SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE

SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO.   )

Filed by the Registrant  x☒                            Filed by a Party other than the Registrant  ¨☐

Check the appropriate box:

March 10, 201516, 2017

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of PACCAR Inc, which will be held at the Kenworth Truck Company assembly plant,PACCAR Parts Distribution Center, located at 500405 Houser Way North, Renton, Washington, at 10:30 a.m. on Tuesday, April 21, 2015.25, 2017.

The principal business of the Annual Meeting is stated on the attached Notice of Annual Meeting of Stockholders. We will also provide an update on the Company’s activities. The Board of Directors recommends a voteFORall Director Nominees listed inItems 1 and 2; a vote ofTHREE YEARS on Item 13; and a voteAGAINST Items 24 and 3.5.

YourVOTE is important. Whether or not you plan to attend the Annual Meeting, please vote your proxy either by mail, telephone or over the Internet.internet.

Sincerely,

Mark C. Pigott

Executive Chairman of the Board

The Annual Meeting of Stockholders of PACCAR Inc will be held at 10:30 a.m. on Tuesday, April 21, 2015,25, 2017, at the Kenworth Truck Company assembly plant,PACCAR Parts Distribution Center, located at 500405 Houser Way North, Renton, Washington, for these purposes:

Stockholders entitled to vote at this meeting are those of record as of the close of business on February 24, 2015.28, 2017.

IMPORTANT: The vote of each stockholder is important regardless of the number of shares held. Whether or not you plan to attend the meeting, please complete and return your proxy form.

Directions to the KenworthPACCAR Parts Distribution Center in Renton, Washington assembly plant can be found on the back cover of the attached proxy statement.

By order of the Board of Directors

M. K. Walton

J. D. Clack

Secretary

Bellevue, Washington

March 10, 201516, 2017

TABLE OF CONTENTS

PROXY STATEMENT

The Board of Directors of PACCAR Inc issues this proxy statement to solicit proxies for use at the Annual Meeting of Stockholders at 10:30 a.m., local time, on Tuesday, April 21, 2015,25, 2017, at the Kenworth Truck Company assembly plantPACCAR Parts Distribution Center in Renton, Washington. This proxy statement includes information about the business matters that will be voted upon at the meeting. The executive offices of the Company are located at 777 106^th Avenue N.E., Bellevue, Washington 98004. This proxy statement and proxy form were first sent to stockholders on or about March 10, 2015.16, 2017.

GENERAL INFORMATION

Voting Rights

Stockholders eligible to vote at the meeting are those identified as owners at the close of business on the record date, February 24, 2015.28, 2017. Each outstanding share of common stock is entitled to one vote on each of the items presented at the meeting. At the close of business on February 24, 2015,28, 2017, the Company had 354,665,989351,254,900 shares of common stock outstanding and entitled to vote.

Stockholders may vote in person at the meeting or by proxy. Execution of a proxy does not affect the right of a stockholder to attend the meeting.The Board recommends that stockholders exercise their right to vote by promptly completing and returning the proxy form either by mail, telephone or over the Internet.internet.

Voting by Proxy

Mark C. Pigott and Charles R. Williamson are designated proxy holders to vote shares on behalf of stockholders at the 20152017 Annual Meeting. The proxy holders are authorized to:

The Trustee for the PACCAR Inc Savings Investment Plan (“the SIP”(the “SIP”) votes shares held in the SIP according to each member’s instructions on the proxy form. If no voting instructions are received, the Trustee will vote the shares in direct proportion to the shares for which it has received timely voting instructions, as provided in the SIP.

Proxy Voting Procedures

The proxy form allows registered stockholders to vote in one of three ways:

Mail.    Stockholders may complete, sign, date and return the proxy form in thepre-addressed, postage-paid envelope provided.

Telephone.    Stockholders may call the toll-free number listed on the proxy form and follow the voting instructions given.

Internet.    Stockholders may access the Internetinternet address listed on the proxy form and follow the voting instructions given.

Telephone and Internetinternet voting procedures authenticate each stockholder by using a control number. The voting procedures will confirm that your instructions have been properly recorded. Stockholders who vote by Telephonetelephone or Internetinternet should not return the proxy form.

Stockholders who hold shares through a broker or agent should follow the voting instructions received from that broker or agent.

Revoking Proxy Voting Instructions.    A proxy may be revoked by a later-dated proxy or by written notice to the Secretary of the Company at any time before it is voted. Stockholders who hold shares through a broker should contact the broker or other agent if they wish to change their vote after executing the proxy.

Online Availability of Annual Meeting Materials

Important Notice Regarding the Availability of Proxy Materials for the Annual Stockholder Meeting to be held at 10:30 a.m. on April 21, 2015,25, 2017, at the Kenworth Truck Company assembly plantPACCAR Parts Distribution Center in Renton, Washington. The 20152017 proxy statement and the 20142016 Annual Report to stockholders are available on the Company’s website atwww.paccar.com/2015annualmeeting/2017annualmeeting/.

Stockholders who hold shares in a bank or brokerage account who previously elected to receive the annual meeting materials electronically and now wish to change their election and receive paper copies may contact their bank or broker to change their election.

Stockholders who receive annual meeting materials electronically will receive a notice when the proxy materials become available with instructions on how to access them over the Internet.internet.

Multiple Stockholders Sharing the Same Address

Registered stockholders at a shared address who would like to discontinue receipt of multiple copies of the annual report and proxy statement in the future should contactwrite to Wells Fargo Shareowner Services, at 1.877.602.7615 orAttn: Householding, P.O. Box 64854, St. Paul, Minnesota 55164-0854. Street name stockholders at a shared address who would like to discontinue receipt of multiple copies of the annual report and proxy statement in the future should contact their bank or broker.

Some street name stockholders elected to receive one copy of the 20142016 Annual Report and 20152017 Proxy Statement at a shared address prior to the 20152017 Annual Meeting. If those stockholders now wish to change that election, they may do so by contacting their bank, broker or PACCAR at 425.468.7520425.468.7495 or P.O. Box 1518, Bellevue, Washington 98009.

Vote Required and Method of Counting Votes

The presence at the Annual Meeting, in person or by duly authorized proxy, of a majority of all the stock issued and outstanding and having voting power shall constitute a quorum for the transaction of business. Abstentions are counted as shares present at the meeting.

Item 1: Election of Directors

In an uncontested director election, each director nominee shall be elected by the affirmative vote of the majority of the votes cast with respect to that director’s election at any meeting for the election of directors at which a quorum is present. A majority of votes cast means that the number of shares voted “for” a director’s election exceeds 50 percent of the number of votes cast with respect to that director’s election. Votes cast include direction to withhold authorityvotes “against” but exclude “abstentions” and “broker nonvotes” with respect to that director’s election. Pursuant to the Company bylaws,Bylaws, an incumbent director that is not elected by a majority vote will tender his or her

resignation subject to acceptance by the Board. The Company’s Certificate of Incorporation does not

provide for cumulative voting. Proxies signed, dated and returned unmarked will be votedFOR all of the Nomineesnominees for Class III Director.Please note that brokers and custodians may no longernot vote on the election of directors in the absence of specific client instruction. Those who hold shares in such accounts are encouraged to provide voting instructions to the broker or custodian.

If any nominee is unable to act as director because of an unexpected occurrence, the proxy holders may vote the proxies for another person or the Board of Directors may reduce the number of directors to be elected.

Items 2 and 3:Item 2:

Proxies signed, dated and returned unmarked will be votedFOR all Director Nominees listedItem 2.

To be approved, Item 2 must receive the affirmative vote of a majority of shares present in person or by proxy and entitled to vote at the Annual Meeting. Abstentions will have the effect of a vote against the item.

Item 1,3:

Proxies signed, dated and returned unmarked will be voted for holding anon-binding, advisory vote on executive compensation everyTHREE YEARS.

Stockholders may cast an advisory vote on how frequently stockholders will be asked to vote on executive compensation. Stockholders may select every one, two or three years or may abstain from voting. The affirmative vote of a plurality of the shares present in person or by proxy and entitled to vote at the Annual Meeting will constitute the stockholder preference. Abstentions will not affect the outcome of the vote.

Items 4 and 5:

Proxies signed, dated and returned unmarked will be votedAGAINST Items 24 and 3.5.

To be approved, Items 24 and 35 must receive the affirmative vote of a majority of shares present in person or by proxy and entitled to vote at the Annual Meeting. Abstentions will have the effect of a vote against each item. Broker nonvotes do not affect the voting calculations.

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following persons are known to the Company to be the beneficial owner of five percent or more of the Company’s common stock as of December 31, 20142016 (amounts shown are rounded to whole shares):

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The following list includes all shares of the Company’s common stock beneficially owned by each Company director, director nominee and Named Executive Officer, and by Company directors and executive officers as a group as of February 24, 201528, 2017 (amounts shown are rounded to whole share amounts).

*Does not exceed one percent.

EXPENSES FOR SOLICITATION

Expenses for solicitation of proxies will be paid by the Company. Solicitation will be by mail, except for any electronic, telephone or personal solicitation by directors, officers and employees of the Company, which will be made without additional compensation. The Company has retained AST Phoenix AdvisorsD. F. King & Co., Inc. to aid in the solicitation of stockholders for a fee of approximately $8,500 plus reimbursement of expenses. The Company will request banks and brokers to solicit proxies from their customers and will reimburse those banks and brokers reasonableout-of-pocket costs for this solicitation.

ITEM 1: ELECTION OF DIRECTORS

Three

Four Class III directors are to be elected at the meeting. The persons named below have been designated by the Board as nominees for election as Class III directors for a term expiring at the Annual Meeting of Stockholders in 2018. All of the nominees are currently serving as directors of the Company.

BOARD NOMINEES FOR CLASS III DIRECTORS

(TERMS EXPIRE AT THE 2018 ANNUAL MEETING)

BETH E. FORD, age 53, is group executive vice president and chief operating officer at Land O’Lakes, a member-owned agricultural production and dairy cooperative and has held that position since November 2015. She previously served as executive vice president and chief supply chain and operations officer at Land O’Lakes since 2012. Ms. Ford served as executive vice president and head of supply chain at International Flavor and Fragrances (2008-2011). Ms. Ford has served as a director of Clearwater Paper Corporation since 2013. She is on the Dean’s Advisory Committee for the College of Business at Iowa State University and the Board of Advisors at the Columbia University Business School – Deming Center. She has served as a director of the Company since April 2015. Ms. Ford has the attributes and qualifications listed in the Company guidelines for board membership including an MBA from Columbia University Business School and a BBA from Iowa State University. Ms. Ford has a background in agribusiness, chemicals, consumer package goods, publishing and oil and gas gained through 30 years in operating and senior leadership positions with global companies including International Flavor and Fragrances, PepsiCo, Hachette Book Group, Scholastic Corporation and Mobil Corporation.

KIRK S. HACHIGIAN, age 57, is executive chairman ofJELD-WEN, inc., a global manufacturer of windows and doors and has held that position since December 2015. He previously served as chairman, president and chief executive officer ofJELD-WEN, inc. from April 2014 through December 2015, as a principal of SkyKarr Capital LLC, a private investment firm, from 2013 to March 2014 and as chairman, president and chief executive officer of Cooper Industries plc, a global manufacturer of electrical products, from 2006 until it was acquired by Eaton Corporation in 2012. He has served as lead director for Allegion plc and as a director of NextEra Energy Inc. since 2013. He has served as a director of the Company since 2008. Mr. Hachigian has the attributes and qualifications listed in the Company guidelines for board membership including a degree in

engineering from UC Berkeley and an MBA from the University of Pennsylvania’s Wharton School. Prior to his 11 years of service with Cooper, he served eight years as an executive with General Electric Corporation including two years in Mexico and three years in Asia.

RODERICK C. MCGEARY, age 66, served in consulting and audit roles with KPMG LLP from 1972 to 2000 culminating in the position asco-vice chairman of consulting (1997-1999). He has served as a director of Raymond James Financial, Inc. since September 2015. He was chairman of BearingPoint Inc., formerly KPMG Consulting, LLC, a management and technology consulting firm, from 2004 to 2009 and was its interim chief executive officer from 2004 to 2005. BearingPoint filed for protection under Chapter 11 of the U.S. Bankruptcy Code in February 2009 and its plan under Chapter 11 was declared effective as of December 30, 2009. He has served as a director of Cisco Systems since 2003. He previously served asnon-executive chairman of Tegile Systems, Inc. (2010-2012) and as a director of Dionex Corporation (2004-2011) and National Semiconductor Corporation (2009-2011). He has served as a director of the Company since 2012. Mr. McGeary has the attributes and qualifications listed in the Company guidelines for board membership including a B.S. degree in accounting from Lehigh University, strong experience as a certified public accountant and extensive experience in management and technology consulting.

MARK A. SCHULZ, age 64, is currently president and chief executive officer of M. A. Schulz and Associates, a management consulting firm, and a founding partner in Fontinalis Partners, LLC, a transportation technology strategic investment firm. He served as president of international operations at Ford Motor Company from 2005 until his retirement in 2007 and in a variety of executive roles during over 30 years with Ford, including running Ford’s Mazda, Jaguar, Land Rover and Aston Martin affiliates and setting up manufacturing and distribution operations in South America, Europe, Asia and Africa. He has served as a director of Dana Holdings Corporation since 2008 and previously served as a director of YRC Worldwide, Inc. (2007-2009), and as a director of the National Committee of United States-China Relations and the United States-China Business Council. He has served as a director of the Company since 2012. Mr. Schulz has the attributes and qualifications listed in the Company guidelines for board membership including engineering degrees from Valparaiso University and the University of Michigan, an MBA from the University of Detroit, an M.S. in management from the Massachusetts Institute of Technology as well as over 35 years of management experience in the automotive industry worldwide.

CLASS II DIRECTORS (TERMS EXPIRE AT THE 2018 ANNUAL MEETING)

MARK C. PIGOTT, age 61,63, is Executive Chairman of the Company and has held that position since April 2014. Mr. Pigott was Chairman and Chief Executive Officer of the Company from January 1997 to April 2014, Vice Chairman from January 1995 to December 1996, Executive Vice President from December 1993 to January 1995, Senior Vice President from January 1990 to December 1993, and Vice President from October 1988 to December 1989. He has served as a director of Franklin Resources Inc., an investment management company, since 2011. He is the brother of John M. Pigott, a director of the Company. He has served as a director of the Company since 1994. Mr. Pigott has the attributes and qualifications listed in the Company guidelines for board membership including engineering and business degrees from Stanford University, thorough knowledge of the global commercial vehicle industry and an outstanding record of profitable growth generated through 3638 years with the Company. PACCAR has benefited from an excellent record of industry-leading stockholder returns generated under his leadership.

CHARLES R. WILLIAMSON, age 66, has68, served as chairman of the board of Weyerhaeuser Company, a forest products company (2009-2016), and of Talisman Energy Inc., a Canadian oil and gas company since 2009.(2009-2015). He continues to serve on the board of Weyerhaeuser Company as lead independent director. He served as chairman and chief executive officer of Unocal, the California-based energy company, from 2001 until Unocal merged with Chevron in August 2005. Mr. Williamson was the chairman of theUS-ASEAN Business Council (2002-2005). He has served as a director of the Company since 2006 and serveshas served as lead director. director since 2014.

Mr. Williamson has the attributes and qualifications listed in the Company guidelines for board membership including a Ph.D in geology from the University of Texas at Austin and a28-year career in technical and management positions with Unocal around the world that provided a broad perspective on international markets in Europe and Asia and culminated in four years as its chairman and chief executive officer.

RONALD E. ARMSTRONG, age 60,62, is Chief Executive Officer of the Company and has held that position since April 2014. Mr. Armstrong served as President of the Company from January 2011 to April 2014, Executive Vice President from August to December 2010, Senior Vice President from December 2007 to July 2010, and Vice President from November 2002 to November 2007. Previously, he was a senior manager with Ernst & Young where he worked for 16 years. He has served as a director of the Company since 2014. Mr. Armstrong has the attributes and qualifications listed in the Company guidelines for board membership. He is a certified public accountant, has a degree in accounting from the University of Central Oklahoma, and thorough knowledge of the global commercial vehicle industry gained through 2123 years with the Company.

CLASS III DIRECTORS (TERMS EXPIRE AT THE 20162019 ANNUAL MEETING)

DAME ALISON J. CARNWATH, age 62,64, is chairman of Land Securities plc, the United Kingdom’s largest property company listed on the London Stock Exchange and has held that position since 2008. She has also been a senior adviser to Evercore Partners, an independent corporate finance advisory firm (formerly known as Lexicon Partners) since 2005, and chairman of the management board and investment committee at Living Bridge Equity Partners, LLP, a private equity firm (formerly known as ISIS Equity Partners, LLP) since 1999, both based in the United Kingdom. She became a director of Coller Capital Ltd. in May 2015. She has been a member of the supervisory board and chairman of the audit committee of BASF, a leading chemical company based in Germany, since 2014, and she has served as a director of Zurich Insurance Group since 2012. She previously served asnon-executive chairman of MF Global Holdings Ltd. (2008-2010); and as anon-executive director of the Man Group plc (2001-2013), Malachite, a UK consulting firm (2010-2012), and Barclays plc (2010-2012), and Friends Provident plc (2002-2008), all United Kingdom based companies. She has served as a director of the Company since 2005. Dame Alison has the attributes and qualifications listed in the Company guidelines for board membership including certification as a chartered accountant, service as chairman (1999-2004) and chief executive (2001) of the Vitec Group plc, a British supplier to the broadcast industry, and 32 years’ experience in international finance and investment banking including three years as a managing director of Donaldson, Lufkin and Jenrette (1997-2000).

LUIZ KAUFMANN, age 69,71, is managing partner of L. Kaufmann Consultants in Sao Paulo, Brasil, a company which provides investment banking services and operational leadership in mergers and acquisitions and has held that position since 2008. He currently also serves as CEO and is a director of El Tejar Limited, a Bermuda-based company that has agriculture and livestock operations in South America and has held that position since 2013. He also serveshas served on the advisory councilcouncils for Nubank E02 and Endless Mobile since 2013. He previously served as president and CEO of Kroton Educacional (2009-2010) and as President and CEO (2006-2008) and as a director (2001-2006) of Medial Saude. He is a director of GOL, a Brazilian airline, since 2004 and previously served as a director of several BrazilianBrasilian companies, including GOL, a Brasilian airline (2004-2016), and Vivo, the largest mobile telecom company in Brasil (2005-2009). He previously held CEO positions at several BrazilianBrasilian companies including Aracruz Celulose, the largest eucalyptus pulp producer in the world (1993-1998), and Grupo Multiplic (1985-1990), a diversified financial group. He also served as the managing director of Arthur D. Little in Brasil (1977-1984). He has served as a director of the Company since 2012. Mr. Kaufmann has the attributes and qualifications listed in the Company guidelines for board membership including an engineering degree from the Federal University of Paraná and a master’s degree in industrial engineering from the Illinois Institute of Technology. Because he will have reached the age of 72, Mr. Kaufmann’s term as a director will expire on the day preceding the Company’s 2018 annual meeting in accordance with the Company Bylaws.

JOHN M. PIGOTT, age 51,53, is a partner in Beta Business Ventures, LLC, a private investment company concentrating in natural resources, and was a partner in the predecessor company Beta Capital Group, LLC since

2003. He is the brother of Mark C. Pigott, a director of the Company. He has served as a director of the Company since 2009. Mr. Pigott has the attributes and qualifications listed in the Company guidelines for board membership including an engineering degree from Stanford and an MBA from UCLA, a background in manufacturing gained through 12 years with the Company including five years as a senior manager of Company truck operations in the United Kingdom and in the United States. He is a substantial long-term stockholder in the Company.

GREGORY M. E. SPIERKEL, age 58,60, served as chief executive officer of Ingram Micro Inc., a $34 billion worldwide distributor of technology products, from 2005 to 2012. He previously served as president from March 2004 to April 2005. During his14-year tenure with that company he held other senior positions including executive vice president. He was also a director of Ingram Micro (2005-2012). He has served as a director of MGM Resorts International since 2013 and as a director of Schneider Electric (Paris) since October 2014. He has served as a director of the Company since 2008. Mr. Spierkel has the attributes and qualifications listed in the Company guidelines for board membership including an MBA from Georgetown University and 32 years of management experience around the world including seven years as chief executive of Ingram Micro.

CLASS I DIRECTORS (TERMS EXPIRE AT THE 2017 ANNUAL MEETING)

KIRK S. HACHIGIAN, age 55, is chairman, president and chief executive officer of JELD-WEN inc., a global manufacturer of windows and doors and has held that position since April 2014. He previously served as a principal of SkyKarr Capital LLC, a private investment firm, from 2013 to March 2014 and as chairman, president and chief executive officer of Cooper Industries plc, a $5.8 billion global manufacturer of electrical products, from 2006 until it was acquired by Eaton Corporation in 2012. He has served as lead director for Allegion plc and as a director of NextEra Energy Inc. since 2013. He has served as a director of the Company since 2008. Mr. Hachigian has the attributes and qualifications listed in the Company guidelines for board membership including a degree in engineering from UC Berkeley and an MBA from the University of Pennsylvania’s Wharton School. Prior to his 11 years of service with Cooper, he served eight years as an executive with General Electric Corporation including two years in Mexico and three years in Asia.

RODERICK C. MCGEARY, age 64, served in consulting and audit roles with KPMG LLP from 1972 to 2000 culminating in the position as co-vice chairman of consulting (1997-1999). He was chairman of BearingPoint Inc., formerly KPMG Consulting, LLC, a management and technology consulting firm, from 2004 to 2009 and was its interim chief executive officer from 2004 to 2005. BearingPoint filed for protection under Chapter 11 of the U.S. Bankruptcy Code in February 2009 and its plan under Chapter 11 was declared effective as of December 30, 2009. He has served as a director of Cisco Systems since 2003. He previously served as non-executive chairman of Tegile Systems, Inc. (2010-2012) and as a director of Dionex Corporation (2004-2011) and National Semiconductor Corporation (2009-2011). He has served as a director of the Company since 2012. Mr. McGeary has the attributes and qualifications listed in the Company guidelines for board membership including a B.S. degree in accounting from Lehigh University, strong experience as a certified public accountant and extensive experience in management and technology consulting.

MARK A. SCHULZ, age 62, served as president of international operations at Ford Motor Company from 2005 until his retirement in 2007. He is currently president and chief executive officer of M. A. Schulz and Associates, a management consulting firm, and a founding partner in Fontinalis Partners, LLC, a transportation technology strategic investment firm. He has served as a director of Dana Holdings Corporation since 2008 and previously served as a director of YRC Worldwide, Inc. (2007-2009), and as a director of the National Committee of United States-China Relations and the United States-China Business Council. He has served as a director of the Company since 2012. Mr. Schulz has the attributes and qualifications listed in the Company guidelines for board membership including engineering degrees from Valparaiso University and the University of Michigan, an MBA from the University of Detroit, an M.S. in management from the Massachusetts Institute of Technology as well as over 35 years of management experience in the automotive industry worldwide.

Retiring Class I Director

JOHN M. FLUKE, JR., age 72, is chairman of Fluke Capital Management, L.P., a private investment company, and has held that position since 1980. He is also interim principal executive officer and a director of CellCyte Genetics Corporation, a biotechnology company since 2008, Supercritical Technologies, Inc. since 2011, MicroPlanet Technologies, Inc. since 2013 and M3 Biotechnology, Inc. since 2014. He previously served as a director of Cell Therapeutics, Inc. (2002-2005), Primus International Corporation (2003-2006) and Tully’s Coffee Corporation (2005-2011). He has also served as chairman of the board of Abacast, Inc. (2003-2014) and of Pregenen Inc., a biotechnology company (2011-2014) until each of these companies were acquired in 2014. He has served as a director of the Company since 1984. Mr. Fluke has the attributes and qualifications listed in the Company guidelines for board membership including a master’s degree in engineering from Stanford, a background in manufacturing gained through 35 years with Fluke Corporation, a manufacturer and distributor of high-quality electronic test tools, including four years as CEO and six years as chairman, extensive knowledge of Company operations, and many years as an advisor to or board member for companies engaged in commercializing emerging technologies. He is retiring from the Board effective April 20, 2015.

Incoming Class I Director

BETH E. FORD, age 51, is executive vice president, chief supply chain and operations officer at Land O’Lakes, a member-owned agricultural production and dairy cooperative. She has held that position since 2012. Ms. Ford served as executive vice president and head of supply chain at International Flavor and Fragrances (2008-2011). Ms. Ford has served as a director of Clearwater Paper Corporation since 2013. She is on the Dean’s Advisory Committee for the College of Business at Iowa State University and the Board of Advisors at the Columbia University Business School. Ms. Ford has the attributes and qualifications listed in the Company guidelines for board membership including an MBA from Columbia University Business School and a BBA from Iowa State University. Ms. Ford has a background in chemicals, consumer package goods, publishing and oil and gas gained through 25 years in operating and senior leadership positions with global companies including International Flavor and Fragrances, PepsiCo, Hachette Book Group, Scholastic Corporation and Mobil Corporation. She was elected by the Board to serve for the remainder of John M. Fluke, Jr.’s term as a Class I director.

THE BOARD RECOMMENDS A VOTEFOR EACH OF THE NOMINEES.

BOARD GOVERNANCE

The Board of Directors has determined that the following persons served as independent directors in 20142016 as defined by NASDAQ Rule 5605(a)(2): Dame Alison J. Carnwath, John M. Fluke, Jr.,Beth E. Ford, Kirk S. Hachigian, Luiz Kaufmann, Roderick C. McGeary, Mark A. Schulz, Gregory M. E. Spierkel Warren R. Staley and Charles R. Williamson.

The Board of Directors maintains a corporate governance section on the Company’s website, which includes key information about its governance practices. The Company’s Corporate Governance Guidelines, its Board committee charters and its Code of Business Conduct and Code of Ethics for Senior Financial Officers are located atwww.paccar.com/company/corporateresponsibility/boardofdirectors.asp.

The Company’s leadership structure includes an Executive Chairman, a Chief Executive Officer and an independent lead director who serves for a three-year term. C. R. Williamson currently serves as lead director. This leadership structure, in which the roles of the Executive Chairman and Chief Executive Officer are separate, together with an experienced and engaged lead director and independent key committees, is appropriate for the Company at this time because it effectively allocates authority, responsibility and oversight between management, the Executive Chairman and the independent members of the Board.

The Company has policies to ensure a strong and independent board. The Board regularly meets in executive session without management. The lead director presides over the executive sessions of the Board’s independent directors. Seventy-three percent of the Company’s eleven current directors are independent as defined under NASDAQ regulations.rules.

The Board oversees risk through management presentations at Board meetings and through its Audit, Compensation and Nominating and Governance Committees. The Audit Committee charter provides that the Committee shall discuss with management the Company’s risk exposures and the steps management has taken to monitor and control such exposures. As part of this process, the Committee receives periodic reports from the Company’s internal auditor and from its general counsel and the committeeCommittee reports to the full Board at least four times a year. The Compensation Committee oversees risk arising from the Company’s compensation programs and annually reviews how those programs manage and mitigate risk. The Nominating and Corporate Governance Committee oversees potential risks regarding governance by monitoring legal developments and trends.

Stockholders may contact the Board of Directors by writing to: The Board of Directors, PACCAR Inc, 11th Floor, P.O. Box 1518, Bellevue, WA 98009, or bye-mailingPACCAR.Board@paccar.com. The Corporate Secretary will receive, process and acknowledge receipt of all written stockholder communications. Suggestions or concerns involving accounting, internal controls or auditing matters will be directed to the Audit Committee

chairman. Concerns regarding other matters will be directed to the individual director or committee named in the correspondence. If no identification is made, the matter will be directed to the Executive Committee of the Board.

The Board of Directors met four times during 2014.2016. Each member attended at least 75 percent of the combined total of meetings of the Board of Directors and the committees of the Board on which each served. All Company directors are expected to attend each annual stockholder meeting. All directors attended the annual stockholder meeting in April 2014.2016 except G. M. E. Spierkel.

The Board has four standing committees. The members of each committee are listed below with the chairman of each committee listed first:

Audit Committee

The Audit Committee has responsibility for the selection, evaluation and compensation of the independent auditors and approval of all services they provide. The Committee annually assesses the independent public accounting firm’s qualifications, independence, performance and whether there should be a rotation of the Company’s independent accounting firm. The Committee and its chairperson are involved in the selection of the audit firm’s lead engagement partner. The Committee reviews the Company’s annual and quarterly financial statements, monitors the integrity and effectiveness of the audit process and reviews the corporate compliance programs. It monitors the Company’s system of internal controls over financial reporting and oversees the internal audit function.

The Audit Committee charter describes the Committee’s responsibilities. It is posted atwww.paccar.com/company/corporateresponsibility/auditcommittee.asp. All four members of the Audit Committee meet the independence and financial literacy requirements of the SEC and NASDAQ rules. The Board of Directors designated committee chairman J. M. Fluke, Jr. asall four members of the Audit Committee as financial expert.experts. The Committee met six times in 2014.2016.

Compensation Committee

The Compensation Committee has responsibility for reviewing and approving salaries and other compensation matters for executive officers. It administers the Long-Term Incentive Plan, the Senior Executive Yearly Incentive Compensation Plan and the Deferred Compensation Plan. The Committee establishes base salaries and annual and long-term performance goals for executive officers. It considers the opinion of the CEO when determining compensation for the executives that report to him. It also evaluates the CEO’s performance annually in executive session. It approves the attainment of annual and long-term goals by the executive officers.

The Committee has authority to employ a compensation consultant to assist in the evaluation of the compensation of the Company’s CEO and other executive officers. ItIn 2016, the Committee retained Mercer, a wholly owned subsidiary of Marsh and McLennan Companies, to provide a market analysis of the compensation of the Named Executive Officers. Mercer analyzed data from the Peer Companies and two industry surveys and reported its results to

the Committee. Mercer was paid $46,000 for this project. Mercer and its affiliates also were retained by Company management to provide insurance brokerage and human resource consulting services. The consultants providing these services were not the same consultants that advised the Compensation Committee. The aggregate fees paid for those other services in fiscal year 2016 were $367,585. The Committee did not employ a compensation consultantreview or approve the other services provided by Mercer and its affiliates to the Company, as those services were approved by management in 2014. the normal course of business. The Committee conducted an independence assessment and no conflict of interest was identified.

The Compensation Committee charter describes the Committee’s responsibilities. It is posted atwww.paccar.com/company/corporateresponsibility/compensationcommittee.asp. All four members of the Compensation Committee meet the director independence requirements of the SEC and NASDAQ rules, and the “outside director” requirements of Section 162(m) of the Internal Revenue Code.Code, and the “nonemployee director” requirements of Rule16b-3 of the Securities Exchange Act of 1934. The Committee met five times in 2014.2016.

Nominating and Governance Committee

The Nominating and Governance Committee is responsible for evaluating director candidates and selecting nominees for approval by the independent members of the Board of Directors. It also makes recommendations to the Board on corporate governance matters including director compensation.

The Committee has established written criteria for the selection of new directors, which are available atwww.paccar.com/company/corporateresponsibility/boardguidelines.asp. The criteria state that a diversity of perspectives, skills and business experience relevant to the Company’s global operations should be represented on the Board including international business, manufacturing, financial services and aftermarket customer programs. To be a qualified director candidate, a person must have achieved significant success in business, education or public service, must not have a conflict of interest and must be committed to representing the long-term interests of the stockholders. In addition, the candidate must have the following attributes:

The Committee considers the names of director candidates submitted by management and members of the Board of Directors. It also considers recommendations by stockholders submitted in writing to: Chairman, Nominating and Governance Committee, PACCAR Inc, 11^th Floor, P.O. Box 1518, Bellevue, WA 98009. Nominations by stockholders must include information set forth in the Company Bylaws. The Committee engages the services of a private search firm from time to time to assist in identifying and screening director candidates. The Committee evaluates qualified director candidates and selects nominees for approval by the members of the Board of Directors.

The Nominating and Governance Committee charter describes the Committee’s responsibilities. It is posted atwww.paccar.com/company/corporateresponsibility/nominatingcommittee.asp. Each of the four Committee members meets the independence requirements of the NASDAQ rules. The Committee met four times in 2014.2016.

Executive Committee

The Executive Committee acts on routine Board matters when the Board is not in session. The Committee took action twiceonce in 2014.2016.

COMPENSATION OF DIRECTORS

The following table provides information on compensation fornon-employee directors who served during the fiscal year ending December 31, 2014:2016:

Summary Compensation

Narrative toNon-Employee Director Compensation TableProgram

In addition to the cash compensation described in footnote (a) above, on the first business day of the year, eachnon-employee director received $100,052$130,020 in restricted stock or restricted stock units under the stockholder

approved Restricted Stock and Deferred Compensation Plan forNon-Employee Directors (“RSDC Plan”). The number of shares received is determined by dividing $100,000$130,000 by the closing price of a share of Company stock on the first business day of the year and rounding up to the nearest whole share.Non-employee directors newly elected during the calendar year receive a prorated award to reflect the number of calendar quarters the director will serve in the year of election. Restricted shares vest three years after the date of grant or upon retirement, death or disability. Directors receive dividends and voting rights on all shares during the vesting period. Ifnon-employee directors elect to receive a credit to the stock unit account in lieu of a grant of restricted stock, the account is credited with the number of shares otherwise applicable to the grant of restricted stock and subject to the same vesting conditions as discussed below.

Non-employee directors may elect to defer all or a part of their cash retainer and fees to an income account or to a stock unit account under the RSDC Plan. The income account accrues interest at a rate equal to the simple combined average of the monthly Aa Industrial Bond yield averages for the immediately preceding quarter and is compounded quarterly. Stock unit accounts are credited with the number of shares of Company common stock that could have been purchased at the closing price on the date the cash compensation is payable. Thereafter, dividends earned are treated as if they were reinvested at the closing price of Company stock on the date the dividend is payable. Those electing restricted stock units have no voting rights in the stock. The balances in a director’s deferred accounts are paid out at or after retirement or termination in accordance with the director’s deferred account election. The balance in the stock unit account is distributed in shares of the Company’s common stock. The aggregate number of deferred stock units accumulated in the deferral account of participatingnon-employee directors is reflected in footnote (b) to the Stock Ownership Table on page 4.

The Company provides transportation or reimbursesnon-employee directors for travel andout-of-pocket expenses incurred in connection with their services. It also pays or reimburses directors for expenses incurred to participate in continuing education programs related to their service as a PACCAR director.

Effective January 1, 2015, the $100,000 grant under the RSDC Plan has been increased to $130,000 per year; the $75,000 cash retainer has been increased to $100,000; the $7,500 fee paid to each non-employee director for each Board meeting attended has been eliminated; the annual $10,000 fee payable quarterly to the lead director and the chairman of the audit, compensation, and nominating and governance committees remains the same; and the committee meeting fee of $5,000 per meeting paid to the directors for attendance at committee meetings remains the same.

Stock Ownership Guidelines forNon-Employee Directors

Allnon-employee directors are expected to hold at least three times their annual cash retainer in Company stock and/or deferred stock units while serving as a director. Directors have three years from date of appointment to attain this ownership threshold. Allnon-employee directors with three or more years of service have the required stockholding as of January 1, 2015.2017.

POLICIES AND PROCEDURES FOR TRANSACTIONS WITH RELATED PERSONS

Under its Charter, the Audit Committee of the Board of Directors is responsible for reviewing and approving related-person transactions as set forth in Item 404 of the Securities and Exchange Commission RegulationS-K. The Committee will consider whether such transactions are in the best interests of the Company and its stockholders. The Company has written procedures designed to bring such transactions to the attention of management. Management is responsible for presenting related-person transactions to the Audit Committee for review and approval.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The Company believes that all of its directors and executive officers complied with all reporting requirements of Section 16(a) of the Securities and Exchange Act on a timely basis during 2016, except for two transactions concerning the purchase of shares by R. J. Christensen on May 4 and May 6, 2016, which were reported on a Form 4 on May 20, 2016.

COMPENSATION OF EXECUTIVE OFFICERS

COMPENSATION DISCUSSION AND ANALYSIS (“CD&A”)

Executive Summary of Company Performance and Compensation Practices

In 2014,2016, the Company reported record revenuevery good revenues and earned the second highest net income in its history.and delivered Total Shareholder Return (TSR) of 38.3%. The Company has delivered 7678 consecutive years of net income, paid annual dividends every year since 1941 and delivered an average annual total return to stockholders over the past ten15 years of 9.914.7 percent versus 7.76.7 percent for the S&P 500.

Key 20142016 Financial Results and Business Highlights:

Key Compensation and Governance Practices

The Company emphasizes pay for performance and equity-based incentive programs designed to compensate executives for generating outstanding performance for stockholders.

Compensation Program Objectives and Structure

PACCAR’s compensation programs are directed by the Compensation Committee of the Board of Directors (the “Committee”), composed exclusively of independent directors. The programs are designed to attract and retain high-quality executives, link incentives to the Company’s performance and align the interests of management with those of stockholders. These programs offer compensation that is competitive with companies that operate in the same industries globally. PACCAR’s goal is to achieve superior performance measured against its industry peers. The Company has delivered 7678 consecutive years of net income, paid annual dividends every year since 1941 and delivered excellent stockholder returns. The Company has outperformed the S&P 500 index for the ten-year period

1-,5-,15-, and20-year periods ending December 31, 2014 by delivering an average2016. Average annual total return to stockholders of 9.9for 2016 was 38.3 percent versus 7.711.9 percent for the S&P 500. The compensation framework has these components:

Short-term performance compensation:

Long-term performance compensation:

The Committee believes that this combination of salary, cash incentives and equity-based compensation provides appropriate incentives for executives to deliver superior short- and long-term business performance and stockholder returns.

The Named Executive Officers and all U.S. salaried employees participate in the Company’s retirement programs. The Named Executive Officers also participate in the Company’s unfunded Supplemental Retirement Plan described on page 28, which provides a retirement benefit to those employees affected by the maximum benefit limitations permitted for qualified plans by the Internal Revenue Code and other qualified plan benefit limitations.

The Company does not provide any other significant perquisites or executive benefits to its Named Executive Officers.

Stockholder Approval for the Company’s Executive Compensation Programs

In 2014, stockholders voted on an advisory basis to approve the compensation of the Named Executive Officers (known as a “say on pay” vote). Over 98 percent of the shares voted were in favor of “say on pay”.approved the Company’s compensation practices. The Committee believes the stockholder vote affirms the Company’s conservative approach to executive compensation. The nextIn 2011, an advisory vote was taken on the frequency with which we ask our stockholders to provide an advisory vote on our executive compensation program in the future. We proposed

that the vote would be held every three years. A majority of the shares that voted on this proposal approved a three year period forsay-on-pay votes. A “say on pay” vote will be held this year and is scheduled for 2017.described on page 32.

Executive Compensation Criteria

The Committee considers a number of important factors when reviewing and determining executive compensation, including job responsibilities, Company performance, business unit performance, individual performance and compensation for executives among peer organizations. The Committee also considers the opinion of the Chief Executive Officer when determining compensation for the executives that report to him.

Industry Compensation Comparison Groups.    The Committee periodically utilizes information from published compensation surveys as well as compensation data from Peer Companies to determine if compensation for the Chief Executive Officer and other executive officers is competitive with the market. The Committee believes that comparative compensation information should be used in its deliberations. It does not specify a “target” compensation level for any given executive but rather a range of target compensation. The Committee has discretion to determine the nature and extent to which it will use comparative compensation data.

Role of Compensation Consultants.The Committee periodically retains a compensation consultant to assess the competitiveness of the Company’s compensation programs. In 2016, the Committee retained Mercer, a wholly owned subsidiary of Marsh and McLennan Companies, to evaluate the executive base salaries and total compensation structure, which were previously reviewed in 2015. Mercer compiled compensation data from the Company’s Peer Companies, as well as from a Mercer study concerning executive compensation in the United States and a Willis Towers Watson survey. Mercer provided the Committee with aggregated data obtained from the surveyed companies. The review found that the Company’s salary structure midpoints were on average six percent below the market median and the base salaries for the executive officers were on average 10 percent below the market median. Mercer reported its findings to the Committee and proposed a revised salary structure with midpoints increased six percent to approximately the market median. The Committee did not retain a compensation consultant in 2014.adopted the proposed executive salary structure effective January 1, 2017.

Peer Companies.    As part of its analysis of comparative data, the Committee includes compensation data from Peer Companies. In particular, the Company measures its financial performance against Peer Companies when evaluating achievement of the cash portion of the LTIP Company performance goal. The Committee reviews the composition of the Peer Companies annually to ensure the companies are appropriate for comparative purposes. The Peer Companies for the 2012-2014, 2013-2015 and 2014-2016 LTIP cycles are listed below and on page 34 as the current Peer Group Index.below. The Committee removed Scania AB from the list forbeginning with the 2015-2017 LTIP cycle because it is a subsidiary of Volkswagen and its shares are no longer a public reporting company. As described on page 22, thepublicly traded. The Committee approved the addition of CNH Industrial N.V. (parent company of IVECO)Iveco) as a Peer Company forbeginning with the 2015-2017 LTIP cycle. The Peer Group Index is listed on page 36.

Elements of Total Compensation

The Company’s executive compensation program is comprised of base salaries, annual incentive cash and long-term incentives consisting of cash, stock options and restricted stock.

Compensation MixMix..    The Company’s executive compensation program structure includes a balance of salary and annual and long-term incentives, cash andincluding Company equity. For 2014,2016, the Committee approved target allocations as displayed below. The Company believes these allocations promote its objectives of profitable growth and superior long-term results, which benefit stockholders.

Base Salary.Base salary provides a level of compensation that is competitive with industry Peer Companies to attract and retain high-caliber executives. The midpoints of the base salary ranges are set at approximately the market median of the 20112016 Mercer report with the minimum salary at 70 percent of the midpoint and the maximum salary at 130 percent of the midpoint. An executive officer’s actual salary relative to this salary range reflects his or her responsibility, experience, tenure with the Company and individual performance.

The Committee reviews base salaries every 12 to 24 months and may or may not approve changes. Consistent with this practice, the Committee reviewed the salary of each Named Executive Officer in 2014.2016. The Committee considered performance, the addition of new responsibilities and the midpoint in the Mercer 20112016 report in its review of salaries. The Chief Executive Officer suggested salary revisions for the other Named Executive Officers. The Committee approved the salary percentage increases for 20142016 as follows: R. E. Armstrong, 47G. L. Moore, 37.5 percent, to reflectreflecting his promotion to Chiefand expanded responsibilities as Executive Officer; R. J. Christensen, 17 percentVice President and for his promotion to Presidentcontribution towards increased business unit profit margins and Chief Financial Officer; D. D. Sobic, 10 percent to reflect broader operational responsibility;market share; and R. A. Bengston, 23 percent and T. K. Quinn, 21 percent were promoted to Senior Vice President.5.9 percent. The Committee believes these increases align the Named Executive Officers with the salaries of the median of the industry Peer Group reflecting current market trends and the additional responsibilities that eachsome of the Named Executive Officers hashave assumed over the past 12 months. The Committee believes that the base salary of each Named Executive Officer is appropriate based on scope of responsibility, experience, tenure with the Company, individual performance and competitive pay practices.

Annual Incentive Cash Compensation (“IC”).    This program provides yearly cash incentives for the Named Executive Officers to achieve annual Company profit and business unit goals. TheSubject to the funding maximums established by the Committee that are described below under the heading “Tax Treatment”, the Committee sets annual performance goals and a threshold, target and maximum award for each Named Executive Officer, expressed as a percentage of base salary. 20142016 awards are measured on a sliding scale as follows:

A hallmark of the annual cash incentive program has been a consistent and rigorous focus on achieving the Company’s annual net profitincome goal. The Committee has chosen net profit,income, not EBITDA or operating profit, as the chief financial metric for this program because it is the primary indicator of corporate performance to stockholders. When setting incentive compensation goals for the Named Executive Officers, the Committee believes that corporate performance is an appropriate measure of individual performance. Accordingly, a substantial portionall of the 2014 goal2016 annual incentive compensation for the Chief Executive Officer and a substantial portion of the annual incentive compensation for each of the Named Executive Officers is based upon Company net profitincome performance. The net profitincome goal is proposed by Company management and approved by the Board and the Committee before or within the first 90 days of each year. The target level represents an amount of net profitincome that the Committee determines is attainable with outstandingexcellent performance under expected economic conditions. The remaining goals for the other Named Executive Officers arewere based upon individual business unit or leadership criteria determined by the Chief Executive Officer. The Committee assesses annual goal achievement and approves awards for the Named Executive Officers.

IC Awards for the Named Executive Officers are subject to the terms of the Senior Executive Yearly Incentive Compensation Plan (the “IC Plan”) approved by the stockholders as required by Section 162(m) of the Internal Revenue Code. The maximum amount that may be paid to any eligible participant in any year under the Plan is $4,500,000. The Committee, in its sole discretion, may reduce or eliminate (but not increase) any award earned byotherwise payable to the Named Executive Officers under each officer’s funding maximum based on the achievement of the IC Plan goals, an assessment of individual performance.performance and other factors within the discretion of the Committee.

For 2014,2016, the Company’s net profitincome target was $1.20$1.42 billion with a minimum incentive compensation threshold of $1.05$1.24 billion and a maximum incentive compensation threshold of $1.40$1.66 billion. Actual net profitincome achieved was $1.36$522 million. For 2016, the Committee decided to exclude from the assessment of the net income goal the $833 millionnon-recurring charge for the European Commission settlement. For purposes of determining the Company profit goal, the Committee concluded that the adjusted net income was a better representation of management’s performance during the year and that including the charge would materially affect the compensation of IC Plan participants due to factors out of their control. Adjusted net income excluding

thenon-recurring European Commission charge was $1.35 billion. The Committee approved award payments of 16778.2 percent of the net profitincome target award, which corresponds with achievement of 13289.1 percent of the net profitincome goal for each eligible Named Executive Officer. The Committee approved an overall payment for R. E. Armstrong of 14278.2 percent of target, including 92based on 89.1 percent achievement of the business unitCompany profit goal. The Committee approved an overall payment for R. J. Christensen of 159104.1 percent of target consisting of 132 percent and 117including 80 percent achievement of the business unit profit goals.goals and 140 percent achievement of the leadership goal related to development of DAF’s business in Brasil and the effectiveness of materials cost reduction activities. The Committee approved an overall payment for D. D. SobicG. L. Moore of 17495.7 percent of target consisting of 140including 93.4 percent achievement of the business unit profit goalgoals and 130120 percent achievement for thehis leadership goal related to achievement of record parts revenue.Company growth initiatives. The Committee approved an overall payment for R. A. Bengston of 14483.5 percent of target consisting of 117including 80.3 percent achievement of the business unit profit goalgoals and 110120 percent achievement for his leadership of long-termCompany growth initiatives. The Committee approved an overall payment for T. K. Quinn of 139103.3 percent of target consisting ofincluding 110 percent achievement of the business unit leadership goals related to long-term information systems projects and initiatives. The Committee did not exerciseexercised discretion to make modifications to any award.reduce each Named Executive Officer’s maximum funding amount described below under the heading “Tax Treatment” in determining payout as described above. The following table outlines the 20142016 goals and incentive awards for each Named Executive Officer:

Long-Term Incentive Compensation (“LTIP”).    The Company’s long-term incentive program is based on a multi-year performance period and provides annual grants of stock options restricted stock and cash incentive awards. The program also includes restricted stock, which is awarded to certain executives based on the attainment of an annual performance goal and vests over three years. The LTIP aligns the interests of stockholdersexecutives with those of executivesstockholders to focus on long-term growth in stockholder value. The 20142016 target for each element of thelong-term compensation program for each Named Executive Officer is calculated as a percentage of base salary as indicated in the table below:

Long-term incentive compensation cash award.This programThisprogram focuses on long-term growth in stockholder value by providing an incentive for superior Company performance that is measured against Peer Companies’ performance over a three-year period.Company performance is measured by three-year growthchange in net income, return on sales and return on capital (weighted equally) as compared to the Peer Companies (“Company Performance Goal”). Named Executive Officers and all executive officers are eligible for a long-term incentive cash award based upon three-year performance goals approved by the Committee with a new performance period beginning every calendar year. ForSubject to the 2014-2016 cycle,funding maximums established by the Committee that is described below under the heading “Tax Treatment” the Committee approved the following goals:goals for the 2016-2018 cycle:

The Committee believes that three-year growthchange in net income, return on sales and return on capital are excellent indicators of the Company’s performance against the Peer Companies. The Company has used this rigorous comparison goal for over 15 years. During that period the Company ranked above 50 percent of the Peer Companies in 12 of the 15 years, demonstrating excellent performance against the Peer Companies and providing superior returns to stockholders. The target amount will be earned if the Company’s financial performance ranks above at least half of the Peer Companies. The maximum cash award amount will be earned if the Company’s financial performance ranks above all of the Peer Companies. No award will be earned if the Company’s financial performance ranks in the bottom 25 percent of the Peer Companies.

The remaining portion of the award for certain ofthe Chief Executive Officer and the Named Executive Officers is based upon individual business unit and leadership goals determined by the Committee for the Chief Executive Officer, similar to those described aboveand by the Chief Executive Officer for

the annual incentive cash plan,other Named Executive Officers, measured over a three-year performance cycle. The Committee assesses goal achievement for the prior three-year period in April following completion of the applicable cycle and approves awards for the Named Executive Officers at such time. Long-term incentive cash awards are measured on a sliding scale as indicated below:

In April 2014,2016, the Committee determined cash awards for the three-year period 2011-2013 ending December 31, 2013.2015. For the 2011-20132013-2015 LTIP cycle, the Company ranked fifthsecond among the twelve Peer Companies and the Committee approved a payout of 127182 percent of target on the Company Performance Goal for each Named Executive Officer. The cash award for M. C. Pigott was based 100 percent on the Company Performance Goal.

The otherAll Named Executive Officers in the 2011-20132013-2015 LTIP cycle had goals in addition to the Company Performance Goal. The award for R. E. Armstrong was based 30 percent on business unit profitsprofit at DAF and 20 percent on profit in Financial Services. The Committee determined that the business unit profitR. E. Armstrong exceeded each goal at DAF was not achieved due to the European recession but the goal for Financial Services was exceeded and it approved an overall payout of 90145 percent of target. The award for R. J. Christensen was based 25 percent on business unit profit at Peterbilt and 25 percent on business unit leadership. The Committee determined that R. J. Christensen exceeded each goal and approved an overall payout of 129168 percent of target. The award for D. D. Sobic

G. L. Moore was based 2540 percent on business unit profit at Kenworth and 2540 percent on business unit leadership. The Committee determined that D. D. SobicG. L. Moore exceeded each goal and approved an overall payout of 114171 percent of target. The award for R. A. Bengston was based 45 percent on business unit profit in Financial Services and 30 percent on business unit leadership. The Committee determined that R. A. Bengston exceeded each goal and approved an overall payout of 139 percent of target. The award for T. K. Quinn was based 75 percent on business unit leadership. The Committee determined that T. K. Quinn exceeded the goal and approved an overall payout of 137 percent of target. The Committee did not exerciseexercised discretion to modify any awards.reduce each Named Executive Officer’s maximum funding amount described below under the heading “Tax Treatment” in determining payout as described above. The long-term cash awards for the 2012-20142014-2016 LTIP cycle have not been determined as of the date of this proxy statement because Peer Group comparison data was not available.

The maximum amount that may be paid to any eligible participant in any year under this program is $6,500,000.$7,000,000. The award is also subject to the conditions of payment set forth in the Long-Term Incentive Plan, as required by Section 162(m) of the Internal Revenue Code. The Committee, in its sole discretion, may reduce or eliminate (but not increase) any award earned byotherwise payable to the Named Executive Officers under each officer’s funding maximum based on the achievement of the LTIP goals, an assessment of individual performance.performance and other factors within the discretion of the Committee.

Stock options.    The Committee includes stock options in its compensation program because stock options link the interests of executives directly with stockholders’ interests through increased individual stock ownership. Stock options are granted by the Committee once each year on a predetermined date after the fourth-quarter earnings release and are not repriced.repriced, backdated or purchased by the Company. The number of options is determined by multiplying the executive’s base salary on the grant date by a target award percentage and dividing by the average closing price of the Company’s stock on the first five trading days of the year. The exercise price of stock options is the closing price of the Company’s stock on the date of grant. Options become exercisable at the end of a three-year vesting period and expire ten years after the date of grant. APrior to January 1, 2014, a participant who elects early retirement at or after age 55 under a Company retirement plan, but before age 62, has 12 months from retirement to exercise vested options. Unvested options are forfeited. For stock options granted after January 1, 2014, a participant who retires at age 62 with 15 years of service, but before age 65, has ten years from date of grant to exercise vested options and a prorated number of stock options

which are not otherwise exercisable at the time of retirement will become immediately exercisable, and may thereafter be exercised by the participant at any time within ten years after the date of grant. A participant who retires at or after age 65 has the full term to exercise options and unvested options will continue to vest. Vesting may be accelerated in the event of a change in control.

The Compensation Committee granted stock options on February 7, 20144, 2016 in accordance with the target award percentages listed on page 18.19. All stock options granted in 20142016 vest and become exercisable on January 1, 2017,2019, and remain exercisable until February 7, 20244, 2026 unless the participant’s employment terminates earlier for reasons other than retirement, or the participant is demoted to an ineligible position.

Annual restricted stock program.    Performance-based restricted stock is included in the program because it provides an opportunity forlinks the interests of executives directly with stockholders’ interests through increased individual stock ownership and adds a performance goal that is tied to earn Company equity with performance-based compensation deductible under Section 162(m)the success of the Internal Revenue Code.our business. The Committee sets a Company performance goal duringon or before the first 90 days of the year, and restricted stock grants are made in the following year if the Committee determines that the performance goal is achieved. The number of restricted shares is determined by multiplying the executive’s base salary by the target award percentage and dividing by the average closing price of the Company’s stock on the first five trading days of the year. The restricted shares are valued at the closing price of the Company’s stock on the date of grant. The restricted stock vests 25 percent on the first day of the month following the grant and an additional 25 percent on each succeeding first of January. Unvested shares are forfeited upon termination unless termination is by reason of death, disability or retirement. All shares vest immediately upon a change in control. Each Named Executive Officer has the same rights as all other stockholders to vote the shares and receive cash dividends.

The performance goal for 2016 was four percentafter-tax return on revenue. The goal was determined based on the return on revenues of heavy- and medium-duty truck manufacturers in Europe and North America. Return on revenue is defined as net income divided by total revenues. For the reasons described in the discussion of the IC in this Compensation Discussion and Analysis, the Committee determined that return on revenue in 2016 would be determined excluding thenon-recurring charge for the European Commission.

On February 4, 2015,7, 2017, the Committee determined that the 20142016 performance goal of four percent after-tax return on revenue was achieved and approved restricted stock consistent with the target award percentages listed on page 18.19. The restricted stock granted on February 7, 20144, 2016 for 20132015 performance is included on page 24.

Compensation of the Chief Executive Officer

During 2014, the Company had a successful transition in its senior leadership role. M. C. Pigott, Chairman and Chief Executive Officer since January 1, 1997, became Executive Chairman on April 27, 2014 with an annual salary of $500,000. R. E. Armstrong, President, was promoted to Chief Executive Officer effective April 27, 2014 with an annual salary of $1.1 million.

Compensation for R. E. Armstrong.The Committee applies the same compensation philosophy, policies and comparative data analysis to the Chief Executive Officer as it applies to the other Named Executive Officers. The Chief Executive Officer is the only officer with overall responsibility for all corporate functions and, as a result, has a greater percentage of his total compensation based on the overall financial performance of the Company. Consistent withUnder R. E. Armstrong’s leadership in 2016, the Company practice, Mr. Armstrong’s 2014 annual target incentive award increased from 95 percent to 125 percent of his salary prorated as of May 1, 2014.achieved very good revenue and net income. The percentage of salary used for the LTIP cash, stock options and restricted stock for the 2014-2016 cycle was based on his previous salary and position at the time of grant in February 2014 and is listed on page 24.

The Company had a share match program with M. C. Pigott that enabledCommittee reviewed the Chief Executive Officer to purchase Company stock either by exercising stock options or through openOfficer’s salary in 2016 versus the market purchases. He was entitled to receivedata and approved a matching award of restricted stock if rigorous performance goals were met. The program provided for a maximum of 562,500 restricted shares and an annual limit of 150,000 shares. Restricted match shares vested after five years if the Committee certified that the Company’s earnings per share growth over the same five-year period met or exceeded at least 5012 percent of the Peer Companies. The Chief Executive Officer had the same rights as all other stockholders to vote the shares and receive cash dividends. With certain exceptions, all restricted match shares would be forfeited if the performance threshold was not achieved or if the Chief Executive Officer terminated employment with the Company during the vesting period. If the purchased shares were sold during the vesting period, an equal number of restricted match shares would be forfeited. No matching shares were granted under this program in 2014. The share match program was eliminated by the Compensation Committee in December 2014.

Compensation for M. C. Pigott (retired Chief Executive Officer).    The Committee wished to recognize Mr. Pigott for the outstanding stockholder returns of 1,665 percent generated during his 17-year tenure as Chief Executive Officer and to acknowledge that the Company’s 2014 financial performance would be due in part to his performance as CEO and his continued role as Executive Chairman. The Committee determined that as Executive Chairman, Mr. Pigott would not be eligible for future stock options, restricted stock or cash bonuses after 2014 but that he should be entitled to the compensation under these programs resulting from his accomplishments as CEO in 2014 and prior years. In determining the compensation package, the Committee also

considered the value of the awards Mr. Pigott would be eligible to receive if he retired under existing Company plans and policies. The Committee decided that M. C. Pigott would be eligible for the following compensation:

Deferral of Annual and Long-Term Performance Awards

The Committee administers a Deferred Compensation Plan described on page 29 which allows eligible employees to defer cash incentive awards into an income account or a stock unit account. Both accounts are unfunded and unsecured. This program provides tax and retirement planning benefits to participants and market-based returns on amounts deferred. Certain deferrals are subject to Internal Revenue Code Section 409A. Payouts from the income account are made in cash either in a lump sum or in a maximum of 15 annual installments in accordance with the executive’s payment election. Stock unit accounts are paid out in Company stock either in aone-time distribution or in a maximum of 15 annual installments. Participation in the Deferred Compensation Plan is voluntary.

Stock Ownership Guidelines

The Company’s executive officers are required to meet stock ownership guidelines that reflect alignment of senior executives’ long-term goals with that of the Company stockholders. The minimum number of shares of company stock and deferred stock units expected to be held by each category of executive officer is as follows: the Chief Executive Officer — five times base salary; other Named Executive Officers — three times base salary; and other executive officers — one times base salary. Company executive officers have three years from the January first after the executive first holds the qualifying position to attain the stock ownership target. The Committee reviews compliance with the guidelines each year. Executives who are not in compliance with the ownership threshold must retain all vested restricted stock and at least 50% ofafter-tax shares acquired through the exercise of stock options until the applicable stock ownership threshold is met. As of January 1, 2017, all executive officers either had achieved the stock ownership threshold or were within the time allowed to meet it.

Effect of Post-Termination Events

The Company has no written employment agreement with its Chief Executive Officer or with any Named Executive Officer. Executive compensation programs provide full benefits only if a Named Executive Officer remains with the Company until normal retirement at age 65. In general, upon a termination without cause a Named Executive Officer retains vested benefits but receives no enhancements or severance. In a termination for cause, the executive forfeits all benefits except those provided under a qualified pension plan. Long-term cash incentives are prorated upon retirement at age 62, with 15 years of service, or death and are awarded at the maximum level upon a change in control. The annual restricted stock grants become fully vested at retirement, death or a change in control. The Company believes that the benefits described in this section help it attract and retain its executive officers by providing financial security in the event of certain qualifying terminations of employment or a change in control of the Company. The fact that the Company provides these benefits does not materially affect other decisions that the Company makes regarding compensation. The Company maintains a separation pay plan for all U.S. salaried employees that provides a single payment of up to six months of base

salary in the event of job elimination in a business restructuring or reduction in the workforce. The Named Executive Officers are eligible for the benefit on the same terms as any other eligible U.S. salaried employee.

Effect of Accounting or Tax Treatment

Company policy is to structure certain compensation arrangements thatin a manner intended to preserve tax deductions for executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”). Cash awards paid under either the IC Plan or the LTIP, stock options and performance-based restricted stock awards granted to Named Executive Officers who are subject to the $1 million dollar annual deduction limitation under Section 162(m) (each, a “Covered Employee”) are subject to certain conditions of payment intended to preserve deductibility imposed under Section 162(m). The Committee establishes a yearly funding plan limit equal to a percentage of the Company’s net income (the “Annual Pool”) and assigns a percentage of the Annual Pool to each Covered Employee. In 20142016, the funding limit under the IC Plan equaled three percent of the Company’s net income and the corresponding maximum share of such pool for the Chief Executive Officer and the next four most highly compensated Covered Employees was 43%, 21.7%, 18%, 8.8% and 8.5%, respectively. The funding limit for the LTIP equaled one percent of the Company’s cumulative net income for the 2014-20162016-2018 performance cycle.cycle and the corresponding maximum share of such pool for the Chief Executive Officer and the next four most highly compensated Covered Employees was 50.2%, 19.9%, 15.5%, 7.3% and 7.1%, respectively. The Committee can exercise discretion to reduce or eliminate any award earned byotherwise payable to the Covered Employees. The cash incentive awards to the Named Executive Officers under both plans are subject to the pre-established funding and plan limits even if some or all of the executive’s performance goals have been exceeded. The Committee retains the flexibility to pay compensation that is not fully deductible within the limitations of Section 162(m) if it determines that such action is in the best interests of the Company and its stockholders in order to attract, retain and reward outstanding executives. The Company offers compensation programs that are intended to be tax efficient for the Company and for the executive officers. The Company does not provide any Executive Officer with a“gross-up” for taxes.

Compensation Forfeiture

In the event the Board determines that an executive officer has engaged in misconduct detrimental to the Company, including fraudulent conduct which results in a material inaccuracy in the Company’s financial statements, the officer may be terminated for “cause” and all unpaid compensation forfeited. Cause is defined to include: an act of embezzlement, fraud or theft; the deliberate disregard of the rules of the Company or a subsidiary; any unauthorized disclosure of any of the secrets or confidential information of the Company or a subsidiary; any conduct which constitutes unfair competition with the Company or a subsidiary; or inducing any customer of the Company or a subsidiary to breach any contracts with the Company or a subsidiary. The provisions do not allow for recoupment of compensationbase salary which has been previously paid.

In the event the Board determines that an executive officer has engaged in fraud that has caused or substantially contributed to material restatement of the Company’s financial statements, the Board in its discretion may recover from the officer or former officer any incentive compensation award which was based in whole or in part on financial results that were subject to a material restatement.

Changes Approved for 20152017

The Committee approvedupdated the following changes in 2014LTIP and restricted stock programs to be effective in 2015:clarify the timing of vesting for each type of award. It also updated the Senior Executive Yearly Incentive Compensation Plan and the LTIP to conform the language between plans.

The Committee approved a revision torevised salary structure and an increase in the listtarget percent of Peer Companies used to measure financial performance when evaluatingbase salary for the cash portion of the LTIP as describedfor each Named Executive Officer based on page 18. In evaluating potential peers the Committee considered how closely they matchresults of the Company on industrial and revenue comparability, return on sales and business cycle correlation.Mercer market study conducted in 2016. The Committee removed Scania AB fromchange is indicated in the list in 2014 because it is no longer listed as a public reporting company. The Committee approved the addition of CNH Industrial (the parent company of IVECO) to the list beginning with the 2015-2017 LTIP cycle.following table.

The Committee discontinued the share match program described on page 20.