Caterpillar scales back executive pay in 2009

[December 23, 2008]  NEW YORK (AP) -- Caterpillar Inc., the world's largest maker of mining and construction equipment, said Monday it will cut executive compensation by up to 50 percent next year due to slower demand amid the global economic downturn.

The Peoria, Ill., company also said it was offering voluntary buyouts to about 25,000 U.S.-based managers and support employees and had instituted a global hiring freeze. Caterpillar, which employs about 112,000 people worldwide, has expanded dramatically in recent years, driven partly by demand from infrastructure projects in developing countries.

Caterpillar is the latest of several large firms to slash compensation in recent weeks to lower costs. Earlier this month, Memphis, Tenn.-based FedEx Corp. said it will cut pay for senior executives and freeze 401(k) contributions for a year. AK Steel Holding Corp., based in West Chester, Ohio, plans to reduce pay for salaried employees by 5 percent starting in 2009.

Caterpillar said it also plans to reduce compensation for senior managers by 5 percent to 35 percent, as well as lower compensation by up to 15 percent and suspend merit pay increases for managers and support staff.

The cuts will come from incentive and equity-based compensation programs, according to the company, known for its yellow-and-black earth-moving machines.

Shares of Caterpillar dropped 91 cents, or 2.1 percent, to close at $41.78 on Monday. The stock, a component of the Dow Jones industrial average, has shed more than 40 percent of its value since the beginning of the year.

Sales of Caterpillar's machines slipped 6 percent worldwide for the three months ending in November, compared with the same period last year, according to the company. Europe, Africa, the Middle East and North America saw the steepest declines. Caterpillar's engine sales, meanwhile, climbed 8 percent.

A month earlier, the company reported global machine sales had edged down 2 percent.

Eli Lustgarten, an analyst with Longbow Research, pointed to sagging construction markets in the U.S. and Europe and easing commodity prices that have hurt Caterpillar customers in the mining and energy sectors.

About the compensation cuts, Lustgarten said: "They're making sure that everybody feels that it's a difficult year and participates in keeping the company as strong as possible as they go through this difficult period."

The move was the latest belt-tightening measure by Caterpillar, which recently laid off employees and cut contract workers as global economic turmoil hurt demand for its broad range of products, which include bulldozers, turbines and boat engines.

On Friday, the company said it will lay off 814 production workers at an engine assembly plant in Mossville, Ill. It also announced an unspecified number of temporary layoffs at two factories in North Carolina.

Caterpillar said it will continue efforts to cut costs, including temporary factory shutdowns and more layoffs, as needed. The cutbacks come after years of growth in which Caterpillar's sales soared to $45 billion in 2007 from about $22.7 billion in 2003.

Lawrence De Maria, an analyst with Sterne, Agee & Leach, noted the company had been readjusting its businesses to cope with dwindling demand.

"This is an ongoing process," he said. "This is probably not the last bit of restructuring we're going to hear from them. ... The next six to 12 months are likely to be as challenging as they've ever experienced."

In October, Caterpillar posted a 6 percent drop in third-quarter earnings and forecast essentially flat sales for 2009. At the time, Jim Owens, Caterpillar's chief executive, said the economic outlook for next year was "extremely uncertain."

Owens, who received $14.8 million in compensation last year, had forecast pockets of strength in global mining, energy and infrastructure markets, but warned of a third consecutive year of sales declines in the U.S. The credit crisis, he said, was likely to hamper markets in North America, Europe and Japan.

[Associated Press; By DANIEL LOVERING]

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