NUCOR

HUMAN RESOURCE MANAGEMENT

CASE ANALYSIS 4

“NUCOR: The art of Motivation”

Business Week May 1,2006

GROUP NAME SIVAKUMARAN KARUPPIAH

1 MR091052
2 NURFAUZANA ABD AZIZ
MR091066
3 NORHAYATI JAMIAAN
MR091067
4 AZHANI CHE IBRAHIM
MR081043
CODE MRB 2032
COURSE HUMAN RESOURCE MANAGEMENT
LECTURER ASSOC. PROF DR ROSMINI OMAR
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# Points of Significance Possible points

1. Problem/issue identification (10) 9
2. Critical & strategic alternatives; problem solving (20) I like 17
your answer for Question 1- a blend of theory and
practice, but answer to question 3 was superficial
3. Research effort (www) (10) 8
4. Connectivity- theory to practices; reflection (10) 9
5. Creativity/neatness/coherence (5) 5
6. Case discussion- anchoring/ participating (15) 15
Total (70) + tier 1 bonus (3 points) 66

NUCOR SUMMARY

An article in business week had written about Nucor in managing people with the title

The Art of Motivation. Nucor is a company that runs the steel business. Nucor operates

through three segments: Steel Mills, Steel Products, and Raw Materials. Nucor got

a surprisingly performance culture towards its competencies. This company treats

workers like the owners. There is a story when there is a bad situation involved

Hickman’s electric grid that had failed, and three of electrician in Hickman received

about the bad news. The trio immediately headed to the plant to solve the problem

without any order by the supervisor. The team worked for 20 hours shifts to get the plant

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up and running again and there wasn’t any rewarded or extra money for their time

sacrificed. The contribution was huge for the company and this story was telling us that

in Nucor, it’s not considered particularly remarkable.

Nucor has nurtured one of the most dynamic and engaged workforce around. Nucor’s

flattened hierarchy and emphasis on pushing power to the front line lead its employees

to adopt the mindset of owner-operator. Nucor gained renown in the late 1980s for its

radical pay practices, which base the vast majority of most workers’ income on their

performance. An upstart nipping at the heels of the integrated steel giants, Nucor had a

close-knit culture that was the natural outgrowth of its underdog identity.

At Nucor the art of motivation is about an unblinking focus on the people on the front

line of the business. It’s about talking to them, listening to them, taking a risk on their

ideas, and accepting the occasional failure. It’s a culture built in part with symbolic

gestures. Nucor’s performance has been nothing less than sensational. It has grown into

a company with 2005 sales of $12.7 billion, and the company shipped more steel in

United State – 20.7 million tons – than other company.

Nucor use the strategic highflier with the outstanding execution by placing it alongside

highfliers such as JetBlue Airways and eBay. The writer considered that Nucor creates

knowledge. Nucor requires managers to abandon the command-and-control model that

has dominated American business for the better part of a century, trust their people, and

do a much better job of sharing corporate wealth.

Nucor pay system is the single most daring element of the company’s model and the

hardest for outsider s and acquired companies to embrace. Nucor gave out more than

$220 million in profit sharing and bonuses to the rank and file in 2005 and the average

Nucor steelworker took home nearly $79 000 in 2004. Not only good work rewarded, but

bad work is penalized. Managers don’t just ask workers to put a big chunk of their pay at

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risk. Their own take-home depends heavily on results as well. In Nucor, executive pay is

geared toward team building. The bonus of the plant manager, a department manager’s

boss, depends on the entire corporation’s return in equity. So, in Nucor, there’s no glory

in winning at their own plant while the others are failing.

Nucor has created a culture that not only focused on payment. There’s a healthy

competition among facilities and even among shifts, balanced with a long history of

cooperation sharing. There’s always room for improvement, plant managers regularly set

up contests for shifts to try to outdo one another on a set goal, generally related to

safety, efficiency, or output. Besides, Nucor employees have to innovate themselves out

of tough spots and into more profitable once. Workers are enjoyed to be in this company

and being like a walking advertisement for Nucor. ‘I can give you all the rhetoric you

want,’ said Ladd, ‘ but the people in mills, that’s what makes in Nucor’.

CASE QUESTIONS:

Question 1

What business is Nucor in and how is its business strategy different from that

of its competitors?

Nucor Corporation a fortune 200 in company headquartered in Charlotte, North

Carolina U.S is one of the largest mini-mill operator and largest steel

manufacturer by tons produced, continues to lead the industry in efficiency,

technological innovation, profitability and delivery of high quality products at low

cost structure, after a record of more than 16 years of rapid growth in a declining

industry. Nucor claims to be North America’s largest recycler of any material,

recycling on ton of steel every two second. The steel products produced include :

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- Bars (Carbon and alloy steel)

- Beams

- Sheet / Flat Rolled

- Plate

- Steel joists

- Joists girders

- Steel deck

- Fabricated concrete reinforcing steel

- Cold finished steel

- Steel fastener

- Metal building systems

- Light gauge steel framing

- Steel grating

- Expanded metal

- Wire and wire mesh

Nucor has a unique internal organization in that it has few hierarchy levels,

rewards employees based on productivity, and that officers receive very little

benefits in comparison to officers employed by other companies. This structure

complements their strategy well considering one of their goals is to continually

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create smaller plant producing at higher quality while spreading the quantity of

plants out for local market shares. This minimization strategy is applied to only

having four levels of employees: General Manager, Department Manager,

Supervisor/ Professional, and Hourly Employee. Also, giving bonuses to

employees based on their or their team’s productivity correlates directly with

Nucor’s strategy to be the United States’ top producer of steel. Even though

most employees are eligible for bonuses, officers cannot, which can be related to

Nucor’s low cost strategy by eliminating the high cost of paying out bonuses and

extra benefits to the officers.

As the largest steel producer in the United States, Nucor have competitive

advantages that distinguish it from other firms such as USX, Nippon Steel, and

Arbed Group. As a mini mill, manufacturing used steel into the highest possible

quality is a great environmental effort. In addition to recycling, a large part of

R&D for Nucor is to revolutionize the way the public image of steel plants by

making them smaller, more fuel efficient, and emitting less carbons (one

development for this is to use eucalyptus). While being an environmentally

sound company passes government regulations and looks good on paper, it does

not necessarily sell more steel. Other competitive advantages for Nucor include

low price, highest scrap steel quality, staying ahead of technology, and

awareness and accessibility in the low-end market.

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Business Strategy of Nucor’s is:

1) Barriers to Entry Steel entrepreneurs have three (3) options when it

comes to what kind of steel company they want to run: integrated firms,

mini mills (Nucor), or special steel making. Despite the rather lucrative

options, there are many government regulations in place that can hinder

cost-cutting and business growth. Examples of these barriers include:

• Dumping regulations

• Trade laws for international business

• Price ceilings

Nucor’s emphasis on “doing it for our clients, our employees and our earth” is

a great example of being an environmentally conscious company. In addition,

Nucor is mostly a low-end product because it is recycled material, therefore it

does not have to worry about price ceilings unlike the other major steel

producers.

2) Buyer Power Brand identity and product differentiation are not very

important to the steel industry. The three factors that determine how well

a company will do in its market are:

• Price

• Quality

• Dependability

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Nucor takes advantage of two of these to differentiate itself from other

steel manufacturers; producing the highest quality mini milled steel for the

lowest, competitive price.

3) Supplier Power For Nucor, its inputs are scrap metal, which often

comprise of old automobiles. While this may not produce the highest

quality steel, Nucor is an environmentally sound organization and the

leading recycling firm in the world. The cost associated with using scrap

metal includes purifying (removing other materials) and contracts with auto

firms.

4) Threats of Substitutes Manufacturing steel by using scrap degrades the

quality, therefore, increasing the probability of finished product

manufacturers and construction firms choosing a higher quality steel from

an integrated or special steel making firm. However, Nucor can offer lower

prices because of their low material costs. Aluminum, plastics, and

advanced composites also take away from Nucor’s potential market as

technology advances away from steel.

5) Degree of Rivalry The steel industry in the United States is concentrated

in Pennsylvania, Ohio, and Indiana because of the close source of coal and

iron ore. Nucor is located over the entire country and is continuously

building micro mills to cover local demand better and decrease shipping

costs. The concentration of steel plants in one region increases their

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competition and the steel industry overseas have decreased their costs

efficiently allowing them to penetrate the American market with high

quality, low cost steel. The foreign steel market and Nucor’s strategy are

great examples of how keeping up with the constantly changing steel

technology can be a great competitive advantage.

In conclusion, Nucor has effectively used Porter’s strategy of the Five Forces to

become the leading steel producer in the United States and continually have high

profits while others go bankrupt. While Nucor’s innovative internal organization

cuts costs and encourages productivity, it main strategy is to stay on the cutting

edge of technology (at least for the American market). With that competitive

strategy in place, Nucor must invest in the CSP casting machinery even with

previously made financial obligations. In the steel industry, companies must

keep up with the technology or forfeit the race.

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Question 2

What role does compensation play in creating the motivated workforce that

seems to be a key to Nucor’s business strategy execution? How does

compensation at Nucor differ from compensation at its competitors?

What Nucor has done to create motivation in its work place is by eliminating the

distinctions between management and hourly employees’ as much as possible serves

Nucor well. All the employees have given positive respond to its production incentives.

As a return, Nucor remains strongly committed to not laying off or furloughing

employees in periods when business is down. During the past twenty years, Nucor has

not laid off a single worker due to lack of work. The result is a committed team of Nucor

employees that looks ahead to a bright future.

Nucor has taken a very good initiative due to maintain self-motivated of its employees,

such as come out with some compensation plans work as follows:

1. Production Incentive Plan

Employees involved directly in manufacturing are paid weekly bonuses on the basis of

the production of their work groups, which range from 20 to 40 workers each. Most

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Nucor employees are covered under this system. Typically, these bonuses are based

upon anticipated production time or tonnage produced, depending upon the type of

facility. The formulas for determining the bonus are non-discretionary, based upon

established production goals. This plan creates pressure for each individual to perform

well and, in some facilities, is tied to attendance and tardiness standards. No bonus is

paid if equipment is not operating, thus creating a strong emphasis on maintaining

equipment in top operational condition at all times. Maintenance personnel are assigned

to each shift, and they participate in the bonus along with the other bonus groups.

Production supervisors are also a part of the bonus group and receive the same bonus as

the employees they supervise. In general, the Production Incentive bonus can average

80-150 percent of the base wage.

2. Department Manager Incentive Plan

Nucor Department Managers earn incentive bonuses paid annually based primarily upon

the return on assets of their facility. Nucor pays no discretionary bonuses. All facilities

have a common and clear goal since Department Manager bonuses are based upon

written plans that are easy to understand. These bonuses can be as much as 82 percent

of base salary.

3. Non-Production and Non-Department Manager Incentive Plan

This bonus is paid to all employees not on the Production Incentive Plan or the

Department Manager Incentive Plan. Its participants include accountants, engineers,

secretaries, clerks, receptionists or any one of a broad number of different employee

classifications. The bonus is based primarily upon each facility's return on assets. As with

all Nucor incentive compensation bonus plans, there are no discretionary bonuses paid

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to participants. The bonus is based on a written plan that is clear, easy to understand

and accessible to employees. Every month each operation receives a report showing on

a year-to-date basis their return on assets. This chart is posted in the employee cafeteria

or break area together with the chart showing the bonus payout. The chart keeps

employees appraised of their expected bonus levels throughout the year. This bonus can

total over 25 percent of salary.

4. Senior Officers Incentive Plan

Nucor senior officers do not have employment contracts. They receive no profit sharing,

pension, discretionary bonuses nor retirement plans. Their base salaries are set at less

than what executives receive in comparable companies. Senior officers have only one

compensation system. A significant part of each senior officer's compensation is based

upon Nucor's return on stockholder's equity, above certain minimum earnings. A portion

of pre-tax earnings is placed into a pool that is divided among the officers in bonuses

that are about 60% stock and 40% cash. If Nucor does well, the officer's compensation is

well above average, as much as several times base salary. If Nucor does poorly, the

officer's compensation is only base salary and, therefore significantly below the average

pay for this type of responsibility.

In addition to these established bonus plans, Nucor periodically issues an extraordinary

bonus to all employees, except officers, during times when Nucor is enjoying a

particularly strong performance. This bonus has been as high as $800 for each

employee.

Overall, Nucor's incentive compensation programs offer each and every employee an

opportunity to share directly in Nucor's success. It provides strong encouragement for

employees to work hard to build a better future for Nucor and themselves.

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How does compensation at Nucor differ from compensation at its competitors? At Nucor,

they used ‘us versus them’ and its clearly implies management and workers united

against competitors. Comments such as those by one melt-shop supervisor who

described a sense of personal responsibility not only for his own job but also for the firm.

So, the employee will always describe that his position at Nucor as being much like

running his own company – a comment typical given the entrepreneurial environment

Nucor has created.

Decentralized authority and sense of individual responsibility are a key part of that

structure. John Correnti explains that he does not what to micromanage the firms

operations. Doing so, he feels, would result in employees placing blame when things go

wrong instead of taking responsibility and finding solutions. This, Correnti feels, results in

line personnel having a realistic ability to control their own job environment, increase

productivity, and increase their pay.

In Nucor, the management has not think only about compensate the employees with the

money, but they used to make employees feels like home. Such as ‘us versus them’, it

refers to workers versus management and production. In contrast, at Nucor workers are

see striving together as a team, helping each other, and working toward a common goal

– the production of a high volume of low-cost, quality steel. So, that’s’ how Nucor has

controlled its employees for all over the years.

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Question 3

Does Nucor’s workforce productivity and impact stem entirely from its

compensation system or are there other key aspects of human resource

strategy that are also important. Explain.

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Nucor’s workforce productivity and impact stem not entirely from its compensation

system but other key aspects from human resource strategy also playing a big role.

Some of the aspects that can be bring out such as organizational structures that used

flat organization that can be used to neutralize and makes the employee into same level

of hierarchy. It creates the open culture environment. All the employee should feel they

are important to the company and they should respect and honor to the company vision,

mission and objectives without any compensation expected. Nucor already create this

awareness through their Human resource strategy by introducing that everyone is the

owner and everyone has the same authority level with the same standard of features

and benefit. Features and benefit here is not the compensation but other than that such

as medical, holiday, stocks and etc. Other than this good process flow of the project and

company strong financial background also creates motivation and inspiration of the

employee to prolong in Nucor’s in long term. Customer alignment and Nucor’s strong

customer service and customer oriented play a big role to enhance the workflow

strategically. So as concluded here that lots of factor influence the overall companies’

movement and not just compensation.

Reference

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1. Human resource strategies and firm performance by lee dyer and Todd Revers

2. NASSCOM Strategy Review – 2009, 2008, 2007.

3. STATE PERSONNEL MANUAL Performance Management Section 10

4. Economic Times

5. Mint

6. Business Week

7. Outlook Money

8. http://www.jstor.org/pss/256714

9. http://www.nasscom.org

10.http://www.nucor-fastener.com/nucor.html

11.Boyd, B.K., & Gove, S. (2000).

12.Iverson, K. (1998).

13. http://en.wikipedia.org/wiki/Nucor#History

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