The Director Compensation Project: Caterpillar Inc. (CAT)

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 2015’s Fortune 500 and using information found in their 2015 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 the Caterpillar Inc. (NYSE: CAT) 2016 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Director	Fees Earned or Paid in Cash	Stock Awards	All Other Compensation	Total
David L. Calhoun	$150,000	$124,998	$ 5,000	$279,998
Daniel M. Dickinson	$150,000	$124,998	$35,441	$310,439
Juan Gallardo	$150,000	$124,998	$12,170	$287,168
Jesse J. Greene, Jr.	$150,000	$124,998	$  9,000	$283,998
Jon M. Huntsman, Jr.	$150,000	$124,998	$       ––	$274,998
Dennis A. Muilenburg	$150,000	$124,998	$       ––	$274,998
William A. Osborn	$170,000	$124,998	$17,170	$312,168
Debra L. Reed	$ 87,500	$ 72,996	$ 2,000	$162,496
Edward B. Rust, Jr.	$175,000	$124,998	$21,465	$321,463
Susan C. Schwab	$150,000	$124,998	$12,000	$286,998
Miles D. White	$170,000	$124,998	$10,000	$304,998

Director Compensation. During fiscal year 2015, the Board held seven meetings. The independent directors generally meet in executive session as part of each regularly scheduled Board meeting, with the Presiding Director serving as Chairman. Each director attended 100% of the total meetings of the Board and committee on which he or she served. Absent unavoidable conflict, directors are expected to attend the Annual Meeting. All directors attended the 2015 Annual Meeting. During 2015, the Board had three standing committees: Audit, Compensation, and Public Policy and Governance. In 2015, the Audit Committee met eleven times, the Compensation Committee met eight times, and the Public Policy and Governance Committee met six times. Compensation for non-employee directors for 2015 was comprised of the following components: cash retainer of $150,000; restricted stock grant (one year vesting) of $125,000; and committee chairman stipend of $25,000 for the Presiding Director, $20,000 for the Audit Committee Chairman, and $20,000 for the Compensation Committee Chairman. Other Compensation represents amounts paid in connection with the Caterpillar Foundation’s Directors’ Charitable Award Program and the Caterpillar Political Action Committee Charitable Matching Program (CATPAC’s PACMATCH program) and administrative fees and insurance premium associated with the Directors’ Charitable Award Program.

Director Tenure. Mr. Juan Gallardo has been a director of the Company since 1998 and is the longest serving director. He is currently Chairman and former Chief Executive Officer of Organización CULTIBA, S.A.B. de C.V. He is also currently a director of Grupo Aeroportuario del Pacifico, S.A.B. de C.V. and Lafarge SA and Grupo Financiero Santander Mexico, S.A.B. de C.V. Ms. Debra L. Reed is the shortest serving director having joined the board in June 2015. Ms. Reed serves as Chairman and Chief Executive Officer of Sempra Energy. She also serves as a director of Halliburton Company.

CEO Compensation. Mr. Douglas R. Oberhelman, Caterpillar’s Chairman and Chief Executive Officer, has held numerous leadership positions with the Company for over thirty-five years and has been a director of the Company since 2010. Mr. Oberhelman earned total compensation of $17,903,837 in 2015. He earned a base salary of $1,600,008; stock and stock option awards of $12,991,067; non-equity incentive plan compensation of $822,804; change in pension value and nonqualified deferred compensation earnings of $2,091,814; and other compensation of $398,144. Mr. Bradley M. Halverson, Group President and Chief Financial Officer, was the second highest compensated Caterpillar executive. In 2015, he earned a total of $8,248,494. He received a base salary of $786,312; stock and stock option awards of $4,833,636; non-equity incentive plan compensation of $244,440; change in pension value and nonqualified deferred compensation earnings of $2,293,173; and other compensation of $90,933. Other compensation for 2015 consists of matching contributions to the Company’s 401(k) plan, matching contributions to the Supplemental Deferred Compensation Plan, personal corporate aircraft usage, and home security.