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No butterfly

24 September 2015 By Kevin Allison

Caterpillar could dig a little deeper in its latest cost-cutting drive. The Peoria, Illinois-based company plans to shed 10,000 workers as it struggles with slumping demand for its excavators and dump trucks – that’s nearly 10 percent of its employees. Maybe with his chairman’s hat on, Chief Executive Doug Oberhelman can ensure he and his team share the pain.

Sales of the $42 billion Caterpillar’s iconic yellow earthmovers have always depended on the ups and downs of commodity and construction cycles. But Oberhelman’s decision to bet big on mining with the 2011 purchase of rival equipment maker Bucyrus for $8 billion raised the group’s exposure just before ore prices peaked.

Shareholders are still dealing with the fallout. The company’s stock price dropped 6 percent by midday on Thursday in New York after Caterpillar issued its second sales warning this year. Weak commodity prices, lackluster construction demand and, more recently, the rout in the oil market mean Caterpillar expects revenue of just $48 billion in 2015. That’s down from nearly $66 billion at the peak of commodity super-cycle hype in 2012. Next year’s sales are expected to fall another 5 percent.

The job cuts, designed to help achieve $1.5 billion in annual savings, are more bad news for Caterpillar’s 111,000-strong full-time workforce, which has already shrunk by more than 21,000 since mid-2012. Oberhelman and his top lieutenants have been relatively cocooned. Standard regulatory disclosures show the chairman-CEO’s total compensation fell from $22.4 million in 2012 to $15 million in 2013, reflecting a weaker performance by Caterpillar. But last year’s total comp of $17.1 million was $200,000 more than he made in 2011. Other top executives earned $5 million to $6 million apiece.

The top team’s compensation will, presumably, fall again this year. But Oberhelman needn’t wait until the board sets pay in February to suggest that top executives take a pay cut. A 20 percent reduction in the pay packets of the CEO and four other officers listed in Caterpillar’s 2015 proxy statement would save about $8 million – equivalent to some 150 average-paying Illinois jobs.

A reduction not just in bonuses and stock awards but in base pay, which has held up at $1.6 million for the CEO despite the turmoil of the past few years, would be one easy way to send the right message.

 

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