary materials.
	Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

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We are sending you these proxy materials in connection with Caterpillar’s solicitation of proxies, on behalf of its board of directors, for the 2023 Annual Meeting of Shareholders (Annual Meeting). Distribution of these materials is scheduled to begin on May 5, 2023. Please submit your vote or proxy by telephone, mobile device, internet or, if you received your materials by mail, you can complete and return your proxy or voting instruction form by mail.

 

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PROXY SUMMARY

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

ANNUAL MEETING OF SHAREHOLDERS

SHAREHOLDER VOTING MATTERS

 

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OUR DIRECTOR NOMINEES

Nominee and Principal Occupation	Independent	Age	Director Since	Other Public Company Boards	Caterpillar Committees
					AC	CHRC	SPPC	NGC	EC
Kelly A. Ayotte Former U.S. Senator representing New Hampshire	Yes	54	2017	Blackstone Inc. Boston Properties, Inc. News Corporation
David L. Calhoun President and CEO of The Boeing Company	Yes	65	2011	The Boeing Company
Daniel M. Dickinson Managing Partner of HCI Equity Partners	Yes	61	2006	None
James C. Fish, Jr. President and CEO of Waste Management, Inc.	Yes	60	2023	Waste Management, Inc.
Gerald Johnson Executive Vice President, Global Manufacturing and Sustainability of General Motors Company	Yes	60	2021	None
David W. MacLennan Executive Chair of the Board of Cargill, Inc.	Yes	63	2021	Ecolab Inc.
Judith F. Marks Chair, CEO and President of Otis Worldwide Corporation	Yes	59	2023	Otis Worldwide Corporation
Debra L. Reed-Klages Presiding Director of Caterpillar Inc. Former Chairman and CEO of Sempra Energy	Yes	66	2015	Chevron Corporation Lockheed Martin Corporation
Susan C. Schwab Professor Emerita at the University of Maryland School of Public Policy and Strategic Advisor for Mayer Brown LLP; former United States Trade Representative	Yes	68	2009	FedEx Corporation Marriott International, Inc.
D. James Umpleby III Chairman and CEO of Caterpillar Inc.	No	65	2017	Chevron Corporation
Rayford Wilkins, Jr. Former CEO of Diversified Businesses at AT&T Inc.	Yes	71	2017	Morgan Stanley Valero Energy Corporation

 

 

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GOVERNANCE HIGHLIGHTS

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

2022 PERFORMANCE HIGHLIGHTS

 

 

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5205 N. O’Connor Boulevard, Suite 100
Irving, TX 75039
Phone (972) 891-7700
www.caterpillar.com

NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS

The board of directors, after careful consideration, has decided to hold this year’s Annual Meeting exclusively online. If you plan to participate in the virtual meeting, please see the information below as well as the attendance and registration instructions on page 90. There will be no physical location for the Annual Meeting this year.

MEETING INFORMATION

JUNE 14, 2023

8 a.m. Central Time

Website: www.meetnow.global/MCP5W5Q

 

MEETING AGENDA

RECORD DATE

April 17, 2023

 

By Order of the Board of Directors

Nicole M. Puza

Corporate Secretary
May 5, 2023

 

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DIRECTORS & GOVERNANCE

PROPOSAL 1 – ELECTION OF DIRECTORS

OVERVIEW OF OUR DIRECTOR NOMINEES

 

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BOARD ATTENDANCE - 2022

The board’s policy is to encourage and expect that all directors attend each Annual Meeting of Shareholders. All then-serving directors attended the 2022 Annual Meeting. The independent directors generally meet in an executive session as part of each regularly scheduled board meeting. The board’s independent Presiding Director presided over the board’s executive sessions in 2022.

BOARD EVOLUTION SINCE 2016

 

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DIVERSITY OF SKILLS AND EXPERTISE

The following skills matrix displays the most significant skills and qualifications that each director nominee possesses. The board does not assign a specific weight to any particular skill. Rather, the NGC regularly reviews the composition of the board as a whole to ensure that the board maintains a balance of knowledge and experience and to assess the skills and characteristics that the board may find valuable in the future in light of strategic plans and operating requirements of the Company and the best interests of shareholders.

SUMMARY OF INDIVIDUAL DIRECTOR NOMINEE SKILLS, CORE COMPETENCIES AND ATTRIBUTES

Caterpillar Board Tenure (Years)

6

12

17

0

2

2

0

8

14

6

6

6.6 years Average Tenure

Board of Directors Experience (other boards) Directors with experience on other boards and board committees understand the function of a board, corporate governance best practices, agenda setting, succession planning and relations between the board, the CEO and senior management.

•

•

•

•

•

•

•

•

•

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91%

Audit Committee Financial Expert Experience as an Audit Committee Financial Expert is important given our use of financial targets as measures of performance and the importance of accurate financial reporting and robust internal auditing.

•

•

•

•

•

•

•

•

•

100% of AC Members

CEO Directors with experience in a CEO role enhance the board’s ability to evaluate and advise our CEO on leading a large, complex, multinational corporation, as well as oversee strategic planning, values, and environmental, social and governance issues.

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•

•

•

•

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55%

Leadership Directors with significant leadership experience enhance the board’s ability to oversee strategic planning, values, and environmental, social and governance issues.

•

•

•

•

•

•

•

•

•

•

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100%

Business Development and Strategy Directors with a background in business development provide insight into developing and implementing strategies for growing our business, including the opportunities represented by the energy transition.

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•

•

•

•

•

•

•

•

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91%

Government/Regulatory Affairs Directors with experience in government or regulatory affairs provide experience and insights that help us understand opportunities across global markets and address regulatory issues, government affairs and present-day issues affecting business.

•

•

•

•

•

•

55%

 

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DIRECTOR CONTINUOUS EDUCATION AND DEVELOPMENT

The Company places high importance on the continuous development of its board.

Directors benefit from access to various governance and directorship organizations and publications to which Caterpillar subscribes. They also have ongoing education and development opportunities through participation in meetings and attendance at activities and professional development training offered by associations such as the National Association of Corporate Directors and Lead Director Network. They also receive a weekly digest of news articles related to Caterpillar.

Directors receive specialized presentations from experts in the Company’s various businesses in the course of their service. Since the last annual shareholder meeting, these presentations have included:

Directors are also given development and education opportunities through facility visits, product demonstrations and speaking or meeting directly with members of management and other employees. For example, since the last annual shareholder meeting, the directors visited the Tucson, Arizona, facility and observed new products designed to help our customers achieve their climate-related goals. The directors had the opportunity to observe and operate products such as the battery electric, zero-exhaust-emissions mini excavator. Directors also speak with Company dealers and customers to better understand the Company’s operations and business, and also attend industry trade shows such as CONEXPO.

These opportunities allow directors to be well-informed and to expand their knowledge of trends and issues relevant to their role.

BOARD’S ROLE IN COMPANY STRATEGY

The board has an active role in overseeing the Company’s strategy. The board regularly reviews management’s progress in executing the strategy. In 2022, the board initiated annual strategic reviews that included individual strategy reviews with members of the Executive Office. These reviews included discussions of the key geopolitical policies, economic, technological, environmental, talent and competitive challenges and opportunities of the Company’s business. The board plans to continue this practice going forward.

BOARD’S ROLE IN RISK OVERSIGHT

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

The Audit Committee (AC) assists the board in overseeing the enterprise risk management program and evaluates and monitors risks related to the Company’s financial reporting requirements, system of internal controls, the internal audit program, the independent auditor, the compliance program and the information security program. The AC assesses cybersecurity and information technology risks and the controls implemented to monitor and mitigate these risks. The Chief Information Officer attends all bimonthly AC meetings and provides cybersecurity updates to the AC and board.

The Compensation and Human Resources Committee (CHRC) monitors and assesses risks associated with the Company’s employment and compensation policies and practices.

The Nominating and Governance Committee (NGC) oversees various governance matters and the Sustainability and other Public Policy Committee (SPPC) oversees risks related to sustainability and other public policy issues that affect the Company, including health and safety, lobbying and political contributions, and human rights.

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DIRECTOR NOMINATIONS AND EVALUATIONS

PROCESS FOR NOMINATING AND EVALUATING DIRECTORS

The Nominating and Governance Committee (NGC) solicits and receives recommendations for potential director candidates from shareholders, management, directors, professional search firms and other sources. In its assessment of each potential candidate, the NGC considers each candidate’s professional experience, integrity, honesty, judgment, independence, accountability, willingness to express independent thought, understanding of the Company’s business and other factors that the NGC determines are pertinent in light of the current needs of the board. Candidates must have successful leadership experience and stature in their primary fields, with a background that demonstrates an understanding of business affairs as well as the complexities of a large, publicly held company. In addition, candidates must have demonstrated an ability to think strategically and make decisions with a forward-looking focus and the ability to assimilate relevant information on a broad range of complex topics. In evaluating director candidates, the NGC also considers key skills and experience related to the Company’s strategy for long-term profitable growth, which identifies services, expanded offerings, operational excellence and sustainability as primary focus areas. Moreover, candidates must have the ability to devote the time necessary to meet a director’s responsibilities and serve on no more than four public company boards in addition to Caterpillar.

The board values diversity of talents, skills, abilities and experiences and believes that board diversity of all types enhances the performance of the board and provides significant benefits to the Company. Accordingly, the NGC takes into account the diversity of the board in selecting new director candidates.

 

 

DIRECTOR RECRUITMENT PROCESS

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

 

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NOMINATIONS FROM SHAREHOLDERS

The NGC considers unsolicited inquiries and director nominees recommended by shareholders in the same manner as nominees from all other sources. Recommendations should be sent to the Corporate Secretary, 5205 N. O’Connor Boulevard, Suite 100, Irving, TX 75039. Shareholders may nominate a director candidate to serve on the board by following the procedures described in our bylaws. Deadlines for shareholder nominations for Caterpillar’s 2024 Annual Meeting of Shareholders are included in the “Shareholder Proposals and Director Nominations for the 2024 Annual Meeting” section on page 86.

The number of persons comprising the Caterpillar board of directors is currently established as 12. All of the board’s nominees have consented to being named in this proxy statement and to serve if elected. If all nominees are elected, the number of persons comprising the board will be 11 following the Annual Meeting. If any of the board’s nominees should become unavailable to serve as a Director prior to the Annual Meeting, the size of the board and number of board nominees will be reduced accordingly.

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DIRECTOR CANDIDATE BIOGRAPHIES AND QUALIFICATIONS

Directors have been in their current positions for the past five years unless otherwise noted. Information is as of April 1, 2023. The board has nominated the following individuals to stand for election for a one-year term expiring at the Annual Meeting of Shareholders in 2024.

The experiences and qualifications of each of the director nominees enable each of them to provide meaningful input and guidance to the board.

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DIRECTOR COMPENSATION

The following table sets forth information concerning the compensation for our non-employee directors during the year ended December 31, 2022. Mr. Umpleby, who served as Chairman and CEO during 2022, did not receive separate compensation for his service on the board.

Annual compensation for non-employee directors for 2022 was comprised of the following components:

Directors are required to own Caterpillar common stock equal to five times their annual cash retainer. Directors have a five-year period from the date of their election or appointment to meet the target ownership guidelines. All directors are in compliance with these guidelines. Under the Company’s Directors’ Deferred Compensation Plan, directors may defer 50% or more of their annual cash retainer and stipend into an interest-bearing account or an account representing phantom shares of Caterpillar stock. Directors may also defer 50% or more of any stock-based compensation (effective for grants other than options and stock appreciation rights made on or after January 1, 2019) upon vesting into an account representing phantom shares of Caterpillar stock. Directors that joined the board prior to April 1, 2008, also are able to participate in a Charitable Award Program. A donation of up to $500,000 will be made by the Company in the director’s name to charitable organizations selected by the director and a donation of up to $500,000 also will be made by the Company in the director’s name to the Caterpillar Foundation. Directors derive no financial benefit from the Charitable Award Program.

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DIRECTOR COMPENSATION FOR 2022

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BOARD ELECTION AND LEADERSHIP STRUCTURE

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

The mandatory retirement age for directors is 74. Each director who will have reached the age of 74, on or before the date of the next shareholders’ meeting, shall not stand for re-election at that annual meeting of the shareholders without an express waiver by the board.

Under Caterpillar’s bylaws, the directors annually elect a Chairman. The board has no fixed policy on whether to have an executive or non-executive chairman and believes this determination should be made based on the best interests of the Company and its shareholders in light of the circumstances at the time. As previously disclosed, the board determined to appoint Ms. Reed-Klages as its Presiding Director, effective June 8, 2022.

In the role of Presiding Director, Ms. Reed-Klages has provided strong independent oversight of management and served as a liaison between the independent directors and the Chairman and CEO, as further described below. Ms. Reed-Klages also led the board’s annual evaluation of Mr. Umpleby, and the independent members of the board set Mr. Umpleby’s compensation annually based on the recommendation of the Compensation and Human Resources Committee.

 

DUTIES AND RESPONSIBILITIES OF PRESIDING DIRECTOR

 

 

The board believes it is important to maintain flexibility as to the board’s leadership structure. The board will continue to regularly review its leadership structure and exercise its discretion in adopting an appropriate and effective framework to ensure effective governance and accountability, taking into consideration the needs of the board and the Company.

 

CORPORATE GOVERNANCE GUIDELINES AND CODE OF CONDUCT

Our board has adopted Guidelines on Corporate Governance Issues (Corporate Governance Guidelines), which are available on our website at www.caterpillar.com/governance. The guidelines reflect the board’s commitment to oversee the effectiveness of policy and decision-making both at the board and management level, with a view to enhance shareholder value over the long term.

Caterpillar’s Code of Conduct is called Our Values in Action. Integrity, Excellence, Teamwork, Commitment and Sustainability are the core values identified in the code. Our Values in Action apply to all members of the board and to management and employees worldwide. These values embody the high ethical standards that Caterpillar has upheld since its formation in 1925. Our Values in Action are available on our website at www.caterpillar.com/code.

 

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BOARD EVALUATION PROCESS

The board conducts an annual self-evaluation to determine whether the board and its committees are functioning effectively. In 2022, the Chair of the NGC interviewed each board member to solicit their feedback. The NGC Chair then led a discussion during the board’s executive session. Each of the committees of the board followed a similar process and reported to the board on the outcome of their self-evaluations. The self-evaluation provides the board with actionable feedback to enhance its performance and effectiveness.

Starting in 2022, the board enhanced its self-evaluation process through the addition of individual director assessments. Pursuant to this part of the process, each director sends a confidential performance evaluation with respect to each other individual director to outside counsel retained by the Company at the request of the Nominating and Governance Committee. Outside counsel reviews and compiles the results and provides summaries of each director’s performance evaluation to the Presiding Director, other than her own review, which summary is instead provided to the Chair of the Audit Committee. The Presiding Director then has an individual conversation with each director, reviewing the results and feedback received as well as providing recommendations for improvement, if any (with the Chair of the Audit Committee undertaking such review with the Presiding Director). The Nominating and Governance Committee also reviews the collective results and makes any further recommendations or improvements. In concert with the broader annual board self-evaluation, the board believes it has proper processes in place to evaluate the board, its committees and each individual director’s effectiveness and potential areas of improvement.

 

BOARD COMMITTEES

The board currently has five standing committees: Audit, Compensation and Human Resources, Sustainability and other Public Policy, Nominating and Governance, and Executive. Each committee meets regularly throughout the year, reports its actions and recommendations to the board, receives reports from management, annually evaluates its performance and has the authority to retain outside advisors at its discretion. The current primary responsibilities of each committee are summarized below and set forth in more detail in each committee’s written charter, which can be found on Caterpillar’s website at www.caterpillar.com/governance. All committee members are independent under Company, NYSE and SEC standards applicable to board and committee service, and the board has determined that each member of the Audit Committee is “financially literate” and an “audit committee financial expert” as defined under SEC rules.

 

AUDIT COMMITTEE

 

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COMPENSATION AND HUMAN RESOURCES COMMITTEE

 

SUSTAINABILITY AND OTHER PUBLIC POLICY COMMITTEE

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NOMINATING AND GOVERNANCE COMMITTEE

 

 

EXECUTIVE COMMITTEE

DIRECTOR INDEPENDENCE DETERMINATIONS

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

Applying these standards, the board determined that each of the director nominees, and all other directors who served during 2022, met the independence standards except Mr. Umpleby, who is a current employee of the Company.

 

 

COMMUNICATION WITH THE BOARD

Shareholders, employees and all other interested parties may communicate with any of our directors individually, our board as a group, our independent directors as a group or any board committee as a group by email or regular mail:

 

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CONTACTING CATERPILLAR

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

All communications regarding personal grievances, administrative matters, the conduct of the Company’s ordinary business operations, billing issues, product or service-related inquiries, order requests and similar issues will be directed to the appropriate individual within the Company. The Chairman of the board has instructed the Corporate Secretary to consult with him if she is unsure who should receive the communication.

 

INVESTOR OUTREACH

We conduct an annual governance review and shareholder outreach throughout the year to ensure management and the board understand and consider the issues that matter most to our shareholders and reflect the insights and perspectives of our many stakeholders. We greatly value our relationships with our shareholders and hearing their feedback directly. The governance engagements summarized below are in addition to the regular discussions that our senior leadership and Investor Relations teams have with many institutional and retail shareholders which may also include governance, sustainability and similar matters.

 

In response to shareholder feedback we received, we have taken various actions, including:

 

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POLITICAL CONTRIBUTIONS AND LOBBYING

As a responsible corporate citizen, Caterpillar participates in the public policy process, advocating for a broad range of issues that advance our strategy and purpose while providing value to shareholders and other stakeholders. Our commitment to transparency and disclosure in our advocacy activities has long been recognized.

The Company provides disclosure relating to our advocacy efforts; political engagements; political contribution activities, including the Caterpillar Inc. Political Action Committee (CATPAC); and global issues of importance to the Company, including detailed information on the Company’s position with respect to such issues. This information is disclosed in our inaugural 2022 Lobbying Report: The Purpose of Engagement, and on our website at www.caterpillar.com/politicalengagement. The website also includes an itemized list of organizations and individuals that received political contributions from Caterpillar or the CATPAC.

Our Lobbying Report and website also provide a summary of some of the public policy areas that are driven by our enterprise strategy for profitable growth and where we see positive value in our engagement and the ability to make an impact.

Caterpillar’s state, federal and international activities on legislative and regulatory priorities significant to the company’s business are managed by the Senior Vice President, Global Government & Corporate Affairs, who coordinates and reviews with senior management.

Our board of directors has direct oversight of political contributions and lobbying activities. To ensure appropriate oversight of political engagement activities, including lobbying, the Sustainability and other Public Policy Committee reviews the Company’s political spending policy and its political activities at least annually, including corporate political contributions, CATPAC’s political contribution activities, U.S. trade and industry association participation and alignment with Caterpillar’s Values and policy objectives, and Caterpillar’s significant lobbying priorities.

Additional information, including more details on U.S. trade and industry association memberships, our lobbying priorities, our management governance and board oversight of these activities, and our approach to any misalignments between Caterpillar’s priorities and trade associations’ positions can be found in our Lobbying Report.

 

RELATED PARTY TRANSACTIONS

Caterpillar has a written policy governing the approval of transactions with the Company that are expected to exceed $120,000 in any calendar year in which any director, executive officer or their immediate family members will have a direct or indirect material interest. Under the policy, all such transactions must be approved in advance by the NGC.

The director or officer must submit the details of the transaction to the Company’s Chief Legal Officer & General Counsel and the Corporate Secretary, including whether the related person or his or her immediate family member has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10% beneficial owner of an entity involved in the transaction). The Chief Legal Officer & General Counsel and the Corporate Secretary will then submit the matter to the NGC for its consideration.

From time to time, related persons of Caterpillar may purchase products or services of the Company and its subsidiaries. In connection with these purchases, Caterpillar may provide marketing support directly or indirectly through independent dealers, consistent with sales under similar circumstances to unaffiliated third parties.

Mr. Joseph Creed’s brother-in-law is employed by the Company as a Production Supply Network Engineer and, consistent with the Company’s compensation policies applicable to other employees of similar title and responsibility, earned aggregate annual compensation of approximately $187,000 for fiscal 2022.

 

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AUDIT

PROPOSAL 2 – RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee (AC) is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent auditor. PwC has been Caterpillar’s independent auditor since 1925. Through its extensive experience with the Company, PwC has gained institutional knowledge and a deep understanding of the Company’s operations and business, accounting policies and practices and internal control over financial reporting. The AC believes that the retention of PwC to serve as the Company’s independent auditor is in the best interests of the Company and its shareholders. If the appointment of PwC is not approved by the shareholders, the AC will consider whether it is appropriate to select another independent auditor. Even if the appointment of PwC is ratified, the AC, in its discretion, may direct the appointment of a different independent auditor at any time during the year if it determines that such a change would be in the Company’s best interests.

Representatives of PwC will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

 

AUDIT FEES AND APPROVAL PROCESS

The AC pre-approves all audit and non-audit services to be performed by the independent auditors in compliance with the Sarbanes-Oxley Act and the Securities and Exchange Commission (SEC) rules regarding auditor independence. The policies and procedures are detailed as to the particular service and do not delegate the AC’s responsibility to management. The policies and procedures address any service provided by the independent auditors and any audit or audit-related services to be provided by any other audit service provider. The pre-approval process includes an annual and interim component.

Annually, not later than February of each year, management and the independent auditors jointly submit a service matrix of the types of audit and non-audit services that management may wish to have the independent auditor perform for the current year. The service matrix categorizes the types of services by audit, audit-related, tax and all other services. Management and the independent auditors jointly submit an annual pre-approval limits request. The request lists aggregate pre-approval limits by service category. The request also lists known or anticipated services and associated fees. The AC approves or rejects the pre-approval limits and each of the listed services on the service matrix.

During the course of the year, the Chair of the AC has the authority to pre-approve requests for services that were not approved in the annual pre-approval process. However, all services, regardless of fee amounts, are subject to restrictions on the services allowable under the Sarbanes-Oxley Act and SEC rules regarding auditor independence. In addition, all fees are subject to ongoing monitoring by the AC.

 

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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEE INFORMATION

Fees for professional services provided by our independent auditor included the following (in millions):

 

ANONYMOUS REPORTING OF ACCOUNTING AND OTHER CONCERNS

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

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

 

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AUDIT COMMITTEE REPORT

The AC operates under a written charter adopted by the board of Directors, and each of its members meets the independence and financial literacy standards contained in the NYSE Listed Company rules, SEC rules and Caterpillar’s Guidelines on Corporate Governance Issues. The board has determined that each member of the AC qualifies as an audit committee financial expert under SEC rules and has accounting or related financial management expertise.

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

The AC has discussed with the Company’s independent auditor the overall scope and execution of the independent audit and has reviewed and discussed the audited financial statements with management. The AC also discussed with the independent auditors other matters required by PCAOB auditing standards and SEC rules.

 

The independent auditors provided to the AC the written communications required by applicable standards of the PCAOB regarding the independent accountant’s communications with the AC concerning independence, and the AC discussed the independent auditors’ independence with management and the auditors. The AC also considered whether the provision of other non-audit services by the Company’s independent auditors to the Company is compatible with maintaining independence.

The AC concluded that the independent auditors’ independence had not been impaired.

Based on the reviews and discussion referred to above, the AC 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, 2022.

By the members of the Audit Committee:

 

Daniel M. Dickinson, Chairman

James C. Fish, Jr.

David W. MacLennan

Judith F. Marks

Edward B. Rust, Jr.
Rayford Wilkins, Jr.

 

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COMPENSATION

PROPOSAL 3 – ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

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

“RESOLVED, that the compensation of Caterpillar’s named executive officers as described under ‘Compensation Discussion and Analysis,’ the compensation tables and the narrative discussion associated with the compensation tables in Caterpillar’s proxy statement for its 2023 Annual Meeting of Shareholders is hereby APPROVED.”

At the Company’s 2017 annual meeting of shareholders, our shareholders indicated their preference to hold the non-binding shareholder vote to approve the compensation of our named executive officers each year. This year, we will again ask shareholders to vote on the frequency of advisory votes to approve executive compensation. This vote is advisory and therefore not binding on Caterpillar, the Compensation and Human Resources Committee (CHRC) or the board. The board and the CHRC value the opinion of Caterpillar’s shareholders, and to the extent there is any significant vote against Caterpillar’s named executive officer compensation, the board will consider the reasons for such a vote, and the CHRC will evaluate whether any actions are necessary to address those concerns.

 

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PROPOSAL 4 – ADVISORY VOTE ON THE FREQUENCY OF EXECUTIVE COMPENSATION VOTES

 

The Dodd-Frank Act requires Caterpillar shareholders to vote, on an advisory or non-binding basis, on how frequently they would like to cast an advisory vote on the compensation of the Company’s named executive officers. By voting on this proposal, shareholders may indicate whether they would prefer an advisory vote on named executive officer compensation once every one, two or three years.

 

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COMPENSATION DISCUSSION & ANALYSIS

EXECUTIVE SUMMARY

GOVERNANCE AND PAY FOR PERFORMANCE PHILOSOPHY

The Compensation and Human Resources Committee (CHRC) believes the executive compensation program at Caterpillar should be structured to align the interests of executives with those of our shareholders. These interests are aligned in rewarding value creation at all stages of the business cycle and providing an increasing percentage of performance-based compensation at higher levels of executive responsibility. This performance-based compensation should be both market competitive and internally equitable.

Changes made over the years to further align pay with performance have received favorable feedback from our shareholders, and support for our 2022 “say on pay” vote of 94 percent reflects this positive response.

In 2022, we continued our shareholder outreach on environmental, social and governance (including sustainability, climate and diversity & inclusion), and executive compensation topics, with holders of approximately 42 percent of our outstanding shares. In these meetings, our shareholders generally expressed a continued positive view with respect to our executive compensation program and our diversity & inclusion disclosure.

After considering feedback received from our shareholders through our outreach efforts and the 2022 “say on pay” results, the CHRC determined that the Company’s executive compensation philosophy, compensation objectives and compensation elements continued to be appropriate. As previously communicated, the board incorporated ESG into the annual incentive plan in 2022 for executive officers, see pages 51-52 for details.

The CHRC conducts an ongoing review of the Company’s executive compensation program to evaluate whether the program supports the Company’s compensation philosophy and objectives and to monitor the program’s alignment with its strategic business objectives. In connection with this ongoing review, and based on feedback received through our shareholder outreach, the CHRC continues to implement and maintain what it believes are best practices for executive compensation and governance. Below is a summary of those practices:

 

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COMPENSATION PROGRAM STRUCTURE

We are committed to developing and implementing an executive compensation program that directly aligns the interests of our Named Executive Officers (NEOs) with the long-term interests of shareholders. To that end, the objectives of the Company’s executive compensation program are to attract, motivate and retain talented executive officers who will improve the Company’s performance and provide long-term strategic leadership. The majority of targeted total compensation for our NEOs is equity-based, vests over multiple years and is tied directly to long-term value creation for shareholders. NEO compensation is composed of three primary components:

Approximately 91 percent of our CEO’s 2022 total targeted compensation was variable and/or at-risk compensation, including 50 percent of long-term incentives delivered in the form of performance-based PRSUs with a Return on Equity (ROE) performance metric and the other 50 percent delivered in the form of stock options.

 

 

 

 

2022 CEO COMPENSATION ELEMENTS

 

 

 

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BUSINESS PERFORMANCE AND RESULTS

In 2022, Caterpillar achieved one of the best years in our nearly 100-year history, including full-year adjusted profit per share⁽¹⁾ of $13.84. Despite supply chain challenges, Caterpillar achieved double-digit top-line growth of 17% and generated strong Machinery, Energy & Transportation (ME&T) free cash flow⁽²⁾. We remained committed to serving our customers, executing our strategy and investing for long-term profitable growth. In 2022, we achieved an operating profit margin of 13.3% and an adjusted operating profit margin⁽³⁾ of 15.4%. We also generated strong operating cash flow and were able to return $6.7 billion to shareholders through dividends and share repurchases, which represented 115% of ME&T free cash flow⁽²⁾. Our total cumulative shareholder return for the five-year period ended December 31, 2022, outperformed the S&P 500 and related indexes. We also increased our dividend in 2022 and paid dividends of $2.4 billion, continuing our status as a Dividend Aristocrat.

 

Our key financial and business results for 2022 included the following:

 

 

 

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PAY OUTCOMES DEMONSTRATE ALIGNMENT WITH COMPANY PERFORMANCE

Consistent with the CHRC’s pay-for-performance philosophy, business results were reflected in the resulting pay decisions made for our CEO and the other NEOs in 2022. Compensation outcomes for 2022 included the following items:

 

 

 

 

CEO COMPENSATION

In 2022, the CHRC and the board approved the following compensation for the CEO:

 

 

 

 

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COMPENSATION DISCUSSION & ANALYSIS

THE COMPENSATION PROCESS

THE COMPENSATION AND HUMAN RESOURCES COMMITTEE (CHRC)

The CHRC is responsible for the executive compensation program design and decision-making process for NEO compensation. The CHRC conducts regular reviews of the Company’s executive compensation practices, including the methodologies for setting NEO total compensation, the goals of the program and the underlying compensation philosophy. The independent compensation consultant provides recommendations and market data that the CHRC considers when making decisions, as appropriate, regarding NEO compensation based on the assessment of performance and achievement of Company goals. The CHRC also exercises its judgment in setting NEO compensation as to what is in the best interests of the Company and its shareholders.

 

INDEPENDENT COMPENSATION CONSULTANT

The CHRC retained Meridian Compensation Partners, LLC (“Meridian”) as its independent compensation consultant during 2022. Meridian provides executive and director compensation consulting services, including advice regarding the design and implementation of compensation programs, market information, regulatory updates and analyses, and trends on executive compensation and benefits. Interactions between Meridian and management are generally limited to discussions on behalf of the CHRC or as required to fulfill requests at the CHRC’s direction. During 2022, Meridian did not provide any other services to the Company. Based on these factors, the CHRC’s evaluation of Meridian’s independence pursuant to the requirements approved and adopted by the SEC and NYSE, and information provided by Meridian, the CHRC determined that the work performed by Meridian did not raise any conflicts of interest.

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BENCHMARKING COMPENSATION TO PEERS

2022 COMPENSATION PEER GROUP

The CHRC regularly assesses the market competitiveness of the Company’s executive compensation programs based on peer group data. The 2022 Compensation Peer Group was established based on the following criteria and remained unchanged from the prior year:

BENCHMARKING METHODOLOGY

To account for differences in the size of the compensation peer group companies, market data is statistically adjusted allowing for a comparison of the compensation levels to similarly-sized companies. Market data provided by the independent consultant is sourced from the Aon Total Compensation Measurement Database, and size-adjusted to Caterpillar’s three-year average revenues using regression analysis. Each element of our NEOs’ compensation is then targeted to the median of the peer group and adjusted above or below based on performance. To the extent an NEO’s total actual compensation exceeds the peer group median, it is due to outstanding performance, critical skills and notable experience. If an NEO’s compensation is below the median, it is generally due to underperformance against relevant metrics or reflective of an individual who is newer in his or her role.

2022 COMPETITOR PEER GROUP

For 2022, the CHRC also assessed the Company’s business performance against a group of competitors that it deems to compete directly with the Company. Although the Company’s peer group described above is an appropriate benchmark for executive compensation at other similarly-sized companies, the peer group data does not always provide useful comparisons to other companies that might be experiencing similar business conditions. To that end, and consistent with the Company’s pay-for-performance philosophy, the Company’s business performance is compared to its competitors by establishing a “Competitor Peer Group.”

The CHRC uses the Competitor Peer Group (along with the Compensation Peer Group and S&P 500 Industrials) to assess relative performance using TSR when awarding long-term incentive awards. However, the Competitor Peer Group is not used to benchmark compensation. The 2022 Competitor Peer Group was established based on the following criteria:

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CEO PERFORMANCE EVALUATION AND COMPENSATION

The board, excluding the CEO, all of whom are independent directors, annually conducts the CEO’s performance evaluation. Prior to the board’s evaluation of the CEO’s performance and its approval of CEO compensation, the CHRC makes a preliminary compensation recommendation to the board based on its initial evaluation and performance review of the CEO. The board then makes its final determination for CEO compensation.

EXECUTIVE COMPENSATION AND RISK MANAGEMENT

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

TARGET STOCK OWNERSHIP GUIDELINES

The target stock ownership guideline for the CEO is six times base salary and three times base salary for each of the other NEOs. NEOs have a five-year period from their first grant date after appointment to meet the target stock ownership guidelines. NEOs are required to maintain their target stock ownership for a post-employment period. All NEOs are in compliance with these guidelines.

COMPONENTS OF EXECUTIVE COMPENSATION

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

 

BASE SALARY

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

In 2022, Mr. Umpleby’s salary was increased from $1.65 million to $1.7 million in recognition of his performance and to align his target compensation with the peer group median.

Salary adjustments for all NEOs were made effective April 1, 2022.

NEO Base Salary

 

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ANNUAL INCENTIVE

2022 ANNUAL INCENTIVE PLAN DESIGN

The Company’s Annual Incentive Plan (AIP) is designed to provide each NEO with the opportunity to earn an annual cash payout based on the short-term performance of the Company and each NEO’s respective business. The AIP places a significant percentage of each NEO’s annual cash compensation at risk and aligns the interests of executives and shareholders.

The AIP design continues to closely align pay outcomes with business performance by annually comparing the Company’s forecasted Enterprise Operating Profit to the prior year’s actual Enterprise Operating Profit. The comparison is conducted to determine whether the current year will be an “up year” (improved performance) or “down year” (weaker performance) versus the prior year’s actual Enterprise Operating Profit results.

The 2022 AIP design also includes two strategic objectives modifiers, including Services Growth, which was also utilized similarly in the 2021 AIP for the NEOs. The Services Growth modifier focuses on the execution of services revenue growth plans across the enterprise working with our independent dealer network.

As previously communicated, we incorporated ESG as an element of incentive compensation in 2022. The CHRC determined that ESG Strategy would serve as the second of two strategic objectives modifiers in 2022 AIP. This modifier prioritizes focus on climate-related objectives as an important element of how Caterpillar is strategically addressing evolving customer demand and stakeholder expectations for a range of ESG considerations. More information about the modifiers and the assessed performance levels can be found in the section entitled Strategic Objectives Modifiers found on pages 51-52.

The AIP performance measures and weightings, as well as the strategic objectives modifiers, were communicated to the NEOs at the beginning of the performance period. All NEOs participated in AIP in 2022.

2022 ANNUAL INCENTIVE PLAN DESIGN

 

Step 1: Determine “Up/Down Year”

 

 

 

Step 2: AIP Calculation

 

 

 

 

 

2022 ANNUAL INCENTIVE PERFORMANCE MEASURES AND RESULTS

For 2022, the CHRC approved the following annual incentive performance measures (1) Enterprise Operating Profit (2) Operating Profit After Capital Charge (OPACC) and (3) Services Revenues, and the Strategic Objectives Modifiers, described on page 51-52. Consistent with this design process, after reviewing the Company’s 2022 business plan, the CHRC determined that 2022 would be an “up year,” as Enterprise Operating Profit was forecasted to be above 2021. As a result, there were no adjustments to the target annual incentive opportunity for NEOs.

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The largest portion of financial measures (ranging from 50 percent to 70 percent) of each NEO’s 2022 annual incentive opportunity was based on Enterprise Operating Profit and the OPACC for their respective business, where applicable. The remaining portion of each NEO’s annual incentive award opportunity was determined by the Services Revenues metric for the enterprise or their respective businesses. Consistent with the Operating & Execution model, Services Revenues align the Company’s emphasis on the services growth strategy with variable incentive opportunity.

When establishing the performance targets for 2022, the CHRC reviewed the Company’s business plan, historical performance, management recommendations and feedback provided by the independent compensation consultant. Targets were set for each of the performance measures at levels that were designed to be reasonably achievable with strong management performance. Maximum performance levels were designed to be difficult to achieve in light of historical performance and the Company’s business forecast at the time the measures were approved. The business forecast includes consideration of market, economic and geopolitical factors. The performance measures were also weighted according to the Company’s business priorities and the responsibilities of each NEO.

The charts below and the text that follows summarize the performance measures, weightings, strategic objectives modifiers, and results that the CHRC reviewed and approved for the 2022 annual incentive for each NEO.

DESCRIPTION OF PERFORMANCE MEASURES

 

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2022 ANNUAL INCENTIVE PERFORMANCE MEASURES AND RESULTS

 

 

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STRATEGIC OBJECTIVES MODIFIERS

In addition to the financial performance measures included in the AIP, the CHRC identified certain objectives to further focus management’s efforts on the Company’s services growth and ESG strategy. These elements of AIP, called Strategic Objectives, were included as modifiers in 2022. While these modifiers utilize a qualitative assessment by the CHRC to determine the actual impact on annual incentive payments, both strategic objectives are designed with pre-defined quantitative and qualitative elements as the basis of performance assessment, resulting in a maximum adjustment of plus or minus 10% for each modifier (maximum aggregate adjustment of plus or minus 20%).

SERVICES GROWTH

Caterpillar’s enterprise strategy for long-term profitable growth is directly linked to value creation for our shareholders. An important element of our strategy is the growth of ME&T Services Revenues. Services growth is intended to further strengthen profitability realized by growth in aftermarket parts and services for Caterpillar and its global network of dealers. In addition, our services focus is intended to reduce cyclicality of the Company’s sales and revenues while increasing customer value.

In evaluating 2022 Services growth, the CHRC considered quantitative and qualitative elements of performance, including:

Based on the foregoing evaluation, the CHRC determined the Services growth modifier percentage allocated to each NEO. The CHRC’s determinations are included in the 2022 Incentive Payments chart found on page 52.

ESG STRATEGY

Caterpillar believes the energy transition represents a significant opportunity for long-term profitable growth, leading our Company to add sustainability as a focus area of our enterprise strategy. To further strengthen the alignment of NEO compensation with shareholder interests and to continue demonstrating responsiveness to stakeholder feedback, the Company’s board of Directors elected to incorporate ESG considerations into incentive compensation for its NEOs in 2022.

In its first year of inclusion, the ESG Strategy modifier was designed to support certain elements of the Company’s enterprise strategy and to drive executive leadership accountability for climate-related elements that reflect Caterpillar’s ongoing focus on both short- and long-term ESG considerations, which are also of importance to our shareholders.

As part of its oversight, the board’s Sustainability and other Public Policy Committee (SPPC) reviews and monitors the development and implementation of sustainability goals established by the Company, and also reviews and monitors performance and progress against sustainability objectives and initiatives. In 2022, the SPPC provided a qualitative and quantitative assessment of performance against pre-defined objectives to the CHRC. The CHRC then evaluated the individualized contributions and determined the ESG modifier percentages allocated to each NEO. The CHRC’s determinations are included in the 2022 Incentive Payments chart found on page 52.

In evaluating 2022 ESG Strategy, the CHRC considered quantitative and qualitative elements of performance, including:

 

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For more information about our Company’s performance and progress toward our 2030 sustainability goals, or for further information highlighting how we are helping our customers build a better, more sustainable world, please refer to Caterpillar’s annual Sustainability Report.

Caterpillar’s quantitative environmental (emissions and water) and safety data undergoes independent, third-party limited assurance by ERM Certification and Verification Services, Inc. (ERMCVS) and the resulting assurance statement is included in our Company’s annual Sustainability Report.

The information in our Sustainability Report is not incorporated by reference into, and does not form part of, this proxy statement.

 

2022 INCENTIVE PAYMENTS

In early 2023, the results for each performance measure noted above were converted into a performance factor, which was then multiplied by the respective weightings and base salary to determine the amount before any adjustment for each NEO.

Then, the CHRC, with input from the Sustainability and other Public Policy Committee (for ESG), assessed the individual contributions for each NEO against the two strategic objectives and applied a maximum adjustment of plus or minus 10% for each modifier (aggregate maximum adjustment of plus or minus 20%).

The CHRC’s modifier decisions were then applied to determine the AIP payouts for each NEO.

The following are the 2022 cash incentive payments made to the NEOs:

 

LONG-TERM INCENTIVE

2022 DESIGN

In 2022, the CHRC granted one-half of each NEO’s total long-term incentive (LTI) value in Performance-based Restricted Stock Units (PRSUs), and one-half in non-qualified stock options (stock options). The stock options vest equally in one-third increments beginning on the first anniversary of the grant date and expire after ten years from grant. The PRSUs fully vest if the 3-year performance hurdle established by the CHRC is met or exceeded. If the performance hurdle is not attained, the PRSU awards do not vest. Dividend Equivalent Units (DEUs) accrue on unvested PRSUs, but are settled only if the vesting requirements are met. The DEUs will settle in additional shares, rounded to the nearest whole unit.

For the 2022 PRSU grants, the CHRC selected Return on Equity (ROE) as the performance measure because it aligns the interests of the NEOs with those of our shareholders by measuring and rewarding profitability relative to shareholders’ investment in the business. The use of the ROE metric and the determination of the performance hurdle for each performance cycle are calibrated with historical performance of the compensation and competitor peer groups (as well as S&P 500 Industrials more broadly) and are intended to reward for the achievement of sustained, long-term returns throughout the cycles in the Company’s business. The ROE performance hurdle was designed to be reasonably achievable with strong management performance. The CHRC believes that a strong focus on ROE reinforces effective capital management along with the need to deliver returns above the cost of capital even in a highly cyclical and often challenging macro-economic operating environment, thus aligning leadership priorities with long-term shareholder interests. The Company’s ROE performance is annually reviewed including any one-time, non-operational or other special items that might impact the ROE result. Although certain items may significantly impact the Company’s reported financial results, they are not always indicative of the underlying operational performance of the Company or its management. To that end, in its evaluation of the Company’s ROE results, the CHRC may use its discretion to make adjustments to ROE to align compensation outcomes with the operating performance of the Company.

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2022 GRANT SIZING

The CHRC follows a consistent process for sizing and awarding LTI grant values for NEOs, which is described and illustrated below:

In determining grant sizing for 2022, the Committee was consistent with the methodology used in previous years and its pay for performance philosophy; and assessed the 1-, 3- and 5-year relative TSR performance for the period ending December 31, 2021, as well as operating performance and strategy execution during these periods. Based on this process, the CHRC set the 2022 LTI award for the CEO at slightly above the 50^th percentile of the benchmarked LTI values of the Company’s compensation peer group and at the 50^th - 65^th percentile for the other NEOs.

RELATIVE TSR PERFORMANCE (PERCENTILE RANKING VS. PEERS)

2020 – 2022 PERFORMANCE RESTRICTED STOCK UNITS (PRSUs)

For the 2020 – 2022 performance period, adjustments were made to the ROE to exclude the impact of restructuring costs, pension and other post-employment benefits (OPEB) mark-to-market gains/losses resulting from plan remeasurements and a goodwill impairment charge. In each case, the CHRC determined that these adjustments were an appropriate use of its discretion and in the best interests of the Company and its shareholders.

For the 2020 grant, the PRSUs cliff vested based on a three-year average adjusted ROE result of 35.5 percent, which exceeded the goal of 18 percent. The chart below describes the Company’s ROE performance and results for the 2020 – 2022 performance period:

2020-2022 PRSUs

 

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OTHER COMPENSATION, BENEFITS AND CONSIDERATIONS

POST-TERMINATION AND CHANGE IN CONTROL BENEFITS

Except for customary provisions in employee benefit plans and as required by applicable law, the NEOs do not have any pre-existing executive severance packages or contracts; however, the CHRC will consider the particular facts and circumstances of an NEO’s separation to determine whether payment of any severance or other benefit to such NEO is appropriate. Change in control benefits are provided under the Company’s long-term and annual incentive plans and represent customary provisions for these types of plans and have no direct correlation with other compensation decisions. There is no cash severance or other benefits for a termination related to change in control beyond what is provided under the long-term and annual incentive plans.

The Company’s change in control provisions are subject to a “double trigger” and, when both a change in control and involuntary termination of employment without cause occur, provide accelerated vesting and target payouts under the incentive plans, as described further below.

In the event of a qualifying termination of employment following a change in control, target payouts are provided under the incentive plans.

The annual incentive plan allows for the target award opportunity, prorated based on the individual’s time of employment from the beginning of the performance period through the latter of: (1) the change in control or (2) termination of employment.

Additional information is disclosed in the “Potential Payments Upon Termination or Change in Control” section of this proxy statement.

RETIREMENT AND OTHER BENEFITS

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

The defined contribution and defined benefit retirement plans available to the NEOs are also available to many U.S.-based management and salaried employees. Under the defined benefit pension plans, the benefit is calculated based on years of service and final average monthly earnings. All NEOs participate in one or more of the U.S. retirement plans described below:

 

 

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LIMITED PERQUISITES

The Company provides NEOs a limited number of perquisites that the CHRC believes are reasonable and consistent with the overall compensation program and those commonly provided in the marketplace. These perquisites are intended to provide for the security and safety of our executives as well as to allow additional time to devote to Caterpillar business. Perquisites include executive physicals, financial planning, home and personal security, and limited personal use of company aircraft and ground transportation. The costs associated with these perquisites are included in the “2022 All Other Compensation Table.”

Additionally, in connection with the Company’s relocation of its global headquarters to Irving, Texas, all of the NEOs, except Mr. Creed, relocated to the Irving area and received benefits in 2022 pursuant to the Company’s corporate relocation program for management-level employees. Mr. Creed, who relocated to the Irving area prior to the global headquarters move, also received benefits in 2022 pursuant to the policy. These relocation benefits were determined to be important in retaining our NEOs.

CLAWBACK PROVISION

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

The SEC recently adopted final rulemaking with respect to issuer recoupment policies subject to further rulemaking by the NYSE. The Company intends to revisit its clawback policy when NYSE rulemaking regarding recoupment policies becomes effective.

NO HEDGING OR PLEDGING

The Company’s insider trading policy prohibits directors, officers and employees from engaging in hedging transactions, holding Company securities in a margin account or otherwise pledging Company securities.

TAX IMPLICATIONS: DEDUCTIBILITY OF NEO COMPENSATION

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

COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT

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

By the members of the Compensation and Human Resources Committee:

 

Rayford Wilkins, Jr., Chair

Daniel M. Dickinson

Gerald Johnson

Judith F. Marks

Edward B. Rust, Jr.

 

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2022 SUMMARY COMPENSATION TABLE