BUSA 2005

Chapter 12 ( Motivation)

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-announcesteel-

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-developmentauthority-

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/19ihtsteel.

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