Exhibit 10.5
CATERPILLAR INC.
CORPORATE INCENTIVE COMPENSATION PLAN
MANAGEMENT AND SALARIED EMPLOYEES
(AMENDED AND RESTATED THROUGH DECEMBER 31, 1998)
Section 1. Type of Plan and Purpose
1.1 Type of Plan and Purpose. This Plan is an incentive compensation plan. The
purpose of the Plan is to provide contingent benefits to Employees to
reflect their efforts in contribution to the profitability of the Company;
and to serve as an incentive for Employees further to contribute to the
continued and future financial success of the Company and to its ability to
provide continued employment opportunities to its Employees.
This Plan has been adopted in accordance with rules and guidelines
established by the Stock Option and Officers' Compensation Committee of the
Board of Directors of the company. Those guidelines permit business and
service units of Caterpillar Inc. or its subsidiaries to adopt separate
incentive compensation plans within parameters established by that
Committee based upon measurements approved by the company's internal
Incentive Compensation Review Committee. Those guidelines (a) generally
require that a portion of the award under any such unit plan be based upon
the corporate return on assets measurement established under this Plan, and
(b) permit such unit plan to adopt a shorter eligibility period. Those unit
incentive compensation plans with such a corporate measurement form a part
of the Plan.
It is understood that the duty of the Employers, their Boards of Directors,
and the management they select is to provide the Employers' shareholders
protection of, and a maximum return on, their investment, consistent with
retention in the business of such profits as the Board of Directors of the
Company deems prudent, and with fair and competitive prices, wages,
benefits and other terms of employment; no provision of this Plan or any
unit incentive compensation plan shall be construed as altering that
objective or in any way limiting management of such Board of Directors in
the performance of their duties.
1.2 Supplements. The succeeding provisions of this Plan will be expanded and/or
modified by Supplements. Such Supplements will set forth the particulars
wherein the provisions of this Plan, as applied to any group of Employees
are expanded and/or differ from those set forth in the succeeding
provisions of this Plan exclusive of such Supplements. All provisions of
this Plan are subject to any express provisions to the contrary contained
in any such Supplements.
Exhibit 10.5 Page 1 of 8
Section 2. Definitions
2.1 Annual Salary Rate for any year means (i) in the case of a Participant who
is a management employee, his monthly salary rate as of December 31 of that
year (or his last day on the management payroll during that year if
earlier) multiplied by 12; or (ii) in the case of a Participant who is a
salaried employee, his weekly salary rate as of December 31 of that year
(or his last day on the salaried payroll during that year if earlier)
multiplied by 52.
The Annual Salary Rate shall include any salary amount deferred under Part
2 of the Employees' Investment Plan and contributed as a basic Employer
contribution thereunder, and any salary amount deferred under the Flexible
Spending Account, but excludes any (a) bonuses or special cash awards, (b)
commissions, (c) international service allowances, (d) extra shift or
overtime payments, (e) night shift premiums, (f) pay for vacation time not
used and (g) payments under this plan or other payments or contributions
(other than EIP 2 contributions) under any employee benefit plan.
2.2 Company means Caterpillar Inc. or any successor to it by merger,
consolidation, reorganization or otherwise.
2.3 Company Service means all periods of full-time employment with the Company
and its subsidiaries, including all periods of leave of absence and all
periods of layoff.
2.4 Effective Date of this Plan means January 1, 1993.
2.5 Employee means, subject to Subsection 3.1, any son who is a resident or
citizen of the United States of America or Canada and who on or after the
Effective Date is in the regular full-time employ of an Employer (or a
part-time or temporary employee included in a group for whom approval to
include in the Plan has been obtained from the Incentive Compensation
Review Committee) on its salaried or management payrolls and is employed
for work on the prevailing schedules of the department to which he is
assigned, and who is included in a group to whom the Plan has been made
available by extension by an Employer and includes any such person while
absent from work under circumstances which do not break continuity of
service.
2.6 Employer means the Company or any subsidiary of the Company that has
adopted or adopts the Plan with the Company's written consent.
2.7 Officer means those Employees who fill the following positions: Vice
President, Group President, and Chairman/Vice Chairman. For purposes of
this Plan, the Controller and Treasurer are not included in the definition
of Officer.
Exhibit 10.5 Page 2 of 8
2.8 Participant means any Employee who is eligible to be covered by the Plan
pursuant to Subsection 3.1.
2.9 The first Plan Year will begin on the effective date and will end on the
first December 31 thereafter. Each subsequent Plan Year will end on the
next following December 31.
Section 3. Eligibility and Participation
3.1 Eligibility and Participation. Each Employee of the Employers shall be
eligible to be covered by the Plan and become a Participant as of the
latest to occur of (i) the Effective Date; (ii) the date he has completed
90 days of Company Service (does not include any time with ATS); and (iii)
the date he is included in a group to which the Plan has been and continues
to be extended by an Employer. Notwithstanding anything contained herein to
the contrary, for all purposes of the Plan, any U.S. International Service
Employee who is not an Employee of the Company or any of the other
Employers shall be considered to be an eligible Employee if he then meets
the requirements of Subparagraph (ii) above. As used herein, the term "U.S.
International Service Employee" means an Employee who (i) on the direction
or with the permission of an Employer is transferred to employment outside
of the United States of America with a subsidiary (whether or not organized
or incorporated within the United States of America) which has not adopted
the Plan; and (ii) meets the definition of a U.S. International Service
Employee contained in the Company's U.S. International Service Practices;
and the term Employee shall also include such other persons as shall be
designated by the Committee. A Participant in the Plan shall continue as
such so long as he meets the definition of an Employee contained in
Subsection 2.5 or considered to be an Employee pursuant to this Subsection
3.1.
Notwithstanding the above, payment amounts shall not be duplicated under
this Plan by amounts paid for the same period of service or corporate
performance measurement under any other profit sharing plan, incentive
compensation plan, gainsharing-type plan, or similar plan sponsored by
Caterpillar Inc. or any of its subsidiaries, or would be paid except for
any applicable waiting period expressed in such plan or except where
specifically provided for in approved plan documentation. However, an
Officer who is eligible to participate in an incentive compensation plan
for a business or service unit under his control may participate in this
Plan for that portion of his Annual Salary Rate not included in the
calculation of his business or service unit incentive compensation payment.
3.2 Employment Requirements. Any Participant shall be eligible for an incentive
compensation benefit under the Plan for any year, provided that he is
actively employed by the Company and any of its subsidiaries on December 31
of that year or is on leave of absence or layoff from the Company or any of
its subsidiaries on such December 31; except that any otherwise eligible
Employee who died, retired, or received a separation payment in lieu of
layoff during such year shall also be covered as if he were an active
Employee on December 31 of that year.
Exhibit 10.5 Page 3 of 8
Section 4. Amount of Benefit
4.1 Salary Grade 23 and Below. The amount payable to a Participant at Salary
Grade 23 and below (as of December 31 of that year) shall be determined by
multiplying the Participant's Annual Salary Rate times the following
applicable rate of percentage for that salary grade times the applicable
Corporate Performance Factor:
Salary Grade Percentage
------------ ----------
21 and below 7%
22 8%
23 9%
4.2 Salary Grade 24 and Above. The amount payable to a Participant at Salary
Grade 24 and above (as of December 31 of that year) shall be determined by
multiplying his Annual Salary Rate times the Team Award percentage
(determined from Exhibit 1 for non-Officer Participants in Salary Grades 24
and above, and from Exhibit 2 for Officers), for his salary grade as of
December 31, times the applicable Corporate Performance Factor, plus the
amount of his Individual Award, if any. Designated Officers may participate
in their units' incentive compensation plan and may be eligible for Team
Awards based on their division results and the corporate performance of
Caterpillar Inc. (each award to be prorated according to the approved
weighting between the division results and corporate performance).
Individual Awards may be made only from a discretionary pool. A separate
Employee Discretionary Pool will be established for Participants (excluding
Officers) for each Vice Presidential administrative area or for each group
of Participants subject to a business or service unit incentive
compensation plan. A separate discretionary pool will be established for
Officers.
The Individual Award, if any, for which only Participants in Salary Grades
24 and above are eligible, shall be determined solely at the discretion of
the Participant's Unit Manager (or by the Compensation Committee of the
Board of Directors for Officers) and shall not exceed the amount of the
Employee's Team Award. In addition, the sum of the Individual Awards
payable to all Participants in Salary Grade 24 and above shall not exceed
the Employee Discretionary Pool Amount. The Employee Discretionary Pool
Amount shall be 25% of the total amount of the Team Awards paid to
Participants at Salary Grade 24 and above (excluding Officers).
The sum of the Individual Awards payable to Participants who are Officers
shall not exceed the Officer Discretionary Pool Amount. The Officer
Discretionary Pool Amount shall be the sum of each Officer's percentage of
annual salary rate (See Exhibit 1) adjusted by the Corporate Performance
Factor defined in Section 4.4. The Officer Discretionary Pool will be
calculated as if all officers participated wholly and exclusively in the
Corporate Incentive Compensation Plan.
Exhibit 10.5 Page 4 of 8
4.3 Individual Performance Level Less Than Five. Notwithstanding the provisions
of Subparagraphs 4.1 or 4.2 to the contrary, Employees or Officers with a
performance rating of Individual Performance Level 5 or those who have
unsatisfactory/ unacceptable performance in units not using specific
performance ratings will not be eligible for a Team Award or an Individual
Award, and contributions shall not be made to either the Participant
Discretionary Pool Amount or the Officer Discretionary Pool Amount for such
Employees or Officers.
4.4 Corporate Performance Factor. The Corporate Performance Factor will be
determined each year in relation to minimum, target and maximum corporate
return on asset (ROA) levels determined by the Company (see Exhibit 3). The
actual performance factor will be determined by interpolation based on the
actual ROA achieved at the end of the year compared to these levels, and
the participants team incentive compensation amount, if any, will be
calculated accordingly. The achieved ROA will be determined by dividing
Profit by the Average Gross Assets rounded to the nearest third decimal.
The Company must achieve the minimum ROA percentage specified before any
amount shall be payable.
As used herein, the term "Average Gross Assets" means the total corporate
assets averaged throughout the year. Total corporate assets excludes the
assets of Financial Products but includes the investment in Financial
Products and is reported in the Annual Report and the Quarterly Report to
Stockholders under the column entitled Machinery and Engines as
Supplemental Consolidating Data on the Statement of Financial Position. The
average for the year will be calculated by adding together five points: the
ending balance for the previous year and the ending balance for each of the
four quarters during the year and dividing by five. The term "Profit" means
the amount of profit for the year before income taxes reported in such
Statement 1 (or any equivalent successor statement thereto which provides
such amount of profit) in the subtotal immediately preceding the provision
for income taxes line, but increased by the amount of expense for that year
for incentive compensation amounts payable under the Plan and any other
similar incentive compensation plan or profit sharing plan of the Employers
(excluding any investment plan of the Employers) and any awards granted
under any bonus plan of the Employers. Such Profit before income taxes
would exclude the effect of extraordinary gains or losses, if any, as
defined by generally accepted accounting principles. Profit shall also
exclude income from nonconsolidated operations. Consolidated Financial
Statements which are prepared using generally accepted accounting
principles and as audited by the Company's independent certified public
accountants shall be final and conclusive.
4.5 Percentage Determination. The Employee's Team Award percentage, Individual
Award percentage, Employee Discretionary Pool Amount percentage, Officer
Discretionary Pool Amount percentage, the Corporate Performance Factors,
the Company's ROA target percentage, and the minimum and maximum percentage
will be determined for each year by the Committee on Stock Options and
Officer's Compensation.
Exhibit 10.5 Page 5 of 8
4.6 RIP, EIP, etc. Credit. 100% of the amount paid under the Plan to an
Employee shall be counted as compensation for the month in which payment is
made for purposes of the Retirement Income Plan or any other pension plan
sponsored by Caterpillar Inc. or its subsidiaries, in which the Employee is
a Participant. No incentive compensation amount shall be taken into account
under the Employee's Investment Plan, the Group Insurance Plan, or any
other employee benefit plan or payroll practice of Caterpillar Inc. or its
subsidiaries.
4.7 Proration of Payment Amount. If an Employee is not a Participant or is not
actively employed by an Employer for the entire year but is eligible for an
incentive compensation amount for the year pursuant to the provisions of
Subsection 3.2, his payment amount will be prorated based upon his days of
active employment in that year on the management or salaried payrolls while
a Participant. Days while on disability leave of absence will be counted as
days of active employment in accordance with uniform rules established by
the Committee with respect to the maximum number of such days to be counted
during any period of disability leave of absence, but in no event shall any
days occurring after the expiration of a continuous period of absence of
six months be counted. No other leaves of absence will be counted for
purposes of calculating the payment amount.
4.8 Participation in Another Incentive Compensation Plan. If an Employee, who
otherwise met the eligibility requirements of Section 3, ceased to be a
Participant during the Plan Year because he became a participant in another
incentive compensation plan sponsored by Caterpillar Inc. or one of its
subsidiaries, he shall be eligible for a Team Award and/or an Individual
Award under this Plan for that period of time that he was a Participant in
this Plan. Twenty five percent (25%) of the prorated Team Award paid under
this Plan shall be included in the Employee Discretionary Pool Amount.
4.9 Transfer from Hourly Payroll. Notwithstanding anything contained herein to
the contrary, if a Participant or former Participant is employed by the
Employers on December 31 of any Plan Year and does not receive a payment
for any period of employment in that Plan Year under either this Plan or
the profit sharing plan or an incentive compensation plan covering
employees on the hourly payroll of the Employers, he shall receive a
payment under this Plan for such period of employment in the same amount
which would otherwise have been payable to him under the terms of this Plan
or under such hourly plan but for his ineligibility thereunder because he
was not participating therein on said December 31.
4.10 Supplemental Employees. Notwithstanding anything contained herein to the
contrary, if (a) a Participant ceases to be a full-time Employee of an
Employer, and (b) on December 31 of the year in which said Participant
ceases to be a full-time Employee, he is and has thereafter been
continuously employed as a supplemental employee on either a part-time or
temporary basis by an Employer, his payment amount shall be prorated based
upon his days of active regular full-time employment in that year on the
salaried or management payroll while a Participant. His Annual Salary Rate
shall be the rate in effect when he ceased full-time employment.
Exhibbit 10.5 Page 6 of 8
Section 5. Incentive Compensation Payment
5.1 Date and Method of Payment. Any amount which is payable for any year shall
be paid to an eligible Participant not later than 3 months of the year
following the year for which the amount is computed. The amount of such
payment shall be paid by check less required withholding for federal,
state, local and other taxes. Payments will be made in the same currency in
which the Employee receives his base salary.
5.2 Beneficiaries. If a Participant is deceased at the time any payment is
payable to him, the amount of such payment shall be payable to the same
person or persons and in the same proportionate amount as shall be payable
to the beneficiary or beneficiaries of his basic life insurance under the
Group Insurance Plan of his Employer.
5.3 Lost Participants. If any payment becomes distributable pursuant to
Subsection 5.1 and the whereabouts of a Participant (or any beneficiary
pursuant to Subsection 5.2) is then unknown to the Employer and the
Employer shall fail to receive a claim for such payment from the person
entitled thereto (or from any other person validly acting on his behalf),
then such payment shall be disposed of in an equitable manner as permitted
by law under rules adopted by the Plan Administrator.
Section 6. Miscellaneous
6.1 Administration of the Plan. Except as otherwise expressly provided, the
Plan shall be administered by the Incentive Compensation Review Committee
("the Committee"), appointed by the Chairman of the Board, who shall be the
Plan Administrator and shall be authorized to (a) determine all questions
arising in the administration of the Plan, (b) establish rules and
procedures to carry out their duties and responsibilities, (c) delegate
such duties and responsibilities to other employees of the Employers, and
(d) do all other acts which in its judgment are necessary for the proper
administration of this Plan.
6.2 Facility of Payment. If the Committee shall receive evidence satisfactory
to it that any Participant or other person entitled to receive a benefit
under this Plan is physically or mentally incompetent to receive such
payment and to give a valid release therefor, the Committee at its
discretion may make payment in one or more of the following ways: (a)
directly to such Participant or person, (b) to his legal guardian or
conservator, or (c) to his spouse or to any other person to be expended for
his benefit. The decision of the Committee shall be in each case final and
binding on all persons in interest.
6.3 Amendment and Termination of Plan. The Company shall have the power at any
time and from time to time, by action of its Board of Directors, to amend
or terminate this Plan; provided, however, that the Committee may also
amend the Plan so long as such amendment does not change the duties and
responsibilities of the Committee or the Stock Option and Officers'
Compensation Committee of the Company's Board of Directors and so long as
the cost of such amendment to the Employers does not exceed $100,000 per
year.
Exhibit 10.5 Page 7 of 8
6.4 Employment Rights. Participation in the Plan will not give any Employee or
an Employer any right to be retained in the service of the Company or its
subsidiaries, nor any right or claim to any payment under the Plan unless
such right or claim has specifically accrued under the terms of the Plan.
6.5 Action by Employers. Any action required or permitted to be taken by any
Employer hereunder may, except as otherwise expressly provided, be taken by
the Group President or any Vice President of such Employer or by any other
person designated by the Group President or any Vice President of the
Employer to act for such Employer.
6.6 Gender and Number. Where the context permits, words in the masculine gender
shall include the feminine gender, the plural shall include the singular,
and the singular shall include the plural.
Exhibit 10.5 Page 8 of 8