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Sincerely,
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| | | |
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Tom Linebarger
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Executive Chairman
Chairman of the Board Cummins Inc. |
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Sincerely,
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| | | |
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Jennifer Rumsey
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President and Chief Executive Officer
Cummins Inc. |
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DATE
May 9, 2023
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TIME
11:00 a.m. Eastern Time
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RECORD DATE
March 7, 2023
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VOTING
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BY THE INTERNET
Visit the website noted on your proxy card to vote online
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BY TELEPHONE
Use the toll-free telephone number on your proxy card to vote by telephone
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BY MAIL
Sign, date, and return your proxy card in the enclosed envelope to vote by mail.
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TABLE OF CONTENTS
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| | | | | 73 | | | |
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| | | | | 90 | | | |
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IMPORTANT: If you hold your shares in a brokerage account, you should be aware that, due to New York Stock Exchange, or NYSE, rules, if you do not affirmatively instruct your broker how to vote within 10 days prior to our Annual Meeting, your broker will not be permitted to vote your shares (i) for the election of directors; (ii) on the advisory vote on the compensation of our named executive officers; (iii) on the advisory vote on the frequency of future advisory votes on the compensation of our named executive officers; (iv) on the Cummins Inc. Employee Stock Purchase Plan, as amended; (v) on the shareholder proposal regarding an independent chairman of the board; or (vi) on the shareholder proposal regarding linking executive compensation to achieving 1.5°C emissions reductions. Therefore, you must affirmatively take action to vote your shares at our Annual Meeting. If you do not affirmatively vote your shares, your shares will not be voted (i) for the election of directors; (ii) on the advisory vote on the compensation of our named executive officers; (iii) on the advisory vote on the frequency of future advisory votes on the compensation of our named executive officers; (iv) on the Cummins Inc. Employee Stock Purchase Plan, as amended; (v) on the shareholder proposal regarding an independent chairman of the board; or (vi) on the shareholder proposal regarding linking executive compensation to achieving 1.5°C emissions reductions.
|
| |
| PROXY SUMMARY | | |
CUMMINS 2023 PROXY
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1
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WE WILL BE VOTING ON THE FOLLOWING MATTERS:
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| | |||||||||
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Agenda Item
|
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Voting Recommendation
|
| |
More Information
|
| | |||
|
1.
|
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Election of twelve directors nominated by Cummins’ Board
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FOR EACH NOMINEE
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Page 16
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2.
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Advisory vote on the compensation of our named executive officers
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FOR
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Page 73
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3.
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Advisory vote on the frequency of future advisory votes on the compensation of our named
executive officers |
| |
SUBMITTED EVERY YEAR
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Page 74
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4.
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Ratification of independent public accountants
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FOR
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Page 75
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5.
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| |
Approval of the Cummins Inc. Employee Stock Purchase Plan, as amended
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FOR
|
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Page 79
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6.
|
| |
Shareholder proposal regarding an independent chairman of the board
|
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AGAINST
|
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Page 81
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| |
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7.
|
| |
Shareholder proposal regarding linking executive compensation to achieving 1.5°C
emissions reductions |
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AGAINST
|
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Page 85
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| | | | | | | | | | | |
Committee Memberships
|
| ||||||||||||||||
| | | | | |
Age
|
| |
Director
Since |
| |
Audit
|
| | |
Talent
and Comp |
| | |
Finance
|
| | |
Governance
|
| | |
Safety
Environment and Tech |
|
|
| |
JENNIFER W. RUMSEY
President and Chief Executive Officer, Cummins Inc. |
| |
49
|
| |
2022
|
| | | | | | | | | | | | | | | | | | | |
|
| |
N. THOMAS LINEBARGER
Chairman of the Board and Executive Chairman, Cummins Inc. |
| |
60
|
| |
2009
|
| | | | | | | | | | | | | | | | | | | |
|
| |
GARY L. BELSKE
Retired Deputy Managing Partner and Chief Operating Officer, Ernst & Young |
| |
66
|
| |
2022
|
| |
*
|
| | | | | | | | | | |
|
| | | | |
|
| |
ROBERT J. BERNHARD
Vice President for Research and Professor in the Department of Aerospace and Mechanical Engineering, University of Notre Dame |
| |
70
|
| |
2008
|
| |
|
| | | | | | | | | | |
|
| | |
|
|
|
| |
BRUNO V. DI LEO
Managing Director, Bearing-North LLC |
| |
66
|
| |
2015
|
| | | | | | | | | |
|
| | |
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| | |
|
|
|
| |
STEPHEN B. DOBBS
Retired Senior Group President, Fluor Corporation |
| |
66
|
| |
2010
|
| |
|
| | | | | | | | | | |
|
| | |
|
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|
| |
CARLA A. HARRIS
Senior Client Advisor, Morgan Stanley |
| |
60
|
| |
2021
|
| | | | | |
|
| | |
|
| | |
|
| | | | |
|
| |
THOMAS J. LYNCH
Chairman, TE Connectivity Ltd |
| |
68
|
| |
2015
|
| | | | | |
|
| | |
|
| | |
|
| | | | |
|
| |
WILLIAM I. MILLER
President, The Wallace Foundation |
| |
66
|
| |
1989
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| |
|
| | |
|
| | | | | | |
|
| | | | |
|
| |
GEORGIA R. NELSON
Retired President and CEO, PTI Resources, LLC |
| |
73
|
| |
2004
|
| |
|
| | |
|
| | | | | | |
|
| | | | |
|
| |
KIMBERLY A. NELSON
Retired Senior Vice President, External Relations, General Mills, Inc. |
| |
60
|
| |
2020
|
| |
|
| | | | | | | | | | |
|
| | |
|
|
|
| |
KAREN H. QUINTOS
Retired Chief Customer Officer, Dell Technologies Inc. |
| |
59
|
| |
2017
|
| |
|
| | | | | | | | | | |
|
| | |
|
|
| 2 | | | CUMMINS 2023 PROXY | | |
PROXY SUMMARY
|
|
| PROXY SUMMARY | | |
CUMMINS 2023 PROXY
|
| |
3
|
|
| 4 | | | CUMMINS 2023 PROXY | | |
PROXY SUMMARY
|
|
|
|
| | | | | | |
|
Board Leadership
•
Annual assessment and determination of Board leadership structure
•
Newly appointed Lead Director has a strong role and significant governance duties, including chair of Governance & Nominating Committee and of all executive sessions of independent directors
|
| |
Board Accountability
•
All directors are elected annually via majority voting standard
•
Our Board has adopted proxy access, shareholder right to call special meetings, and shareholder right to amend by-laws
|
| |
Board Evaluation and Effectiveness
•
Board evaluation process led by Lead Director and facilitated by either Lead Director, Chief Legal Officer or third party (at discretion of Lead Director); facilitator schedules feedback call with each Board member annually; recommends any improvements or enhancements derived from evaluations
•
Annual feedback and evaluation session by each Committee Chair with its members on Committee performance; recommends any Committee improvements or enhancements
|
|
|
Board Oversight of Risk & ESG
•
Our Board and its Committees exercise robust oversight of the company’s enterprise risk management program with dedicated time to review the top tier risks at every regular Board meeting
•
Our Board or its Committees review ESG strategies, risks and progress with dedicated time at every regular Board meeting
|
| |
Shareholder Engagement
•
Board members routinely meet with top shareholders for conversations focused on our Board’s skill set and refreshment and its oversight of a variety of topics including company strategy, growth, risk management, governance and ESG issues
|
| |
Board Refreshment and Diversity
•
7 new directors added to Board since 2015 and 10 new directors since 2008
•
Board members represent diverse perspectives, including 5 female directors, 2 African-American directors and 1 director from Latin America
|
|
| | | | | | | | | | | | | |
| | | | |
NAMED TO THE 2022 S&P DOW JONES INDICES OF THE WORLD’S MOST SUSTAINABLE COMPANIES FOR A SECOND CONSECUTIVE YEAR AND TO THE GROUP’S 2022 NORTH AMERICAN INDEX FOR A 16TH CONSECUTIVE YEAR.
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| | | | | |
RANKED NO. 4 ON FORBES’ 2022 LIST OF THE BEST EMPLOYERS FOR DIVERSITY, UP FROM NO. 41 IN THE MAGAZINE’S 2021 RANKING.
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|
| | | | | | | | | | | | | |
| | | | |
NAMED FOR A 16TH CONSECUTIVE YEAR TO THE 2023 WORLD’S MOST ETHICAL COMPANIES LIST BY THE ETHISPHERE INSTITUTE, A LEADER IN ADVANCING ETHICAL BUSINESS PRACTICES .
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| | | | | |
RANKED NO. 27 ON INVESTOR’S BUSINESS DAILY’S 2022 100 BEST ESG COMPANIES LIST FOR PERFORMANCE ON ENVIRONMENTAL, SOCIAL AND GOVERNANCE MATTERS.
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| | | | | | | | | | | | | |
| | | | |
NAMED TO BARRON’S 2023 LIST OF AMERICA’S 100 MOST SUSTAINABLE PUBLICLY HELD COMPANIES
|
| | | | | |
RANKED NO. 67 AND NO. 1 IN THE COMMERCIAL VEHICLE AND MACHINERY CATEGORY IN JUST CAPITAL’S 2023 JUST 100 LIST OF AMERICA’S MOST JUST COMPANIES. THE LIST POLLS AMERICANS ON THEIR PRIORITIES IN JUST BUSINESS BEHAVIOR AND THEN RANKS THE COUNTRY’S LARGEST COMPANIES AGAINST THOSE PRIORITIES.
|
|
| PROXY SUMMARY | | |
CUMMINS 2023 PROXY
|
| |
5
|
|
|
•
market positioning
|
| |
•
pay at risk
|
| |
•
simple and transparent
|
|
|
•
short-term/long-term mix
|
| |
•
retention
|
| |
•
alignment with shareholders’ interests
|
|
Compensation Element
|
| |
Form of Payment
|
| |
Performance Metrics
|
| |
Rationale
|
|
Base salary
|
| |
Cash
|
| |
Individual Performance
|
| |
Market-based to attract and retain skilled executives. Designed to recognize scope of responsibility, individual performance and experience.
|
|
Annual bonus
|
| |
Cash
|
| |
Return on Average Net Assets (ROANA)
|
| |
Rewards operational performance. ROANA balances growth, profitability and asset management.
|
|
Long-term incentive compensation
|
| |
Performance cash (30%) and Performance shares (70%)
|
| |
Return on Invested Capital (ROIC), weighted at 80% and EBITDA, weighted at 20% over a three-year period
|
| |
ROIC and EBITDA provide an incentive for profitable growth and correlate well with shareholder value.
|
|
| 6 | | | CUMMINS 2023 PROXY | | |
PROXY SUMMARY
|
|
| CORPORATE GOVERNANCE | | |
CUMMINS 2023 PROXY
|
| |
7
|
|
|
|
| | | | | | |
|
Director Independence
•
10 of 12 director nominees are independent
•
5 fully independent Board Committees: Audit; Talent Management & Compensation; Governance & Nominating; Finance; and Safety, Environment & Technology
|
| |
Board Leadership
•
Annual assessment and determination of Board leadership structure
•
Annual election of independent Lead Director whenever Chairman/CEO roles are combined or when the Chairman is not independent
•
Lead Director has a strong role and significant governance duties, including chair of Governance & Nominating Committee and of all executive sessions of independent directors
•
Executive Chairman who acts as Chairman of the Board of Directors and oversees the Board’s activity, including running the meetings, maintaining good relations, aiding CEO transition and working with the CEO and the Lead Director to create agendas.
|
| |
Board Accountability
•
Annual election of all directors via majority voting standard
•
Shareholder right to call special meetings (10% of voting power threshold)
•
Proxy access for director nominees available to a shareholder, or group of up to 20 shareholders, holding a total of at least 3% of our common stock for at least 3 years
•
Shareholder right to unilaterally amend the by-laws (upon a majority vote)
|
|
|
Board Evaluation and Effectiveness
•
Detailed Board and Committee evaluation process coordinated by our Lead Director and Governance and Nominating Committee Chair
•
Board evaluation process led by Lead Director and facilitated by either Lead Director, Chief Legal Officer or third party (at discretion of Lead Director); facilitator schedules feedback call with each Board member annually; recommends any improvements or enhancements derived from evaluations
•
Annual feedback and evaluation session by each Committee Chair with its members on Committee performance; recommends any Committee improvements or enhancements
•
Annual two-way feedback and evaluation sessions by Chairman with each director
•
Annual independent director evaluation of Chairman and CEO
|
| |
Board Oversight of Risk and ESG
•
The Board and its Committees exercise robust oversight of the company’s enterprise risk management program with dedicated time at every regular Board meeting
•
Top tier risks are assigned to members of the Cummins Leadership Team
•
Board and its Committees provide strong oversight of ESG risks and opportunities including at least one annual review by full Board of ESG strategy and challenges and detailed reviews in the designated committees
|
| |
Shareholder Engagement
•
Board members routinely meet with top shareholders for conversations focused on our Board’s skill set and refreshment and its oversight of a variety of topics including company strategy, growth, risk management, governance and ESG issues
|
|
|
Board Refreshment and Diversity
•
7 new directors added to Board since 2015; 10 new directors since 2008
•
Board members represent diverse perspectives, including 5 female directors, 2 African-American directors and 1 director from Latin America
•
Goal of rotating Committee assignments every 3 to 5 years
•
Mandatory director retirement age
|
| |
Director Engagement
•
All of the directors attended 75% or more of the aggregate number of meetings of our Board and the Committees on which they served during 2022
•
Limits on director/CEO membership on other public company boards
•
Our directors routinely visit company locations without our CEO present to interact directly with managers and employees; in 2018-2019, individual directors visited 13 different locations in China, India, Australia and the United States; we suspended these in-person visits in 2020 and 2021 due to the ongoing global pandemic, except that one of our directors visited Spain in 2021 for the launch of a new company partnership. In 2022, 6 individual directors visited 4 different locations in the United States.
|
| |
Clawback and Anti-Hedging Policies
•
Clawback policy permits us to recoup certain compensation payments in the event any of our financial statements are required to be materially restated resulting from the fraudulent actions of any officer or the non-fraudulent or individual behavioral actions of Section 16 officers resulting in reputational harm
•
Directors and officers prohibited from engaging in any pledging, short sales or hedging investments involving our common stock
|
|
| 8 | | | CUMMINS 2023 PROXY | | |
CORPORATE GOVERNANCE
|
|
| |
|
| |
|
•
We believe that directors with different backgrounds and experiences makes our boardroom and our company stronger.
•
Our slate of director nominees for this Annual Meeting has five female directors, two African-American directors and one director from Latin America
|
|
| CORPORATE GOVERNANCE | | |
CUMMINS 2023 PROXY
|
| |
9
|
|
| 10 | | | CUMMINS 2023 PROXY | | |
CORPORATE GOVERNANCE
|
|
| |
2022 ESG ACHIEVEMENTS
|
| |
| |
|
| |
•
Rolled out Destination Zero, our product decarbonization strategy, maintaining carbon reduction is a growth opportunity for Cummins. The company made several key acquisitions, including Meritor and its eAxle technology for electric power applications.
•
Introduced hydrogen fueled internal combustion engines, increasing customer options to cut carbon, and unveiled fuel agnostic engines, a design with a high degree of parts commonality that can be optimized for a low-carbon fuel.
•
Entered 10 partnerships, collaborations, or joint ventures to reduce carbon, including an initiative with Daimler Truck North America to test Cummins’ hydrogen fuel cell powertrains in heavy duty trucking.
•
Opened a new hydrogen fuel cell systems production plant in Germany, and broke ground on a plant to make electrolyzers in Spain. Announced plans to begin producing electrolyzers in the U.S. at a company facility in Minnesota.
•
Issued its first update on the company’s 2030 environmental goals, reporting progress on reducing water use, waste production and greenhouse gas emissions from both products and facilities.
|
| |
| |
|
| |
•
To recognize extraordinary efforts in recent years and encourage employee retention, Cummins approved a one-time employee recognition bonus. To meet demand for work flexibility, the company significantly increased jobs classified as remote and hybrid.
•
The Cummins Water Works initiative celebrated its first anniversary. Working with groups such as water.org and The Nature Conservancy, it helped more than 500,000 people gain access to sustainable water supplies.
•
The “It’s OK” campaign at Cummins marked its second anniversary championing awareness and action around mental wellness. Introduced at the height of the pandemic, it maintains mental wellness is an integral part of anyone’s overall well-being.
|
| |
| |
|
| |
•
To address the strategic and operational challenges of 2022, our Board and its committees held more than a dozen meetings with enhanced time devoted to strategic oversight, enterprise risk management and ESG topics.
•
Published the Company’s first stand-alone Human Capital Management report to detail the Company’s efforts to recruit, develop, retain and reward the employees necessary to ensure the Company can meet the challenges of today and tomorrow.
|
| |
| CORPORATE GOVERNANCE | | |
CUMMINS 2023 PROXY
|
| |
11
|
|
| | | | |
|
| |
| |
OUR LEAD DIRECTOR’S RESPONSIBILITIES INCLUDE:
SERVING as Chairman of the Governance and Nominating Committee;
CONFERRING with the Chairman on, and approving, Board meeting agendas and meeting schedules to assure there is sufficient time for discussion of all agenda items;
CALLING AND PRESIDING over all meetings of the Board at which the Chairman is not present, including executive sessions of independent directors and communicating feedback on executive sessions to the Chairman;
LEADING the annual performance reviews of the Chief Executive Officer and the Board;
ENSURING that there is open communication between our independent directors and the Chairman and other management members;
BEING AVAILABLE, when deemed appropriate by the Board, for consultation and direct communication with shareholders;
REVIEWING, at his or her discretion, information to be sent to the Board; and
CONFERRING with the Chairman on other issues of corporate importance, as appropriate.
|
| |
| 12 | | | CUMMINS 2023 PROXY | | |
CORPORATE GOVERNANCE
|
|
|
AUDIT COMMITTEE
Meetings in 2022: 9
Members
Robert K. Herdman (2022 Chair)* Gary L. Belske Robert J. Bernhard Stephen B. Dobbs William I. Miller Georgia R. Nelson Kimberly A. Nelson Karen H. Quintos |
| |
KEY RESPONSIBILITIES
•
Oversees the integrity of our financial statements and related financial disclosures and internal controls over financial reporting.
•
Reviews our accounting principles and procedures.
•
Monitors the independence and performance of our external and internal auditors.
•
Exercises oversight of the company’s enterprise risk management program with dedicated time for review and discussion at every regular Board meeting.
•
Oversees the company’s compliance with its ethics policies and legal and regulatory requirements.
All members are independent directors as defined under our independence criteria, SEC rules and NYSE listing standards, including those specifically applicable to audit committee members. Our Board has determined that Mr. Herdman and Mr. Belske are “audit committee financial experts” for purposes of the SEC’s rules and all members are financially literate for the purposes of the NYSE's rules.
|
|
| CORPORATE GOVERNANCE | | |
CUMMINS 2023 PROXY
|
| |
13
|
|
|
TALENT MANAGEMENT AND COMPENSATION COMMITTEE
Meetings in 2022: 11
Members
Georgia R. Nelson (Chair) Carla A. Harris Thomas J. Lynch William I. Miller |
| |
KEY RESPONSIBILITIES
•
Reviews and approves the company’s compensation philosophy and strategy primarily for the Board and the officers of the company and others as the committee may designate from time to time.
•
Reviews and oversees the company’s strategies for talent management.
•
Assesses talent management policies, programs and processes, including leadership, culture, diversity and inclusion and succession.
•
Administers and determines eligibility for, and makes awards under, our incentive plans.
•
Establishes goals and approves the compensation for our Chief Executive Officer following a review of his performance, including input from all of the other independent directors.
•
Reports annually in the proxy statement regarding the company’s executive compensation programs.
•
Conducts an annual compensation risk assessment.
All members are independent directors as defined under our independence criteria, SEC rules and NYSE listing standards, including those specifically applicable to compensation committee members. The Talent Management and Compensation Committee engaged Farient Advisors LLC as its independent compensation consultant in 2022 to provide input and advice to the Committee concerning the compensation of our officers and our Board and related matters.
|
|
|
FINANCE COMMITTEE
Meetings in 2022: 5
Members
Thomas J. Lynch (Chair) Bruno V. Di Leo Carla A. Harris |
| |
KEY RESPONSIBILITIES
•
Reviews and advises our management and our Board on our financial strategy pertaining to our capital structure, creditworthiness, dividend policy, share repurchase policy, and financing requirements.
•
Reviews our banking relationships and lines of credit.
•
Reviews and advises on financing proposals for acquisitions, partnerships and other alliances of the company.
•
Discusses key areas of shareholder interest and feedback on our performance and strategy.
•
Monitors our shareholder base and provides counsel on investor relations activity.
All members are independent directors as defined under our independence criteria, SEC rules and NYSE listing standards.
|
|
|
GOVERNANCE AND NOMINATING COMMITTEE
Meetings in 2022: 5
Members
Thomas J. Lynch (Chair) Gary L. Belske Robert J. Bernhard Bruno V. Di Leo Stephen B. Dobbs Carla A. Harris Robert K. Herdman* William I. Miller Georgia R. Nelson Kimberly A. Nelson Karen H. Quintos |
| |
KEY RESPONSIBILITIES
•
Reviews and makes recommendations to our Board with respect to its membership, size, composition, procedures and organization.
•
Identifies potential director candidates to ensure the Board is composed of well qualified and diverse candidates to oversee the company; engages a professional search firm to identify potential director candidates based on criteria selected by the Committee; and interviews identified candidates.
•
Ensures the Board has a robust process for evaluating its performance and the performance of its committees and individual directors, including the use of a third party consultant to facilitate feedback among Board members.
•
Ensures the Board is providing effective ongoing director education and new director orientation.
All members are independent directors as defined under our independence criteria, SEC rules and NYSE listing standards.
|
|
| 14 | | | CUMMINS 2023 PROXY | | |
CORPORATE GOVERNANCE
|
|
|
SAFETY, ENVIRONMENT AND TECHNOLOGY COMMITTEE
Meetings in 2022: 5
Members
Stephen B. Dobbs (Chair) Robert J. Bernhard Bruno V. Di Leo Robert K. Herdman* Kimberly A. Nelson Karen H. Quintos |
| |
KEY RESPONSIBILITIES
•
Reviews the company’s safety program with an emphasis on employee, workplace and product safety.
•
Reviews the company’s progress on its major sustainability initiatives from Planet 2050 and the environmental management of our facilities and operations.
•
Reviews our Destination Zero initiative and key technology developments that may impact product competitiveness for both core and new business areas.
•
Reviews public policy developments, strategies and positions taken by us with respect to safety, environmental and technological matters that significantly impact us or our products.
•
Reviews product and service quality performance and guides our strategies and improvement initiatives.
|
|
| CORPORATE GOVERNANCE | | |
CUMMINS 2023 PROXY
|
| |
15
|
|
| 16 | | | CUMMINS 2023 PROXY | | |
ELECTION OF DIRECTORS
|
|
| ELECTION OF DIRECTORS | | |
CUMMINS 2023 PROXY
|
| |
17
|
|
| |
Director Since: 2022
Age: 49
Board Committees:
None |
| | |
JENNIFER W. RUMSEY—President and Chief Executive Officer, Cummins Inc.
|
| |
|
Ms. Rumsey became the President and Chief Executive Officer of Cummins Inc. on August 1, 2022. Ms. Rumsey was President and Chief Operating Officer of our company from March 2021-August 2022. Ms. Rumsey was Vice President and President of our Components Business from 2019-2021 after serving as Vice President and Chief Technical Officer from 2015-2019. From 2013-2015, she was our Vice President of Engineering, Engine Business, after holding a variety of engineering and product life cycle roles with the company. Ms. Rumsey is a member of the Society of Women Engineers, Society of Automotive Engineers and Women in Trucking Association. She holds a Bachelor of Science in Mechanical Engineering from Purdue University and a Master of Science in Mechanical Engineering from Massachusetts Institute of Technology. Ms. Rumsey has been a director of Hillenbrand, Inc. since 2020.
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Extensive knowledge of business operations through various leadership roles within our company
•
Offers expertise regarding manufacturing and technology issues
•
Leads long-term company strategy supporting the transition to decarbonized power for all stakeholders
•
Adds perspective gained through experience in automotive and transportation fields
•
Keeps directors apprised of current business and market trends
|
| |
| |
Director Since: 2009
Age: 60
Board Committees:
Executive |
| | |
N. THOMAS LINEBARGER—Chairman of the Board and Executive Chairman, Cummins Inc.
|
| |
|
Tom Linebarger was appointed as Executive Chairman of Cummins Inc. in August 2022. In this role, Tom will continue serving as Chairman of the Board. Mr. Linebarger was the Chief Executive Officer of our company from 2012-2022. Mr. Linebarger was our President and Chief Operating Officer from 2008-2011 after serving as Executive Vice President and President, Power Generation Business from 2003-2008 and as Vice President, Chief Financial Officer from 2000-2003. From 1998-2000, he was our Vice President, Supply Chain Management, after holding various other positions with us. Mr. Linebarger received a B.S. from Stanford University and a B.A. from Claremont McKenna College in 1986 and M.S. and M.B.A. degrees from Stanford in 1993. He has been a director of Harley-Davidson, Inc. since 2008.
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Provides strategic leadership for the Board with decades of experience with our global business
•
Seeks to ensure directors are informed of significant issues impacting our company and receive necessary information
•
Works collaboratively with our Lead Director to set agendas for Board meetings and assess the engagement and effectiveness of our Board, its committees, and individual directors
•
Ensures that there are strong succession plans in place for the CEO and other key leaders
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| 18 | | | CUMMINS 2023 PROXY | | |
ELECTION OF DIRECTORS
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Director Since: 2022
Age: 66
Board Committees:
Audit, Governance and Nominating |
| | |
GARY L. BELSKE—Retired Deputy Managing Partner and Chief Operating Officer of Ernst & Young
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Mr. Belske retired from Ernst & Young (EY) on December 31, 2016 after a 38-year career. He held many leadership positions within EY including the second highest position in the United States and the Americas, where he served as Deputy Managing Partner and Chief Operating Officer for the last 10 years. In this role, Mr. Belske was responsible for the overall strategy and operations of EY practices in the Americas, which encompass businesses in 16 countries with approximately $15 billion in revenue, 50,000 employees and 4,000 partners.
Mr. Belske served on EY’s Americas and US Board for the last decade of his career at EY. He also has extensive experience managing regulatory issues related to the PCAOB and the SEC and served as Chair of EY’s Retirement Investment Committee and its Partner/Executive Compensation Committee.
Mr. Belske currently serves on the Board of Trustees at Rockhurst University in Kansas City and on the Board of WilliamsMarston, an advisory firm. Mr. Belske holds a BSBA degree from Rockhurst University, a Masters of Arts in Accounting degree from the University of Missouri-Columbia and is a CPA.
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Contributes extensive work experience in a regulated industry
•
Provides insight concerning financial and risk management matters
•
Possesses senior leadership experience
•
Brings global external relations perspective
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Director Since: 2008
Age: 70
Board Committees:
Audit; Governance and Nominating; Safety, Environment and Technology |
| | |
ROBERT J. BERNHARD—Vice President for Research and Professor in the Department of Aerospace and Mechanical Engineering, University of Notre Dame
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Mr. Bernhard joined the University of Notre Dame in 2007 and prior to that was Associate Vice President for Research at Purdue University since 2004. He also held Assistant, Associate and full Professor positions at Purdue University. He was Director of the Ray W. Herrick Laboratories at Purdue’s School of Mechanical Engineering from 1994-2005. Mr. Bernhard is also a Professional Engineer and earned a B.S.M.E. and Ph.D., E.M. from Iowa State University in 1973 and 1982, and an M.S.M.E. from the University of Maryland in 1976. He was the Secretary General of the International Institute of Noise Control Engineering (I-INCE) from 2000-2015, and is the Past President of I-INCE. He is a Fellow of INCE-USA, the Acoustical Society of America and the American Society of Mechanical Engineering.
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Leverages technical background to offer valuable insight
•
Pushes for improvement in safety and technology planning
•
Mentors our technical leaders
|
| |
| ELECTION OF DIRECTORS | | |
CUMMINS 2023 PROXY
|
| |
19
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Director Since: 2015
Age: 66
Board Committees:
Finance; Governance and Nominating; Safety, Environment and Technology |
| | |
BRUNO V. DI LEO ALLEN—Managing Director, Bearing-North LLC
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Mr. Di Leo has been the Managing Director of Bearing-North LLC, an independent advisory firm focused on business expansion and senior executive counseling in strategy and operations, since 2018. Prior to this role, Mr. Di Leo served as Senior Vice President of International Business Machines Corporation, or IBM, a globally integrated technology and consulting company, from January 2018 until his retirement in June 2018. He had previously served as Senior Vice President, Global Markets, for IBM since 2012. In that position, he was accountable for revenue, profit, and client satisfaction in Japan, Asia Pacific, Latin America, Greater China and the Middle East and Africa. He also oversaw IBM’s Enterprise and Commercial client segments globally. From 2008- 2011, he was General Manager for IBM’s Growth Markets Unit based in Shanghai. Mr. Di Leo has more than 40 years of business leadership experience in multinational environments, having lived and held executive positions on four continents.
Mr. Di Leo has served as a director of Ferrovial, S.A., since 2018. Mr. Di Leo is a member of the international advisory board of Instituto de Estudios Superiores de la Empresa (IESE Business School) as well as a member of the Deming Center Advisory Board of Columbia Business School. He holds a business administration degree from Ricardo Palma University and a postgraduate degree from Escuela Superior de Administracion de Negocios, both in his native Peru. He is fluent in Spanish, Portuguese, English and Italian.
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Brings perspective on international business issues having lived and held executive positions on four continents
•
Offers insight regarding technology and sales and marketing issues
•
Works to ensure customer-focused approach in addressing product and service-related issues
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| 20 | | | CUMMINS 2023 PROXY | | |
ELECTION OF DIRECTORS
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Director Since: 2010
Age: 66
Board Committees:
Audit; Governance and Nominating; Safety, Environment and Technology |
| | |
STEPHEN B. DOBBS
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Mr. Dobbs is a former executive of Fluor Corporation, a publicly traded professional services firm providing engineering, procurement, construction, fabrication and modularization, commissioning and maintenance, as well as project management services on a global basis. Mr. Dobbs served as Senior Group President over Fluor’s Industrial and Infrastructure Group until his retirement in 2014. In that role, Mr. Dobbs was responsible for a wide diversity of the markets served by Fluor, including infrastructure, telecommunications, mining, operations and maintenance, transportation, life sciences, heavy manufacturing, advanced technology, microelectronics, commercial, institutional, health care, water, and alternative power. Mr. Dobbs served Fluor in numerous U.S. and international locations including Southern Africa, Europe, and China. Over the course of his career, Mr. Dobbs was an industry recognized expert in project finance in Europe and the United States, particularly public private partnerships and private finance initiatives. In 2019, Mr. Dobbs retired from the board of Lendlease Corporation Limited, an international property and infrastructure group that is publicly traded in Australia, where he had served on the board since 2015.
Mr. Dobbs earned his doctorate in engineering from Texas A&M University and holds two undergraduate degrees in nuclear engineering, also from Texas A&M. Until his retirement from Fluor, he served on the World Economic Forum’s Global Agenda Council on Geopolitical Risk as well as the Governor’s Business Council for the State of Texas. He also served as a director of the U.S. China Business Council.
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Chair of Safety, Environment and Technology Committee
•
Leverages technical background to provide insight regarding technology matters
•
Possesses emerging market/international experience from his Fluor career
•
Adds perspective gained from leading business operations in U.S., Southern Africa, Europe and China
•
Experience in project finance
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Director Since: 2021
Age: 60
Board Committees:
Finance; Governance and Nominating; Talent Management and Compensation |
| | |
CARLA A. HARRIS—Senior Client Advisor, Morgan Stanley
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Ms. Harris is Senior Client Advisor at Morgan Stanley. She is responsible for being a co-portfolio manager of the Next Level Fund and advising the Multicultural Innovation Lab, hosting the podcast “Access & Opportunities” and acting in various client coverage capacities. Her prior experience with Morgan Stanley includes investment banking, equity capital markets, equity private placements and initial public offerings in a number of industries such as technology, media, retail, telecommunications, transportation, healthcare and biotechnology. In August 2013, Ms. Harris was appointed by President Barack Obama to chair the National Women’s Business Council.
Ms. Harris has served on the board of Walmart Corporation since 2017, and serves on its Compensation and Management Development, Nominating and Governance and Strategic Planning and Finance Committees. Ms. Harris has also served on the board of MetLife since April 2022, and serves on its Investment and the Governance and Corporate Responsibility Committees. She also serves on the boards of several nonprofit organizations including Seize Every Opportunity (SEO), the Cabrini Foundation, Sesame Street Workshop, Harvard University Board of Overseers and the Morgan Stanley Foundation. Ms. Harris received an MBA from Harvard Business School and an A.B. from Harvard University.
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Brings broad-based and valuable insights in finance and strategy
•
Contributes extensive work experience in a regulated industry
•
Possesses senior leadership experience
|
| |
| ELECTION OF DIRECTORS | | |
CUMMINS 2023 PROXY
|
| |
21
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Director Since: 2015
Age: 68
Board Committees:
Executive, Finance; Governance and Nominating; Talent Management and Compensation |
| | |
THOMAS J. LYNCH—Chairman, TE Connectivity Ltd.
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Mr. Lynch is the Chairman of TE Connectivity Ltd. (formerly Tyco Electronics Ltd.), a global provider of connectivity and sensor solutions, and harsh environment applications. Mr. Lynch served as the Chief Executive Officer of TE Connectivity Ltd. from January 2006-March 2017 and has served as a member of its board of directors since 2007 and as Chairman of the Board since January 2013. From September 2004-January 2006, Mr. Lynch was at Tyco International as the President of Tyco Engineered Products & Services, a global manufacturer of industrial valves and controls. Mr. Lynch joined Tyco from Motorola, where he served as Executive Vice President of Motorola, and President and Chief Executive Officer of Motorola’s Personal Communications sector, a leading supplier of cellular handsets. He has also served as a director of Automatic Data Processing, Inc. since 2018. In May 2022, Mr. Lynch retired as a directors of Thermo Fisher Scientific Inc., where he had served as a director since 2009 and as Lead Director since February 2020. Mr. Lynch serves on the Board of The Franklin Institute and on the Rider University Board of Trustees.
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Lead Director
•
Chair of Finance Committee
•
Brings perspective of a sitting Chairman and former CEO of a publicly traded global company
•
Leverages business and financial background in rendering advice and insight
•
Identifies and raises strategic considerations for Board consideration
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| |
| |
Director Since: 1989
Age: 66
Board Committees:
Audit; Executive; Governance and Nominating; Talent Management and Compensation |
| | |
WILLIAM I. MILLER—President, The Wallace Foundation
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Mr. Miller has served as President of The Wallace Foundation, a national philanthropy with a mission of fostering equity and improvements in learning and enrichment for young people and in the arts for everyone, since 2011. Mr. Miller was the Chairman of Irwin Management Company, a Columbus, Indiana private investment firm, from 1990-2011. Mr. Miller has been a director or trustee of the New Perspective Fund, Inc. and the EuroPacific Growth Fund, Inc. since 1992 and of the New World Fund, Inc. since 1999. Mr. Miller serves as independent Chairman of the Board for all three of the funds, all of which are in the same mutual fund family.
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Professional experience in the banking and investment industries
•
Extensive knowledge of our company, its values and its global operations
•
Leadership experience in the civic, nonprofit and philanthropic sectors
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| 22 | | | CUMMINS 2023 PROXY | | |
ELECTION OF DIRECTORS
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| |
Director Since: 2004
Age: 73
Board Committees:
Audit; Governance and Nominating; Talent Management and Compensation |
| | |
GEORGIA R. NELSON
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Prior to her retirement in June 2019, Ms. Nelson was President and CEO of PTI Resources, LLC, an independent consulting firm, since 2005. Prior to this role, Ms. Nelson retired in 2005 from Edison International, where she had been President of Midwest Generation EME, LLC since 1999 and General Manager of Edison Mission Energy Americas since 2002. Her business responsibilities have included management of regulated and unregulated power operations and a large energy trading subsidiary as well as the construction and operation of power generation projects worldwide. She has had extensive experience in business negotiations, environmental policy matters and human resources. She has served as a director of Ball Corporation since 2006, Sims Metal Management Limited since 2014 and Custom Truck One Source, Inc. since 2021. In December 2017, she retired as a director of CH2M Hill Companies Ltd., a privately-held company, where she served as a director since 2010. In May 2021, she retired as a director of TransAlta Corporation where she served as a director since 2014. She serves on the advisory committee of the Center for Executive Women at Northwestern University. In November 2012, Ms. Nelson was named to the 2012 National Association of Corporate Directors (NACD) Directorship 100 in recognition of exemplary leadership in the boardroom and promoting the highest standards of corporate governance. Ms. Nelson is an NACD Board Fellow.
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Chair of Talent Management and Compensation Committee
•
Provides perspective based on background in power generation and business
•
Utilizes expertise in talent management and governance matters to oversee best practices in executive compensation and human capital management
•
Possesses manufacturing and environmental experience
•
Works outside of regular meetings to support the development of women in leadership roles
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| |
| |
Director Since: 2020
Age: 60
Board Committees:
Audit; Governance and Nominating; Safety, Environment and Technology |
| | |
KIMBERLY A. NELSON
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Ms. Nelson worked for General Mills Inc. for nearly 30 years prior to her retirement in January 2018. During her career at General Mills, she held a number of senior brand and general management roles, including serving as President of the U.S. Snacks Division. Ms. Nelson became Senior Vice President, External Relations in 2010, a global role leading issues and crisis management, consumer relations, corporate branding and communications, environmental social governance, government relations and global external stakeholder relations.
Ms. Nelson is on the board of Tate & Lyle PLC and serves on its Audit and Nominations Committees. She is also on the board of Colgate-Palmolive Company and serves on its Personnel & Organization and Nominating, Governance & Corporate Responsibility Committees. Ms. Nelson holds an MBA from Columbia Business School and a B.S. in International Relations from Georgetown University. She is a member of the Executive Leadership Council, Women Corporate Directors, and a member of the National Association of Corporate Directors (NACD). Ms. Nelson also serves on the boards of the Northside Achievement Zone and Fair Vote Minnesota.
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Identifies and raises strategic considerations for Board consideration
•
Brings global external relations perspective
•
Offers insight into environmental, social and governance matters
•
Brings strategic view on social justice, diversity and inclusion efforts
|
| |
| ELECTION OF DIRECTORS | | |
CUMMINS 2023 PROXY
|
| |
23
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Director Since: 2017
Age: 59
Board Committees:
Audit; Governance and Nominating; Safety, Environment and Technology |
| | |
KAREN H. QUINTOS
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Prior to her retirement in June 2020, Ms. Quintos was Chief Customer Officer of Dell Technologies Inc., the world’s third largest supplier of personal computers and other computer hardware items, since 2016. In addition, Ms. Quintos led Dell’s global customer strategy and programs as well as Diversity and Inclusion, Corporate Responsibility and Entrepreneurship strategy and programs. From 2010-2016, Ms. Quintos served as Senior Vice President and Chief Marketing Officer, Vice President of public sector marketing and North America commercial marketing, and held executive roles in services, support and supply chain management. Ms. Quintos joined Dell in 2000 from Citigroup where she was Vice President of global operations and technology. Ms. Quintos earned a Master’s degree in marketing and international business from New York University and a B.S. in supply chain management from Pennsylvania State University.
Ms. Quintos is on the board of Lennox International and serves on its Compensation and Human Resources Committee and its Public Policy Committee. She is founder and executive sponsor of Dell’s Women in Action employee resource group. She is Chair of the board of Penn State’s Smeal College of Business and a 2014 recipient of its highest honor, the Distinguished Alumni Award. Karen also serves on the boards for The National Center for Missing and Exploited Children, as well as TGEN (Translational Genomics).
Summary of Qualifications and Experience:
Key Contributions to the Board:
•
Contributes marketing and international perspective
•
Brings deep knowledge and strategic views around ESG, including DE&I
•
Offers strategic insight in customer strategy, programs and customer data
•
Contributes knowledge and experiences in technology, GTM and supply chain management
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DIRECTORS
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Automotive &
Transportation |
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Manufacturing
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Technology/
IT |
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Sales/
Marketing |
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Government/
Regulatory |
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International
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Academics
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Financial
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Gary L. Belske
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Robert J. Bernhard
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Bruno V. Di Leo
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Stephen B. Dobbs
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Carla A. Harris
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N. Thomas Linebarger
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Thomas J. Lynch
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William I. Miller
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Georgia R. Nelson
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Kimberly A. Nelson
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Karen H. Quintos
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Jennifer W. Rumsey
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| 24 | | | CUMMINS 2023 PROXY | | |
EXECUTIVE COMPENSATION
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Sincerely,
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GEORGIA R. NELSON,
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Chair
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| EXECUTIVE COMPENSATION | | |
CUMMINS 2023 PROXY
|
| |
25
|
|
| | | | | | | | | | | | | | | |||||||||
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Total Net Sales
|
| | | | |
Net Income
|
| | | | |
EBITDA
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| |||||||||
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2022: $28.1 BN
|
| | | | |
2022: $2.2 BN
|
| | | | |
2022: $3.8 BN (13.5% of sales)
|
| |||||||||
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2021: $24.0 BN
|
| | | | |
2021: $2.1 BN
|
| | | | |
2021: $3.5 BN (14.7% of sales)
|
| |||||||||
| | | | | | | | | | | | | | | |||||||||
|
Return on Average Net Assets (ROANA)
|
| | | | |
Return on Invested Capital (ROIC)
|
| | | | |
Cash from Operations
|
| |||||||||
|
2022: 26%
|
| | | | |
2022: 15%
|
| | | | |
2022: $2.0 BN
|
| |||||||||
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2021: 27%
|
| | | | |
2021: 16%
|
| | | | |
2021: $2.3 BN
|
| |||||||||
| | | | | | | | | | | | | | | |||||||||
|
Total Shareholder Return (Annual Average)
|
| | | | |
Diluted Earnings per Share (EPS)
|
| | | | |
Dividend
|
| |||||||||
|
3-year period ending in 2022 13%
|
| | | | |
2022: $15.12
|
| | | | |
Increased our quarterly dividend from $1.45 to $1.57 a share, our 13th straight year of dividend growth
|
| |||||||||
|
3-year period ending in 2021 21%
|
| | | | |
2021: $14.61
|
| | | |
| 26 | | | CUMMINS 2023 PROXY | | |
EXECUTIVE COMPENSATION
|
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We will continue to operate as “one Cummins,” characterized by a strong culture and synergies across business units. However, the new program will also recognize New Power’s need to focus on different measures of success and attract and retain talent with different skills compared to those in our traditional core engine business. As a result, the performance measures and their linkage to our traditional core and New Power entities are tailored to the unit in which the participant works
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The program will also recognize the decision by the company to spin off Atmus, our filtration business, into a publicly traded company so that Atmus has its own access to capital. We anticipate that Atmus will complete its initial public offering in 2023. As a result, Atmus’ 2023 incentive programs will be driven entirely by Atmus’ performance, except that Atmus LTIP participants will receive Cummins equity until Atmus completes its initial public offering. When Atmus completes its initial public offering, Atmus LTIP participants will receive Atmus equity-based compensation
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To help retain valuable talent and reinforce the alignment of interests between our employees and shareholders, the compensation program will provide for broader participation in our equity incentive plans and heavier and more strategic use of equity, where warranted. For example, starting in 2023, participants in New Power and Atmus will receive Restricted Stock Units (RSUs) in lieu of Performance Cash
|
|
| EXECUTIVE COMPENSATION | | |
CUMMINS 2023 PROXY
|
| |
27
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2022
|
| | |
2023
|
| | | | | |||||||||||||||
| | | |
Plan Element
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| | |
All Participants
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| | |
Cummins Participants
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| | |
New Power Participants
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| | |
Atmus Participants
|
| | | | |
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Annual Bonus Plan
|
| |
Linkage
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| | |
100% Cummins
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| | |
100% Cummins
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| | |
30% Cummins
70% New Power (NP)
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| | |
100% Atmus
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Measures & Weightings
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| | |
100% Cummins ROANA
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| | |
70% Cummins EBITDA
30% Cummins Operating Cash Flow
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| | |
30% Cummins EBITDA
30% NP Revenue
40% NP Strategic Scorecard
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100% Atmus EBITDA
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Long-Term Incentive Plan
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| |
Vehicle Mix
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| | |
70% Performance Shares
30% Performance Cash
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| | |
70% Performance Shares
30% Performance Cash
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| | |
70% Performance Shares
30% Restricted Stock Units (RSUs)
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| | |
70% Performance Shares
30% RSUs
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Linkage
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| | |
100% Cummins
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100% Cummins
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30% Cummins
70% NP
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| | |
100% Atmus
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Measures & Weightings
|
| | |
Perf. Shares and Cash
- 80% Cummins ROIC
- 20% Cummins Cumulative EBITDA
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| | |
Perf. Shares and Cash
- 80% Cummins ROIC
- 20% Cummins Cumulative EBITDA
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| | |
Performance Shares
- 30% Cummins ROIC
- 70% NP Cumulative Revenue
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| | |
Performance Shares
- 50% Atmus ROIC
- 50% Atmus Cumulative EBITDA
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| | | | |
| 28 | | | CUMMINS 2023 PROXY | | |
EXECUTIVE COMPENSATION
|
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CREATE A DIVERSE AND INCLUSIVE WORK ENVIRONMENT
|
| |
ENGAGE EMPLOYEES AND FAMILIES IN IMPROVING WELLNESS
|
| |
DEVELOP SELF-AWARE AND EFFECTIVE LEADERS
|
| |
ADVANCE OUR WORKFORCE STRATEGY BY EXTENDING OUR TALENT MANAGEMENT STRATEGIES TO ALL EMPLOYEES
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FIRST PILLAR: CREATE A DIVERSE AND INCLUSIVE WORK ENVIRONMENT
|
|
| EXECUTIVE COMPENSATION | | |
CUMMINS 2023 PROXY
|
| |
29
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|
| | | | | | | | |
|
Bronze-level Military
Friendly Company |
| |
2022 Best Place to Work
for Disability Inclusion (second year in a row) |
| |
2022 Forbes
Best Employers for Diversity |
|
| | | | | | | | | | | |
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2022 Star Award for Company of the Year by Society of Hispanic Professional Engineers (SHPE)
|
| |
Partnership award
from Girls Inc. |
| |
Best Company for LGBTQ+
Employees on Corporate Equality Index |
| |
National Association of
Corporate Directors (NACD) Diversity, Equity, and Inclusion award finalist |
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SECOND PILLAR: ENGAGE EMPLOYEES AND FAMILIES IN IMPROVING WELLNESS
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THIRD PILLAR: DEVELOP SELF-AWARE AND EFFECTIVE LEADERS
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FOURTH PILLAR: ADVANCE OUR WORKFORCE STRATEGY BY EXTENDING OUR TALENT MANAGEMENT STRATEGIES TO ALL EMPLOYEES
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| 30 | | | CUMMINS 2023 PROXY | | |
EXECUTIVE COMPENSATION
|
|
|
ANNUAL BONUS PLAN
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PERFORMANCE SHARE &
PERFORMANCE CASH PLANS |
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LONG TERM INCENTIVE MIX
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Our Annual Bonus Plan paid out 70% of target based on actual 2022 ROANA of 29.8% against a target of 32.35%. All employees participating in the bonus plan received the same payout factor.
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Our Performance Share and Performance Cash plans for the 2020-2022 performance cycle paid out at 90% of target based on actual 3-year cumulative EBITDA of $10,594 million compared to our goal of $10,802 million, and ROIC of 15.2% compared to our target of 15%. All employees participating in the long-term performance plans received the same payout factor.
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As previously disclosed, the 2022 long-term incentive grant was 100% performance-based. The grants consisted of performance shares (70%) and performance cash (30%).
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ALIGNMENT BETWEEN CEO’S REALIZABLE PAY & FINANCIAL / TSR PERFORMANCE
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Every year, the Committee, along with its consultant, Farient Advisors LLC (“Farient”), quantitatively and qualitatively assesses the relationship between realizable pay of our CEO and our company’s performance. As in prior years, the Committee determined that our CEO’s pay and our company’s performance are closely aligned. This year, to comply with the new SEC requirements on Pay vs. Performance disclosure, our analysis of pay and performance alignment can be found in the Pay vs. Performance section of this proxy.
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| EXECUTIVE COMPENSATION | | |
CUMMINS 2023 PROXY
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31
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PRINCIPLES OF OUR EXECUTIVE COMPENSATION PROGRAM
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Our compensation philosophy rewards executives for achieving our financial objectives and building long-term value for our shareholders and other stakeholders. We also follow several other principles when designing our executive compensation program including:
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MARKET POSITIONING We believe that, on average, our executives’ target total direct compensation opportunity (consisting of base salary, target annual bonus, and target long-term incentive value) should be at the median of the market.
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SHORT-TERM / LONG-TERM MIX We believe that there should be an appropriate balance between annual and long-term elements of compensation commensurate with the position’s decision-making time horizon and competitive context.
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PAY AT RISK We believe that the more senior an executive’s position, the more compensation should be “at risk,” which means it will vary based on Cummins’ financial and stock price performance.
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RETENTION We believe that our compensation program should support retention of our experienced executives and achievements of our leadership succession plans.
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SIMPLE AND TRANSPARENT We believe that our executive compensation program should be transparent to our investors and employees as well as simple and easy to understand.
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ALIGNMENT WITH SHAREHOLDER INTERESTS We believe that equity-based compensation and stock ownership should be a substantial part of our executive compensation program to link executives’ compensation with our shareholders’ returns. The greater the level of responsibility of the executive, the more his or her compensation should be stock-based and the higher his or her stock ownership requirement should be.
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JENNIFER RUMSEY
President and Chief Executive Officer
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TOM LINEBARGER
Executive Chairman
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MARK SMITH
Vice President – Chief Financial Officer
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LIVINGSTON L. SATTERTHWAITE
Senior Vice President
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TRACY EMBREE
Vice President and President Distribution
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SHARON BARNER
Vice President – Chief Administrative Officer and Corporate Secretary
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| 32 | | | CUMMINS 2023 PROXY | | |
EXECUTIVE COMPENSATION
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At our 2022 Annual Meeting, after the 2022 executive compensation actions described in this CD&A had taken place, we held an advisory shareholder vote to approve the compensation of our Named Executive Officers (our “NEOs”). Of the votes cast by our shareholders, 89.5% were voted in favor of our executive compensation.
The Committee considered these voting results along with shareholder feedback as a part of its comprehensive assessment of Cummins’ executive compensation programs. Given the support we received from shareholders, we did not undertake any material changes to our executive compensation program in response to this vote. The Committee will continue to review our compensation programs each year in light of the annual “say-on-pay” voting results and will continue to solicit shareholder feedback to ensure our programs are aligned with their expectations.
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Compensation Element
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Form of Payment
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Performance Metrics
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Rationale
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Base salary
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Cash
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Individual Performance
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Market-based to attract and retain skilled executives. Designed to recognize scope of responsibility, individual performance and experience.
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Annual bonus
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Cash
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Return on Average Net Assets (ROANA)
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Rewards operational performance. ROANA balances growth, profitability and asset management.
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Long-term incentive compensation
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Performance cash (30%) and Performance shares (70%)
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Return on Invested Capital (ROIC), weighted at 80% and EBITDA, weighted at 20% over a three-year period
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ROIC and EBITDA provide an incentive for profitable growth and correlate well with shareholder value.
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| EXECUTIVE COMPENSATION | | |
CUMMINS 2023 PROXY
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33
|
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Borg Warner Incorporated (BWA)
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Caterpillar Incorporated (CAT)
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Daimler Truck AG (DTG-XE)
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Deere & Company (DE)
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Donaldson Co. Incorporated (DCI)
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Eaton Corporation (ETN)
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Emerson Electric Co. (EMR)
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Fortive Corporation (FTV)
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Honeywell International Inc. (HON)
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Illinois Tool Works (ITW)
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Paccar Incorporated (PCAR)
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Parker-Hannifin Corporation (PH)
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Textron Incorporated (TXT)
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Volvo AB (VOLV B-SE)
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W.W. Grainger (GWW)
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| 34 | | | CUMMINS 2023 PROXY | | |
EXECUTIVE COMPENSATION
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WHAT WE DO
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WHAT WE DO NOT DO
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Set clear financial goals that we believe are challenging yet achievable, meet or exceed competitive standards, and will enhance shareholder value over time
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We do not allow backdating or repricing of stock options
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Use different measures to ensure our executives focus on both annual and longer-term goals
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We do not have separate employment contracts with our executive officers
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Tie incentive awards for all participants at least in part to overall company performance to reinforce the importance of the company’s success and to encourage collaboration and teamwork
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We do not guarantee salary increases, bonuses or equity grants for our executive officers
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Encourage executives to focus on the sustained long-term growth of our company and promote retention by vesting performance-based awards only at the end of the performance or service period
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We will not gross-up excise taxes that may be imposed on payments to our executive officers in connection with a change in control
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Cap payouts under our short- and long-term incentive compensation plans at 200% of the target awards
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Perquisites do not constitute a major element of our executive compensation program
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Require all incentive awards for senior executives be subject to clawback and cancellation provisions
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We do not permit officers or directors to engage in pledging, hedging or similar types of transactions with respect to our stock
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Maintain a Talent Management and Compensation Committee composed of independent directors who are advised by an outside, independent compensation consultant
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We do not pay dividends or dividend equivalents on unearned performance shares
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Complete an annual assessment of the risk associated with our compensation program
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Require executive officers and outside directors to maintain prescribed stock ownership levels
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Subject our executives to double trigger change in control provisions
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| EXECUTIVE COMPENSATION | | |
CUMMINS 2023 PROXY
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35
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| 36 | | | CUMMINS 2023 PROXY | | |
EXECUTIVE COMPENSATION
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ROANA = Earnings Before Interest, Taxes, Depreciation, and Amortization (or EBITDA) ÷ Average Net Assets(1)
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ROANA Goal
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Goal as
% of Target |
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Payout as
% of Target(1) |
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>Maximum
|
| | | | 37.20% | | | | | | 115% | | | | | | 200% | | |
Target
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| | | | 32.35% | | | | | | 100% | | | | | | 100% | | |
Threshold
|
| | | | 22.65% | | | | | | 70% | | | | | | 10% | | |
<Threshold
|
| | | | <22.65% | | | | | | <70% | | | | | | 0% | | |
EBITDA at target: $4.130 billion
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| EXECUTIVE COMPENSATION | | |
CUMMINS 2023 PROXY
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37
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ROIC = Average Earnings Before Interest Expense and Noncontrolling Interests after taxes for the 3-year performance period ÷ Average Invested Capital for the 3-year performance period
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| 38 | | | CUMMINS 2023 PROXY | | |
EXECUTIVE COMPENSATION
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EBITDA = Cumulative Earnings Before Interest Expense, Income Taxes, Noncontrolling Interests, Depreciation and Amortization for the 3-year performance period
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ROIC Goal (80%
Weighting) |
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ROIC Goal as a
% of Target |
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EBITDA Goal (20%
Weighting) |
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EBITDA Goal as
% of Target |
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ROIC and EBITDA Payouts as
% of Target(1) |
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<Maximum
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| | | | 19.50% | | | | | | 130% | | | | | | $12,422 | | | | | | 115% | | | | | | 200% | | |
Target
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| | | | 15.00% | | | | | | 100% | | | | | | $10,802 | | | | | | 100% | | | | | | 100% | | |
Threshold
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| | | | 10.50% | | | | | | 70% | | | | | | $9,182 | | | | | | 85% | | | | | | 10% | | |
<Threshold(2)
|
| | | | 10.50% | | | | | | <70% | | | | | | <$9,182 | | | | | | <85% | | | | | | 0% | | |
| | |
ROIC Goal (80%
Weighting) |
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ROIC Goal as a
% of Target |
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EBITDA Goal (20%
Weighting) |
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EBITDA Goal as
% of Target |
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ROIC and EBITDA Payouts as
% of Target(1) |
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<Maximum
|
| | | | 19.50% | | | | | | 130% | | | | | | $12,157 | | | | | | 115% | | | | | | 200% | | |
Target
|
| | | | 15.00% | | | | | | 100% | | | | | | $10,571 | | | | | | 100% | | | | | | 100% | | |
Threshold
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| | | | 10.50% | | | | | | 70% | | | | | | $8,985 | | | | | | 85% | | | | | | 10% | | |
<Threshold(2)
|
| | | | 10.50% | | | | | | <70% | | | | | | <$8,985 | | | | | | <85% | | | | | | 0% | | |
| | |
ROIC Goal (80%
Weighting) |
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ROIC Goal as a
% of Target |
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EBITDA Goal (20%
Weighting) |
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EBITDA Goal as
% of Target |
| |
ROIC and EBITDA Payouts as
% of Target(1) |
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<Maximum
|
| | | | 19.50% | | | | | | 130% | | | | | | $14,124 | | | | | | 115% | | | | | | 200% | | |
Target
|
| | | | 15.00% | | | | | | 100% | | | | | | $12,282 | | | | | | 100% | | | | | | 100% | | |
Threshold
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| | | | 10.50% | | | | | | 70% | | | | | | $10,440 | | | | | | 85% | | | | | | 10% | | |
<Threshold(2)
|
| | | | 10.50% | | | | | | <70% | | | | | | <$10,440 | | | | | | <85% | | | | | | 0% | | |
| EXECUTIVE COMPENSATION | | |
CUMMINS 2023 PROXY
|
| |
39
|
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| 40 | | | CUMMINS 2023 PROXY | | |
EXECUTIVE COMPENSATION
|
|
|
Jennifer Rumsey
President and Chief Executive Officer
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| |
(1)
2022 pay for Ms. Rumsey reflects her pay as of August 2022 when she was promoted to President and Chief Executive Officer.
(2)
2021 pay for Ms. Rumsey reflects her pay as of March 2021 when she was promoted to President and Chief Operating Officer.
(3)
The target incentive values differ from those shown in the Summary Compensation Table because the table shows earned not target annual incentive awards.
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|
Pay Component
|
| |
Target
|
| |
Performance
Factor |
| |
Realized
|
| |
Comments
|
|
Salary for 2022
|
| |
$1,500,000
|
| |
Not Applicable
|
| |
$1,500,000
|
| |
Reflects Ms. Rumsey’s base salary as of August when she was promoted to President and CEO
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|
Annual Bonus for 2022
|
| |
$2,625,000
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| |
70%
|
| |
$1,837,500
|
| |
Reflects Ms. Rumsey’s annual bonus as of August when she was promoted to President and CEO. $2,625,000 x 70%
|
|
Performance Cash for 2020-2022 cycle
|
| |
$512,000
|
| |
90%
|
| |
$460,800
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| |
$512,000 x 90%
|
|
Performance Shares for 2020-2022 cycle
|
| |
2,840
|
| |
90%
|
| |
2,556 Performance shares earned for 2020-2022 cycle, valued at $619,293
|
| |
Value reflected $242.29 stock price on December 30, 2022; 2,840 shares x 90% x $242.29 stock price
|
|
| EXECUTIVE COMPENSATION | | |
CUMMINS 2023 PROXY
|
| |
41
|
|
|
N. Thomas Linebarger
Executive Chairman
|
| |
(1)
The salary shown is based on the annualized salary that was intended to be paid starting on July 1, which is Cummins’ normal effective focal increase date.
(2)
The target incentive values differ from those shown in the Summary Compensation Table because the table shows earned not target annual incentive awards.
(3)
The salary shown for 2022 reflects Mr. Linebarger’s salary effective in August 2022 after he transitioned from Chairman and Chief Executive Officer to Executive Chairman.
(4)
The target incentive values for 2022 reflect the pro-rated amounts that Mr. Linebarger received after he transitioned from Chairman and Chief Executive Officer to Executive Chairman.
|
|
Pay Component
|
| |
Target
|
| |
Performance
Factor |
| |
Realized
|
| |
Comments
|
|
Salary for 2022
|
| |
$1,150,000
|
| |
Not Applicable
|
| |
$1,150,000
|
| |
The salary shown for 2022 reflects Mr. Linebarger’s salary effective in August 2022 after he transitioned from Chairman and Chief Executive Officer to Executive Chairman
|
|
Annual Bonus for 2022
|
| |
$1,725,000
|
| |
70%
|
| |
$1,207,500
|
| |
$1,725,000 x 70%
|
|
Performance Cash for 2020-2022 cycle
|
| |
$3,687,000
|
| |
90%
|
| |
$3,318,300
|
| |
$3,687,000 x 90%
|
|
Performance Shares for 2020-2022 cycle
|
| |
20,440
|
| |
90%
|
| |
18,396 Performance shares earned for 2020-2022 cycle, valued at $4,457,167
|
| |
Value reflected $242.29 stock price on December 30, 2022; 20,440 shares x 90% x $242.29 stock price
|
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| 42 | |