Case Assignment: Nucor Corporation

Nucor Corporation’s mission is to “Take Care of Our Customers” by being the safest, highest quality, lowest cost, most productive, and most profitable steel company in the world. In 2006, Nucor employed 12,000 employees and earned a record $1.76 billion. Its organizational structure is very simple with only five levels of management, allowing general managers at each Nucor division to operate their facilities as independent businesses with day-to-day decisions made on site at the operating facilities.

Nucor makes a priority of taking care of its employees as well. Since its entry into the steel business, Nucor has not laid off a single employee due to lack of work. Though Nucor employees’ base pay is lower than industry standards, Nucor offers productivity bonuses to motivate its employees. Bonuses can average 80-170 percent of the base pay with no limit. As a result Nucor employees are among the highest paid and most productive industrial workers in the United States.

Another factor in Nucor’s success has been the unprecedented demand for steel, domestically and internationally, particularly in China. In the last year, however, China has become not only self-sufficient but a major exporter of steel. With worldwide supply catching up with demand, production will slow down, which means Nucor employees’ wages will sink below industry standards.

Though effective up till now, Nucor’s reward’s system has two potential problems. First, the system relies exclusively on wage bonuses. Second, these bonuses depend on productivity, which necessarily will have to be cut back if product demand decreases. Nucor needs to find alternative non-monetary rewards to minimize the negative impact that wage decreases will have on employee motivation. This could be done by offering more challenging work, greater responsibility, and freedom to pursue personally interesting tasks. Nucor might also offer non-monetary recognition, such as praise, achievement awards, and training opportunities.

Predicting how far demand will drop is not easy. If it continues to go down, Nucor ought to remember that layoffs should be the absolutely last resort. The first option would be reducing the number of work hours. How the decrease in hours should be distributed among employees ought to be done in a way that will be perceived as fair and must be communicated by top managers and supervisors in a way that employees will understand.

Furthermore, the sooner these measures are implemented, the better. Nucor should engage in contingency planning in case certain scenarios such as these do occur. Nucor should also create a team to explore other possible uses for steel, which might open up new demand.

In the case assignment for Chapter 13, you learned about Nucor’s excellent reward system. In a nutshell, although base pay of Nucor employees is lower than industry average, they can earn a production bonus of up to 170 percent of base pay, enabling them to be among the highest-paid industrial workers. First let us examine why this system works so well.

It is no secret that money is a strong motivator for most people most of the time. In expectancy theory terms, as a reward, money has high valence Nucor employees are well trained to perform their jobs; thus they have high expectancy beliefs. Finally, employees know exactly how much to produce to get a certain amount of bonus, and bonuses are strictly based on performance. High levels of expectancy beliefs and instrumentality beliefs coupled with the positive valence of money motivate employees to produce at high levels. From an equity theory standpoint, the outcomes (bonuses) that employees receive are directly proportional to their inputs (performance). Thus, distributive justice is very high and employees likely perceive that outcomes are allocated in a fair manner. From a reinforcement theory standpoint, both positive and negative reinforcement strategies are embedded in the reward system at Nucor. Bonuses (rewards) are made contingent on performance (desirable behavior), and in positive reinforcement people work hard to gain positive consequences. Absenteeism is curtailed by the threat that if you miss a day’s work, you will forgo the production bonus for the entire week. This threat of punishment is the essence of negative reinforcement.

ANSWER THE FOLLOWING QUESTIONS:

1. If sales and bonuses drop, how will you motivate your workforce? Are there any non-monetary steps you could take? What would those be?

2. Even worse than that, what if the demand for steel decreases so much that Nucor is forced to revoke its long-time “no layoff” policy? If you had to conduct layoffs for the first time in company history, what steps would you take to treat employees fairly and with dignity? Finally, are there things you might do to avoid layoffs or to postpone them as long as possible?