How Nucor Steel Rewards Performance and Productivity
by Gregory P. Smith
Would you believe that one of the few remaining steel companies in the U.S. has not laid off any employees in the last 28 years? Read how Nucor Steel's unique way of linking performance with productivity and simple employee relations policy has helped it meet its goals.
Nucor Steel, with 7000 non-union employees and nearly $4.5 billion in sales, is one of the few remaining steel companies in the U.S. to remain competitive in its industry. It focuses on two clear goals: building steel manufacturing facilities economically, and operating the facilities productively.
To achieve these goals, Nucor has streamlined and decentralized management and allows each plant to operate as independent business units. Only four layers of management exist: Chairman, Vice Chairman and President; Vice President-General Manager; Department Managers; supervisor/Professional; and hourly employees. Only 22 employees eight managers and 14 administrative employees work in the corporate headquarters. Senior executives do not have company cars, dining rooms, executive parking spaces or corporate jets. Everyone from the janitors to the CEO has the same basic but generous benefits plan.
Nucor’s employee relations philosophy is simple and effective:
- Employees should have the opportunity to earn according their productivity.
- If employees do their job well today, they should have a job tomorrow. (They haven’t laid off employees in 28 years.)
- Employees have a right to be treated fairly. The company listens to employees through crew meetings, department meetings, shop dinners and employee surveys.
- Employees must have an avenue of appeal if they believe they have been treated unfairly. This complaint procedure allows employees to carry their complaints to the President of the company.
Nucor backs up its philosophy with a unique pay-for-performance compensation system. Salaried employees receive 0 to 25 percent of their salary based on the Return on Assets (ROA) of their plant. Employees earn money based on their individual productivity. While employees are paid a lower than industry average hourly rate, they qualify for an exceptional performance bonus if they exceed hourly quotas. For example, the steel industry average says an individual should be able to straighten 10 tons of steel an hour. Nucor’s goal is to straighten 8 tons an hour. Employees get an additional 5 percent bonus for every ton over 8 tons they can straighten. They typically average 35 to 40 tons an hour. However, if they are late to work they lose their bonus for the day. And if they miss a day of work during the week they lose their bonus for the entire week.
Department Managers also have base salaries that are lower than what other plants pay. But they qualify for an annual bonus based on their plant’s ROA that varies from 0 to 82 percent of their salary. They get an additional bonus based on the weekly production of their crews of 100 to 200 percent of base salary.
Senior officers have one compensation system. They do not get profit sharing, pensions, bonuses or retirement plans, and their base salaries are also set below industry averages. They receive one annual bonus based on the return of shareholders equity above certain minimum earnings. Paid 60 percent in stock and 40 percent in cash, the bonus ranges from 0 to several hundred percent of salary.
This unique way of rewarding productivity keeps Nucor’s productivity high and its absenteeism at a low 1 to 1.5 percent a year. Employees see a direct correlation between what they do and their paychecks a major incentive, and a key strength of the program. In fact, this program prompts such high performance that employees were refusing to take time off. The company began forcing them to take time off by giving employees four extra days off a year. Even so, only half their employees use their four extra days!
Greg Smith's cutting-edge keynotes, consulting and training programs have helped businesses accelerate organizational performance, reduce turnover, increase sales, hire better people and deliver better customer service. As President and Lead Navigator of Chart Your Course International he has implemented professional development programs for thousands of organizations globally. He has authored nine informative books including his latest book Fired Up! Leading Your Organization to Achieve Exceptional Results. He lives in Conyers, Georgia. Sign up for his free Navigator Newsletter by visiting http://www.ChartCourse.com or call (770) 860-9464.