Reference no: EM131430777

Assignment: Employee Motivation

PROBLEM-SOLVING APPLICATION CASE (PSAC)

A Fickle Cat

Long-time employees complain that Caterpillar has changed.

John Arnold, a 35-year-old parts auditor at Caterpillar's distribution facility in Morton, Illinois, says some of his coworkers are on food stamps. Arnold has worked for Caterpillar since 1999. More than 10 years later, he's making $15.66 an hour.

To succeed today, does an employer have to worry about motivation? In recent years, Caterpillar, a Wall Street darling and mainstay of American manufacturing, has rolled back traditional extrinsic motivators.

• Item: Caterpillar laid off 30,000 workers in 2009.

• Item: By the second quarter of 2012, Cat's profit had jumped 67 percent from the previous year. (Net profits in 2011 2Q of $1.01 billion, or $1.52 per share, rose to net profits of $1.69 billion or $2.54 per share in 2012 2Q.)

• Item: About the same time, Cat was freezing wages and reducing benefits. New contracts created a two-tier system so that new hires were brought in on an even lower wage scale.

• Item: Further layoffs followed the newer, concessionary contracts.

Disparities

In May 2013 a feature in Bloomberg Businessweek noted that while workers were losing jobs, pay, and benefits, CEO Oberhelman prospered. In 2011 his pay rose 60 percent to over $16 million, and in 2012 to more than $22 million.

So what serves as employee motivation in this environment? Maybe survival. The article quoted Emily Young, a welder at Caterpillar's Decatur plant: "You're basically expendable. For every one person who doesn't work, there's five waiting in line." The same article quoted CEO Oberhelman affirming, "We can never make enough profit."

Weakened Unions. As Businessweek reported, Caterpillar toughed out a strike at its Illinois plant in 2012 for over three months. Eventually union workers agreed to virtually the same offer that caused the strike. Existing workers accepted a six-year wage freeze and reduced benefits. New workers would be brought in at a lower wage scale.

In Wisconsin in 2013, union workers didn't even try to strike. When their contract expired, workers simply stayed on the job. After a few months of on-again, off-again talks, the workers agreed to conditions similar to the Illinois contract.

Worsening Results. Recently Cat's march to higher peaks of profit have stalled. With greater use of natural gas and dropping coal prices, sales of big mining trucks (used in surface coal mining) also declined. This forced the company to scale back production and lay off even more workers. This on top of an overall drop in spending in the Asian mining sector contributed to Cat's decline in earnings.

A Money Problem

Some industry watchers see Caterpillar's worries as a money problem. As in too much of it. Fortune senior editor Matt Vella, in a Fortune Brainstorm podcast with magazine staff, sees it this way: "The criticism from labor is the company is doing better than ever; why aren't we seeing some of the rewards of that? The company will say, ‘Well, we can't afford to give too much away because we don't know what's going to come down the road.'"

The Businessweek article brought such questions to a head:

Caterpillar has become a symbol of the growing divergence in corporate America between profits and wages. As a percentage of gross domestic product, corporate earnings recently hit their highest level in more than 60 years, and wages fell to new lows, according to Moody's Analytics.

"What's interesting," says Fortune writer Nin-Hai Tseng, " ... is that Caterpillar makes itself out to be this poster child of everything that went right with manufacturing in America. With that reputation carries a lot of responsibility.... [P]eople can ask ... does it have a responsibility to pay its workers more?"

What Employees Say

While Glassdoor.com doesn't provide objective analysis, this job research site provides ready access to employee voices. The site includes posts by current and former company employees so people looking for work can research a potential employer. Most reviews include a simple yes or no on whether the reviewer would recommend the company as an employer. While there's no guarantee that all posts are legitimate, Glassdoor.com remains one of the best places to get a quick read on the way current and former employees likely feel.

Reviews for Caterpillar vary. Some workers say good things about their future with Caterpillar and the corporate culture. But more critique the company. Critics of the company's policies include both current and former employees. Tellingly, many current employees who would recommend the company as an employer have misgivings. Major themes include:

• Lack of chances to advance, stand out, prove one's worth, or improve one's compensation.

• Rueful acceptance of problems in the workplace because of the need to have a job.

• Over-management in face of shrinking pay.

• Overemphasis on cost-cutting programs by middle managers who frequently lack product or process knowledge.

• Lack of progressive vision for future growth, with single focus on reducing costs.

You get a sense of the tone of many comments in this post from a former employee, let go after eight years: "They will preach values, morality, safety, people, and quality, but in the end they only care about profit. Never been so disappointed in what a company has become as this one."

The Executive View

When Businessweek asked Oberhelman about increasing wages, he sounded wistful. He can raise wages "when we start to see economic growth through GDP," he says. "Part of the reason we're seeing no inflation is because there's no growth. Inflation was driven by higher labor costs, not higher goods costs. Frankly, I'd love to see a little bit of that. Because I'd love to pay people more. I'd love to see rising wages for everybody."

Real GDP has grown slightly during the period in which Oberhelman has reduced and frozen wages, from a negative 3.1% in 2009 up 2.4% in 2010, 1.8% in 2011, and 2.2% in 2012, according to the US Dept. of Commerce.

In the meantime, Oberhelman justifies the growing disparity by invoking competitiveness. For Cat to be competitive, his executive salary needs to increase dramatically. For Cat to be competitive, workers' wages need to be reduced or frozen.

Then and Now

In contrast to its current frosty relations with labor, once Caterpillar was seen as an exemplar of an enlightened management that could justify spending to increase employee engagement by its return on investment.

As recently as 2006, a human resources guide on employee engagement cited Caterpillar as a success story. The guide noted Caterpillar's gains as follows:

• Annual savings of $8.8 million from decreased attrition, absenteeism, and overtime (Europe).

• Increase in output by 70% in less than 4 months (Asia Pacific).

• Decrease in break-even point by almost 50% in units/day, and of grievances by 80% (unionized plant).

• Increase of $2 million in profit and 34% in highly satisfied customers (start-up plant).

Now Caterpillar has decided to increase profitability almost solely by going leaner. The staff at Fortune doubt that today's Caterpillar will ever restore the kinds of manufacturing jobs of the past-jobs that brought US workers into the middle class. Instead, Cat hews to a global view of managing labor costs.

The company continues to increase its overseas operations in places like Korea, Russia, and Brazil. Over half of its labor force and its profits are overseas. Domestically Caterpillar continues to reduce and reshape labor, moving to lower pay scales and benefits, and with a greater reliance on guest workers. (Oberhelman has lobbied to make it easier for corporations to bring in lower-cost, highly trained foreign PhDs.) As modern manufacturing continues to do more for less, organic demand for labor will continue to decrease.89

Time will tell if the company can remain competitive with a primary focus on managing costs only, or if it will find reason to elevate employee engagement as a company priority.

Apply the 3-Stop Problem-Solving Approach to OB

• Stop 1: What is the problem?

o Use the Integrative Framework for Understanding and Applying OB (Figure 5.9) to help identify the outcomes that are important in this case.

o Which of these outcomes are not being achieved in the case?

o Based on considering the above two questions, what is the most important problem in this case?

• Stop 2: Use the Integrative Framework to identify the OB concepts or theories that help you to understand the problem in this case.

o What person factors are most relevant?

o What environmental characteristics are most important to consider?

o Do you need to consider any processes? Which ones?

o What concepts or theories discussed in this chapter are most relevant for solving the key problem in this case?

• Stop 3: What are your recommendations for solving the problem?

o Review the material in the chapter that most pertains to your proposed solution and look for practical recommendations.

o Use any past OB knowledge or experience to generate recommendations.

o Outline your plan for solving the problem in this case.

FIGURE 5.9: INTEGRATIVE FRAMEWORK FOR UNDERSTANDING AND APPLYING OB