BUSA 2005

Chapter 12

Case Assignment

NUCOR'S HARRIS STEEL CORPORATION

Stoney Creek, Ontario. Nucor Corporation is the largest steel producer in the United States. Its mission statement is "Take Care of Our Customers," and to accomplish this, they aim to be the safest, highest quality, lowest cost, most productive, and most profitable steel and steel products company in the world. Nucor is known as Harris Steel in Canada, and has major operations in almost every province.

Nucor-Harris Steel is highly decentralized, and operates one of the leanest corporate organizations in the United States with only 75 corporate employees. Its organizational structure has just five levels of management: President and CEO, executive vice president, division general manager, department manager, and supervisor/professional. This streamlined chain of command allows the general managers at each division (Canada's Harris Steel being one of the largest divisions) to operate their facility as an independent business. With the day-to-day decisions made at the operating facilities, Nucor-Harris Steel can respond to suppliers, customers, and employees without waiting for a decision from the corporate office.

Reducing the distinctions between management and hourly employees serves Nucor-Harris Steel well. The company is committed to not laying off employees during work shortages, and to date Nucor Steel has never laid off a single worker. The result is a committed team of Nucor Steel employees and high-quality products.

Nucor-Harris Steel uses only four compensation plans for all employees, from hourly employees to senior officers. These compensation plans motivate and reward employees for meeting and exceeding production goals: Employees involved directly in manufacturing are on the Production Incentive Plan, and receive weekly bonuses based on the production of their work groups. These bonuses average 80 to 150 percent of the base wage and have no set limit. The Department Manager Incentive Plan sees managers at this level earn incentive bonuses based primarily on the return on investment of their facility. These bonuses can be as much as 80 percent of base salary. Professional and staff employees, such as accountants, engineers, clerks, and receptionists, are on the Professional and Clerical Bonus Plan, which rewards employees based on their division's return on assets, and can allow bonuses of up to 28 percent of salary.

There are several additional bonus programs available to Nucor employees (but not officers), such as profit sharing, scholarship programs, employee stock purchase plans, and service awards. In years of extraordinary performance, the company has issued bonuses to all employees, except officers, of as much as $2,000 for each employee. Each annual report since 1975 has listed the name of each of Nucor's 18,000 employees.

Finally, the Senior Officers Incentive Plan does not offer senior officers an employment contract. Nor do they contribute to pension or retirement plans. Nucor-Harris Steel senior executives are not provided with company cars nor executive parking spaces. Their base salaries are lower than industry averages, and the balance of their compensation is based on the company's overall percentage of net income to stockholder's equity. This bonus is paid out in cash and stock. The base pay of Nucor-Harris Steel employees is significantly below industry average, but productivity bonuses make them among the highest paid workers in the world.

The success of Nucor-Harris Steel has been due, in part, to unprecedented and unrelenting domestic and international demand for steel. Growing economies, particularly China, have had

an insatiable need for steel. Recently, however, China has become self-sufficient in steel production, and not only produces enough to meet local demand but also is emerging as a major exporter of steel. Chinese steelmakers are currently negotiating with Indian steel companies to partner in joint ventures to produce high-quality steel. The worldwide supply of steel is catching up with demand, and current inventories are higher than many industry analysts consider appropriate. As global supply increases, production at Nucor-Harris Steel will slow, which means bonuses will decrease and total compensation (base pay plus bonus) could fall below industry average.

Sources: Nucor, "Harris Steel Inc. Canada Corporate Headquarters," accessed 18 January, 2011, from: http://www.nucor.com/products/locations/harris_canada/; D. Crofts & R. Delaney, "Nucor to buy Canada's Harris Steel for $1.07 billion," Bloomberg, 3 January, 2007, available at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atc7t4wqgN1Q&refer=us; Nucor, "Nucor invites you to join its fourth quarter and year end of 2010 conference call on the web," 4 January 2011, available at http://www.nucor.com/investor/news/releases/?rid=1520152; J. Packard, "Nucor & Severstal announce steel price increases," Steel Market Update, accessed 12 January, 2011, from http://www.steelmarketupdate.com/pub/blog/posts/2010/1/12/nucor-severstal-announce-steel-price-increases/; Government of Canada, "Nucor Steel in Seattle is a prime example of how open cross-border trade and investment helps to generate wealth and jobs in both Canada and the U.S.," accessed 12 January, 2011, from http://www.canadainternational.gc.ca/san_diego/commerce_can/2010/wa.aspx?lang=eng; CSTEC, Human Resources Study of the Broader Canadian Steel Industry (Toronto: CSTEC, May 2005), available at http://www.cstec.ca/sites/default/files/files/2005_Sector_Study_Report_English.pdf; M. Polanco, "The mill gives and takes," Hartford Courant, 29 January, 2007, available at http://articles.courant.com/2007-01-29/news/0701290303_1_plant-connecticut-development-authority-yale-steel; G.P. Smith, "How Nucor Steel rewards performance and productivity," Chart Your Course International, 6 February, 2012, available at http://www.chartcourse.com/how-nucor-steel-rewards-performance-and-productivity/; "The Nucor Story," http://www.nucor-fastener.com/nucor.html; L. Haoting, "China's steel sector still red hot," China Daily, 9 May, 2004, available at http://www.chinadaily.com.cn/english/doc/2004-05/09/content_329014.htm; D. Lague, "China's demand for steel slows, but the mills keep churning," The New York Times, 20 July, 2005, available at http://www.nytimes.com/2005/07/19/business/worldbusiness/19iht-steel.html?_r=0

Questions

Short Answer

1. Describe how Nucor-Harris Steel's compensation strategy leads to increased motivation from an expectancy theory perspective.

2. Nucor-Harris Steel relies almost exclusively on external rewards. As demand for Nucor Steel is expected to decrease, these rewards will also decrease. What can Nucor do to minimize the impact of decreasing bonuses on employee motivation?

3. Employees on the Production Incentive Plan receive weekly bonuses based on the production of their work groups. What type of reinforcement is this?

Multiple Choice

1. What motivation need is met by listing all 18,000 names in the company's annual report?

a. equity theory

b. intrinsic reward

c. over-reward

d. extrinsic reward

2. What motivation theory is met by having only four compensation plans for every employee in the entire company?

a. equity theory

b. expectancy theory

c. reinforcement theory

d. goal-setting theory

3. If Nucor sales decreased to the point that bonuses could not be issued, what contingency of reinforcement would this represent?

a. positive reinforcement

b. negative reinforcement

c. punishment

d. extinction