Caterpillar to cut white-collar pay up to 50%, offer buyouts

WASHINGTON -- Machinery giant Caterpillar cat announced broad pay cuts Monday, as a spreading recession weakens global demand for its products.

The company will slash executive compensation up to 50%, cut many employees' pay as much as 15% and offer voluntary buyouts to its 25,000 workers.

"We understand these decisions will disrupt the lives of many of our employees and their families," Caterpillar CEO Jim Owens said in a statement.

With its move, Caterpillar joins a growing list of firms using pay and benefit cuts to minimize, or sometimes prevent, outright layoffs. Ohio-based AK Steel, aks for instance, said on Dec. 3 it would implement an indefinite 5% pay cut for salaried workers, including the CEO and executive officers. The firm will alter its pension plan and offer buyouts.

Kathie Lingle, executive director of the Alliance for Work-Life Progress at WorldatWork, says the strategy, while not without pain, helps workers, who hold on to vital health and other benefits as well as their jobs. Carrying workers on the payroll also helps employers, who would otherwise face the time and cost of training new employees when the economy revives.

"It's not common, but in each recession it seems to be picking up speed … as proactive employers figure out that it's very expensive to lay people off and then go back and hire them," Lingle says.

State and local governments are using the strategy. Pennsylvania Gov. Edward Rendell announced a wage freeze for more than 13,600 non-union employees, told state executives to return a cost-of-living increase and said he would begin wage talks with unionized workers. In Galveston, Texas, hard hit by Hurricane Ike, the city manager is asking employees to take a 3% pay cut.

"We are definitely suffering from Ike. Our residents are further suffering if they've lost jobs or are worried about losing jobs," says Alicia Cahill, Galveston city spokeswoman.

While lawmakers have chastised Wall Street firms for paying hefty bonuses in the midst of tanking markets and government bailouts, some prominent CEOs are cutting their pay.

Last week, FedEx fdx CEO Frederick Smith said he would take a 20% pay cut as part of a companywide salary reduction. Gymboree gymb CEO Matthew McCauley has announced salary cuts among senior managers and the corporate staff.

"If you are asking your employees and vendors to make sacrifices, leaders should set an example," says Leslie Gaines-Ross, chief reputation strategist at Weber Shandwick.

Executive compensation consultant Watson Wyatt in a recent survey of 264 companies found 49% plan to reduce the size of their executive bonus pool, and 11% said there would be no bonuses at all. But 9% plan a retention bonus.