Caterpillar

Caterpillar, Inc.

     Caterpillar, Inc. is a Fortune 500 (listed 50th in 2008) manufacturing company that was formed in 1925. It has grown to become “the world’s largest maker of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines”(www.cat.com). Caterpillar (Cat) is a 30 billion dollar/year company with over 70,000 employees globally. Cat is well respected by other manufacturing companies who view it as a leader of the industry and use them as a benchmark for productivity and performance. We chose to look at Caterpillar’s compensation system because of their historically successful business practices. In this paper, we will review the human resource practices/process, critique how they handle these practices, and provide recommendations for change. We will focus on U.S. exempt employees in our overview of these practices.

    Caterpillar’s compensation system consists of base pay, merit raises, and an incentive pay plan. We will also include cost of living allowances (COLA) and tuition reimbursement as secondary compensatory measures. Cat does not have pay-for-knowledge or seniority pay at the management level.

     Employee’s starting base pay is determined upon initiation of employment at Cat. There are 17 pay grades (17-34). Employees are placed in the appropriate pay grade depending on knowledge, skills, and abilities that they possess upon hire. There is significant overlap in each pay grades and grades become wider as salary grades get higher. Merit raises are given after yearly performance reviews depending on the rating received. A comprehensive performance management evaluation is done and ratings of 1, 2, 3a, 3b, 3c, 4, or 5 are given. A percentage would correspond with each rating and determine the merit raise received. (1 gives 10%, 2 gives 8%, etc.) These amounts fluctuate yearly and are given in effect after the employee’s anniversary date. The Incentive Payment Plan (ICP) is awarded in the first quarter...