Dec. 22 (Bloomberg) -- Caterpillar Inc., the biggest maker of construction equipment, will cut executive pay as much as 50 percent and suspend merit increases for management and support staff to trim costs amid turmoil in the credit and financial markets.

Executive compensation will be reduced by as much as half for 2009, and pay for senior managers will be cut 5 percent to 35 percent, the Peoria, Illinois-based company said in a statement today. Other managers and support employees will see wages lowered as much as 15 percent. Caterpillar also is instituting a hiring freeze.

Caterpillar is offering voluntary buyouts to U.S.-based employees through Jan. 12 and will continue to close plants temporarily and cut jobs in specific business units depending upon demand. The bulldozer and backhoe maker joins companies such as Motorola Inc., FedEx Corp. and Western Digital Corp. in slashing executive pay amid the longest recession in a quarter century.

“Conditions in the world are going to be much tougher for equipment demand next year,” said Eli Lustgarten, an analyst with Longbow Research in Independence, Ohio. He has a “neutral” rating on Caterpillar. “We’re seeing the first round of cancellations and deferrals; the company’s talked about flat sales, but we think it will be down double digits.”

The company said in October that next year’s sales to be “about the same” as this year as it reported a 6.4 percent drop in third-quarter profit, missing analysts’ estimates as costs rose for materials including steel and fuel.

CEO Salary

Chief Executive Officer Jim Owens’s compensation was lifted 15 percent in 2007, to $17.1 million, including a 12 percent raise in his base salary, and additional stock and option awards, according to regulatory filings. Chief Financial Officer Dave Burritt received $2.49 million in total compensation, while the five group presidents made an average of $6.36 million each.

Last week, Caterpillar said it is laying off 814 workers at an engine factory in Mossville, Illinois, as production for motors used in on-highway trucks and other machinery has declined. It also is moving 1,400 workers to a site in Seguin, Texas, to consolidate plants in South Carolina and Illinois. The company had 101,333 employees at the end of last year, according to Bloomberg data.

Today’s announced pay cuts reflect planned reductions in Caterpillar’s incentive compensation program and equity-based pay, the company said.

“We considered waiting until January to make this announcement, but decided it was better to communicate these plans with our employees as we approach the completion of our 2009 planning process,” Owens said in the statement. “We also wanted to give employees interested in the voluntary separation plan time to consider this decision and discuss it with family over the holiday break.”

Caterpillar fell 91 cents, or 2.1 percent, to $41.78 at 4 p.m. in New York Stock Exchange composite trading. The shares have lost 42 percent this year.

To contact the reporter on this story: Courtney Dentch in New York at cdentch1@bloomberg.net.

Last Updated: December 22, 2008 16:14 EST