Manufacturing steel is not a glamorous job. The industry is
beset by many problems, and more than 40 steel manufacturers have
filed for bankruptcy in recent years. Most young employees do not
view working at a steel mill as their dream job. Yet, one company
distinguished itself from all the rest by remaining profitable for
over 130 quarters and by providing an over 350% return on
investment (ROI) to shareholders. The company is clearly doing well
by every financial metric available and is the most profitable in
its industry.
How do they achieve these amazing results? For one thing, every
one of Nucor Corporation’s (NYSE: NUE) 12,000 employees acts like
an owner of the company. Employees are encouraged to fix the things
they see as wrong and have real power on their jobs. When there is
a breakdown in a plant, a supervisor does not have to ask employees
to work overtime; employees volunteer for it. In fact, the company
is famous for its decentralized structure and for pushing authority
and responsibility down to lower levels in the hierarchy. Tasks
that previously belonged to management are performed by line
workers. Management listens to lower level employees and routinely
implements their new ideas.
The reward system in place at Nucor is also unique, and its
employees may be the highest paid steelworkers in the world. In
2005, the average Nucor employee earned $79,000, followed by a
$2,000 bonus decided by the company’s annual earnings and $18,000
in the form of profit sharing. At the same time, a large percentage
of these earnings are based on performance. People have the
opportunity to earn a lot of money if the company is doing well,
and there is no upward limit to how much they can make. However,
they will do much worse than their counterparts in other mills if
the company does poorly. Thus, it is to everyone’s advantage to
help the company perform well. The same incentive system exists at
all levels of the company. CEO pay is clearly tied to corporate
performance. The incentive system penalizes low performers while
increasing commitment to the company as well as to high
performance.
Nucor’s formula for success seems simple: align company goals
with employee goals and give employees real power to make things
happen. The results seem to work for the company and its employees.
Evidence of this successful method is that the company has one of
the lowest employee turnover rates in the industry and remains one
of the few remaining nonunionized environments in manufacturing.
Nucor is the largest U.S. minimill and steel scrap recycler.
What are some potential problems with closely tying employee
pay to company performance?
Nucor has one of the lowest turnover rates in the industry. How
much of the organization’s employee retention is related to the
otherwise low pay of the steel working industry?
What would Nucor’s strategy look like in a nonmanufacturing
environment (e.g., a bank)?
Would Nucor’s employee profit-sharing system work at a much
larger company? At what point does a company become too large for
profit sharing to make a difference in employee motivation?
Imagine that the steel industry is taking a major economic hit
and Nucor’s profits are way down. Employees are beginning to feel
the pinch of substantially reduced pay. What can Nucor do to keep
its employees happy?