1 Topic-4 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. 2 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 cri ...

1. 1
Topic-4 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.
in 2009.
67 percent from the previous year. (Net

2. 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.)
out 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.
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

3. 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.
2

4. 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

5. 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:
improve one's compensation.
the need to have a job.
-management in face of shrinking pay.

6. -cutting programs by middle managers
who frequently lack product or process
knowledge.
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.”
http://www.glassdoor.com/
http://www.glassdoor.com/
3
The Executive View
When Businessweek asked Oberhelman about increasing wages,
he sounded wistful. He can raise wages “when

7. 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

8. guide noted Caterpillar's gains as follows:
absenteeism, and overtime (Europe).
than 4 months (Asia
Pacific).
-even point by almost 50% in units/day, and
of grievances by 80% (unionized plant).
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

9. 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
o Use the Integrative Framework for Understanding and
Applying OB (Figure 5.9) to help
identify the outcomes that are important in this case.
4
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?
concepts or theories that help you to
understand the problem in this case.
o What person factors are most relevant?

10. 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?
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
FIGURE 5.9INTEGRATIVE FRAMEWORK FOR

11. UNDERSTANDING AND APPLYING OB