Nucor Corporation has a record of 30 years of profitability. In 1997, Nucor’s sales exceeded $4.2 billion, with a profit of $294 million. We have never closed a plant or laid off any of our 6,900 employees. Not bad for a U. S. steel company—the second largest steel producer (9.8 million tons annually) in the United States.

The key to Nucor’s success is the culture of our company—one that we plan to extend into the next century. Our philosophy, particularly in regard to management and employees, is that management has the obligation to provide its employees with the opportunity to earn according to their productivity and to manage the company properly so that if employees work hard and do their job properly, their job security is assured.

Creating Incentives

Money cannot be the only incentive to increase productivity, but it certainly is the best. Employees who have trouble maintaining a modest standard of living and who do not know how many weeks they are going to work in a given year will be less productive in order to extend their stay and their paychecks—a lethal trend in a capital-intensive industry such as steel, where fixed assets are so high that the amount of tons produced is critical. But when employees see that working hard means they are not working themselves out of a job and are actually enhancing their job security, their productivity will rise. As such, Nucor offers a variety of incentive programs to enhance productivity.

The most important is our production incentive program, which focuses on groups of 40 to 60 people rather than on individuals. Nucor establishes a minimum acceptable level of tons produced and pays a bonus based on the degree to which people exceed that standard. There are usually seven different bonus groups—three for melting the steel, three for rolling the steel, and one for the maintenance department.

Our philosophy is that we put each bonus group into business for itself. We provide the training, capital, know-how, and equipment, but what each group makes is directly proportional to its own productivity and how it runs its business. When equipment breaks down or lightning strikes the substation and we are not running, a group’s bonus may be zero. It is a no-excuse system based solely on quality tons produced every week. Does this sound harsh? Think again: The average hourly Nucor employee makes about $10 per hour base pay. Last year, with bonuses running anywhere from 150 to 200 percent, the average hourly employee made $60,000!

We also have incentive programs for people who are not directly in production, such as draftsmen, clerks, accountants, and engineers. Our measurement of their performance is return on assets. Again, if minimum standards are exceeded, secretaries, clerks, and accountants can receive as much as 28 percent in bonuses, and department managers can receive as much as 82 percent.

Taking Stock of the Company

Even more shocking, perhaps, is the fact that our senior officers are not offered employment contracts, golden parachutes, or pension and retirement plans. Instead, they are offered Nucor stock. This benefit program is solely based on the job we do for the real owners of the company. The minimum is 8.5 percent; the maximum is 22 percent. One-sixth of my annual remuneration is fixed; the rest is at risk, based on return stockholder equity. Three-fourths is paid in cash and the rest in Nucor stock.

Wake up Wall Street: This is a precedent other companies should be following. They should also consider duplicating our employee profit-sharing plan. Understand, please, if there is no profit, nothing goes into the profit-sharing trust. But, so far, that has not been a problem. In 1997, Nucor contributed $46 million—10 percent of pre-tax profits—to the employees’ trust, which was then distributed among all 6,900 employees. Some long-term Nucor employees currently have in excess of $500,000 in their profit-sharing accounts!

Rebuilding the Corporate Architecture

Another key to improving productivity is Nucor’s unique organizational structure. Within our entire organization, there are only five levels—the chief executive officer, vice presidents and general managers who run their own businesses, department managers, supervisors, and professionals, and hourly employees. We have no assistant managers, group managers, or executive vice presidents.

Each of our vice presidents and general managers is an officer of the plant that he runs. These can be divisions that generate anywhere from $200 million to $900 million in annual revenue. With the exception of financial management, the vice presidents and general managers run the businesses themselves. The only things they cannot do are sell assets, borrow money in the name of the corporation, or authorize a major capital expenditure without corporate approval. Other than that, they have their own sales, marketing, engineering, credit, collections, purchasing, and production authority.

Our headquarters in Charlotte, North Carolina, has a total staff of twenty-four. We have no engineering staff, marketing staff, purchasing staff, sales staff, or legal staff. And within our narrow corporate structure, we make very little distinction between various levels. All employees—from the CEO to the lowest hourly employee—have the same benefits: group insurance, holidays, vacation time, etc. Furthermore, we do not own company cars, planes, or boats; we have no executive dining rooms or restrooms and no reserved parking spaces. Everyone in the company flies in coach class.

Why are we so different from other companies? We believe that, to a large degree, the success of any incentive program is based on mutual respect and trust, and these can only be established through just actions. Once there is confidence between management and employees, the results are priceless.

Organizations of the Future

Aside from Nucor’s generous incentive program and stripped-down organization, we also have a variety of special attributes that distinguish us as the prototype for organizations of the future:

  • The lines of communication at Nucor are open and informal. Employees can pick up the phone and call the CEO anytime to discuss their concerns. Employees and management trust each other (sounds crazy, doesn’t it?). We discuss small and big decisions with employees openly and honestly. And once we have made up our minds, we don’t change them because of pressure or threats from unions, bureaucrats, or other special interests.
  • Many companies think they have to be located in major cities because of their large populations. Nucor thinks the opposite: We have gone to rural America, and not because the labor there is cheap. For example, we employ 450 people in our plant in Leon County, Texas, which has a population of 17,000. When we built it in 1975, we received more than 5,000 job applications from people in Houston, Dallas, and San Antonio—people who had been forced to move away from Leon County because there were no jobs. The real reason companies go to the cities is because that is where executives want to live, where the nice amenities in life are. So, companies locate there to satisfy the minority and subsequently dissatisfy the majority of employees. If a company can provide a good-paying, stable, secure environment, anyone would love to stay in his hometown.
  • For every five years of employment, we reward employees with five shares of stock; 10 years, 10 shares; 15 years, 15 shares; 20 years, 20 shares, and so on. We want all our employees be owners of Nucor.

The Nucor scholarship plan provides every child of every employee with $2,200 per year, for up to four years, to attend college. Nucor spends about $1.5 million a year on this program. Almost 1,000 children of employees are enrolled in about 300 institutions, ranging from the most exclusive universities to small beauty colleges and trade schools. The money goes first to tuition; if there is any left over, it is allocated to room, board, books, and supplies.

  • We have no time clocks because they imply that the employee is a thief who is going to steal time from the company. In essence, time clocks penalize the vast majority of employees in order to catch that very small percentage who are going to try to cheat. Our employees keep their own record sheet of when they arrive and leave.
  • Rules for absenteeism are simple. We allow four grace days a year for things like a death in the family, or a closing on a house, or a child’s field trip. When employees miss a day, they lose their bonus for the week. If they are late for work, they miss their bonus for the day.

The Benefits of Home

Nucor is quite comfortable restricting its production operations to within U. S. borders rather than exporting jobs to Europe or Asia. We have relied on American workers to catapult us to the heights of our industry. We manufacture a wide array of top-quality products, including carbon and alloy steel, 409 stainless steel, steel joists, steel deck, cold finished steel, steel grinding balls, steel fasteners, steel bearing products and metal building systems.

And whether you are considering steel alone or all industry, we are undoubtedly one of the most successful commercial enterprises in the country. In 1997, 6,900 employees generated $622,554 in sales per employee. All Nucor has to do to continue such success is keep treating our employees fairly. In return, they will do amazing things for us.