Caterpillar Sued Over Asset Waste

Investors allege directors erred by not ensuring executive incentive plans were tax-deductible.

Caterpillar Inc., the world’s largest maker of construction and mining machines, was sued by investors who allege directors wasted corporate assets by not ensuring that executive-incentive plans were tax-deductible.

Board members also wrongly enriched themselves by taking compensation that couldn’t be deducted, and the company made insufficient disclosures to stockholders, lawyers for a Philadelphia asbestos workers’ pension fund and the Lansing, Michigan, Police and Fire Retirement System said in two lawsuits filed yesterday in federal court in Wilmington, Delaware.

“There is no reason not to implement compliant compensation plans” that save the Peoria, Illinois-based company tax money, the investors contend in court papers.

The investors ask for a jury trial and an order that recipients return wrongly obtained compensation to the company.

Caterpillar, with $60.1 billion in sales last year, said last week it opened a new diesel-excavator factory in Victoria, Texas, and will sell the machinery in the U.S., Mexico and South America.

The pension funds also challenged in the lawsuit the cash value, including stock options, senior officials could potentially receive -- as much as $87.2 million each under a long-term incentive plan.

“This astronomical number, if it is a true maximum, shocks the conscience as to the amount of corporate waste the board may commit,” plaintiffs’ lawyers said in court documents.

“Our normal practice is to not discuss pending litigation,” Jim Dugan, a Caterpillar spokesman who hadn’t seen the complaints, said in an e-mailed message.

The cases are City of Lansing Police and Fire Retirement System v. Caterpillar, 12cv1076, and Asbestos Workers Philadelphia Pension Fund v. Caterpillar, 12cv1077, U.S. District Court, District of Delaware (Wilmington).


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