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100-Percent Bonuses Mean High Pay -- Plus Low Labor Costs

June 6, 2001
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Related Topics: Compensation Design and Communication, Featured Article
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At Nucor Corp., a share-the-wealth approach also has been a success. Based inCharlotte, North Carolina, the steel producer had a record $4.6 billion inrevenues last year. It employs 8,000 people at 22 plants in nine states, andranks among the Fortune 500.

Large Company

Name:

Nucor Corp.

Location:

Charlotte, North Carolina

Type of business:

largest steel producer in the United States

Number of Employees:

8,000

    The company pays much lower base wages -- sometimes halfof what the competition pays hourly workers -- then uses weekly bonus cashpayouts as an incentive. And they are not small amounts, either. Employees canearn 100 percent, 200 percent, and more of their regular hourly wage, with nocap, according to the amount of quality steel produced by, or passed through, awork team on a shift.

    It's a production-driven system that wouldn't work foreveryone. For non-union Nucor, however, it has worked since the 1960s, saysJames M. Coblin, vice president of human resources. "We have the highestproductivity of any steel mill in the United States in terms of tons peremployee or tons per hour. We have the highest-paid steelworkers on earth, andwe have arguably among the lowest labor costs per ton produced. So that's prettyphenomenal if you can have the highest-paid employees but the lowest laborcost."

    The secret to motivating people is money, he says."If you give a bonus to somebody of 15 percent, of course they like it, or20 percent, even 25 percent, of course they love it. But if you give them abonus of 100 percent, you get their attention big-time, and when they startseeing 150 percent bonus or 160 percent bonus, they are focused on that bonus.And when they know it's not going to be changed, like ratcheting up the basewhen they really start producing or putting a ceiling on it ... they catchfire."

    The average pay in the year 2000 for Nucor's steel millemployees was about $63,000, and many of those people were high school graduatesliving in small towns like Darlington, South Carolina; Jewitt, Texas; andWaterloo, Indiana, very small communities where a dollar goes a long way, Coblinsays.

    In good times, when business is booming, every employee --from a receptionist to the CEO -- shares in profits. Conversely, during downtimes there's sharing, too. The company doesn't lay off employees, but shutsdown its production lines for one or two days a week. Salaried executives stillwork, but hourly employees aren't required to. About 80 percent of Nucor'semployees are on this production-incentive plan. Other employees also haveperformance-based compensation:

  • Department managers earn annual incentive bonuses based primarily on the percentage of net income to dollars of assets employed for their divisions. These bonuses can be as much as 80 percent of a department manager's base pay.

  • Professional and clerical employees not on other plans earn bonuses based on their division's net income return on assets.

    Senior officers earn lower base salaries, with theremainder of their compensation based on Nucor's annual overall percentage ofnet income to stockholder's equity, which is paid out in cash and stock.

    Coblin says the Nucor system is about giving high wages toaverage people for outstanding production, and about giving responsibility andauthority to lower-level employees. It's the worker who drives production -- andthe bottom line -- not the executives. That can be a tough concept forauthoritative managers and companies to grasp.

    Another key to Nucor's success is the simplicity of itsincentive system, Coblin says. If every employee can understand and see how anincentive plan affects him each week, then it can succeed. If not, it won't workin the long term.

    Beyond its bonus structure, Nucor also rewards employeeswith free dinners, jackets, and hats for outstanding production or safetyrecords broken. Service awards are handed out every five years. Employeesreceive one share of stock for every year at Nucor. Workers are essential to thecompany's success, and are stockholders.

    It's that ownership connection that is key to employeeperformance, NAM's Eisen adds. She calls Nucor an extraordinary company."They are using cash to incent. Other companies use benefits to incent. Whois the winner? I think you have to look at your own workforce."

Nucor's Reward System

All employees at steel giant Nucor are covered by one of four performance-related compensation systems. Each of the plans relate to specific goals and targets depending on the job. Nucor also periodically has issued an extraordinary bonus to all employees, except officers, in years of particularly strong company performance. This bonus has been as high as $800 for each employee. The four ongoing bonus plans include:
  • Production Incentive Plan: Operating and maintenance employees and supervisors at the facilities are paid weekly bonuses based on the productivity of their work group. The rate is calculated based on the capabilities of the equipment employed, and no bonus is paid if the equipment is not operating. In general, the production incentive bonus can average from 80 to 150 percent of an employee's base pay. The vast majority of the company's employees are covered under this plan.

  • Department Manager Incentive Plan: Department managers earn annual incentive bonuses based primarily on the percentage of net income to dollars of assets employed for their division. These bonuses can be as much as 80 percent of a department manager's base pay.

  • Professional and Clerical Bonus Plan: This bonus is paid to employees who are not on the production or department manager plan and is based on the division's net income return on assets.

  • Senior Officers Incentive Plan: Nucor's senior officers do not have employment contracts. They do not participate in any pension, discretionary bonus, or retirement plans. Their base salaries are set lower than what executives receive in comparable companies. The remainder of their compensation is based on Nucor's annual overall percentage of net income to stockholder's equity and is paid out in cash and stock.

Workforce, June 2001, pp. 112-114 --  SubscribeNow!

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