This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation. We are for the most part including companies from 2017’s Fortune 500 and using information found in their 2017 proxy statements.

 

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. The NYSE imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3) (see Rule 303A.06) and requires consideration by the board of directors of certain specified factors in designating directors for the Compensation Committee. See NYSE Rule 303A.02(a)(ii).

 

Finally, as the Commission has noted with respect to director independence:

 

All compensation committee members must meet the general independence standards under NYSE’s rules in addition to the two new criteria being adopted herein. The Commission therefore expects that boards, in fulfilling their obligations, will apply this standard to each such director’s individual responsibilities as a board member, including specific committee memberships such as the compensation committee. Although personal and business relationships, related party transactions, and other matters suggested by commenters are not specified either as bright-line disqualifications or explicit factors that must be considered in evaluating a director’s independence, the Commission believes that compliance with NYSE’s rules and the provision noted above would demand consideration of such factors with respect to compensation committee members, as well as to all Independent Directors on the board.

 

Exchange Act Release No. 68639 (Jan. 11, 2013); see also Exchange Act Release No. 68641 (Jan. 11, 2013).

 

Independent directors are compensated for their service on the board. The amount of “total compensation” can be seen from examining the director compensation table from Caterpilar’s (NYSE: CAT) 2016 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

 

 

 

Name

Fees Earned or Paid in Cash

($)

 

Stock Awards

($)

 

Option Awards

($)

 

All Other Compensation ($)

 

 

Total

($)

David L. Calhoun

150,000

125,015

0

0

275,015

Daniel M. Dickinson

150,000

125,015

0

32,696

307,711

Juan Gallardo

150,000

125,015

0

13,051

288,066

Jesse J. Greene, Jr.

150,000

125,015

0

2,000

$277,015

Jon M. Huntsman, Jr.

150,000

125,015

0

0

275,015

Dennis A. Muilenburg

150,000

125,015

0

0

275,015

William A. Osborn

170,000

125,015

0

13,051

308,066

Debra L. Reed

150,000

125,015

0

2,100

277,115

Edward B. Rust, Jr.

175,000

125,015

0

22,833

322,848

Susan C. Schwab

150,000

$125,015

0

15,000

290,015

Miles D. White

170,000

$125,015

0

8,000

303,015

 

Director Compensation. During the fiscal year 2016, Caterpillar held nine board of directors meetings and 23 committee meetings. Each current director attended at least 75% of the number of board and committee meetings on which he or she served. Overall attendance of current directors at meetings of the board and its committees averaged 98%. All directors attended the 2016 shareholders meeting. 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 that joined the Board prior to 2008 also participate in a Charitable Award Program, under which a donation of up to $500,000 will be made by Caterpillar, in the director’s name, to charitable organizations selected by the director and $500,000 to the Caterpillar Foundation. Directors derive no financial benefit from the program.

 

Director Tenure. Mr. Gallardo held the longest tenure since joining the board in 1998. Ms. Reed joined the board in 2015, holding the shortest tenure. All directors but Mr. Greene and Mr. Dickinson sit on other boards of public companies: Mr. Calhoun serves as a director for Nielsen Holdings PLC and The Boeing Company; Mr. Gallardo serves as a director for Grupo Aeroportuario del Pacifico, S.A.B. de C.V., Grupo Financiero Santander Mexico, S.A.B. de C.V., and Organización CULTIBA, S.A.B. de C.V.; Mr. Huntsman serves as a director for Chevron Corporation, Ford Motor Company, and Hilton Worldwide Holdings Inc.; Mr. Muilenburg serves as chairman for The Boeing Company; Mr. Osborn serves as a director for Abbott Laboratories and General Dynamics Corporation; Ms. Reed serves as a director for Halliburton Company and chairman for Sempra Energy; Mr. Rust serves as a director for Helmerich & Payne, Inc. and S&P Global Inc.; Ms. Schwab serves as a director for FedEx Corporation, Marriott International, Inc., and The Boeing Company; and Mr. White serves as a director for Abbott Laboratories and McDonald’s Corporation.

 

Compensation. Douglas R. Oberhelman retired from the role of CEO on December 31, 2016 and remained the Executive Chairman until his retirement from the Company on March 31, 2017. Mr. Oberhelman earned total compensation of $15,472,514 in 2016. He earned a base salary of $1,600,008, stock awards of $3,577,816, option awards of $7,218,819, incentive compensation of $2,891,179, deferred earnings of $3,658, and other compensation totaling $181,034. David P. Bozeman, Senior Vice President, earned total compensation of $7,300,960 in 2016. He earned a base salary of $698,904, stock awards of $1,412,362, option awards of $2,324,923, incentive compensation of $471,608, and other compensation totaling $2,393,163.