Caterpiller EPS Discussion

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What contributed to the increase in Caterpillar$$s earnings per share in $2014?$

In its Form $10-$K for the year ended December $31,2014,$ Caterpillar Inc. $($CATLinks to an external site.$)$ reported diluted earnings per share $($EPS$)$ of $$5\mathrm{.}88,$ an increase of $$0\mathrm{.}13$ from the prior year$$s reported EPS of $$5\mathrm{.}75.$ The company attributed the increased EPS to better performance in several areas of its business. Overall, however, Caterpillar$$s revenues, operating profit, and net income all declined in $2014.$

Caterpillar$$s CEO$$s year$-$end bonus is based on overall company performance and changes in EPS. The Board of Directors approves the CEO$$s compensation package, and the CEO is the Chairman of the Board. For the year of $2014,$ the CEO received a $$2$ million performance bonus.

An analysis of Caterpillar$$s $2014$ Form $10-$K reveals that the company increased the number of treasury stock $($common$)$ shares held in the treasury by over $31\mathrm{.}6$ million shares during $2014.$

Questions

What effect do you think the increase in treasury stock shares had on Caterpillar$$s EPS change in $2014?$ Explain.

Based on the information above, what effect do you think the company$$s performance had on the CEO$$s year$-$end bonus for $2014?$ Explain your answer.

What potential conflicts of interest can you identify in the determination of the CEO$$s compensation package? How might these conflicts be managed or eliminated?