Our stock-based compensation plans primarily provide for the granting of stock options, restricted stock units (RSUs) and performance-based restricted stock units (PRSUs) to Officers and other key employees, as well as non-employee Directors. Stock options permit a holder to buy Caterpillar stock at the stock’s price when the option was granted. RSUs are agreements to issue shares of Caterpillar stock at the time of vesting. PRSUs are similar to RSUs and include performance conditions in the vesting terms of the award.

Our long-standing practices and policies specify that the Compensation Committee (the Committee) of the Board of Directors approve all stock-based compensation awards. The award approval process specifies the grant date, value and terms of the award. We consistently apply the same terms and conditions to all employee grants, including Officers. The Committee approves all individual Officer grants. We determine the number of stock-based compensation award units included in an individual’s award based on the methodology approved by the Committee. The exercise price methodology approved by the Committee is the closing price of the Company stock on the date of the grant. In June of 2014, shareholders approved the Caterpillar Inc. 2014 Long-Term Incentive Plan (the 2014 Plan) under which all new stock-based compensation awards were granted. In June of 2023, shareholders approved the Caterpillar Inc. 2023 Long-Term Incentive Plan (the 2023 Plan), which superseded and replaced the 2014 Plan.

Common stock issued from Treasury stock under the plans totaled 1,433,723 for 2025, 1,972,037 for 2024 and 2,497,799 for 2023. The total number of shares authorized for equity awards under the 2023 Plan is 42,500,000. As of December 31, 2025, 39,336,515 shares remained available for issuance, which includes shares returned to the 2023 Plan upon cancellation or shares withheld for taxes incurred in connection with issuance or vesting of grants made under the 2014 Plan.

Stock option and RSU awards generally vest according to a three-year graded vesting schedule. One-third of the award will become vested on the first anniversary of the grant date, one-third of the award will become vested on the second anniversary of the grant date and one-third of the award will become vested on the third anniversary of the grant date. PRSU awards generally have a three-year performance period and cliff vest at the end of the period based upon achievement of performance targets established at the time of grant.

Upon separation from service, if the participant is 55 years of age or older with more than five years of service, the participant meets the criteria for a “Long Service Separation.” Award terms for stock option and RSU grants allow for continued vesting as of each vesting date specified in the award document for employees who meet the criteria for a “Long Service Separation” and fulfill a requisite service period of six months. We recognize compensation expense for eligible employees for the grants over the period from the grant date to the end date of the six-month requisite service period. For employees who become eligible for a “Long Service Separation” subsequent to the end date of the six-month requisite service period and prior to the completion of the vesting period, we recognized compensation expense over the period from the grant date to the date eligibility is achieved.

Award terms for PRSU grants allow for continued vesting upon achievement of the performance target specified in the award document for employees who meet the criteria for a “Long Service Separation” and fulfill a requisite service period of six months. We recognize compensation expense for the PRSU grants with respect to employees who have met the criteria for a “Long Service Separation” over the period from the grant date to the end of the six-month requisite service period. For employees who become eligible for a “Long Service Separation” subsequent to the end date of the six-month requisite service period and prior to the completion of the vesting period, we recognize compensation expense over the period from the grant date to the date eligibility is achieved.

At grant, option awards have a term life of ten years. For awards granted prior to 2016, if the “Long Service Separation” criteria are met, the vested options have a life that is the lesser of ten years from the original grant date or five years from the separation date. For awards granted beginning in 2016, the vested options have a life equal to ten years from the original grant date.

Accounting guidance on share-based payments requires companies to estimate the fair value of options on the date of grant using an option-pricing model. The fair value of our option grants was estimated using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model considers a range of assumptions related to volatility, risk-free interest rate and historical employee behavior. Expected volatility was based on historical Caterpillar stock price movement and current implied volatilities from traded options on Caterpillar stock. The risk-free interest rate was based on U.S. Treasury security yields at the time of grant. The weighted-average dividend yield was based on historical information. We determine the expected life from the actual historical employee exercise behavior. The following table provides the assumptions used in determining the fair value of the option awards for the years ended December 31, 2025, 2024 and 2023, respectively:



	Grant Year
	2025		2024		2023
Weighted-average dividend yield	2.13	%	2.40	%	2.60	%
Weighted-average volatility	30.5	%	30.7	%	31.0	%
Range of volatilities	26.6%-32.6%		26.3%-32.3%		28.5%- 35.5%
Range of risk-free interest rates	4.13%-4.4%		4.28%-5.03%		3.92%-5.03%
Weighted-average expected lives	7 years		7 years		7 years

We credit RSU and PRSU awards with dividend equivalent units on each date that we pay a cash dividend to holders of common stock. The dividend equivalent units are forfeitable if the associated award is forfeited. Therefore, the RSU and PSRUs, as well as dividend equivalent units are not treated as participating securities for earnings per share. We determine the fair value of the RSU awards granted in 2025, 2024 and 2023 as the closing stock price on the date of the grant.

The PRSUs granted in 2025 and 2024 contain a market condition and a Monte Carlo simulation was utilized to estimate the fair value of the awards. The following table provides the assumptions used in determining the fair value of the PRSUs granted in 2025 and 2024, respectively:



TABLE I — Financial Information Related to Stock-based Compensation

	Stock options
	Shares	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value 1

Outstanding at January 1, 2025	3,732,862	$	195.28
Granted to officers and key employees	299,523	$	331.62
Exercised	(997,947)	$	159.25

Forfeited / expired	(17,385)	$	232.23
Outstanding at December 31, 2025	3,017,053	$	220.52	5.81	$	1,063
Exercisable at December 31, 2025	2,279,192	$	192.44	5.02	$	867

1 The difference between a stock award’s exercise price and the underlying stock’s closing market price at December 31, 2025, for awards with market price greater than the exercise price. Amounts are in millions of dollars.


	RSUs			PRSUs
	Shares	Weighted- Average Grant Date Fair Value		Shares	Weighted- Average Grant Date Fair Value

Outstanding at January 1, 2025	776,637	$	284.36	390,013	$	321.58
Granted to officers and key employees	530,834	$	357.02	203,491	$	345.60

Vested	(403,533)	$	259.27	(220,897)	$	253.98
Forfeited / expired	(25,108)	$	316.72	(8,323)	$	326.09
Outstanding at December 31, 2025	878,830	$	338.27	364,284	$	374.52

The computations of weighted-average exercise prices and aggregate intrinsic values are not applicable to RSUs or PRSUs since these awards represent an agreement to issue shares of stock at the time of vesting. At December 31, 2025, there were 878,830 outstanding RSUs with a weighted average remaining vesting period of 1.7 years and 364,284 outstanding PRSUs with a weighted-average remaining vesting period of 1.5 years.



TABLE II— Additional Stock-based Award Information

(Dollars in millions except per share data)	2025		2024		2023
Stock options activity:
Weighted-average fair value per share of stock awards granted	$	106.04	$	104.27	$	75.79
Intrinsic value of stock awards exercised	$	298	$	354	$	356
Fair value of stock awards vested 1	$	46	$	56	$	53
Cash received from stock awards exercised	$	82	$	113	$	98

RSUs activity:
Weighted-average fair value per share of stock awards granted	$	357.02	$	338.65	$	252.24
Fair value of stock awards vested 2	$	136	$	144	$	126

PRSUs activity:
Weighted-average fair value per share of stock awards granted	$	345.60	$	408.64	$	251.97
Fair value of stock awards vested 2	$	127	$	94	$	80

In accordance with guidance on share-based payments, stock-based compensation expense is based on the grant date fair value and is classified within Cost of goods sold, Selling, general and administrative expenses and Research and development expenses corresponding to the same line item as the cash compensation paid to respective employees, officers and non-employee directors. We recognize stock-based compensation expense on a straight-line basis over the requisite service period for awards with terms that specify cliff or graded vesting and contain only service conditions. Stock-based compensation expense for PRSUs is based on the probable number of shares expected to vest and is recognized primarily on a straight-line basis.

Before tax, stock-based compensation expense for 2025, 2024 and 2023 was $242 million, $223 million and $208 million, respectively, with a corresponding income tax benefit of $38 million, $30 million and $33 million, respectively.

At December 31, 2025, there was $209.1 million of total unrecognized compensation cost from stock-based compensation arrangements granted under the plans, which is related to non-vested stock-based awards. We expect to recognize the compensation expense over a weighted-average period of approximately 1.9 years.