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Caterpillar's Doug Oberhelman: Manufacturing's Mouthpiece


Caterpillar's Doug Oberhelman: Manufacturing's Mouthpiece

Photograph by Daniel Shea for Bloomberg Businessweek

Caterpillar’s (CAT) D 11 bulldozer, which costs about $2 million, is the size of a small studio apartment. On a spring afternoon, Doug Oberhelman, chief executive officer and chairman of the company, the world’s biggest manufacturer of construction and mining equipment, gazes approvingly at one of these gargantuan machines, which is gleaming in its fresh yellow paint. As workers in camouflage hats and dusty jeans stream through Caterpillar’s East Peoria (Ill.) factory, Oberhelman, who is wearing an open-collar shirt with a Caterpillar logo, his gray hair parted neatly to the side, pauses for a moment. “Good-looking machine, isn’t it?” he says, the question sounding more like a statement of fact.

Oberhelman, 60, has a sturdy, serious demeanor that’s made him an ideal spokesman for American manufacturing. Over the past two years the Caterpillar chief has emerged as a powerful advocate for policy changes he believes will boost exports and create jobs: looser trade restrictions, a lower corporate tax rate, and greater infrastructure spending. Oberhelman recently became chairman of the National Association of Manufacturers, the industry’s influential trade organization, and has counseled numerous congressmen and the president.

“Doug has not been bashful about speaking out against what he believes are bad, antibusiness tax policies, and he’s got the attention of policymakers,” says U.S. Department of Transportation Secretary Ray LaHood, a former U.S. representative from Peoria who has known Caterpillar’s CEO for 20 years. “They listen to him.”

Oberhelman’s activism has also made him a target of criticism from those who say Caterpillar is thriving at its workers’ expense. Last year, as the company racked up a record $66 billion in sales, generating $5.7 billion in profits, it repeatedly landed in the news for clashing with production employees. In January 2012, Caterpillar locked out union workers at a locomotive factory in Ontario after they rejected a pay cut of about 50 percent; the company shuttered the plant and moved production to Muncie, Ind., where workers accepted lower wages. Last May, Caterpillar took a hard line during negotiations with employees at its Joliet (Ill.) hydraulic-parts factory, insisting on cuts to health care and other benefits. After striking for three months, employees caved at the end of the summer. Senior workers’ wages were frozen for six years. Caterpillar is currently battling union workers at its Milwaukee plant.

As Caterpillar squeezed hourly workers for concessions, Oberhelman’s own pay rose 60 percent in 2011, to more than $16 million. Although the company’s profits have declined in recent quarters (largely because of a decline in commodities prices, which has hurt all mining equipment makers), Caterpillar announced on April 22 that Oberhelman’s compensation had jumped again, to $22 million. According to analysis by Bloomberg of Securities and Exchange Commission filings, the average pay for an executive officer at Caterpillar has risen 56 percent over the last six years, to more than $10 million.

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 (MCO). This inequity angers Caterpillar workers. John Arnold, a 35-year-old parts auditor at Caterpillar’s Morton (Ill.) distribution facility, says some of his co-workers are on food stamps. “I don’t understand how a company can make billions and billions of dollars in profits and have people on welfare,” says Arnold, who has worked for Caterpillar since 1999 and makes $15.66 an hour.

Although Caterpillar has fought vigorously against writing guaranteed pay increases into its contracts—and won, every time—it does offer market-based wage increases. It has also given quarterly bonuses to workers. The company says it pays workers at rates that are locally competitive, though Randy Smith, president of the United Auto Workers’ Peoria chapter, says welders at a nearby plant owned by Komatsu (6301:JP), Caterpillar’s biggest rival, make $3 to $4 more per hour.

After walking through the Peoria factory, Oberhelman takes off his safety glasses and sits down to eat his low-carb lunch: turkey wrapped in lettuce. He talks about his upbringing in Illinois and his career at Caterpillar. He lists his hobbies (hunting, “outdoors things”). Then comes the difficult question: Why is Caterpillar fighting its workers over wages? Oberhelman nods briskly, eager to put the issue to rest.

“We have to be competitive if we’re gonna win. And frankly, if we’re not competitive … we’re not gonna be here in the next 30 years. That’s a simple message, but”—he starts to hammer his hand against the table, punctuating his words with raps—“it’s very  … very … tough.” After a pause, he lets his hand lay flat.

“I always try to communicate to our people that we can never make enough money,” Oberhelman continues. “We can never make enough profit.”
 
 
Located a few hours south of Chicago, Peoria is an archetypal Rust Belt city, a smattering of office buildings and smokestack-topped plants surrounded by hundreds of miles of farmland. The company has been there since 1910, and its presence is inescapable: There are Caterpillar office buildings on one side of the Illinois River, Caterpillar factories on the other, and Caterpillar tractors lining the streets. Last year, Caterpillar built its own museum, a glassy sanctuary for earth-moving machines. Just about everyone in town has a friend or relative who works for the company—someone who “bleeds yellow.”

6,800 people work at Caterpillar's East Peoria factories, where six models of bulldozers are builtPhotograph by Daniel Shea for Bloomberg Businessweek6,800 people work at Caterpillar's East Peoria factories, where six models of bulldozers are built

Oberhelman lives on the outskirts of the city with his second wife, Diane, a prominent real estate developer who opened the first Caterpillar merchandise store downtown. The couple owns more than a thousand acres of land just outside Peoria, including a former coal mine they are transforming into a nature preserve. Oberhelman gave Diane a backhoe for their third anniversary. They also breed horses, and both hunt. Diane likes to shoot deer; Doug prefers duck hunting (his ringtone is a quacking sound). “I love Peoria,” Oberhelman says. “I’ve got one stoplight between my bed and the airport.”

He grew up a few hours away in Woodstock, a tiny town where the 1993 movie Groundhog Day was filmed. The son of a John Deere (DE) salesman, he spent his childhood crawling on tractors. A driven, industrious kid, Oberhelman worked two paper routes while in middle school, one before school and one after. His circulation manager, Jerry Beckus, says Oberhelman “did what was asked of him, without question.” He wasn’t a remarkable student, but he was good at math and enjoyed reading the Wall Street Journal, using his newspaper earnings to buy shares of stock.

Oberhelman paid his way through Millikin University, a small private college in Decatur, Ill., by working at a bank, where he did everything from sign home mortgages to repossess cars. “It was a fabulous experience,” he says. “You knock on the door, and you tell somebody you’re gonna take their car away—and usually they’re down on their luck, and their car is the last thing they have. So I learned to deal with that.”

After joining Caterpillar’s finance department out of college, Oberhelman moved to Uruguay in the early 1980s, right when the Latin American economy imploded. “I watched country after country take on too much debt and get into trouble,” he says. He later moved to Japan as it entered an economic tailspin. He returned to Peoria in the mid-1990s, eventually becoming Caterpillar’s chief financial officer.

At the time, Caterpillar was immersed in one of the nastiest labor battles in U.S. history. In 1991, after the company demanded a spate of concessions, Caterpillar’s workers walked out, kicking off the first of two strikes that spanned more than six years. As production employees went without pay for months, several small Illinois towns were devastated. Desperate scabs crossed picket lines, pitting brothers against each other. The divorce rate soared, and a handful of workers committed suicide.

Workers directed their ire toward the CEO, Don Fites. The union saw Caterpillar’s leader—a somewhat reclusive man who resembled the actor Gene Hackman—as Enemy No. 1, creating shirts that said: “Happiness is Don Fites’ Picture on a Milk Carton.”

Even as Caterpillar’s profits topped $1 billion for the first time in the mid-’90s, executives insisted they had to take a stand on wages. Oberhelman, who deeply admires Fites, believes his predecessor showed foresight. “What we had going on was what I would call a labor rejuvenation,” he says. “It was over who was going to run the company.” If Fites hadn’t faced down the unions in the ’90s, Oberhelman maintains, the company would have gone the way of the U.S. automobile industry.

In 2005, long before recession loomed, Oberhelman oversaw the company’s plan to prepare for a steep financial downturn—a task that made him unpopular, he says, but proved invaluable. After laying off 30,000 people in 2009, Caterpillar made it through the crisis without losing money. Last year, Caterpillar made $45,000 per employee, up from $12,000 in 2007. “The argument they make is, at a time when we’re very profitable, we can’t afford to more equitably distribute the wealth, because there may come a time when we won’t be,” says Robert Bruno, a professor at the University of Illinois at Urbana-Champaign’s school of labor and employment relations. “So when is it appropriate to share the wealth?”

Caterpillar employees know that the answer to this question is up to Oberhelman. The dwindling number of manufacturing jobs combined with the decline of unions has weakened workers’ leverage. When Caterpillar offers jobs in nonunion Southern states that pay $12 an hour, applicants line up around the block. “You’re basically expendable,” says Emily Young, a welder who has worked at Caterpillar’s Decatur plant for eight years. “For every one person who doesn’t work, there’s five waiting in line.”
 
 
On April 1, Oberhelman attended an event in Chicago with Mayor Rahm Emanuel to announce the creation of a group promoting bipartisan immigration reform. Oberhelman, wearing one of his characteristic yellow ties, gave a short speech. “Our companies need to be competitive, cities like Chicago need to be competitive, our state needs to be competitive, and of course our country needs to be competitive,” he said. (“Competitive” is one of Oberhelman’s favorite words; over the course of a 90-minute interview he used it or a variation of it 52 times.)

Since rising to the top of Caterpillar, Oberhelman has been aggressive on national policy, joining CEO groups such as the Campaign to Fix the Debt and visiting Washington regularly to promote international trade deals and corporate tax reform. Jay Timmons, president of the National Association of Manufacturers, says Oberhelman told him at a recent board meeting that he felt obliged to spend more time in D.C. “For him, it’s about America, it’s about manufacturing, it’s about quality of life,” says Timmons. “And it’s also about the bottom line for his company.”

Between 2004 and 2012, Caterpillar’s political action committee more than tripled its spending, to $1.1 million. In the latest election cycle, the PAC gave 86 percent of its federal donations to Republican candidates. Although Oberhelman is a Republican—he backed Mitt Romney last year—he concedes that the Obama administration has treated his industry well. “I’ll give them credit—they have been vocal about manufacturing jobs,” he says.

President Obama has returned the affection: In his State of the Union address in February, he cited Caterpillar’s move of a factory from Japan to Georgia as a reshoring success story. Yet while Caterpillar has increased its American workforce by 2 percent since 2008, its head count outside the U.S. has grown 19 percent.

Oberhelman speaks frequently about the need to fix the country’s school system, often bemoaning Caterpillar’s inability to find suitable workers for both skilled and unskilled jobs. The company says about 60 percent of the people in Peoria who apply for blue-collar jobs at Caterpillar are disqualified for simple reasons, such as lacking basic math or writing skills. “Today we spend more money on education than we ever have, and we get less for it,” Oberhelman says. At a job creation roundtable last summer, he went after the U.S. higher education system, long hailed as one of the country’s strengths: “I, for one, struggle a little bit with a $250,000 education for a philosophy degree,” he said. “They are a wonderful people, but we can’t employ philosophers in manufacturing in the United States.”

Some economists disagree with Oberhelman’s diagnosis of the U.S. labor market’s ills. If there is a skills gap, they say, it’s because companies like Caterpillar have created one by demanding too much from workers for too little pay. Lawrence Mishel, president of the left-leaning Economic Policy Institute, says that while there are plenty of willing workers right now, declining manufacturing wages will eventually erode the pool of candidates. “What young worker wakes up and says, ‘I want to make a career in U.S. manufacturing?’ ” he asks. “Why would that be rational given the way these firms behave?”

When Chris Helfrich, 31, joined Caterpillar’s Decatur plant in 2005, he had high hopes. He grew up in a small Illinois town where many of his friends’ parents worked for the company, and “they had nice trucks, nice houses,” he recalls. But today his family has to scrimp to get by. “I’m gonna start taking classes in the fall, try to get something different,” says Helfrich, an assembly line worker whose wages topped out three years ago at $17.88 an hour. He makes about $36,000 a year.

Helfrich’s son is about to turn two. Would he encourage him to go into manufacturing? “Oh, God no,” he says. “I want my kid to be so much better than me.”
 
 
While Oberhelman is personally popular among most colleagues and employees, his ascension to CEO in 2010 hasn’t defused the tension between the company and unions. “If there was a poster child in the business community for abusive and unnecessarily hostile labor relations, it would probably be Caterpillar,” says Bruno, the University of Illinois professor. When almost 800 Caterpillar employees walked out of its Joliet factory last May, the strike made national news; labor experts saw it as a litmus test for unions’ negotiating power in a time of high corporate profitability. Workers wearing sunglasses and hats to fend off the near-100-degree heat pitched tents and set up porta potties by the side of the road, booing loudly as replacement workers drove into the factory parking lot. The machinists’ union, which paid striking workers $150 a week in wages, set up a food pantry. In August, days before the strike ended, Illinois Governor Pat Quinn visited the striking workers bearing a $10,000 check. “When people are united, they can’t be defeated,” he said.

Oberhelman’s relationship with his state’s Democratic governor has been strained at times. When Quinn pushed for a temporary tax increase for individuals and businesses in 2011, Oberhelman responded with a fiery op-ed in the Chicago Tribune. “Cutbacks, streamlining, and belt-tightening have to be the first order of business,” he wrote. Oberhelman later sent Governor Quinn a packet of letters he had received from other state governors, writing that he had been “wined and dined” by rivals trying to entice Caterpillar to leave Illinois. Virginia Governor Robert McDonnell gave Oberhelman an iPod Touch with a personal video message. Oberhelman now says the company isn’t planning on leaving Illinois.

Last July, during the Joliet strike, Oberhelman stopped by the company’s Aurora (Ill.) plant. One production worker there, who declined to give his name for fear of retaliation, says he was invited to a rare group meeting with the CEO. Afterward, he says, he approached Oberhelman and asked him when the hourly employees would get pay increases.

Oberhelman responded, the worker says, by using his own multimillion-dollar salary as an example of how competitive wages work, pointing out that he made less than the CEOs of Deere and Komatsu, both smaller companies than Caterpillar. The employee—a single father who says he hasn’t received an hourly raise in more than 10 years—was stunned. Caterpillar declined to comment on the incident.

Oberhelman is quick to point out that his compensation rose in 2011 largely because of his promotion to CEO the year before. “My salary, my benefits, my wages have to be competitive with everyone else that Cat’s competing with,” he says. “If the CEO of a company is paid $10,000 a year, chances are he or she is gonna go somewhere else to make more money. And then what are you gonna attract there? I’m exaggerating a little bit to make my point. But you have to be competitive at every level. This is the challenge that America has.”

If Caterpillar refused to pay its executives high salaries, they could probably find other jobs, whereas hourly workers have much less mobility. Oberhelman acknowledges this dynamic, though he tends to characterize Caterpillar’s role as a passive one, as though the company lacks the power to choose how it disburses its profits.

When will workers’ wages rise? Oberhelman exhales sharply. “The answer to that is: 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.”

Kimes is a reporter for Bloomberg News in New York.

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Companies Mentioned

  • CAT
    (Caterpillar Inc)
    • $109.96 USD
    • 0.60
    • 0.55%
  • MCO
    (Moody's Corp)
    • $89.18 USD
    • 0.68
    • 0.76%
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