UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

CUMMINS INC.

500 JACKSON STREET, BOX 3005, COLUMBUS, INDIANA 47202-3005

NOTICE OF 2011 ANNUAL MEETING OF SHAREHOLDERS

To Our Shareholders:

NOTICE IS HEREBY GIVEN that the 2011 Annual Meeting of the Shareholders of Cummins Inc. will be held at the Company'sour Columbus Engine Plant located at 500 Central Avenue, Columbus, Indiana, on Tuesday, May 13, 2008,10, 2011, at 11:00 a.m. Eastern Daylight SavingsSaving Time, for the following purposes:

1.

to elect nineten directors of the Company for the ensuing year;



2.

to consider an advisory vote on the compensation of our named executive officers;



3.

to consider an advisory vote on the frequency of the advisory vote on executive compensation;



4.

to ratify the appointment of PricewaterhouseCoopers LLP as our auditors for the year 2008;



3.

to consider2011; and amend the Company's Restated Articles of Incorporation to increase the number of authorized shares of Common Stock following a January 2, 2008 two-for-one stock split;



4.

to consider and act upon a shareholder proposal that the Company amend its policies and supplier contracts based upon standards of the International Labor Organization, and related matters;



5.

to transact any other business that may properly come before the meeting or any adjournment thereof.

        Only shareholders of our Common Stock of the Company of record at the close of business on March 24, 200814, 2011 are entitled to notice of and to vote at the meeting.

        Shareholders of Common Stock whoIf you do not expect to be present in person at the meeting, you are urged to vote theiryour shares by telephone, via the Internet, or by completing, signing and dating the enclosed proxy card and returning it promptly in the envelope provided.

        TheYou may revoke your proxy may be revoked by the shareholder giving itcard at any time before the voting. Except with respect to shares attributable to accounts held in the Cummins Inc. and Affiliates Retirement and Savings Plans, any shareholders entitled to vote at the annual meeting who attend the meeting will be entitled to cast their votes in person.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS FOR THE 2011 ANNUAL SHAREHOLDER MEETING TO BE HELD
ON MAY 13, 2008:10, 2011: the Annual Report and Proxy Statement
are available at www.ematerials.com/cmi

CUMMINS INC.
500 JACKSON STREET, BOX 3005, COLUMBUS, INDIANA 47202-3005
PROXY STATEMENT FOR 2011 ANNUAL SHAREHOLDERS MEETING

        ThisWe are furnishing this proxy statement is being furnished in connection with the solicitation by theour Board of Directors of Cummins Inc. (the "Company" or "Cummins") of proxies to be voted at theour 2011 Annual Meeting of Shareholders to be held on Tuesday, May 13, 2008,10, 2011, and at any adjournment thereof, (thewhich we refer to as our "Annual Meeting").Meeting." This proxy statement, together with the enclosed proxy card, is first being mailedmade available to theour shareholders of the Company on or about April 4, 2008.March 23, 2011.

        Holders of the Company'sour Common Stock of record at the close of business on March 24, 200814, 2011 are entitled to vote at the Annual Meeting. On that date there were issued and outstanding 203,215,953196,819,134 shares of Common Stock, each of which is entitled to one vote.vote on each matter submitted to a shareholder vote at the Annual Meeting.

        Each share of Common Stock represented by a properly executed and delivered proxy card will be voted at the Annual Meeting in accordance with the instructions indicated on that proxy card, unless such proxy card has been previously revoked. If no instructions are indicated on a signed proxy card, the shares represented by such proxy card will be voted as recommended by the Board of Directors.our Board.

        A shareholder may revoke thehis or her proxy card at any time before it is votedthe Annual Meeting by delivering to theour Secretary of the Company written notice of such revocation. This notice must include the number of shares for which the proxy card had been given and the name of the shareholder of such shares as it appears on the stock certificate(s), or in book entry form on the records of the Company'sour stock transfer agent and registrar, Wells Fargo Shareowner Services, evidencing ownership of such shares. In addition, except with respect to shares attributable to accounts held in the Cummins Inc. and Affiliates Retirement and Savings Plans, any shareholder who has executed a proxy card but is present at the Annual Meeting will be entitled to cast his or her vote in person instead of by proxy card, thereby canceling the previously executed proxy.

proxy card.

PRINCIPAL SECURITY OWNERSHIP

        The following table identifies those shareholders knownIMPORTANT: If you hold your shares in a brokerage account, you should be aware that, due to New York Stock Exchange, or NYSE, rule changes, your broker will not be permitted to vote your shares for the Company to beelection of directors or on the beneficial ownersadvisory vote on the compensation of more than five percentour named executive officers or on the frequency of the Common Stock of the Company and shows asadvisory vote on executive compensation if you do not affirmatively instruct your broker how to each such shareholder as of December 31, 2007, on an adjusted basis reflecting a subsequent two-for-one split on January 2, 2008, (i) the number of shares beneficially owned by such shareholder(s) and the nature of such beneficial ownership and (ii) the percentage of the entire class of Common Stock so beneficially owned:

(1)

The source of this information is a Schedule 13G dated February 12, 2008 disclosing beneficial ownership by State Street Bank and Trust Company. State Street discloses in its 13G that it has shared investment power for all of the shares, shared voting power for 11,599,954 shares, and sole voting power for 9,459,764 shares. State Street is the Trustee of certain employee benefit plans sponsored by the Company which are subjectvote within 10 days prior to ERISA. Shares of Common Stock are held in trust for the benefit of employees in the plans. As of December 31, 2007, the Trustee held 11,599,954 shares of Common Stock on behalf of the plans, some of which had not been allocated to plan participants. The plan Trustee votes unallocated shares and shares allocated to participants' accounts as directed by participants. Shares of Common Stock held by the Trustee on behalf of the plans as to which participants have made no timely voting directions are voted by the plan Trustee in the same proportions as shares for which directions are received (subject to the Trustee's responsibilities under Section 404 of ERISA).

(2)

The source of this information is a Schedule 13G dated February 13, 2008 disclosing beneficial ownership by FMR LLC and its related companies. FMR and its related companies state in the 13G that they have sole investment power for all of the shares and sole voting power for 4,238,866 shares.

ELECTION OF DIRECTORS
(Items 1 through 9 on the Proxy Card)

        Nine directors are to be elected at the Annual Meeting to hold office until the next annual meeting of shareholders and until their successors are elected and qualified. The accompanying proxy will be voted in favor of the nominees named below to serve as directors unless the shareholder indicates to the contrary on the proxy. All of the nominees are current directors.

        Nominee Robert K. Herdman was elected by the Board of Directors on February 12, 2008 upon recommendation of its Governance and Nominating Committee to serve as a director until theour Annual Meeting. Mr. Herdman was recommended by the Committee and elected by the Board following a review of his qualifications under the standards of the Company's Corporate Governance Principles referenced on page 7 of this Proxy Statement and a review of his independence. The Corporate Governance Principles are available on the Company's website http://www.cummins.com and are otherwise available in printTherefore, you must affirmatively take action to any shareholder who requests them.

        Effective last year, the Company changed the method by which directors are elected by amending its By-Laws. The changed procedures apply to an uncontested election, which is one in which the number of nominees doesvote your shares at our Annual Meeting. If you do not exceed the number of directors to be elected. In an uncontested election, any nominee who does not receive a majority of the share votes cast shall promptly offer his or her resignation to the Board following certification of the shareholder vote. Aaffirmatively vote of the majority of share votes cast means that the number ofyour shares, voted "for" exceeds the number of votes "against" that director. Under the amended By-Laws, abstentions and broker non-votes are not counted as a vote "for" or "against" a director. The Governance and Nominating Committee of the Board of Directors will promptly consider the resignation offer and make a recommendation to the Board. The Board will act on the Governance and Nominating Committee's recommendation within 90 days following certification of the shareholder vote. Thereafter, the Board will promptly disclose its decision whether to accept the director's resignation offer. The director who tenders his or her resignation pursuant to this provisionyour shares will not participate in the Governance and Nominating Committee's recommendation or Board decision whether to accept his or her resignation offer.

        The Board of Directors expects that each of the nominees will be available for election, but if any of them is unable to serve at the time the election occurs, the proxy will be voted for the election of another nominee to be designated bydirectors or on the Boardadvisory vote on the compensation of Directors, unlessour named executive officers or on the Board of Directors decides to reduce the number of directors.

        The namesfrequency of the nominees for directors, together with certain information regarding them, are set forth in the following table. Biographical sketches of these nominees, which include their business experience during the past five years and directorships of other corporations, are providedadvisory vote on pages 45 through 47 of this Proxy Statement.executive compensation.

*

Less than 1%

(1)

Except as indicated, the voting and investment powers of the shares listed are held solely by the reported owner.

(2)

Compensatory stock units payable only in cash. The value of each unit is equal to the value of one share of the Company's Common Stock. See director retirement plan discussion beginning at the bottom of page 9.

(3)

Includes 329,144 shares that are held by Mr. Solso's spouse.

CORPORATE GOVERNANCE

        The Company has        We have long believed that good corporate governance is important in ensuring that it iswe are managed for the long-term benefit of itsour shareholders. ItWe continuously reviews thereview our Board's structure, policies and practices and comparescompare them to those suggested by various authorities in corporate governance and to the practices of other public companies. Our corporate governance principles, charters for each of our Board's Audit, Compensation and Governance and Nominating Committees, our code of conduct and our by-laws, along with certain other corporate governance documents, are available on our website,www.cummins.com, and are otherwise available in print to any shareholder who requests them from our Secretary.

Independence

        TheOur Board is composed of a substantial majority of directors who qualify as independent directors ("Independent Directors") pursuant to the rules adopted by the Securities and Exchange Commission, ("SEC")or SEC, applicable to the corporate governance standards for companies listed on the New York Stock Exchange.NYSE.

        In determining independence, each year        Pursuant to the Board affirmatively determines whether directors have no "material relationship" with the Company. When assessing the "materiality" of a director's relationship with the Company, the Board considers all relevant facts and circumstances, not merely from the director's standpoint, but from thatrequirements of the personsNYSE, our Board has adopted independence standards that meet or organizations with whichexceed the director has an affiliation, and the frequency or regularityindependence standards of the services, whether the services are being carried out at arm's length in the ordinary course of business and whether the services are being provided substantially on the same termsNYSE, including categorical standards to the Company as those prevailing at the time from unrelated parties for comparable transactions. Material relationships can include commercial, banking, industrial, consulting, legal, accounting, charitable and familial relationships. Independence means (1) not being an employee of the Company within the past five years; (2) not personally receiving or having an immediate family member who receives more than $100,000 per year in direct compensation from the Company other than director and committee fees and pension or other forms of deferred compensation; (3) not being employed, or having an immediate family member employed as an executive officer of another company where any current executive officer of Cummins Inc. serves on that company's compensation committee; (4) not being employed by or affiliated with or having an immediate family member employed by or affiliated with a present or former internal or external auditor of the Company within the three previous years; and (5) not being a director who is an executive officer or employee, or whose immediate family member is an executive officer of a company that makes payments to, or receives payments from, the Company for property or services in an amount which exceeds the greater of $1 million, or 2% of the other company's consolidated gross revenues.

        In February 2008, the Secretary of the Company reviewed withassist the Governance and Nominating Committee directors responses to a questionnaire asking about their relationships withand our Board in evaluating the Company (and thoseindependence of their immediate family members) and other potential conflicts of interest, as well as material provided by management or otherwise known to the Secretary related to transactions, relationships, or arrangements between the Company and the directors or parties related to the directors.each director. The categorical standards are included in our corporate governance principles, which are available on our website atwww.cummins.com. A copy also may be obtained upon written request.

        Following a discussion and applying the standards referenced above, the Governance and Nominating Committee of our Board determined that all directors standing for election, except Mr. Solso, our Chief Executive Officer, and Mr. Loughrey,Linebarger, our President and Chief Operating Officer, qualified as independent. Based on the recommendation of the Company, qualifyCommittee, our full Board approved this conclusion.

Leadership Structure and Risk Oversight

        Our corporate governance principles describe in detail how our Board must conduct its oversight responsibilities in representing and protecting our company's stakeholders. As stated in the principles, our Board does not have a policy on whether or not the roles of our Chief Executive Officer and Chairman should be separate, and, if they are to be separate, whether the Chairman should be selected from our non-employee directors or be an employee director. Currently, our Board believes it is in the best interests of our company for the roles of our Chairman and Chief Executive Officer to be combined and to appoint a Lead Director from among our independent directors. Our Board believes that this leadership structure currently assists our Board in creating a unified vision for our company, streamlines accountability for our performance and facilitates our Board's efficient and effective functioning. Further, our Board believes that Mr. Solso, our Chief Executive Officer, is the person best qualified to serve as independent. The Committee recommendedour Chairman given his long history with our company and his skills and experience in the industries in which we operate. Alexis M. Herman is our Lead Director. Ms. Herman was selected for this conclusionposition because of her service on our Board since 2001, her experience as the U.S. Secretary of Labor and her other experiences in leadership positions in the private and public sectors.

        Our Lead Director's responsibilities include:

•

Serving as Chairman of the Governance and Nominating Committee;



•

Conferring with the Chairman on Board meeting agendas and meeting schedules;



•

Calling and presiding over executive sessions of independent directors and communicating feedback on executive session 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; and



•

Conferring with the Chairman on other issues of corporate importance, as appropriate.

        Our Board and this conclusion was adoptedits committees are involved on an ongoing basis in the oversight of our material enterprise-related risks. Our senior management, led by our Chief Risk Officer in conjunction with other appropriate officers, undergoes a process that identifies, categorizes and analyzes the full Board.relative severity and likelihood of the various different types of risks to which we are or may be subject. Depending upon the type of the material identified risks, our Board, Audit Committee, Finance Committee, Compensation Committee and/or Safety, Environment and Technology Committee then receive periodic reports and information directly from our senior management members who have functional responsibility for the management of such risks. These reports identify and assess the different types of enterprise-related risks and address mitigation strategies and plans implemented or proposed for each key risk. Based on the further input of our Chief Executive Officer and/or President, Chief Operating Officer, or Chief Risk Officer as necessary or appropriate, our Board and/or its respective appropriate committee then reviews such information, proposed mitigation strategies and plans, and monitors our progress on mitigating such risks. Our Board and its committees' roles in the oversight process of our identified material risks have not impacted our Board's leadership structure.

Board of Directors and Committees

        TheOur Board of Directors held five (5) meetings during 2007.2010. All of the directors attended 75% or more of the aggregate number of meetings of theour Board and Committeesthe committees on which they served that were held during the periods in which they served. The non-employee members of theour Board also met in executive session without management present as part of each regular meeting. J. Lawrence Wilson, the Company'sAlexis M. Herman, our Lead Director, presided over these sessions.

        Under the Company's Corporate Governance Principles, which are available on the Company's website <http://www.cummins.com> and are otherwise available in print to any shareholder who requests them, theour corporate governance principles, our Board of Directors has established sevensix standing committees. These Principles describe in detail howCertain of the Board must conduct its oversight responsibilities in representing and protecting the

Company's stakeholders. Theprincipal functions performed by certain of these committees and the members of theour Board of Directors currently serving on these committees are as follows:

        Audit Committee.    The current members of theour Audit Committee are R. K. Herdman (Chairman), R. J. Darnall (Chairman),Bernhard, F. R. Chang-Diaz, S. B. Dobbs, A. M. Herman and G. R. Nelson, C. Ware and J. L. Wilson.Nelson. All members are Independent Directors.independent directors as defined under our independence criteria, NYSE listing standards and SEC rules. The Audit Committee met nine times during 2010. Our Board of Directors has determined that Mr. Darnall and Mr. Wilson areHerdman is an "audit committee financial experts"expert" for purposes of the SEC's rules. The Audit Committee reviews theour accounting and auditing principles and procedures of the Company.procedures. The Audit Committee reviews the scope, timing and fees for theour annual audit and the results of audit examinations performed by theour internal auditors and independent public accountants, including theirany recommendations to further improve theour system of accounting and internal controls. It also monitors the independence and performance of theour external and internal auditors. The Audit Committee met seven (7) times in person or telephonically during 2007. The current Charter of the Audit Committee, as adopted by the Board of Directors, is available on the Company's website, and is otherwise available in print to any shareholder who requests it.

        Compensation Committee.    The current members of theour Compensation Committee are G. R. Nelson (Chairman), R. K. Herdman, A. M. Herman, (Chairman), R. J. Darnall, G. R. NelsonW. I. Miller and J. L. Wilson.C. Ware. All members are Independent Directors.independent directors as defined under our independence criteria, NYSE listing standards and SEC rules. The Compensation Committee met six times during 2010. The Compensation Committee administers and determines eligibility for, and makes awards under, the Company'sour stock incentive plans. The Committee also reviews and evaluates the Company'sour executive compensation standards and practices, including salaries, bonus distributions, deferred compensation practices and participation in stock purchase plans. It annually establishes and approves the compensation of theour Chief Executive Officer following a review of the CEO'shis performance, including input from all of the other Independent Directorsindependent directors as reported to it by the Governance and Nominating Committee.

        TheIn reviewing our compensation arrangements, the Committee engaged Meridian Compensation Partners LLC, or Meridian, as a compensation consultant to provide input and advice to the Committee. Meridian was instructed to provide market data and advice to the Committee in connection with the Committee's annual review of officer compensation, as well as specific selected peer group executive compensation data. Meridian does not provide any other services to our company and was therefore determined by our Committee to be an independent compensation advisor. Meridian's role in establishing the compensation of our Named Executive Officers, to the extent material, is addressed under "Executive Compensation—Compensation Discussion and Analysis."

        Our Compensation Committee maintains a formal process to ensure the independence of the input received fromany executive compensation consultants withconsultant engaged by the Committee, including consideration of the following stipulations regarding any engagements the Committee enters into with executive compensation consultants.

The Committee:factors relevant to independence:

•

The provision of other services to us by the compensation consultant;



•

The amount of fees received from us by the compensation consultant as a percentage of the total revenue of the consultant;



•

The policies and procedures of the compensation consultant that are designed to prevent conflicts of interest;



•

Any business or personal relationship of the compensation consultant with any member of our Compensation Committee; and

        The Committee also:

•

Has final authority to hire or terminate the consultant;



•

May seek additional opinions from other consultants at any time;



•

Reviews and approves annually the consultant's scope of work, both for duties provided to the Committee and for duties provided to management;



•

Approves annually the consultant's fee structure for services rendered, and the Chairman of the Committee reviews and approves actual fees incurred quarterly;



•

Reviews annually:



•

Fees paid by the Company to the consultant for all services provided to the Company;



•

Structuralannually structural safeguards to assure the independence of the consultant;



•

Conducts an annual formal review of the consultant's performance; and



•

Is responsible for determining whether, and under what circumstances, the consultant participates in Committee meetings and executive sessions.

        The Compensation Committee met five (5) times during 2007. The current Charter of the Compensation Committee, as adopted by the Board of Directors, is available on the Company's website and is also available in print to any shareholder who requests it.

        Governance and Nominating Committee.    The current members of theour Governance and Nominating Committee are J. L. WilsonA. M. Herman (Chairman), R. J. Darnall, A. M. Herman,Bernhard, F. R. Chang-Diaz, S. B. Dobbs, R. K. Herdman, W. I. Miller, G. R. Nelson and C. Ware. All members are Independent Directors.independent directors as defined under our independence criteria, NYSE listing standards and SEC rules. The Governance and Nominating Committee met five times during 2010. The Governance and Nominating Committee reviews

and makes recommendations to theour Board with respect to its membership, size, composition, procedures and organization of the Board of Directors.organization. The Committee uses its network of contacts to identify potential director candidates, but may also engage, if it deems appropriate, a professional search firm. This Committee will also consider properly submitted shareholders' recommendations of nominees for election to the Board of Directors.our Board. Shareholder recommendations, including biographical information as to the proposed candidate and a statement from the shareholder as to the qualifications and willingness of such person to serve on the Company'sour Board, of Directors, must be submitted in writing to the Secretary of the Companyour Secretary. No such qualifying recommendations were received in accordance with the procedures established in the Company's By-Laws. The Committee has not rejected a candidate recommended by any shareholder during the preceding year.2010.

        As required by the Corporateour corporate governance principles, our Governance Principles, theand Nominating Committee must recommend directorsdirector nominees such that theour Board is comprised of a substantial majority of Independent Directors

independent directors and possesses a variety of experience and background, including those who have substantial experience in the business community, those who have substantial experience outside the business community such as public, academic or scientific experience, and those who will represent the stakeholders as a whole rather than special interest groups or individual constituencies. In particular, as it considers possible directors the Committee will seek out candidates who represent the diverse perspectives of all people. EachAs discussed in the principles, each director will benominee is chosen without regard to gender, race, religion, national origin or sexual orientation. The Committee will only consider potential directors who demonstrate the attributes of the Company'sour core values: integrity, corporate responsibility, diversity, global involvement, innovation and delivering superior results. Each year the Committee reviews the backgrounds of current and prospective directors to assess the effectiveness of our commitment to ensuring that the Board has the diverse experiences necessary to lead our company and advises the full Board on its progress. As a result, we believe that our Board has been effective in assembling a diverse body of individuals as measured by the criteria of gender, race and professional experience.

        Each candidate should have sufficient time available to devote to theour affairs of the Company and be free of any conflict of interest that would violate any applicable law or regulation, or interfere with the proper performance of his or her responsibilities and should also possess substantial and significant experience that would be of particular importance to the Companyus in the performance of his or her duties as a director. The Committee does not intend to alter the manner in which it evaluates candidates, including the foregoing criteria, based on whether the candidate was recommended by a shareholder or not.

        Any shareholder entitled to vote for the election of directors at a meeting may nominate a person or persons for election as directors only if written notice of such shareholder's intent to make such nominations is given, either by personal delivery or by mail, postage prepaid, to the Secretary of our company not later than 160 days in advance of the originally scheduled date of such meeting (provided, however, that if the originally scheduled date of such meeting is earlier than the anniversary of the date of the previous year's annual meeting, such written notice may be so given and received not later than the close of business on the 10th day following the date of the first public disclosure, which may include any public filing by us with the SEC, of the originally scheduled date of such meeting).

        Each notice required by our by-laws must be signed manually or by facsimile by the shareholder of record and must set forth the information required by our by-laws, including (i) the name and address, as they appear on our books, of the shareholder who intends to make the nomination and of any beneficial owner or owners on whose behalf the nomination is made; (ii) a representation that the shareholder is a holder of record of shares of our Common Stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) certain other information regarding the shareholder and its interests in our company; (iv) the name, age, business address and residential address of each nominee proposed in such notice; (v) the principal occupation or employment of each such nominee; (vi) the number of shares of our capital stock that are owned of record or beneficially by each such nominee; (vii) with respect to each nominee for election or reelection to our Board, a completed and signed questionnaire, representation and agreement described in our by-laws; (viii) such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the SEC had each nominee been nominated, or intended to be nominated, by our Board; (ix) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, including all arrangements or understandings pursuant to which the nominations are being made, between or among such shareholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or any other person or persons (naming such person or persons), on the other hand; and (x) the written consent of each nominee to serve as a director if so elected.

        The deadline for written notice of a shareholder's intent to make a nomination with respect to the Annual Meeting was the close of business on December 1, 2010, which was 160 days in advance of the Annual Meeting (which is typically held on the second Tuesday of each May). We received no such qualifying nominations before this deadline with respect to the Annual Meeting.

Committee members annually review the performance of theour Chief Executive Officer based upon performance against a work plan, considering both quantitative and qualitative measures. The Committee reports the results of such review to the Compensation Committee. The Committee also monitors meeting attendance of Board members.

        The Governance and Nominating Committee met five (5) times during 2007. The current By-Laws and Charter of the Governance and Nominating Committee, as adopted by the Board of Directors, are available on the Company's website. A copy of the charter of the Governance and Nominating Committee is also available in print to any shareholder who requests it. The Company also maintains a Code of Business Conduct which is available on its website and is also available in print to any shareholder who requests it.

        Executive Committee.    The members of theour Executive Committee are T. M. Solso (Chairman), W. I. Miller and J. L. Wilson. TheA. M. Herman. Our Executive Committee is authorized to exercise the powers of theour Board of Directors in the management and direction of theour business and affairs of the Company during the intervals between meetings of the Board of Directors.our Board. It also acts upon matters specifically delegated to it by the full Board of Directors. TheOur Executive Committee did not meetmet one time during 2007.2010.

        Other Committees.Finance Committee.    In addition to the Committees described above, the BoardThe members of Directors has established the following committees:our Finance Committee (W.are W. I. Miller (Chairman), R. J. Darnall, J. M. Deutch,Bernhard, F. R. Chang-Diaz, S. B. Dobbs, R. K. Herdman and C. WareWare. Our Finance Committee is authorized to review and J. L. Wilson); Proxyadvise the company on our financial strategy pertaining to capital structure, creditworthiness, dividend policy, share repurchase policy, and financing requirements. Our Finance Committee (W. I Miller (Chairman) and R. J Darnall);met three times during 2010.

        Safety, Environment and Technology Committee.    The members at our Safety, Environment and EnvironmentTechnology Committee (J. M. Deutchare R. J. Bernhard (Chairman), A. M. Herman,F. R. Chang-Diaz, S. B. Dobbs, W. I. Miller, G. R. Nelson and C. Ware). The current Charters of the Finance and Technology and Environment Committees, as adopted byWare. This Committee is authorized to assist the Board of Directors are also available on the Company's website.in its oversight of safety policies, review environmental and technological strategies, compliance programs and major projects and review public policy developments, strategies and positions taken by us with respect to safety, environmental and technological matters that significantly impact us or our products. It met four times in 2010.

        Communication with the Board of Directors.    Shareholders and other interested parties may communicate with theour Board, of Directors, including theour Lead Director and other non-management directors, by sending written communication to the directors c/o the Company'sour Secretary, 500 Jackson Street, Mail Code 60903, Columbus, Indiana 47201. All such communications will be reviewed by the Secretary or her designee to determine which communications willare appropriate to be forwarded to the directors. All communications will be forwarded except those that are related to Companyour products and services, are solicitations or otherwise relate to improper or irrelevant topics as determined in the sole discretion of the Secretary or her designate.designee.

        TheOur Secretary shall maintainmaintains and provideprovides copies of all such communications, received and determined to be forwarded, to the Governance and Nominating Committee in advance of each of its meetings and reportreports to the Committee on the number and nature of communications that were not determined to be forwarded.

        The Company has a practiceWe require all of requiring all directorsour director nominees standing for election at an Annual Meetingannual meeting of Shareholdersshareholders to attend such meeting. All directorsdirector nominees standing for election at our 2010 Annual Meeting of Shareholders were present in person. We currently expect all director nominees standing for election at the 2007 Annual Meeting of Shareholders were present.

        The table on the following page sets forth information regarding the directors' compensation during the Company's last completed fiscal year.to be present in person.

DIRECTOR COMPENSATIONELECTION OF DIRECTORS
(Items 1 through 10 on the Proxy Card)

        EachAll ten of our directors are to be elected at the Annual Meeting to hold office until our 2012 annual meeting of shareholders and until their successors are elected and qualified. Any submitted proxy will be voted in favor of the nominees named below to serve as directors unless the shareholder indicates to the contrary on his or her proxy.

        Nominee Stephen B. Dobbs was elected by our Board of Directors on October 1, 2010 upon the recommendation of our Governance and Nominating Committee to serve as a director until the Annual Meeting. Mr. Dobbs was recommended by the Committee and elected by the Board following a review of his qualifications under the standards of our corporate governance principles and a review of his independence. All other nominees have been previously elected to our Board by our shareholders and have served continuously since the date indicated below.

        Since it is currently anticipated that the Board's nominees for director at the Annual Meeting will be uncontested, the term of any nominee who does not receive a majority of the votes cast by shareholders will expire no later than 90 days after the Annual Meeting. Receipt by a nominee of the majority of votes cast means that the number of shares voted "for" exceeds the number of votes "against" that nominee. Abstentions and broker non-votes are not counted as a vote either "for" or "against" a nominee. In the event one or more of the nominees named below fails to receive a majority of the votes cast for his or her election, then our Governance and Nominating Committee will promptly consider how to fill such a resulting vacancy on our Board and make a recommendation to our Board. Such recommendation may include the potential reappointment to our Board of the director who was not an officer of the Company was paidfailed to receive a $150,000 annual fee, $75,000 of which was paid in cashmajority vote if our Governance and $75,000 of which was paidNominating Committee believes that such a reappointment is in the formbest interests of restricted Common Stock. The Stock Awards cannot be sold for three years. The Chairmen of the Finance Committee,our company and our shareholders. Our Board will then act on the Governance and Nominating CommitteeCommittee's recommendation and thereafter disclose its decision regarding how it has decided to fill such vacancy. Any director who has his or her term shortened as a result of not receiving a majority pursuant to this provision will not participate in the TechnologyGovernance and Environment Committee receive an additional annual fee of $5,000. The Audit Committee Chairman receives an additional $10,000 annual fee and the Compensation Committee Chairman receives an additional $7,500 annual fee. The Lead Director receives an additional annual fee of $7,500. Committee members also receive $1,000 for attending a Committee meeting (other than a meetingNominating Committee's recommendation or our Board's decision.

        Our Board expects that each of the Executive Committee) that is not held in connection with a regular or special meeting of the Board of Directors.

        As part of the Company's overall support of charitable and educational institutions the Company has established the Cummins Inc. Charitable Bequest Program in which directors first elected priornominees will be able to 2004 are eligible to participate. Following the death of a director, the Company will donate ten equal annual installments of $100,000 to one or more qualifying institutions designated by such director. The Company has purchased life insurance policies on each participating director, the proceeds of which fund donations under the program. Directors will not receive any financial benefit from the program since all charitable deductions accrue to the Company.

        The Company has a Deferred Compensation Plan for Non-Employee Directors, pursuant to which directors may elect to defer receipt of all or any portion of their compensation while they serve as a director if so elected at the Annual Meeting, but if any of them is unable to serve at the Company. Upon ceasingtime the election occurs, proxies received that have been voted for such nominee, for all nominees or containing no voting instructions will be voted for the election of another nominee to be a directordesignated by our Board, unless our Board decides to reduce the deferred compensation, plus accrued interest, is paid to the director or the director's beneficiary in a lump sum or in annual installments, not to exceed fifteen, as specified by the director. Upon a change in controlnumber of the Company, such deferred compensation and interest is paid in cash to the director in one lump sum. Accounts are credited with earnings based on each participant's selection among three alternatives: Standard & Poor's 500 Index, Lehman Bond Index or 10 Year Treasury Bill + 4%. The latter option was revised to be 10-Year Treasury Bill + 2% effective January 1, 2006.

        Each non-employee director will be required to maintain direct ownership of shares of Common Stock equal to or greater in value to three (3) times his or her annual retainer fee. This ownership requirement must be achieved by 2010 for directors who were first elected prior to 2004. Directors first elected after 2003 must comply with the requirement within six (6) years of becoming a member of the Board.

        When future accruals under a retirement plan for non-employee directors were terminated several years ago, directors with vested benefits were given an option to have their accrued benefits retained in the plan for future payment or to convert the present value (using the same actuarial assumptions as are applicable to the payment of pension benefits to the Company's employees) of their accrued benefits into phantom units of Common Stock. The stock units, including additional stock units credited thereon asour directors.

NOMINEES FOR BOARD OF DIRECTORS

dividend equivalents, are evidenced by bookkeeping entries. Recipients have no voting or investment power with respect to the stock units.        The value of each director's stock units will be payable only in cash after the director ceases to be a membernames of the nominees for directors, together with biographical sketches, including their business experience during the past five years, directorships of other public corporations and their qualifications to serve on our Board or upon a changeare set forth below. Our nominees are listed below in controlorder of the Company. The total numbertheir length of units credited to each director as a result of retirement plan benefit conversion electionsservice on our Board, beginning first with our employee directors and dividend equivalent credits is listed in the director nominee table on page 4.then followed by our independent directors.

(1)   Fees Earned or Paid in Cash were as follows:        OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTEFOR EACH OF THE NOMINEES SET FORTH BELOW.

Director		Outstanding Restricted Stock Shares
R. J. Darnall		THEODORE M. SOLSO – Chairman of the Board and Chief Executive Officer, Cummins Inc. Director since 1994; Age—64 Mr. Solso was elected our Chairman of the Board and Chief Executive Officer in 2000 after serving as our President from 1995 to 2000, Chief Operating Officer from 1994 to 1995 and Executive Vice President—Operations from 1992 to 1994. From 1988 to 1992, he was our Vice President and General Manager—Engine Business after serving in various other executive positions with us. He has been a director of Ball Corp., Inc. since 2003 and Ashland Inc. since 1999. He also was a director of Irwin Financial Corporation from 1993 through 2006. Mr. Solso is a director of the American Transportation Research Institute, a member of the Business Roundtable and the Indiana Academy, and is a Principal of the American Energy Innovation Council. In addition, Mr. Solso is the U.S. Chairman of the U.S.- Brazil CEO Forum and serves on the Board of the Initiative of Global Development, Earth University and the Earth University Foundation. In 2011, Mr. Solso was appointed by President Barack Obama to the President's Management Advisory Board. We believe that Mr. Solso is well qualified to be a director of our company because of his experience in our industry and in leadership positions with our company.

		10,748N. THOMAS LINEBARGER – President and Chief Operating Officer, Cummins Inc. Director since 2009; Age—48 Mr. Linebarger became our President and Chief Operating Officer in August 2008 after serving as Executive Vice President and President, Power Generation Business from 2003 to 2008 and as Vice President, Chief Financial Officer from 2000 to 2003. From 1998 to 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 and also served as a director of Pactiv Corporation from 2005 to 2010. We believe that Mr. Linebarger is well qualified to be a director of our company because of his experience in various senior management positions with our company and his familiarity with our company and our industry.
J. M. Deutch		WILLIAM I. MILLER – Chairman and CEO of Irwin Management Company Director since 1989; Age—54 Will Miller is the Chairman of Irwin Management Company, a Columbus, Indiana private investment firm. From 1990 to 2009, he was Chairman and CEO of Irwin Financial Corporation, a diversified financial services company. On September 18, 2009, Irwin Financial Corporation filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Code before the United States Bankruptcy Court for the Southern District of Indiana. Mr. Miller is also Chairman of the Board of Tipton Lakes Company (a real estate development firm). Mr. Miller is a director or trustee of the New Perspective Fund, Inc., the New World Fund, Inc. and EuroPacific Growth Fund (all three are in the same mutual fund family). Mr. Miller also is a Trustee of Yale University and The John D. and Catherine T. MacArthur Foundation. We believe that Mr. Miller is well qualified to be a director of our company because of his leadership experience, his experience in business and financial matters, and his 20 years of service as a director of our company.

		10,748ALEXIS M. HERMAN – Chairman and Chief Executive Officer of New Ventures, LLC Director since 2001; Age—63 Ms. Herman serves as Chair and Chief Executive Officer of New Ventures LLC, a corporate consulting company, and has held these positions since 2001. She serves as Chair of the Business Advisory Board of Sodexho, Inc., an integrated food and facilities management services company, and as Chair of Toyota Motor Corporation's North American Diversity Advisory Board. From 1997 to 2001, she served as U.S. Secretary of Labor. She has also been a director of The Coca Cola Company since 2007, Entergy Corporation since 2003, and MGM Mirage since 2002. Her non-profit board affiliations include Trustee of the National Urban League and George Meany National Labor College. In addition, Ms. Herman is a member of the board of directors of the Clinton Bush Haiti Fund. We believe that Ms. Herman is well qualified to be a director of our company and our Lead Director because of her experience as the U.S. Secretary of Labor and her other experiences in leadership positions in the private and public sectors.
A. M. Herman		GEORGIA R. NELSON – President and CEO of PTI Resources, LLC Director since 2004; Age—61 Ms. Nelson became President and CEO of PTI Resources, LLC, an independent consulting firm, in 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 international business negotiations, environmental policy matters and human resources. She has served as a director of Ball Corp., Inc. since 2006, Nicor Inc. since 2005, and CH2M Hill since May 2010. She was a director of Tower Automotive from 2001 to 2007. She has been a member of the Executive Committee of the National Coal Council since 2000 and served as Chairman from 2006-2008. She serves on the advisory committee of the Center for Executive Women at Northwestern University. Ms. Nelson is also a frequent lecturer at Northwestern University's Kellogg Graduate School of Management on topics related to sustainability, energy policy, leadership and corporate governance. We believe that Ms. Nelson is well qualified to be a director of our company because of her leadership roles in the power generation business and her experience in general operations, human resources and environmental and technical matters.

		10,748CARL WARE – Retired from The Coca-Cola Company Director since 2004; Age—67 Mr. Ware retired from The Coca-Cola Company in 2003 as Executive Vice President, Public Affairs and Administration following a 28-year career holding positions of increasing responsibility. From 1993 to 2000, Mr. Ware served as President and Chief Operating Officer of Coke's Africa Group. He was elected to the Atlanta City Council in 1973 and served as President of the City Council until 1979. From 1970 to 1973, he served the Atlanta Housing Authority as Director of Family and Community Services and Deputy Director of Urban Redevelopment. He has served as a director of Chevron Corporation since 2001 and also serves as a director of Coca-Cola Bottling Co. Consolidated, PGA Tour Golf Course Properties, and the Atlanta Falcons. We believe that Mr. Ware is well qualified to be a director of our company because of his experience in leadership roles in publicly traded companies and the public sector and his international business experience.
W. I. Miller		ROBERT K. HERDMAN – Managing Director of Kalorama Partners LLC Director since 2008; Age—62 Mr. Herdman has been Managing Director of Kalorama Partners LLC, a Washington, D.C. consulting firm specializing in providing advice regarding corporate governance, risk assessment, crisis management and related matters since 2004. He was the Chief Accountant of the SEC from October 2001 to November 2002 prior to joining Kalorama. Prior to joining the SEC, he was Ernst & Young's Vice Chairman of Professional Practice for its Assurance and Advisory Business Services (AABS) practice in the Americas and the Global Director of AABS Professional Practice for Ernst & Young International. He has been a member of the Board of Directors and currently chairs the Audit Committee of HSBC Finance Corporation (formerly Household International, Inc.) since 2004, of HSBC North America Holdings, Inc. since 2005 and of HSBC US, Inc. since 2010. Mr. Herdman also served as a director of Westwood One, Inc. from 2005 to 2006. We believe that Mr. Herdman is well qualified to be a director of our company because of his background as the Chief Accountant of the SEC and his professional experiences and accomplishments.

		10,748ROBERT J. BERNHARD – Vice President for Research and Professor in the Department of Aerospace and Mechanical Engineering, University of Notre Dame Director since 2008; Age—58 Mr. Bernhard has been Vice President for Research and Professor in the Department of Aerospace and Mechanical Engineering at the University of Notre Dame since 2007. Prior to that, he was Associate Vice President for Research at Purdue University from 2004 to 2007. He also held Assistant, Associate and full Professor positions at Purdue University, where he remains an Adjunct Professor. He was Director of the Ray W. Herrick Laboratories at Purdue's School of Mechanical Engineering from 1994 to 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 is currently Secretary General of the International Institute of Noise Control Engineering (I-INCE), and is also a member of the Board of Directors of the INCE Foundation. We believe that Mr. Bernhard is well qualified to be a director of our company because of his experience and expertise as a mechanical engineer, teacher and researcher in the field of mechanical engineering, which is integral to our industry, and his international experience with technology and research.

G. R. Nelson		10,408DR. FRANKLIN R. CHANG-DIAZ – Founder, Chairman and CEO of Ad Astra Rocket Company Director since 2009; Age—61 Dr. Chang-Diaz is Chairman and CEO of Ad Astra Rocket Company, a U.S. spaceflight engineering company based in Houston, Texas and dedicated to the development of advanced plasma rocket propulsion technology. Dr. Chang-Diaz founded Ad Astra in 2005 following his retirement from NASA after a 25-year career during which he flew seven space missions and logged over 1,600 hours in space. In 1994, Dr. Chang-Diaz founded and directed NASA's Advanced Space Propulsion Laboratory at the Johnson Space Center where he managed a multicenter research team developing new plasma rocket technology. Dr. Chang-Diaz is a dual citizen of Costa Rica and the United States. As part of his involvement in Costa Rica's development, Dr. Chang-Diaz currently leads the implementation of the "Strategy for the XXI Century," a plan to transform Costa Rica into a fully developed nation by the year 2050. Dr. Chang-Diaz received the Liberty Medal in 1986 from President Ronald Reagan and is a four time recipient of NASA's Distinguished Service Medal, the agency's highest honor. Dr. Chang-Diaz also serves as an Adjunct Professor of Physics at Rice University and the University of Houston. We believe that Dr. Chang-Diaz is well qualified to be a director of our company because of his scientific accomplishments, his leadership of an engineering company, his professional and personal achievements and his knowledge of Latin America.

C. Ware		9,938
J. L. Wilson		10,748STEPHEN B. DOBBS – Senior Group President at Fluor Corporation Director since 2010; Age—54 Mr. Dobbs is Senior Group President over Fluor Corporation's Industrial & Infrastructure and Global Services business groups. Mr. Dobbs was previously group president of Industrial & Infrastructure, responsible for a wide diversity of the markets Fluor serves, including Infrastructure, Telecommunications, Mining, Transportation, Life Sciences, Heavy Manufacturing, Advanced Technology, Microelectronics, Commercial, Institutional, Health Care, Water, and Alternative Power. Mr. Dobbs has served Fluor since 1980 in numerous U.S. and international locations including Southern Africa, Europe and China. He is recognized for his work on project finance in Europe and the United States, particularly public private partnerships and private finance initiatives. He has served as an advisor on these issues to the Ministry of Finance of the Netherlands. Dobbs earned his doctorate in engineering from Texas A&M University and holds an undergraduate degree in nuclear engineering, also from Texas A&M. He serves 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. We believe that Mr. Dobbs is well qualified to be a director of our company because of his experience in leadership roles at Fluor, his technical background and his international business experience.

(3)   These amounts represent "Above Market" earnings in the Deferred Compensation Plan, as described above. "Above-market" is defined as the amount of earnings that exceeded 120% of the applicable federal long-term rate published by the U.S. Internal Revenue Service.

(4)   Dr. John Deutch, who is not standing for re-election, served as Chairman of the Technology and Environment Committee. In this capacity he spent at least one day per quarter with the Company's senior technical managers to exercise Board oversight and collaborate with them on the Company's technical research, development and application strategies. He also served as Chairman of the Company's Science and Technology Advisory Council, consisting of distinguished academic, research and other members of the scientific community, who regularly advise senior executive management and the full Board on the direction and implications of developments in science, technology and environmental issues that may have applicability to the Company's current and future business goals and objectives. For these services, as Chairman of the Technology and Environment Committee, Mr. Deutch was paid $66,500 during 2007, consisting of $30,000 for such technical oversight and collaboration and $36,500 for his services on the Council.

        In addition, premiums totaling $44,640 were paid on life insurance policies in connection with Mr. Deutch's participation in the Cummins Inc. Charitable Bequest Program, as described above. Policies for all other non-employee directors who participate in the program are fully paid and, therefore, no premiums were payable in 2007.

EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

        Our Compensation Discussion and Analysis, or CD&A, provides detailed information about compensation programs for our Chairman and Chief Executive Officer, our President and Chief Operating Officer, our Vice President and President—Engine Business, our Vice President and President—Distribution Business and our Vice President and Chief Financial Officer, whom we refer to as our "Named Executive Officers."

        The sections of this CD&A that immediately follow focus principally on the 2010 compensation matters. Thereafter we have included a separate section of this CD&A that focuses on key decisions and changes made with respect to 2011 and subsequent period compensation matters.

        We have designed our executive compensation programs to support our overall performance goals. Our compensation programs are based on the principle of pay for performance.

        The Compensation Committee reviews our executive compensation programs on a regular basis, and has structured executive compensation programs to consist of three principal elements: base salary, annual bonus and longer-term compensation. We also provide to our officers, as part of a competitive compensation package, limited post-employment benefits and perquisites, and we have implemented mandatory stock ownership requirements to further align the interests of our officers with the interests of our shareholders. We generally target all of our base compensation elements at the median level of a large group of U.S. manufacturing companies.

Objectives and Principles of Cumminsour Executive Compensation Program

        The Company'sWe have designed our executive compensation program is designed to attract, motivate and retain people with the skills required to achieve the Company'sour performance goals in thea competitive global business environment. TheOur intention is for the program is designed to reflect theeach individual's relative contribution and theto performance, of the Company, while striking an appropriate balance between short-term and longer-term corporate performance.

        The Company is committed to the concept of pay for sustained performance. The Company evaluates performance over several periods of time. While the specific elements of executive compensation vary from time to time, the program focusesour executive compensation program's overriding focus is on this centralthe principle of pay for performance, both in program design and in the specific awards.

        In addition, to pay for performance the Companywe and the Compensation Committee of theour Board of Directors (the "Compensation Committee" or "Committee") consider the following principles when designing and implementing compensation programs for the Company'sour officers:

•

Programs should provide a competitive compensation opportunity; the concept of opportunity is important in our program. We believe the executive should have the opportunity to do well if the Company does well and thatOur executives' target total compensation should vary in relation to the Company's performance.



•

The target compensation opportunity should be at the median of the compensation range when comparedpayable to the compensation of individuals insimilarly situated executives at U.S. manufacturing companies with similar sales volumes comparable job scope and size—when our financial performance meets certain Board approved annual operating plan targets. The Compensation Committee periodically benchmarks these annual operating plan targets established inagainst the Annual Operating Plan which are approved by the Boardperformance of Directors.other similar companies.



•

The concept of opportunity is important in our programs and as such our programs should provide a competitive compensation "opportunity." We believe our executives should have the opportunity to be well compensated if our company performs well and that their total compensation should vary in relation to our relative corporate performance.



•

There should be a balance between annual and longer-term elements of compensation.



•

The more senior a person's position, the more thehis or her compensation should be "at risk"—risk," meaning dependent on the performance of the Company.our corporate and stock price performance.

•

The Company'sOur stock should be an important part of theour executive compensation program in order to link our management's compensation with our shareholders' expectations. As stated above, thereturns. The greater the level of responsibility of the person, the more thehis or her compensation should be stock-based.stock based.



•

TheOur executive compensation system should be transparent to our investors and employees and as simple and easily understood as possible.

Executive Compensation Decisions in Response to the 2009 and 2010 Economic Situation

        As a result of the impact of the recessionary economic environment that started in late 2008, we took several actions that directly affected our executives and directors, including implementing a 10% base salary reduction for 2009 affecting all of our officers, including our Named Executive Officers. In addition, all non-employee directors agreed to waive 10% of the cash portion of their base director retainer fee for 2009. This reduction took effect in May 2009 when directors received their annual retainer fees. As economic conditions began to improve in early 2010, we reinstated pre-2009 salary levels for our officers, together with merit-based increases, and we reinstated the pre-2009 cash retainer amount for our non-employee directors.

Achieving the Performance-Based Principle

        Our program strongly supports pay for performance. The more senior the position, the more pay should be "at risk", dependent on Company performance.

To illustrate how theour executive compensation program achieves thesethe objectives followingdescribed above, set forth below are the percentages for each of the three elements that make up the target total direct compensation opportunity (excluding benefits and perquisites) provided to the CEOour Chief Executive Officer and theour other Named Executive Officers as a group in 2007 (excluding2010.

        Our executive compensation aligned well with the objectives of our programs and our corporate performance in 2010, driven by these factors:

•

Strong operational results



•

Strong financial results



•

Significant cost controls



•

Sustainable profitable growth

        The following graphs show the strong direct relationship between our corporate financial performance and our executive compensation levels by comparing the relationship over the past five years of our (i) total shareholder return (on a dividend reinvested basis), or TSR; (ii) return on average net assets, or ROANA; (iii) return on equity, or ROE; and (iv) average annual total compensation for our Named Executive Officers, or Avg TC:

Link Between Financial Performance and Executive Compensation

Other Highlights of Our Executive Compensation Programs

        We continually review best practices in the area of executive compensation and have revised our compensation policies and practices in recent years to:

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Require executive officers to maintain certain stock ownership levels and prohibit them from engaging in forms of hedging or similar types of transactions with respect to our stock.

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Eliminate tax gross-ups on all perquisites.



•

Eliminate most perquisites.



•

Temporarily reduce base salary levels during the 2009 recession to reflect our focus on pay for performance.



•

Identify a survey group to use for benchmarking compensation levels and target setting.

        Our executive compensation arrangements have also long included other elements considered best practices, such as the following:

•

Benefits under our change in control arrangements with our executive officers, other than accelerated vesting of equity, are all subject to a "double trigger" rather than a "single trigger" (i.e., in addition to the change of control occurring, the executive officer's employment must be terminated in order for him or her to receive any benefits under the arrangement).



•

We do not permit backdating or repricing of stock options.



•

We monitor our pay practices to help confirm that they do not encourage excessive risk taking.



•

We use multiple components under our longer-term incentive program (performance cash awards, performance share awards and perquisites).

		Base Salary		Target Annual Bonus		Target Longer term Grants
T. M. Solso		17.2%		17.2%		65.6%
Other Named Executive Officers		23.7% – 31.0%		17.0% – 18.6%		50.4% – 58.4%

stock option awards) to address the motivational concerns associated with focusing on any one form of incentive compensation.



•

We have capped payouts under our annual bonus and longer-term incentive plans at 200% of the target awards.



•

We have adopted a compensation recoupment, or "clawback," policy in our corporate governance principles which provides that, if any of our financial statements are required to be materially restated resulting from the fraudulent actions of an officer, then our Board may direct that we recover all or a portion of any award or any past or future compensation other than base salary from any such officer with respect to any year for which our financial results are adversely affected by such restatement.



•

We do not guarantee salary increases or bonuses for our executive officers.

Overview of How our Executive Compensation is Determined

        Senior Management (the management Our Compensation Committee regularly reviews all elements of our executive compensation program and makes changes it deems appropriate from time to time. These reviews include general comparisons against market data and analysis prepared by the Compensation Committee's executive compensation consultant, Meridian, including the following market practices:

•

Executive Committee) recommends compensation actions to the CEOpolicies and practices



•

Competitive pay objectives



•

Base salaries



•

Annual bonus plans



•

Long term grant strategy



•

Stock ownership guidelines



•

Executive perquisites



•

Personal use of company aircraft



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Severance practices for officers in the areas for which they are responsible. Taking these recommendations into consideration, the CEO makes recommendations to the Compensation Committee regarding each officer

•

Supplemental retirement plans



•

Deferred compensation plans



•

Change in control compensation protection programs

(including members of        The Compensation Committee has the Executive Committee). These recommendationsflexibility to establish performance measures annually that are based on assessments of individual performance and potential to assume greater responsibility, as well as market dataappropriate for each position.our financial goals. The CEO discussesCompensation Committee periodically benchmarks the recommendations andannual operating plan targets against the performance of other similar companies. The Compensation Committee may also determine to exclude the officers witheffects of certain operating performance measures which result from decisions made at the Committee. As part of its review process, the Committee has access to input of an independent consultant, Hewitt Associates, retained by the Committee (the role of the independent consultant is described in more detailcorporate level, such as acquisitions, divestitures, or joint venture formations in the "Corporate Governance" sectioninitial year, if such events were not anticipated at the time targets were established, pension plan contributions above required levels, and convertible debt. Certain corporate expense allocations may also be excluded from the individual operating segment performance calculations. No adjustments were made for such events in determining 2010 executive compensation amounts.

Determination of this proxy). The Committee reviews the recommendations, may make modifications, and makes the final decisions regarding each officer's compensation.Our Chief Executive Officer's Compensation

        The CEO, onOn an annual basis, our Chief Executive Officer discusses in detail his priorities and objectives with theour Governance and Nominating Committee (the members and responsibilities of the Governance and Nominating Committee are described beginning on page 6 of this Proxy Statement).Committee. The Governance and Nominating Committee formally reviews the CEO'sour Chief Executive Officer's performance annually. This review is based on how well the CEO performedour Chief Executive Officer's performance against specific objectives, which includesinclude the progress made by the Companyour company in implementing its business strategy and achieving its business objectives, both short-term and long-term. This review, which is reported in detail to the Compensation Committee, considers both quantitative and qualitative performance matters and is a key factor that the Compensation Committee uses in setting our Chief Executive Officer's compensation for the CEO's compensation.coming year. Specific business objectives and goals that were part of the CEO'sour Chief Executive Officer's performance review for 2007 include2010 included the financial performance of the Company,our company, progress towards achieving the Company'sour company's long-term strategic objectives and the development of key leadership talent.

        The Compensation Committee meets in executive session to determine the compensation of the CEO.our Chief Executive Officer. In this discussion, the Compensation Committee has access to data and advice from its Consultant.consultant. No recommendations are made by any members of management regarding the compensation of our Chief Executive Officer. The Compensation Committee Chair presents its decisions to the CEO.Governance and Nominating Committee for its information.

Role of Our Officers in Setting Pay for Other Officers

        Members of our senior management, including our Named Executive Officers, recommend compensation actions to our Chief Executive Officer for officers in the areas for which they are responsible (but not with respect to their own compensation). Taking these recommendations into consideration, our Chief Executive Officer then makes recommendations to our Compensation Committee regarding each officer. Our senior management and our Chief Executive Officer base these recommendations on assessments of individual performance and potential to assume greater responsibility, as well as market survey data for each position. Our Chief Executive Officer discusses the recommendations and performance of the officers with the Compensation Committee. The Compensation Committee reviews our Chief Executive Officer's recommendations, may make modifications based on the market data and a discussion of individual and Company performance, and then makes the final decisions regarding the CEO's compensation.

        The Committee regularly reviews alleach officer's total targeted compensation, and its respective elements, of the executive compensation program and makes changes it deems appropriate. The reviews include comparisons against a broad group of U.S. manufacturing companies prepared by the Consultant, including selected market practices, for the following:

•

Executiveupcoming year. Our officer compensation principles



•

Competitive pay objectives



•

Supplemental Retirement Plan



•

Deferredreview occurs annually at the February Compensation Plan



•

Change in ControlCommittee meeting since this is the first Compensation Protection program



•

Base Salary



•

Annual Bonus Plan



•

Long Term Grant strategy



•

Stock Ownership Guidelines



•

Executive perquisites



•

Personal useCommittee meeting after our year-end and provides the earliest opportunity to review and assess individual and corporate performance for the previous year. As part of Company aircraft



•

Severance practices for officers

        Theits review process, the Compensation Committee has determined that if anyaccess to the advice and input of the Company's financial statements are required to be materially restated resulting from the fraudulent actions of an officer, the Committee may direct that the Company recover all or a portion of an Award or any past or futureits independent compensation from any such officer with respect to any fiscal year of the Company for which the Company's financial results are adversely affected by such restatement.consultant, Meridian.

Tax Considerations

        Section 162(m) of the Internal Revenue Code ("Section 162(m)") limits the corporate tax deduction to one$1 million dollars for compensation paid annually to any one of theour Named Executive Officers (other than our Chief Financial Officer), unless the compensation meets certain requirements. The Committee adopted changes to the compensation program, approved by shareholders in 1995,We believe that qualify payments under theour Senior Executive Bonus Plan and Senior Executive Longer-Term Performance Plan qualify for tax deductibility under Section 162(m). Payments, although grants of stock options under the Senior Executive Bonusour 2003 Stock Incentive Plan and the Senior Executive Longer-Term Performance Plan (formerly named the "Senior Executive Medium Term Performance Plan") each year are certified by the Committee and the Committee's discretion to adjust the plans' payouts upward is eliminated.

        Therefore, that portion of the CEO's Base Salary that exceeded one million dollars in 2007 willdo not qualify for tax deductibility under Section 162(m). because they are not performance based.

        As explained below, the Base Salariesbase salaries of theour Named Executive Officers are set at the median of the range of the salaries of individuals with similar positions insimilarly situated executives at companies among a broad group of major U.S. manufacturing companies where the data have been size-adjusted using statistical techniques to reflect Cumminsour relative size. The Compensation Committee has indicated that it intends to continue this policy notwithstanding the provisions of Section 162(m). As a result of the foregoing, the portion of our Chief Executive Officer's base salary that exceeded $1 million in 2010 will not qualify for tax deductibility under Section 162(m).

Compensation Program Elements

        The Company'sOur executive compensation program consists of three principal elements: Base Salary, Annual Bonusbase salary, annual bonus and Longer-termlonger-term compensation. In total, theythese elements are designed to fulfill the Company'sour basic goals of linking pay to financial performance and paying competitively. All officers participate in each element of the program.program, but in varying degrees.

        The CompanyIn determining compensation for 2010, we and the Compensation Committee have used survey data provided by the ConsultantAonHewitt to determine competitive levels of pay. TheThis aggregated survey information includes one hundred seventy-eightincluded 186 U.S. manufacturing corporations, andcorporations. The companies in the Company has chosen notdatabase had annual sales volumes ranging from $420 million to create a more specific compensation peer group.$265 billion, with average sales of $13 billion.

        EachWe compared each of our officer positions is compared to the same job using regression analysis to calculate median levels of Base Salary, target Annual Bonus participation and Longer-term grant target value for the scope of responsibility for each of oursimilar positions among U.S. manufacturing companies in the Consultant'sAonHewitt's survey database.database using regression analysis to calculate and target median levels of base salary, targeted annual bonus participation, and targeted longer-term grant value for scope of responsibility for each position.

        The one hundred seventy-eight U.S. manufacturing companies in the database cross nineteen industry classifications and have annual sales volumes ranging from $350 million to $207 billion, with average sales of $13.8 billion.

        The CompanyIn determining compensation for 2010, we and the Compensation Committee believebelieved that the broader survey base of major U.S. manufacturing companies providesprovided a reasonable and more useful measure of market compensation and allows moreallowed consistent year-to-year market comparison than would a smaller peer group of companies.comparison. The survey's statistical tools calculatecalculated market compensation for the specific levels of responsibility for each position. For example, thewe use our total sales of the Company are used to calculate the market median compensation levels for officers who have overall responsibility for the Corporation;relating to our entire company, while we use the sales volume for an operating segment would be used for officers responsible for that business.

        As stated earlier, the CEO makes compensation recommendations to the Committee in its February meeting for each officer, including the Named Executive Officers, excluding himself. The recommendations are based on individual performance and potential to assume greater responsibility, as well as market data for each position. The Committee makes the final compensation determinations based on the market data and a discussion of individual and Company performance. The officer compensation review occurs annually at the February Compensation Committee meeting since this is the first Committee meeting after year-end and provides the earliest opportunity to review and assess performance for the previous year.

        During the February meeting, the Committee also meets in executive session to determine compensation for the CEO based on performance assessment and market data.

        Each element of pay described below is intended to provide total compensation for each position at the median of the amounts companies of similar size in the survey would pay the same position.

1.     Base Salary

        Base Salary is reviewedWe review the base salary of our officers annually. It is the only fixed portion of the executive's compensation. Base Salary is normally set inHistorically, we targeted our officers' base salary to be at the median range of base salaries of individualssimilarly situated executives of similarly sized U.S. manufacturing companies.

        The Compensation Committee considers other factors beyond market and peer group data when determining salaries. These factors include experience, tenure, potential, internal equity and performance. This may result in an individual's base salary being set above or below the median range. In certain cases where we set an officer's base salary below the median level, we may then develop a plan to ensure that the employee is at or near the median in a reasonable amount of time, usually two to three years, assuming acceptable levels of performance are met. This is currently the situation with similar positionsour Chief Financial Officer, P. J. Ward, who is below the market median due to his short tenure in this position. Other than Mr. Ward's base salary, none of the individual Named Executive Officers' base salaries differed materially from the

median range of base salaries of similarly situated executives of similarly sized U.S. manufacturing companies, of similar sizeor at our peer group.

        In 2010, the only adjustment to the Company.

        Individual performance, assessmentsbase salaries of each officer's capabilityour Named Executive Officers, along with all other officers, was the restoration to assume larger rolesthe levels provided prior to the 10% decrease in 2009 described above in response to economic conditions, and market data for each position are prime factors considered by the Committee each year in determining the amount of Base Salary increase, if any, to be provided.market- and merit-based increases, consistent with our Company guidelines.

2.     Annual Bonus

        This element is designedWe design annual bonus opportunities for our executives to link executive pay to our annual financial performance. Annual bonus payouts are equal to an executive's annual base salary, multiplied by the participation percentage of base salary assigned to the executive's position and then further multiplied by a payout factor based on our company's actual financial performance against our annual operating plan for that year. There is no discretionary element to computing annual bonuses.

        For example:

        Each participant's participation rate is set as a percentage of his or her annual base salary. Participation rates are based on the same survey group data as base salaries and are set at the median of the Company.range for similarly situated executives at similarly sized companies. The Payout Factorparticipation rates for 2010, expressed as a percentage of their 2010 base salary for our Named Executive Officers were:

        The payout factor is calculated based on a formula annually approved by the Compensation Committee. Each participant is assigned a participation rate as a percent of salary. For purposes of this plan, Companythe payout factor, we measure our corporate performance is measured bybased on our annual Return On Average Net Assets, (ROANA)or ROANA. We have selected ROANA as defined by the plan.sole performance measure under our annual bonus program because we believe it appropriately balances our profitability and the management of our assets.

        ROANA for compensation purposes is calculated as follows:

The numerator is Segment Earnings Before Interest and Tax, or EBIT, which for compensation purposes is defined as each respective operating segment's direct earnings before interest expense, provisions for income taxes and minoritynon-controlling interests in earnings of consolidated subsidiaries and before consideration of any corporate expense allocations. The denominator is Average Net Assets, which areis derived directly from theour consolidated balance sheet and excludeexcludes debt and related financing accounts, deferred tax amounts and certain pension and post retirement liability accounts. Average Net Assets are then allocated to the appropriate operating segment.

        Payout Factorsfactors are determined using actual ROANA measuresresults compared to plan target ranges.

ranges as described below. The Annual Bonus is calculated as follows:

        (Annual Bonus) equals (Annual Base Salary) times (participation percentage assigned to each job) times (Payout Factor)

        For example:

        Participation rates are based on the same survey data as base salaries and are set at the median of the rangepayout factor for like positions in similarly-sized companies.

        The participation rates for 2007, expressed as a percentage of Base Salary paid, were:

        For officers working outside theour consolidated corporate staff, 50% of their Annual Bonus is based upon the performance of their specific operating unit and 50% of the bonus is based upon the consolidated Corporate Plan. The definition ofROANA performance is equal to the same for both the operating and corporate elementsweighted average of the plans. We believe that the measure of performance needs to balance both profit and stewardship of the Company's assets. As such, we use a defined ROANA measure as described above on which to determine the payout factors in thefrom each of our four operating plans.segments.

        In setting the financialannual ROANA targets for the Annual Bonus eachpurpose of determining our executives' annual bonus opportunity for that year, the Compensation Committee reviews the levels of difficulty of the annual operating plan, or AOP, for each unit,operating segment, considering the markets involved and the current economic environment. The Compensation Committee then establishes appropriate stretch targetsthe 1.0 payout factor at the ROANA amount reflected in achieving our AOP. The payout factors range from 0 to receive a 1.0 payout. The consolidated Company (Corporate) performancemaximum of 2.0 in increments of 0.1. Payouts start at 0.1 resulting from meeting 60% of AOP, while 120% of AOP is the weighted averagerequired to earn a 2.0 payout of the operating unit measures.factor. Setting the targets with appropriate levels of difficulty underscores the importance of achieving or exceeding the AOP performance commitments each operating segment establishes annually. This approach requires increasingly difficult targets during economic upturns, and realistic goals that maximize performance during cyclical downturns. The Compensation Committee periodically benchmarks these annual operating plan targets against the performance of other similar companies. As evidence of the difficulty of the targets, over the last ten years the 1.0 target level has been achieved or exceeded 50%only 40% of the time.

        The Annual BonusesROANA performance targets established for T. M. Solso, F. J. Loughrey, and J. S. Blackwell wereour 2010 annual bonus plan reflected 1.0 payout factors set at achieving our 2010 AOP, as approved by our Board. For the 2010 annual bonus plan, target ROANA was based on sales and EBIT levels that would have been relatively flat when compared to 2009 levels. At the Corporate weighted average formula.time the targets were set, in February 2010, we expected lower demand for engine and component products in the U.S. to pressure our operating margins in 2010. The Annual Bonuses for T. Linebarger and J. D. Kelly were based one-half on the Corporate weighted average formula and one-half on the performance of the Power Generation Operating Segment for Mr. Linebarger and one-half on the performance of the Engine Operating Segment for Mr. Kelly.

        The Payout Factortargets for the Corporate2010 annual bonus plan were established taking into consideration these factors. A 1.0 payout factor required us to perform at higher EBIT margins than we had experienced in prior downturns on relatively flat sales compared to 2009.

        Based on our actual corporate performance during 2010 as measured against AOP, the payout factor for the corporate weighted average formula was 2.0. For R. J. Freeland and P. Carter, who each have responsibility for supervising the operations of one of our operating segments, 50% of their 2010 annual bonus was based upon the ROANA performance of their respective specific operating unit and 50% of their bonus was based upon the payout factor for our consolidated corporate performance. The Payout Factorpayout factor for the portion of Ms. Carter's 2010 annual bonus determined by the Distribution Business was 1.8, resulting in an overall payout factor of 1.9. The payout factor for the portion of Mr. Linebarger's Annual Bonus determined by the Power Generation Operating Segment performance was 2.0; the Payout Factor for the portion of Mr. Kelly's Annual BonusFreeland's annual bonus determined by the Engine Operating Segment performanceBusiness was 1.8.2.0, resulting in an overall payout factor of 2.0. The 2010 annual bonuses for T. M. Solso, T. Linebarger and P. J. Ward were based solely on the payout factor for our consolidated corporate performance.

        The Committee has the flexibility to establish performance measures annually that are appropriate for the Company's financial goals, underscoring the principle of pay for performance. The Committee also determines certain exclusions fromPerformance varied by operating performance measures which result from decisions made at the Corporate level, such as acquisitions, divestitures, or joint venture formationssegment, resulting in the initial year if they were not anticipated at the time targets were established, pension plan contributions above required levels, and convertible debt. Certain Corporate expense allocations are also excluded from the individual operating unit performance calculations. In 2007, the ROANA calculations excluded the impact of assets and liabilities associated with corporate hedging programs, pension contributions above required levels and the impact of acquisitions or divestitures not contemplated at the time the performance measures were established.

        By achieving performance approximately 16% greater than the target levels, the Payout Factor2010 payout factor for each of the Named Executive Officers variedvarying between 1.9 and 2.0.

        The Components Group Segmentcomponents group segment ROANA represents the weighted average performance targets for the businesses within that segment.

        Performance targets established for the Annual Bonus Plan for 2008 are well within the targeted ranges for the Company, and will require one of the best years in the Company's history. These targets are appropriately difficult in light of the current uncertain U.S. economic environment and will require improved performance from prior record years.

        In order to earn a 1.0 target Payout Factor for 2007, the targets set in the operating plan would have required a level of earnings before interest and taxes ("EBIT") as a percentage of Sales greater than achieved in nine out of the last ten years of the Company's performance, while prudently managing the Company's assets (EBIT is the numerator in calculating the ROANA performance measure). The Payout Factors are capped at 2.0. Performance required for the maximum payouts in 2007 represent levels that significantly exceed the target levels, 16% greater than the 1.0 level cumulatively. The threshold payout of .1 (10% of the Target Payout) would have required performance that was 56% of the 1.0 level.

        In addition to the financial measures used to determine the Payout Factor,payout factor, minimum levels of consolidated corporate performance, called Performance Hurdles"performance hurdles," are required, ensuring that certain cash flow and other commitments are met. Regardlessmet as a condition to annual bonus payouts being made regardless of our ROANA performance. For 2010, the financial performance with respect to the operating measures described above, the Performance Hurdles must be achieved in order for any Annual Bonus to be paid. For 2007, the Performance Hurdles requiredhurdles were: (1) that the Corporation's Net Income,our net income, including the

bonus payout expense, must be greater than zero; that the Corporation's Free Cash Flow, defined as cash flow from operations less capital, software and joint venture investments, must be equal to or greater than the Corporation's projected dividend payments; and(2) that all payouts were subject to reviewbe reviewed by the Corporation'sour Chief Financial Officer to ensureconfirm that such payments willwould not cause any company metric to be less than the credit metrics required for an investment grade credit rating or constitute a violation of any applicable loan covenants or other financial restrictions in existence. The Performance Hurdle is the same for 2008.

        In order to comply with the requirements of Section 162(m), designated officers (the Chief Executive Officer and six other senior officers in 2007) are compensated under a modified version of the Annual Bonus Plan called the Senior Executive Bonus Plan. The Senior Executive Bonus Plan differs from the Annual Bonus Plan in that the Compensation Committee has no discretion to increase the payouts once it establishes the performance measures each year. All of the Named Executive Officers participate in this plan.

3.     Longer-Term Compensation

        The Company's Longer-termOur longer-term compensation program consists of performance cash awards and stock based grants.

        For our stock-based grants. Theawards, the Compensation Committee believes that the combination of performance shares and stock options provides an equal payout opportunityappropriate balance in how we pay for longer-term performance, recognizing that performance shares provide value to participants for achieving financial targets, even if our stock price declines from each typethe grant date, while stock options have value only if our stock price increases after the grant date and promote a longer-term focus on stock price growth—potentially up to their full 10-year term. The Compensation Committee believes that a blended approach of awardgranting both performance shares and stock options balances pay for performance, provides appropriate incentives for participants, and strengthens the linkage of the interests of our Named Executive Officers with the interests of our shareholders.

        In 2010, our longer-term grants were divided equally in target value between cash awards and stock-based grants with the target value of our stock-based grants also equally divided between performance shares and stock options.

Longer-Term Grant Methodology

        In determining the appropriate grant sizes, the Compensation Committee uses a valuation methodology developed by its consultant to compare the targeted value of the grants to the market. This method calculates a market-based economic value for the targeted amount of the annual grants of performance cash, performance shares and stock options. A six-month average price of our stock is used in determining the number of performance shares for market comparisons. We believe the six-month average is most appropriate as it eliminates any unforeseen gains or losses in value associated with a temporary stock price spike or drop. The number of stock options are determined using the Black-Scholes model. In 2010, the projected value of the longer-term grants was evenly divided between cash and grantsstock awards. Under our valuation model for the stock options, the ratio of stock options to performance shares awarded in 2010 was approximately 1.9:1.

        Grant amounts under the longer-term plan have been made accordingly.set to provide an "at target" total longer-term compensation opportunity at the median of the comparable level of longer-term incentive compensation provided by similarly sized U.S. manufacturing companies for similar positions and scope. The Compensation Committee reviews the proportion of total longer-term compensation that is dependent on our financial performance in determining the allocation of the compensation opportunity among each of the elements for each position. More senior positions have a larger proportion of total longer-term compensation opportunity dependent on our performance than do less senior positions.

        Return on Equity, or ROE, as described below, has been the measure on which performance cash and performance shares are earned because we believe that it provides a meaningful measure of profitability relative to our shareholders' stake over the performance period, because it is a more meaningful measure of actions under the control of management than stock price, and because historical data have indicated a strong, positive correlation between our ROE and our stock price growth.

        We believe that our grants of performance shares forge a strong linkage of interests between our management and our shareholders since the value participants actually receive is determined by both our financial performance relative to our pre-established financial goal, as well as our stock price.

Performance Cash Awards

        Performance cash awards are granted as Target Awardstarget awards expressed as a dollar amount for each participant. Multiples of the Target Award aretarget award may be earned, and paid in cash, ranging from zero to two times the Target Award,target award, based on how well the Company achieveswe achieve or exceed performance measures established by the Compensation Committee over a specified measurement period. Performance cash awards are granted under the Longer-Term Performance Plan and the Senior Executive Longer-Term Performance Plan.

Annually, the Compensation Committee makes Target Awardsgrants target awards to be earned based on Companyour performance over a period of time called the "Award Cycle"."award cycle." Since 2003, the Award Cyclesaward cycles have been overlapping two-year periods, and the performance measure determining the actual payouts has been our consolidated and reported Returnreturn on Equity (ROE). These Target Awards are expressed as a dollar amount, each reflecting one year of grant value.equity, or ROE.

        The Target Awardtarget amounts of the performance cash award will be paid in cash if we achieve target ROE for the Company achievesaward cycle. Target ROE for the levelaward cycle is the average of Return on Equity provided by achieving a target setthe ROE for the two-year award cycle period based on (a) the Company's Annual Operating Plan(1) our AOP for the first year and (b)(2) an

agreed target level for the second year of the Award Cycle, measured cumulatively for the two-year period.award cycle.

        The ROE for each Award Cycleaward cycle is calculated as the cumulative Net Incomenet income for the two-year period divided by the Average Equityaverage equity for the two-year period, divided by two. The Average Equityaverage equity for the two-year award cycles is calculated using nine points: the beginning of the first year of the Award Cycleaward cycle and each of the eight quarter-endingquarter ending values. The numerator is Profitprofit after Tax (PAT)tax, or PAT, for the two-year period. The equity calculation is adjusted for changes to equity related to unrecognized Pensionpension and Other Post Employment Benefit (OPEB)other post employment benefit, or OPEB, amounts and equity transactions not built into the Operating Planoperating plan such as Common Stock share repurchases. The Compensation Committee has the discretion to adjust the payouts downward, but not upward, once it establishes the performance measures each year.

        The overall degree of difficulty for achieving the 2010 Annual Operating Plan (AOP) was discussed as part of the Compensation Committee's annual bonus discussion. The Compensation Committee considered the performance of other industrial companies, including those in the Annual Bonus discussion.our peer group, in setting these targets. As an indication of the difficulty of the awards cycle targets, the Payout Factorspayout factors have averaged .7850.91 over the last ten years.15 years, and have met or exceeded the 1.0 target less than 50% of the time.

        The table below summarizes the ROE targets and performance cash payouts made in 2007 were for the 2005 - 2006 Award Cycle. Aaward cycles from 2008–2009 through 2010–2011.

        For all award cycles, 2.0 Payout Factor for that Award Cycle requiredpayout factor requires performance equal to 139%120% of the target performance level. The Target Award was set at 18% ROE. Actual performance for 2005 - 2006 was 26.0% ROE.This is the maximum payout achievable.

        For the 2007 - 2008 Award Cycle, withThe threshold payout in 2009, the Target Award requires an ROE of 17.87% for the two-year period, reflecting the impact of U.S. emissions regulations changes in 2007. The maximum that can be paid is 200%10% of the Target Award for performance that represents significant improvement above the 1.0 target level;award requires performance equal to 130%60% of the target performance level would be required forresulting in a 2.0 Payout Factor.0.1 payout factor.

Stock and Option Awards

        The Threshold Payout is 10%target grant value of the Target Award; performance equal to 70% of the target performance level would be required for a .1 Payout Factor.

        As is the case with respect to the Annual Bonus Plan, the CEO and six other senior officersstock-based grants made in 2007 are compensated under a modified version of the Longer-Term Performance Plan, called the Senior Executive Longer-Term Performance Plan. The plans are identical except that the Committee's discretion to adjust payments upward is eliminated in the Senior Executive Longer-Term Performance Plan. All of the Named Executive Officers participate in this plan.

Stock Awards

        In 2003 shareholders approved the 2003 Stock Incentive Plan. Annual grants awarded since 2004 have been2010 was comprised solely of Target Awardsequally of performance shares. Noshares and stock options have been awarded to any of the Named Executive Officers since 2003.options.

        The Target Awardtarget award of performance shares granted to each participant in 2007 for the 2007 - 2008 Award Cycle is expressed as a number of shares of the Corporation'sour Common Stock. A percentage of the Target Awardtarget award number of shares willmay be earned, ranging from zero to 200% of the Target Award,, based on the same Return on EquityROE performance measures over the awards cycle and, therefore, the same payout factor as theour performance cash grants previously discussed. Anyawards. However, any performance shares from our 2010

grant that are earned willafter the two-year awards cycle remain restricted for one additional year, until March 2010. Theyear. Any earned performance shares wouldfrom our 2010 grant will be forfeited if the participant ceasedceases to be an employee of the Company during the restriction period, unless an exception wereis approved by the Compensation Committee. Such exceptions are rarely made, except in the instance of retirement.

        Officers are prohibited from engaging in forms of hedging or monetization transactions involving the establishment of a short position in the Company's securities, such as zero-cost collars and forward sale contracts.

Longer-term Grant Methodology

        Longer-term grants have been made at the February meetings since 1997. The practice has been to make compensation decisions at the earliest Compensation Committee meeting after the endWe granted non-qualified stock options representing approximately half of the year,target value of stock based on assessments of each officer's performance and abilitygrants with an exercise price per share equal to assume additional responsibility, and a review of market data for each position.

        When stock options were components of the Longer-term grants (prior to 2004), they were priced as the average of the Highhigh and Lowlow trading priceprices of a share of our Common Stock on the grant date. The stock options vest and become exercisable with respect to all of the Company's stockunderlying shares of our Common Stock on the datesecond anniversary of the Committee made the grants at their February meeting. The regular annual grant date, removed any subjectivity regardingor upon the current market price ofrecipient's earlier retirement, death or disability, so long as the Company's stock during the period when stock options were part of the grants.

        In determining the appropriate market levels for Longer-term grants, the Company usesrecipient is continuously employed by us or a valuation methodology developed by the Consultant to compare the value of the grants to the market. This method calculates a present value for the performance cash and performance shares. A six-month average price of the Company's stock is used in calculating the present value of the performance shares for market comparisons. The projected value of the Longer-term grants is evenly divided between performance cash and performance shares, each providing one-half.

        Grant amounts under the Longer-term plan elements have been set to provide "at target" total compensation opportunity at the median of that provided by similarly-sized U.S. manufacturing companies in the survey base for similar positions and scope. The Committee reviews the proportion of total compensation that is dependent on Company performance in determining the allocation of the compensation opportunity among each of the elements for each position. More senior positions have a larger proportion of total compensation opportunity dependent on Company performance than do less senior positions.

        ROE has been the measure on which Longer-term grants are earned because we believe that it provides a measure of profitability relative to the shareholder's stake in the Company over the performance period, and historical data have indicated a strong, positive correlation between ROE and Stock Price growth at the Company.

        We believe that the performance shares forge a strong linkage of interests between management and shareholders since the value participants actually receive is determined by both performance relative to the pre-established financial goal, as well as our stock price. We believe that a two-year performance measurement period provides the ability to set targets that are focused and more accurately planned than could be done for longer timeframes. Furthermore, the additional year of restriction for earned performance shares beyond the two-year performance period provides a longer retention time-frame for the participants, and ensures continued focus on stock price growth for that period.subsidiary until such date or event.

Stock Ownership Requirements

        The Compensation Committee believes that the Company'sour officers should own significant amounts of the Company's stock.our stock in order to further link their economic interests to those of our shareholders. To underscore this, we have adopted formal stock ownership guidelines requiring our officers to own the Company'ssuch number of shares of our Common Stock with their shares'having a total value equal to the following multiples of their respective base salary as follows: CEO,salary: Chief Executive Officer, five times base salary; other designated officers (including all of the Named Executive Officers other than the CEO)Chief Executive Officer), three times base salary; all other officers, one times base salary.

        TheBecause our stock value may vary, these ownership requirements are expressed as a set number of shares for defined bands of salary. The numbers of shares required are reviewed periodicallyannually and established by the Compensation Committee based on the average market price of the Company'sour stock over a three-year period.

        Officers have five years from the date of their initial appointments to meet their requirement. An officer whose salary increases to the level of a new salary band (and higher stock ownership requirement) will have three years from the date of such increase to achieve the new higher level. Officers may not sell any of our shares until they reach their stock ownership guideline, and then they may only sell our shares to the extent they would not drop below their ownership threshold.

        All of theour Named Executive Officers have metare in compliance with their stock ownership requirement or still have time to meet their ownership requirement.

        WeAs described under "Director Compensation," we have also adopted formal stock ownership guidelines for non-employee members of our Board.

        Officers and directors are prohibited from engaging in forms of hedging or monetization transactions involving the Boardestablishment of Directors, requiring Cummins stock ownership equal to three times the amount of their annual retainer fee.a short position in our securities, such as zero-cost collars and forward sale contracts.

Benefits and Perquisites

        The Company'sOur officers, including our Named Executive Officers, participate in the full range of health, welfare and retirement benefits and are covered by the same plans as other exempt employees. The Company targets itsWe target our total benefit package to be at the median of the market for U.S. manufacturingour survey group of companies.

        In addition to these benefits, the Company'sour officers, including our Named Executive Officers, participate in theour Supplemental Life Insurance and Deferred Income Program. TheThis program is provided to attract and retain key leadership talent in senior positions. This program provides additional life insurance equal to three times base salary while the officer is an active employee, and additional retirement payments, which are offset by and coordinate with payments from the Company'sour regular retirement plans. The supplemental retirement provision "tops up" the pension available from the Company'sour regular pension plans to provide a total benefit based on a percentage of the officer's highest average consecutive sixty-month60 month (five years) Base Salary base salary

and Annual Bonusannual bonus received during the last ten10 years of employment. The total replacement formula is 2% for each of the first twenty20 years and 1% for each of the next ten10 years, with a maximum 50% total after thirty30 years of service. The two highest compensated two Named Executive Officers (Messrs. Solso and Loughrey)Linebarger) receive an additional benefit, exceeding the benefit for other participants by 10%. For some officers who joined the Company mid-career, including Ms. Blackwell among the Named Executive Officers, retirement benefits under this program are accumulated at an accelerated rate: 4% for each of the first ten years, 2% for each of the next five years, with a maximum 50% total after fifteen years of service. Market data have indicated that this program provides competitive levels of life insurance and retirement benefits for these positions.

        The Company'sOur officers, including theour Named Executive Officers, are eligible to participate in the Company'sour non-qualified Deferred Compensation Plan,deferred compensation plan, as are all exempt U.S. employees whose salaries equal or exceed $100,000. This program is designed to provide opportunities for capital accumulation on a tax-deferred basis and financial planning, and to meet competitive market practice.

Perquisites

        Perquisites do not comprise a major element in our Executive Compensation Program.executive compensation program.

        The Company providesWe provide support to our officers, including our Named Executive Officers for the services of a financial counselor. The financial counselor provides estate planning and tax planning advice and tax return preparation. The fee amountsfees for these services are detailed in the Summary Compensation Table. This program assists executives in making prudentSince these financial planning for their future. It permits officers the support of financial planners whocounselors are familiar with the Company'sour compensation and retirement plans, improving the accuracy of theour Named Executive Officers' financial planning and tax return preparation.preparation are enhanced, thereby providing a benefit to our company and our Named Executive Officers.

        CompanyOur officers, including our Named Executive Officers, may use Companyour aircraft for reasonable personal use, following a prescribed approval process. The Compensation Committee reviews the level of usage annually. AbilityWe believe that our officers' ability to use a Companycompany plane for limited personal use saves time and provides additional security for executives.them, thereby benefiting our company. The value reportableaggregate incremental cost to the Securities and Exchange Commissionus of such personal use by our Named Executive Officers is detailed in the Summary Compensation Table.

        Executive Physical Examinationsphysical examinations are available for all officers.officers, including our Named Executive Officers. The Compensation Committee considers this practice to be good corporate governance.governance and a direct benefit to our company.

2011 Executive Compensation Matters

Executive Compensation Program Changes Starting in 2011

        Beginning in 2011, we made the following changes to our executive compensation programs:

        1.     Increased the length of the performance period for our longer-term incentive performance cash and performance shares from two years to three years to incentivize sustained corporate financial performance over a longer period. We continue to use ROE as the performance measure.

        2.     Increased the equity component of our longer-term incentive elements. Previously, cash and equity were split equally. The new mix of elements is performance cash (34%), performance shares (33%), and stock options (33%). This increase in equity more closely aligns our program with the interests of our shareholders. We made these changes to our longer-term incentive plan to better reflect our longer-term focus. We believed it was appropriate to change our longer-term incentive compensation plan for leaders so that their interests remain aligned with our strategy and the interests of our shareholders who want us to achieve both our short-term targets and deliver sustainable profitable growth in the long term. We believe these changes provide a good balance between rewards for achievement of our annual ROANA-based plan and our longer-term three-year ROE-based plan.

Post-Employment Compensation:2011 Peer Group

        For purposes of determining various 2011 executive compensation levels for our Named Executive Officers, we compared base salaries, annual bonus targets and longer-term incentive targets against the median levels of such compensation elements at a selected peer group of 17 similarly situated companies, as well as against broad manufacturing industry survey data. Following are the companies included in our custom 2011 peer group:

Borg Warner Incorporated
Caterpillar Incorporated
Daimler AG
Danaher Corporation
Deere and Company
Donaldson Company Incorporated
Eaton Corporation
Emerson Electric Company
Grainger (W W) Incorporated
Honeywell International Incorporated
Illinois Tool Works
Ingersoll-Rand PLC
Navistar International Corporation
Paccar Incorporated
Parker-Hannifin Corporation
Textron Incorporated
Volvo AB

        This 2011 peer group was selected based on industry, reputation, revenue size, investor comparisons, and competition for customers and talent.

Severance ArrangementsBenchmarking Compensation Elements for 2011

        In determining compensation for 2011, we and the Compensation Committee used both survey data provided by AonHewitt, as well as selected 2011 peer group data, to determine competitive levels of pay. This aggregated survey information included 207 U.S. manufacturing corporations. The companies in the database had annual sales volumes ranging from $266 million to $156 billion, with average sales of $11 billion. The methodology used to compare each officer position was consistent with the methodology used in 2010.

        In determining compensation for 2011, we and the Compensation Committee believed that using both a broader survey base of major U.S. manufacturing companies, as well as our selected 2011 peer group, provided a reasonable and useful measure of market compensation. The market compensation data reflected the specific scope, mainly revenue responsibility for each position. For example, we used our total sales to calculate the market median compensation levels for officers who have overall responsibility relating to our entire company, while we used the sales for an operating segment for officers responsible for that business.

Annual Bonus

        ROANA performance targets established for our 2011 annual bonus plan reflect targets set in our 2011 AOP, as approved by our Board. For the 2011 annual bonus plan, target ROANA is based on sales and EBIT levels that are at least 20% higher than 2010 levels. The Compensation Committee considered the performance of other industrial companies, including those in our 2011 peer group, in setting these targets.

Longer-Term Compensation

        Beginning with grants for 2011, the Compensation Committee decided that our longer-term grants should be equally balanced among each of the three elements of our longer-term grants. As a result, for 2011, two-thirds of the targeted value of our longer-term grants was stock based, with the remaining one-third in performance-based cash awards. Our Committee believed this reallocation for 2011 would help to further increase the linkage of the compensation of our Named Executive Officers to our share performance over time.

        Historically, the performance cash and performance share elements of our longer-term compensation grants were tied to two-year performance cycles. However, beginning in 2011, our longer-term grants are being transitioned to three-year performance cycles. Our Compensation Committee made this change in order to further link our longer-term incentive compensation to a longer sustained period of our corporate performance and to further incentivize our officers to make decisions that benefit our company and its shareholders over a longer-term horizon. We believe these changes are consistent with evolving best practices, including the practices of many of our 2011 peer group companies.

        For 2011, our Named Executive Officers received a transition cash award based on our two-year ROE performance in addition to their longer-term grant. This award was designed to ensure consistency of award levels during the transition from a two-year to three-year performance period.

        The Company doestable below summarizes the ROE targets and performance for the 2011–2012 transition award and 2011–2013 award cycle.

        In 2011, the relative targeted value of our stock-based grants compared to the targeted value of our performance cash grants increased from 50% in 2010 to 66%. The stock-based grants are split 50/50 between performance shares and stock options. Our Compensation Committee believes this 50/50 split provides a balanced time horizon of from two to 10 years to realize value from our stock-based compensation.

        Effective with the 2011–2013 longer-term grants of performance shares, the one-year restriction period on vested performance shares will no longer be required because the performance period is now three years.

Post-Employment Compensation and Change in Control Protections

        We do not have formal severance agreements with any of theour Named Executive Officers.

        All aspectsOfficers, but we have a policy of paying severance forunder certain circumstances to officers whose employment terminatesis terminated, and certain of our plans provide for other than by standard retirement are reviewed withbenefits upon certain change in control events and approved byterminations of employment, each as described in detail under "Payments Upon a Qualified Termination Following a Change in Control." The Compensation Committee believes the Committee.

        The Committee has establishedchange in control and termination benefits that any of thewe provide our Named Executive Officers if terminatedare consistent with the Compensation Committee's overall objectives and are similar to benefits offered to executives of comparable companies. The purposes of these benefits are to permit our key executives to concentrate on taking actions that are in the best interests of our shareholders without regard to whether such action may ultimately have an adverse impact on their job security and to enable them to give objective advice on any potential change in control of our company without undue concern regarding its potential impact on their personal financial security and

future. The Compensation Committee selected the triggering events for change in control and termination benefits to our Named Executive Officers based on its judgment that these events would likely result in the job security distractions and retention concerns described above.

        Our change in control compensation protection plans require the occurrence of two events to trigger payments: (1) a "change in control", and (2) termination without "cause" by the company or termination by the officer for "good reason" within two years of the change in control.

        Upon the occurrence of both triggering events, certain benefits would be provided to all of our Named Executive Officers plus five other than for Cause,senior officers, including a severance payment equal to three years' base salary plus three annual bonus payments calculated at a 1.0 payout factor. We would receive twelve months Base Salary as severance, paid as salary continuation; pro-rated portion of Annual Bonusalso provide for the portionfull vesting of certain insurance and retirement benefits and the continuation for the three-year severance period of certain other benefits.

        In addition to the severance provisions of our executive retention plan, there are provisions within our longer-term compensation plans that provide payment of outstanding awards in the event of a change in control, without requiring constructive termination of the year prior to termination, payable atofficer.

        Because of the normal timeapplication of the "golden parachute" excise tax provisions of Internal Revenue Code Sections 280G and using4999, we have, under our long-standing executive retention plan, provided our Named Executive Officers with a gross-up payment if necessary so that the executive will receive the same payout factorseconomic terms as for all other participants; vestingif there were no excise tax. The effects of any outstanding restricted stock, ifSections 280G and 4999 generally are unpredictable and can have different impacts on the vesting date occurs duringexecutive based on his or her personal compensation history. To provide an equal and predictable level of benefits across individuals, the periodCompensation Committee has determined it is appropriate and consistent with competitive pay packages to pay the cost of severance. All of these elements would require a signed Release of Claims Agreement.the excise tax plus an amount needed to pay income taxes due on such additional payment.

Confidentiality and Non-Compete Agreements

        Each officer, including each of our Named Executive Officers, has signed an Agreement neitheragreement not to disclose the Company's Confidential Information norour confidential information or to accept employment with certain competitors during, and for twelve12 months subsequent to, the time the officer is employed by the Company.us.

Change in Control Compensation Protection Provisions

        The Company's Change in Control Compensation Protection Plans require the occurrence of two events to trigger payments: (1) a Change in Control of the Corporation, and (2) termination or reduction in responsibilities and circumstances of the officer within two years of the Change in Control.

        In the event of a Change in Control, certain benefits would be provided to officers whose employment is terminated, or whose responsibilities and position are reduced, within two years of the event. Such officers would receive severance equal to one year's salary and Annual Bonus at a 1.0 Payout Factor. The Company would also provide for the full vesting of certain insurance and retirement benefits and the continuation for the one-year severance period of certain other employee benefits.

        All of the Named Executive Officers (the five officers listed in the compensation tables in this proxy) plus five other senior officers are Designated Officers under the Change in Control Compensation Plan. As such, they would receive severance and benefit continuation equal to three years' salary and Annual Bonus at a 1.0 Payout Factor, rather than for the one year described above for all other officers.

        In addition to the severance provisions of the Change in Control Compensation Protection Plans, there are provisions within the Longer-term compensation plans that provide payment of outstanding awards in the event of a Change in Control, without requiring constructive termination of the officer.

        The Senior Executive Longer-Term Performance Plan would provide immediate pro-rated payouts for all grants outstanding. The amount would be calculated as (Target Dollar Award) × (1.0 Payout Factor) × (Pro-Rata Factor). The Pro-Rata Factor would be calculated as the percentage of the years of the Award Cycle that had commenced when the Change in Control occurred. For example, if the Award Cycle was for 2007 - 2008, and a Change in Control took place in 2007, the Pro-Rata Factor would be one-half.

        The 2003 Stock Incentive Plan provides that, in the event of a Change in Control, outstanding awards become immediately vested or exercisable.

        We hope this general discussion and the following tables and graphs help you understand the Company's executive compensation philosophy and program.

Compensation Committee Report

        The Compensation Committee of the Board of Directors has reviewed and discussed the preceding Compensation Discussion and Analysis with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for incorporation by reference into the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007.2010.

Summary Compensation Table and Supplemental Tables

        A summary compensation table and supplemental tables on the following pages disclose compensation information for theour Named Executive Officers during our last three completed fiscal years (or such shorter period for which the Company'sNamed Executive Officer was a Named Executive Officer) and our last completed fiscal year.year, respectively.

2010 SUMMARY COMPENSATION TABLE
AND SUPPLEMENTAL TABLES

(5)

The aggregate changes during 20072010 in the actuarial present value of each Named Executive Officer's pension plans and the above market earnings on non-qualified deferred compensation are as follows:

        "Above-market" is defined as the amount of earnings that exceeded 120% of the applicable federal long-term rate.

(4)    

(6)

This column consists of the following:following for 2010:

        Personal Use of Company Aircraft was calculated using an average indicated hourly cost of $2,326$1,782.85 which is the incremental cost incurred by the Company. This cost is calculated based on the Company's annual average fuel cost and other expenses derived from published industry averages.

        The following table complements the disclosures set forth in columns captioned Stock Awards and Option Awards of the Summary Compensation Table.

GRANTS OF PLAN-BASED AWARDS
IN 2010

        The following two tables are intended to enhance understanding of equity compensation that has been previously awarded and remains outstanding, including amounts realized on equity compensation during the last fiscal year as a result of the vesting or exercise of equity awards.

OUTSTANDING EQUITY AWARDS AT FISCAL2010 YEAR-END