ISS Urges Rejection of Caterpillar CEO Douglas Oberhelman's Pay Package

By James R. Hagerty 

ISS Proxy Advisory Services on Tuesday recommended shareholders reject the executive compensation policies at Caterpillar Inc. in an advisory vote at the annual meeting June 10.

The Rockville, Md.-based advisory firm also urged Caterpillar shareholders to vote against the reelection of one of the construction equipment maker's directors, Juan Gallardo, at the annual meeting.

ISS noted the compensation of Caterpillar's chief executive, Douglas Oberhelman, "increased during a period of lagging returns." Mr. Oberhelman's total compensation rose 14% to $17.13 million last year.

ISS added: "The maximum performance goal was attained for the annual incentive award when goals had been lowered significantly from 2013 targets ... and despite only marginal increases in the company's profitability."

Caterpillar representatives couldn't immediately be reached for comment.

In its May-2 proxy letter to shareholders, Caterpillar said an "emphasis on cost management, operational execution and cash flow" helped increase earnings last year to $5.88 per share from $5.75 a year earlier. But 2014 profit declined 2.5% to $3.70 billion.

CtW Investment Group, an arm of the U.S. union federation Change to Win, said earlier this month that it would urge shareholders of Caterpillar to reject the compensation policies.

Among other things, CtW noted the improved earnings per share reflected stock repurchases that reduced the number of shares outstanding. Caterpillar spent $4.2 billion on share repurchases in 2014, up from $2 billion in 2013.

Meanwhile, ISS argued that Mr. Gallardo is over-committed because he serves on boards of more than three other companies. Mr. Gallardo, a director of Caterpillar since 1998, is chairman of Organizacion Cultiba, S.A.B. de C.V, which controls one of Mexico's biggest soft-drink bottlers. He also serves on the boards of Lafarge SA and Grupo Financiero Santander S.A.B. de C.V.

Mr. Gallardo couldn't immediately be reached for comment.

Caterpillar said in its recent proxy filing that Mr. Gallardo's international business experience, notably in Latin America, is "important for the company's growth strategy."

Write to James R. Hagerty at [e-mail]

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