Proxy Blog

Caterpillar

May 23, 2018

The annual proxy for this construction equipment manufacturer had the following proposals: 

  1. Proforma votes on directors, appointment of auditors, and “say-on-pay” advisory vote 
  2. Shareholder proposals on:
    -Reducing threshold for special meeting
    -Adding compensation claw backs
    -Adding human rights qualifications for directors 

Magni voted as follows: 

  1. Magni voted for all proforma proposals.
    -Directors. The board has a majority of independent directors and some have CEO/CFO experience with other companies. The compensation of directors is disclosed with a meaningful portion in equity where the equity has restrictions to align director incentives with long-term value creation. The compensation levels are set using a benchmarking process.
    -Auditors. There appear to be no controversies with the financial statements of the company.
    -“Say-on-pay” Advisory Vote. The proxy materials demonstrated that the board has more than considered shareholder feedback on executive compensation. In addition, the proxy materials disclosed the benchmarking done on executive compensation, including listing the peer group used in the benchmarking. 
  2. Magni voted for and against shareholder proposals.
    -For reducing threshold for special meeting – Strong shareholder relationships are part of good governance. Shareholders can be more engaged and feel more respected when the threshold for calling special meetings is low. Management’s primary objection to lowering the threshold is the burden and cost associated with such a meeting. Special meetings called by shareholders are rare, so the objection is not very material.
    -For adding compensation claw backs  Claw back provisions are sometimes consistent with good governance (e.g., return of bonus pay when fraudulent actions caused the bonus payout), or the provisions can be unhelpful (e.g., unintended consequences from well-intended claw back provisions). As such, these proposals need to be evaluated on a case-by-case basis. Both the supporting statement provided with the shareholder proposal and the company position need to be reviewed. The proposal has little information, so it is hard to understand the implications. This proposal may be more of a political statement and intended to force a company to use US standards in overseas operations. Beyond reducing the flexibility of the company and potentially making it uncompetitive in some countries, such actions reduce the positive impact a company can have on the development of a country.