Despite earning a record $4.9 billion profit last year and projecting even better results for 2012, the company is insisting on a six-year wage freeze and a pension freeze for most of the 780 production workers at its factory here. Caterpillar says it needs to keep its labor costs down to ensure its future competitiveness.

The company’s stance has angered the workers, who went on strike 12 weeks ago. “Considering the offer they gave us, it’s a strike we had to have,” said Albert Williams, a 19-year Caterpillar employee, as he picketed in 99-degree heat outside the plant, which makes hydraulic parts and systems essential for much of the company’s earth-moving machinery.

Caterpillar, which has significantly raised its executives’ compensation because of its strong profits, defended its demands, saying many unionized workers were paid well above market rates. To run the factory during the strike, the company is using replacement workers, managers and a few union members who have crossed the picket line.

The showdown, which has no end in sight, is being closely watched by corporations and unions across the country because it involves two often uncompromising antagonists — Caterpillar and the International Association of Machinists — that have figured in many high-stakes labor battles.

“Caterpillar has been a leader in the past 20 years in taking a hard line,” said Richard Hurd, a professor of industrial relations at Cornell. Last winter, Caterpillar locked out about 450 workers at its locomotive plant in London, Ontario, and then closed the factory after the union rejected its demand to cut wages by 55 percent. In the mid-1990s, the company vanquished the United Automobile Workers after a 17-month strike by 9,000 workers at eight factories; the union surrendered and accepted the company’s concession-filled offer.

The machinists have carried out largely successful strikes at Boeing and Lockheed Martin, ultimately winning better raises and benefits for thousands of members.

Robert Bruno, a labor relations professor at the University of Illinois, said Caterpillar was trying to drive compensation down to a new floor. “Caterpillar sees this as ‘the new normal,’ while this union local feels you have to draw a line in the sand to hold on,” he said. “Some people are saying the union should be more deferential, more compliant, that it’s a bad time to strike. How can you counter a powerful multinational in this economy?” . . . 

Ever since negotiations began in March, Caterpillar has insisted on a wage freeze for its top-tier workers, those employed seven years or more; they average $26 an hour, or $55,000 a year before overtime. For the junior third of the workers who typically earn $12 to $19 an hour, Caterpillar has made no promises but has suggested it might raise their wages based on local market conditions.

Caterpillar has offered workers several modest, one-time payments, but is also demanding far higher health care contributions from its workers, up to $1,900 a year more, according to the union. The company had profit of $39,000 per employee last year.

Carlos Revilla, the plant’s operations manager, defended the push for a pay freeze, saying the top-tier workers were paid 34 percent above market level.

“A competitive and fair wage package is a must,” he said in a statement. “Paying wages well above market levels makes Joliet uncompetitive.”

But the union says Caterpillar, the world’s largest producer of earth-moving equipment, is in no way uncompetitive and should be sharing its prosperity with its workers. "

My Take

Whenever a strike comes down to a test of strength, the employees will lose. And all things considered, the company won't win much either. And that's too bad for both the company and its employees.

In this situation, there is little if any real serious communication, because each side is talking about different things. The company emphasizes the long term competitiveness issue and the union focuses on short term profitability of Caterpillar.

While Cat is doing well these days, that's not always been the case nor will it forever likely be the case. If sales decline substantially due to lower global market demand for its products, the company's profits will again largely disappear.

And with many of the world's economies in trouble and China slowing as well, there are definite long term competitive and economic issues on the horizon.  To repeat, Cat management is charged with keeping the company strong and glbally competitive in the long run. That means providing competitive but not materially higher than competitive wages and benefits to its work force.

On the other hand, the union wants a bigger piece of the pie. They want more money and justify their demands on the fact that Cat is highly profitable currently and granting its management salary increases. Cat would reply that it needs to pay management competitively as well, and that competitive management pay is a separate issue from pay for production workers. But it's an emotional issue for the union, akin to engaging in class warfare in the political arena.

Of course, the company can and will reduce management pay should it find it necessary to do so for economic or competitive reasons during the next several years. But it won't be able to alter its union agreement after it's settled for the next several years.

In any event, it's the greedy company and fat cat management being targeted by the union leadership in a continuing effort to keep employees from realizing that they enjoy high pay and good benefits today, especially compared to those companies in the area.

The only question I'd pose is this: Are employees being paid competitive wages and benefits for what they do? If so, and I believe that's the case, their emotional response to Cat's attempt to assure long term competitiveness is shorted sighted at best and  will lead to further wage losses in the weeks and months ahead.

Summing Up

As pointed out in an earlier post about this work stoppage, the longer this strike lasts, the less likely it is that employees will ever recoup what they're losing now.

And that in the end Caterpillar will settle pretty much on its terms whenever the dispute ends.

Strikes like this are never good for anyone. The long term wounds will be hard to heal, and the employees' losses will be permanent in nature.

I'm reasonably certain that Caterpillar's leadership considered all these factors before deciding to suffer through what has become a lengthy and protracted strike. The strike has now entered the emotional zone and now it's a pure test of strength and will.

In such a situation, Cat holds all the cards. It's now up to union leadership to find a way to get its members to vote to return to work under conditions quite similar to those they rejected when the strike began.

That won't be easy, but it will happen. The only question is when, and the only people now able to answer that are the union leadership and its membership.

It's sad but that's the way I see it.

Thanks. Bob.