Case Study:

For the most part, the watchwords in U.S. business during the 2008-2010 recession were cutting payroll, reducing headcount, and eliminating jobs. But one companyNucor, the country's largest steelmaker, still has all its jobs. Hit by a 50- percent plunge in output that had begun in September 2008, the U.S. steel industry had laid off some 10,000 workers by January 2009, and the United Steelworkers union was expecting the number to double before the recession came to an end. As of the end of 2010, however, Nucor had refused to follow suit in laying anyone off. At its 11 U.S. facilities, Nucoremployees have been rewriting safety manuals, getting a head start on maintenance jobs, mowing the lawns, and cleaning the bathroomsbut they're still drawing paychecks. "Financially," says one employee at the company's facility in Crawfordsville, Indiana, "Nucor workers are still better off than most."

As far as top management is concerned, the company's ability to weather the recent economic crisis was based on several factors, most importantly, the firm's employees and culture. What's that culture like? It originated in the 1960s as the result of policies established by Ken Iverson, who brought a radical perspective on how to manage a company's human resources to the job of CEO. Iverson figured that workers would be much more productive if an employer went out of its way to share authority with them, respect what they accomplished, and compensate them as handsomely as possible. Today, the basics of the company's HR model are summed up in its "Employee Relations Principles":

1.Management is obligated to manage Nucor in such a way that employees will have the opportunity to earn according to their productivity.

2.Employees should feel confident that if they do their jobs properly, they will have a job tomorrow.

3.Employees have the right to be treated fairly and must believe that they will be.

4.Employees must have an avenue of appeal when they believe they are being treated unfairly.

The Iverson approach is based on motivation, and the key to that approach is a highly original pay system. Step 1, which calls for base pay below the industry average, probably doesn't seem like a promising start, but the Nucor compensation plan is designed to get better as the results of the work get better. If a shift, for example, can turn out a defect-free batch of steel, every worker is entitled to a bonus that's paid weekly and that can potentially triple his or her take-home pay. In addition, there are onetime annual bonuses and profit-sharing pay-outs. In 2005, for instance, Nucor had an especially good year: It shipped more steel than any other U.S. producer, and net income hit $1.3 billion, up from $311 million in 2000. The average steelworker took home $79,000 in base pay and weekly bonuses, plus a $2,000 year-end bonus and an average of $18,000 in profit-sharing money.

The system, however, cuts both ways. Take that defect-free batch of steel, for example. If there's a problem with a batch, workers on the shift obviously don't get any weekly bonus. And that's if they catch the problem before the batch leaves the plant. If it reaches the customer, they may lose up to three times what they would have received as a bonus. "In average-to-bad years," adds HR vice president James M. Coblin, "we earn less than our peers in other companies. That's supposed to teach us that we don't want to be average or bad. We want to be good." During fiscal 2009, total pay at Nucor was down by about 40 percent.

Everybody in the company, from janitors to the CEO, is covered by some form of incentive plan tied to various goals and targets. We've just described the Production Incentive Plan, which covers operating and maintenance workers and supervisors and which may boost base salaries by 80 percent to 150 percent. Bonuses for department managers are based on a return-on-assets formula tied to divisional performance, as are bonuses under the Non-Production and Non Department- Manager Plan, which covers everyone, except senior officers, not included in either of the first two plans; bonuses under both manager plans may increase base pay by 75 percent to 90 percent. Senior officers don't work under contracts or get pension or retirement plans, and their base salaries are below industry average. In a world in which the typical CEO makes more than 400 times what a factory worker makes, Nucor's CEO makes considerably less. In the banner year of 2005, for example, his combined salary and bonus (about $2.3million) came to 23 times the total taken home by the average Nucor factory worker. His bonus and those of other top managers are based on a ratio of net income to stockholder's equity.

Getting the Steel out of the Door - Nucor needs just fourincentive plans because of a usually flat organizational structure - another Iversion innovation. There are just four layers of personnel between a janitor and senior management: general managers, department managers, line supervisors, and hourly personnel. Most operating decisions are made at the divisional level or lower, and the company is known for its tolerance of honest mistakesmade in the line of decision-making duty. The Nucor website quotes an unnamed executive as saying, "Workers excel here because they are allowed to fail," and goes on to explain that the occasional misstep is considered a good trade-off for the benefits ofinitiative and idea sharing: "Nucor managers at all levels encourage their employees to try out their new ideas. Sometimes the ideas work out, sometimes they don't. But this freedom to try helps give Nucor oneof the most creative, get-it-done workforces in the world."

The Nucor system works not only because employees share financial risks and benefits but because, in sharing risks and benefits, they're a lot like owners. And people who think like owners are a lot more likely to take the initiative when decisions have to be made or problems solved. What's more, Nucor has found that teamwork is a good incubator for initiative as well as idea sharing. John J. Ferriola, who managed the Nucor mill in Hickman, Arkansas, before becoming chief operating officer, remembers an afternoon in March 2006 when the electrical grid at his facility went down. His electricians got on the phone to three other company electricians, one in Alabama and two in North Carolina, who dropped what they were doing and went straight to Arkansas. Working 20-hour shifts, the joint team had the plant up and running again in three days (as opposed to an anticipated full week). There was nothing in it (at least financially) for the visiting electricians, but they knew that maintenance personnel get no bonuses when equipment in their facility isn't operating. "At Nucor," says one frontline supervisor, "we're not 'you guys' and 'us guys.'It's all of us guys. Wherever thebottleneck is, we go there, and everyone works on it."

Nucor also likes to see teamworkcooperation and ideasharingcombined with a little productive competition. Plant managers often set up contests between shifts to improve efficiency, output, or safety, but sometimes the effort of a work group to give itself a competitive edge can be taken to another level. In 2002, the Nucor plantin Crawfordsville, Indiana, wasa pioneer in the development of an innovative process called thin-strip steel casting, and as of 2008, it was still setting recordsfor continuous output from the process. The facility,however, isn't located near any major waterway and is thus at a disadvantage when it comes to transportation costs, especially when fuel prices are high. So General Manager Ron Dickerson and his employees collaborated on a plan not only to get around the problem but to increase profitability at the same time. Because it was too expensive for them to ship sheet steel aswide asthat regularly made by competitors (including otherNucor owned plants), Crawfordsville management and workers campaigned for the opportunity to shift the plant's focus to other types of steel.

It was a risky proposition, but today Crawfordsville turns out 160 different grades of steel. Some of them present manufacturing difficulties that employees have had to solve over time, but making the new processes work meant more orders for the plant and more hours for its employees. By the first quarter of 2008, the plant was setting production and shipment records. "We're continually expanding product ranges and the types of steel we make," says Dickerson, who continues to look forward, particularly to the opportunity to apply the Nucor brand of employee initiative to new technologies. "Nucor has a couple of other things going on," he notes, "and it's not yet decided where they'll make an investment. [But] Crawfordsville is known for successful start-ups, so I'm hoping we get some of these new technologies."

Questions for Discussion

1.Instead of a system of individual performance appraisals, Nucor appraises employee performance according to division-wide quality, productivity, and profitability goals and targets. What are the advantages and disadvantages of this approach? (6 Marks)

2.Identify the incentivesboth financial and nonfinancialthat Nucor uses to motivate employees. (5 Marks)

3.How does Nucor's flat organizational structure contribute to the success of its compensation system? (6 Marks)

4.Many firms today use temporary, part-time, or virtual workers to reduce costs and gain flexibility. Nucor has never takenthis route. Should management consider it in the future? Why or why not? (6 Marks)

5.Nucor's CEO believes that when the economy turns around, Nucor will be "first out of the box" in the steel industry. What reasons does he have for being so optimistic? (5 Marks)

6.What are the management's preferences for motivating and enhance engagement of employees in this case? (6 Marks)

7.Critically evaluate the Nucor's teamwork strategies. (6 Marks)

8.Does Nucor's motivational practices relates to any of motivation theories? Discuss in detail. (5 Marks)

9.Critically evaluate the concepts of empowerment, Creativity & innovation and Flexibility in the context of Nucor Steels. (5 Marks)