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Caterpillar Executive Comp 2013

RESOLVED: The shareholders of Caterpillar Inc. (“Caterpillar” or the “Company”) ask the board of directors to adopt a policy that incentive compensation for senior executives should include a range of non-financial measures based on sustainability principles and reducing any negative environmental impacts related to Company operations. For purposes of this resolution, “sustainability” refers to the methods in which environmental, social and economic considerations are integrated into long-term corporate strategy.

As shareholders, we support executive compensation policies that motivate and reward senior executives for actions that contribute to a company’s long-term growth. 

An important element of senior executive compensation is incentive compensation, including both annual cash bonuses and long-term incentive awards. At-risk pay is the predominant form of compensation for Caterpillar’s senior executives. According to last year’s proxy statement, over 84 percent of Caterpillar’s 2011 compensation for Named Executive Officers was variable or “at risk” and tied to Caterpillar’s performance.

Considering the significance of incentive pay in Caterpillar’s compensation policies, we believe it is important for the board of directors to ensure that compensation incentives are aligned with business strategies for creating sustainable, long-term shareholder value and mitigating risks that could have a detrimental impact on value creation. Accordingly, we believe the board should consider and disclose a variety of factors in determining incentive pay, including metrics that promote sustainable value creation and reduce negative environmental impacts.

Although Caterpillar’s 2012 proxy alludes to various sustainability goals, including a laudable operational goal to reduce greenhouse gas emissions by 25 percent, the 2012 proxy does not indicate that social and environmental factors enter into deliberations on executive compensation. Indeed, that proxy statement indicates that at-risk compensation focuses on financial and strategic goals. 

Many companies have added sustainability criteria to the mix of metrics used to determine executive compensation. According to a 2011 Glass Lewis report on executive compensation and sustainability, 43% of companies in the S&P 100 disclose a link between sustainability and executive compensation. Intel, for instance, includes a category entitled “People, Customers, Stockholders, Planet” as part of the operational goals approved by its Compensation Committee for 2011. Alcoa, cited as a notable case in a recent Conference Board publication, “Linking Executive Compensation to Sustainability Performance,” linked 20 percent of executive bonuses in 2010 to non-financial metrics including carbon dioxide reduction, safety and diversity.

We believe that the need for a greater emphasis on sustainability factors in incentive pay is illustrated by incidents such as BP’s 2010 Deepwater Horizon oil spill, where a single occurrence caused significant losses to shareholders. As illustrated by the recent payment of a $2.55 million civil penalty to settle alleged Clean Air Act violations, Caterpillar is not immune to environmental risks.

We urge you to vote FOR this proposal.