Sorry, this Caterpillar Inc Proxy Voting Guide comes late, since tomorrow is the last day to vote unless you attend the annual meeting. Caterpillar Inc. (CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for heavy and general construction, rental, quarry, aggregate, mining, waste, material handling, oil and gas, power generation, marine, rail, and industrial markets. Caterpillar is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of two fund families when I checked and voted on the last day. Their annual meeting is coming up on June 14, 2017.
I voted FOR our proposal to reduce the threshold required to hold a special meeting. See how and why I voted other items below. I voted with the Board’s recommendations 70% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Caterpillar Inc Proxy Voting Guide: ISS Rating
From the Yahoo Finance profile: Caterpillar Inc.’s ISS Governance QualityScore as of June 2, 2017 is 2. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 4; Compensation: 3. Brought to us by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus: Shareholder Rights.
Caterpillar Inc Proxy Voting Guide: Compensation
Caterpillar Inc’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Douglas R. Oberhelman at $15.5M in 2016. I am using Yahoo! Finance to determine the market cap ($62.5B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Caterpillar Inc is a large-cap company. According to EY Center for Board Matters, the 3-yr average CEO compensation at large-cap corporations is $12.7M, so pay was above that amount. Caterpillar Inc shares outperformed the NASDAQ over the most recent one, two and ten year time periods, but underperformed in the most recent five year time period.
Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measure wealth creation in comparison to other widely held issuers.
Caterpillar Inc earned a compensation score of “Superior,”
We believe that shareholders should support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value. Therefore, we recommend a vote FOR this Proposal.
I voted “FOR” the say-on-pay item, considering Caterpillar Inc the above advice, performance and that it is larger than may large-caps.
Caterpillar Inc Proxy Voting Guide: Accounting
I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest. However, Egan-Jones recommends voting against, favoring auditor rotation after seven years. I am not quite ready to set that as the bar, so voted FOR.
Caterpillar Inc Proxy Voting Guide: Board Proposals
As mentioned above, I voted “FOR” the pay package and auditors.
With respect to Directors, Egan-Jones recommended that clients
WITHHOLD votes from the Company’s Chairman, Independent outside director David L. Calhoun, for holding more than one other public directorship. We believe that the Chairman, being responsible for the leadership of the Board and the creation of the conditions necessary for overall board and individual director effectiveness, should hold no more than one other public directorship to ensure the valuable and prudent exercise of his fiduciary duties as a Chairman and that his integrity and efficiency are not compromised.
Moreover, we recommend that clients WITHHOLD votes from Affiliated outside directors Daniel M. Dickinson and William A. Osborn, current members of the Audit Committee, and Affiliated outside directors Juan Gallardo and Edward B. Rust, Jr., current members of the Public Policy and Governance Committee of the Board. We believe that key Board committees namely Audit, Compensation, and Nominating Committees should be comprised solely of Independent outside directors for sound corporate governance practice.
I am not quite ready to go there on the CEO, although I strongly supporting splitting chair and CEO positions. Maybe I will join next year. I took their recommendation to reinforce committee independence and voted against Gallardo and Rust.
Egan-Jones also recommended in FOR amending #5 Amend Omnibus Stock Plan. I went along with their advice.
Caterpillar Inc Proxy Voting Guide: Shareholder Proposals
#7 Reduce Ownership Threshold for Shareholders to Call Special Meeting
This our proposal (Myra Young is my wife), so of course I voted “FOR.” Delaware law allows 10% of company shares to call a special meeting. A shareholder right to call a special meeting is a way to bring an important matter to the attention of both management and shareholders outside the annual meeting cycle.
A right of 15% seems a reasonable compromise above the minimum 10% threshold allowed by Delaware. As last reported, SSgA held 9% and Vanguard held 6.5% of Caterpillar Inc. Neither are activist funds so will not be calling a special meeting unless Caterpillar Inc craters.
#8 Report on Lobbying Priorities
This is a proposal on disclosing of lobbying priorities from the right-wing the National Center for Public Policy Research’s Free Enterprise Project. “After eight years of President Obama’s regulatory overreach, high corporate taxation and executive actions that hampered growth and led to America’s worst economic recovery since the 1930s, we finally have a president willing to work with business leaders on a pro-growth agenda. President Trump is showing an eagerness to increase American manufacturing and bring jobs back to America,” said National Center General Counsel and FEP Director Justin Danhof, Esq.
Vote AGAINST #8.
#9 Include Sustainability as a Performance Measure for Senior Executive Compensation
#10 Amend Compensation Clawback Policy
Caterpillar Inc’s current clawback policy does not provide for the disclosure of the amounts and circumstances surrounding any recoupments. Such disclosure would benefit shareholders. Vote FOR #10.
#11 Require Independent Board Chairman
A vote FOR this proposal by John Chevedden is warranted given the importance of having an independent chairman of the board.
Caterpillar Inc Proxy Voting Guide: Votes Against Board Position in Bold
As mentioned above, ProxyDemocracy.org had collected the votes of two funds when I voted. Proxy Insight reported additional votes from Teacher Retirement System of Texas (TRS) and Calvert. They were split on #5. All voted AGAINST #8 and voted FOR all other shareholder proposals.
Caterpillar Inc Proxy Voting Guide: Issue for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners. The main outstanding issue is proxy access:
- No action can be taken without a meeting by written consent.
- Special meetings can only be called by shareholders holding not less than 25% of the voting power.
- Proxy access lite provision whereby a shareholder or group of no more than 20 shareholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors, so long as the number of directors elected via proxy access does not exceed the greater of 2 or 20% of the board.
Caterpillar Inc Proxy Voting Guide: Mark Your Calendar
A proposal for action or the nomination of a director to be presented by any shareholder at the 2018 annual meeting of shareholders will be acted on only:
If the proposal is to be included in our proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, the proposal is received at the office of the Corporate Secretary on or before January 2, 2018;
If the proposal or the nomination of a director is not to be included in the proxy statement, the proposal is received at the office of the Corporate Secretary no earlier than February 14, 2018, and no later than April 15, 2018.
If the proposal is for the nomination of directors to be included in our proxy statement pursuant to proxy access under Article II, Section 4 of Caterpillar’s bylaws, the proposal is received at the office of the Corporate Secretary no earlier than December 3, 2017, and no later than January 2, 2018.
In each case, your proposal or nomination must be delivered in the manner and accompanied by the information required in our bylaws. You may request a copy of the bylaws by writing to Caterpillar Inc. c/o Corporate Secretary at our principal executive offices. Our bylaws are also available on our website at www.caterpillar.com/governance. As of the date of this proxy statement, our principal executive offices are located at 100 NE Adams Street, Peoria, Illinois 61629, but we have announced plans to establish our principal executive offices in the Chicago, Illinois area by the end of 2017. The location of our new principal executive offices will be reflected in our future filings with the SEC and, upon the change in the location of our principal executive offices, shareholder proposals, director nominations and requests for copies of our bylaws should be delivered to that address. Additionally, we request that you send a copy to the following facsimile number: 309-675-6620.
Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime).I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.
Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.
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