Caterpillar makes no bones about the fact it intends to bring its “market-based” approach to worker pay and benefits to every location. That message, apparently, was lost on the 465 unionized workers at a 62-year-old locomotive plant in London, Ontario, that Caterpillar bought a few years ago. Those workers had been getting $35 an hour. Caterpillar’s take-it-or-leave-it offer was for half that, along with substantial cuts in benefits. When the workers balked, Caterpillar closed the plant, took its cutting-edge diesel-electric technology and moved production to Muncie, Ind., where workers lined up for a shot at one of $12- to$18-an-hour jobs.
It is easy to get moralistic about a company that pays its chief executive $16.5 million as a reward for squeezing the incomes of employees who, even at the top of the scale, earn about one-half of 1 percent of what he does. It’s easy to get nostalgic about the loss of union power that really did make it possible for generations of workers with only a high-school education to enter the middle class. But the reality is that Caterpillar probably has no choice but to bow to the dictates of the markets — not only the markets from which it gets it labor but also the markets from which it raises its capital and the markets into which it sells its products. If it can’t sell its products at above-market prices or offer its investors below-market returns, it can’t afford to pay its workers above-market wages.
Even from a market perspective, however, there is a valid critique of Caterpillar’s hardball tactics.
The first is to note that when it comes to its executives, managers and engineers, Caterpillar does not use the same criteria of paying the average market wage. In those instances, the company has seen the competitive benefit of paying above the average to attract and retain a cadre of above-average employees and give them sufficient incentive to work hard, take risks and deliver superior performance. There is no evidence to suggest that having better-than-average production workers will not have the same beneficial results. To believe or behave otherwise is nothing more than the sort of class snobbery better suited to the country-club locker room than the executive suite of a modern global corporation.
If Caterpillar were really serious about having a world-class workforce, it would be willing to negotiate wage and benefits levels 15 percent above the market. And if it were serious about insuring that all workers share in the company’s success, then it would offer production workers a profit-sharing plan that reaches at least 10 percent of base pay in good times.
Because of its size and reputation, companies like Caterpillar also need to acknowledge that they have an outsize impact on the social, political and economic environment in which markets operate. Caterpillar should not expect voters to embrace its aggressive free-trade philosophy if globalization merely gives it license to grind down the incomes of average workers. It shouldn’t expect politicians to approve more money for public works projects, or give the green light to increased coal and shale-oil production — both big generators of Caterpillar sales — if the profits from those sales won’t be shared fairly with front-line workers. And it shouldn’t expect to win the good opinion of investors or the public if its human-resource strategy is to become the recognized leader in the corporate race to the bottom.
The reason the union movement is in trouble is because unions abused their market power and overplayed their hands. Now, it is Corporate America that has gained the upper hand, and if the news from Joliet, Ill., is any indication, it is about to make the same mistake.