REWARDING PRODUCTIVITY.  At Nucor, a team’s earning power is linked to its productivity. Base pay for frontline teammates is about 75 percent of the industry average, but once a team’s output exceeds a threshold, typically 80 percent of the plant’s rated capacity, a bonus plan kicks in. The bonus threshold is fixed and gets adjusted only when capital investments increase the rated output of a particular piece of machinery or the entire plant. Knowing this, team members have a powerful incentive to “sweat the assets,” since the only way to increase their bonus is to produce more steel for a given amount of capital. In practice, this means using their ingenuity to shrink costs and speed up workflows. When a new piece of equipment is installed, it’s not unusual for a team to blow through the rated capacity level in a matter of months.

Critically, bonuses are paid to teams, not individuals. A typical team comprises twenty to thirty operators who work across multiple shifts and have joint accountability for a particular process. Team rewards encourage collaborative problem solving, which is essential in a process industry where tasks are highly interdependent. (See figure 4-1.) The furnace, caster, and maintenance teams, for example, are all part of a continuous process, so they have a common production target. One caster crew member in the Hickman plant remarked, “If one area goes down, we all go down with it. My problem is their problem, and everyone will jump in to solve it.”

Within each plant, teams have access to real-time information on their performance and, hence, their compensation. The expectation is that a well-performing team will exceed its target and generate a substantial weekly bonus—which in most cases is exactly what happens. As you might expect, team members have little patience with slackers. A furnace operator in the Blytheville plant noted, “Peer pressure is a wonderful motivator.”

Highly variable compensation is unusual for frontline workers, but Nucor’s success demonstrates the value of giving everyone an incentive to innovate. With bonuses included, Nucor’s factory workers make about 25 percent more than their industry peers.

Nucor’s compensation model yields other benefits as well.

SHARED RESPONSIBILITY FOR GROWTH.  When demand is slack, paychecks reflect the idle capacity, so teams use the slowdown to visit customers and pitch new product ideas. Within the plant, crew members test those ideas by experimenting with changes to the production process. When, for example, demand softened at Nucor’s plate mill in Tuscaloosa, Alabama, teammates experimented with ways to make armored plate—a product that was new to the plant. An underutilized mill also turns up the heat on managers. Team members will grill their leaders: “What are you doing to help us innovate and find new customers?”

No one at Nucor is looking to the center for direction. Instead, strategy typically emerges from below, as dozens of teams and divisions scan the horizon for opportunities and take the initiative in courting customers, hiring teammates, and experimenting with new products and methods.

LESS POLITICKING.  Nucor’s top team understands that when executives have the power to monkey with targets, the result is favoritism, sandbagging, and an erosion of trust. Nucor’s clear, consistent goals are designed to minimize gamesmanship. Simple, understandable goals also reduce the need for the sort of detailed team-level KPIs that can lead to suboptimization when employees chase piecemeal targets rather than focusing on the health of the overall business.

FINANCIAL FLEXIBILITY.  Nucor’s output-based compensation model allows the company to rapidly trim its labor costs when demand softens. This flexibility eliminates the need for layoffs and gives Nucor a head start in ramping up when the business cycle turns around.

Taken together, the elements of Nucor’s compensation model send a strong message: everybody is essential to building a better business and will be rewarded for doing so.

SELECTIVE HIRING.  Nucor hires people for a career, not a short-term gig. The expectation is that teammates will grow their skills over the arc of their career. Accordingly, Nucor’s hiring process is aimed at finding individuals who are eager to learn. The process includes a two-hour, standardized test to gauge quantitative and verbal problem-solving skills, followed by a behavioral interview with a psychologist. The final hiring decision is made by teammates who take part in an hour-long panel interview. Typical questions include:

• What is something you are passionate about that helps to motivate you at work?
• Have you ever fixed something?
• Describe learning a new skill—how did you go about it?
• Tell us about a time when you made a mistake at work. How did you correct it?
• If a coworker really can’t stand you, what would you do?

As these questions imply, the focus is less on specific skills (which can be learned on the job) and more on the candidate’s resourcefulness and capacity to self-manage. Nucor’s highly selective approach also carries symbolic value: new hires understand they’re joining an exclusive organization that sets a high bar for performance and cares for its members.

CROSS-TRAINING.  Instead of specializing in a single task, Nucor teammates are trained for a variety of roles. In the Blytheville division, new members in the melt shop department rotate through multiple crews, like the furnace and caster. This gives them an overview of the entire production cycle and enhances their ability to solve cross-boundary problems. In many divisions, teammates can come in on their off days and get paid to train for a different role. In a typical year, more than 20 percent of teammates will receive some form of cross-training; for entry-level positions, the percentage is even greater.

The best way to advance your career at Nucor is to move across departments and even plants. It’s common to find former salespeople working in shipping, or furnace operators working in maintenance. At the Blytheville beam mill, more than half the teammates with five or more years of tenure have made at least one departmental rotation. Rotations are facilitated by Nucor’s internal job market, which gives teammates visibility into every open position across the company.

Exposing people to multiple skills and functions is a win-win. For individuals, the change in pace, activity, and colleagues makes work more interesting. In return, Nucor gets a workforce that’s able to solve complex, multidisciplinary problems.

BUILDING BUSINESS ACUMEN.  While most companies focus blue-collar training on narrow technical topics, Nucor invests in developing teammates’ commercial skills. The company believes people need to understand the business if they’re going to improve it. As part of their training, Nucor teammates participate in a daylong, Monopoly-like game called “Dollars and Tons,” where five-person teams run a fictional Nucor division. Teams make decisions on how much scrap to buy at what price, on how many people to hire, and when to invest in new equipment to expand capacity. At the end of the simulation, teams are assessed on profitability, return on assets, working capital management, and balance sheet strength—all drivers of a plant’s performance.

By bolstering business thinking deep in the organization, Nucor maximizes the quality of decision making at all levels and reduces the perceived status gap between frontline employees and commercially savvy managers.

ENCOURAGING PERSONAL GROWTH.  Many companies treat frontline employees like expendable resources, but not Nucor. Every team member has a personal development plan outlining five- to ten-year career goals. One department manager said, “We’re always trying to find something that a teammate wants to get better at. Some want to grow fast and some don’t, but we work to put people in the best position to succeed.”

LEARNING EXCHANGES.  Every year, Nucor’s team members make thousands of “best-marking” trips to sister plants. During these visits, colleagues share operational expertise and tackle common problems. When the Hickman division set out to reduce the thickness of its sheet steel, a caster crew flew in from Nucor’s plant in Ghent, Kentucky, to share what it had learned when it engineered a similar change. Most visits last a few days, but when the technical challenge is significant, a best-marking trip may extend to several weeks.

Nucor also hosts regular cross-plant events. Plant managers get together every month, and department managers every six months. In addition, there are annual gatherings of frontline teams. This represents a substantial investment in time and travel, but Nucor believes it’s the best way to transfer expertise and tackle new problems. A member of the Hickman caster team described the benefits: “You’re engaging and investing in people, building relationships, and generating opportunities to improve. During a visit, the ideas pile up. By the time you get back, you have a ton of energy to try something new. It’s never a question about whether it’s worth the time. You always bring something back.”

SPONTANEOUS NETWORKS.  When divisions identify a need for sustained coordination, they assemble a team. In a typical case, sales managers from thirteen bar mills developed a national pricing schedule to provide a consistent offering for their largest customers. Some teams are ad hoc, while others are long-lasting. There’s a network of frontline team members, for example, that coordinates procurement of raw materials and parts. Most networks begin informally. Those that add value become quasi-permanent.

OPPORTUNITY MASH-UPS.  Plants often share leads and collaborate on new business development. One of the most significant efforts involved a coordinated assault on the automotive market. A decade ago, Nucor lacked the ability to produce the high-grade, flexible steel that carmakers use for engine components and body stampings. Several divisions had flagged the auto industry as an attractive segment, but individually they lacked the skills to make much headway. Recognizing this, they joined forces to crack the market.

In each mill, cross-functional teams mapped out the skills and technologies that they would need to acquire. The teams hired metallurgists and partnered with local universities to explore new production methods. Through regular cross-team meetings and frequent best-marking visits, the automotive initiative took shape. The informal team of teams solved technical problems, developed marketing strategies, and divvied up product responsibilities. Today, Nucor ships more than 1.5 million tons of steel to carmakers each year—an amazing testament to the power of grass roots coordination!

TRANSPARENCY.  Nucor’s capacity for collaboration rests on a foundation of transparency. Company policy encourages teammates to “share everything.” Every employee has access to detailed performance metrics including tons produced, cost per ton, tons lost to defects, and much more. Commercial data is similarly open. This includes bids, orders, inventory, shipments, return on assets—anything that’s potentially relevant to running the business. Most of this information is available in real time, but in each facility, performance data also gets posted weekly near the plant entrance or in the cafeteria.

Nucor’s profligate transparency creates a healthy competition between divisions, prompting friendly contests to see which plant will be first to achieve a particular goal around safety or efficiency. It also makes it easy to spot plants and practices that deserve to be best-marked.

JOB SECURITY.  Nucor has never laid off employees at its steel mills, a remarkable feat in an industry that shed 40 percent of its employees between 2000 and 2018.⁷ Nucor could have followed suit, but that would have violated the company’s long-standing promise to employees: “Do your job well today, have it tomorrow.” When orders plummet, the company reduces the workweek, not the workforce. This reduces the odds of making the weekly bonus, but for most employees, that’s better than being laid off. In the rare instances when Nucor closes or scales back a plant, people are offered positions in other mills.

Ferriola says the company could have avoided its one and only loss-making year, 2008, by laying off a small number of people, but he and other executives never considered it. That was a good call. Nucor’s local teams have made the company a leader in process automation because nobody’s worried about being replaced by a smart machine.

FEW STATUS SYMBOLS.  In contrast to its competitors, where managers often wear uniquely colored hard hats (in one company, the CEO’s helmet is gold-plated), there are few status symbols at Nucor. Executives forgo the sort of perks often doled out in other large companies. There are no company cars, country club memberships, or personal trips on corporate aircraft.

Some benefits, such as Nucor’s profit-sharing scheme, scholarship program, employee stock purchase plan, and service awards program, are off-limits to senior officers. With few status differentiators, communication tends to be candid and forthright. At Nucor, executives don’t sit on pedestals.

REVERSE ACCOUNTABILITY.  While Nucor does have a formal hierarchy, there’s a commitment to reverse accountability that’s seldom seen in large companies. This reflects Iverson’s belief that power should trickle up, not down: “A manager’s authority comes from employees. We have seen general managers fail to effectively lead people to the ambitious goals we set at Nucor. When that happens, we say, ‘the employees fired the general manager.’ It’s similar to when a football team loses faith in the coach. Who are you going to fire, the coach or the whole team?”⁸

Team members are directly involved in the selection of supervisors and managers. There’s also a formal process for giving upward feedback. A supervisor in Hickman said, “You get a bad score on the survey and you’re toast.” Head-office managers make frequent plant visits and host local town halls. During these dinner meetings, teammates can raise any issue that comes to mind. Said one plant manager, “These dinners aren’t done until the teammates are ready to call it a night. I often feel like I’m getting grilled, and I can’t BS my way out of their questions.”

PROFIT SHARING FOR ALL.  Nucor’s profit-sharing plan is another mechanism for building commitment. Each year, the company contributes at least 10 percent of its pretax earnings to the plan. In 2018, Nucor paid in $308 million, which worked out to about $12,000 per employee. Teammates receive a small portion in cash and the remainder goes into a retirement account, which, for many employees, constitutes their largest financial asset.

PEOPLE PLANNING AND PEER SUPPORT.  Production teams manage attendance and shift planning. When, for example, teams in the Blytheville division decided to change from five-day eight-hour shifts to four-day twelve-hour shifts, they didn’t ask management for permission.⁹ Teammates are also the first to intervene when colleagues underperform. They’ll work to identify the underlying issue and typically resolve things without the help of a supervisor.

The team takes the lead in professional development. Teammates give each other feedback through an annual survey that focuses on performance, safety, reliability, and leadership skills. While the peer review process doesn’t have a direct bearing on compensation, it gives every employee a clear sense of his or her standing within the team, and informs decisions on rotation, advancement, and special assignments. Being accountable to peers inspires individuals to give their best. As one teammate working in the Blytheville furnace put it, “Every day is an interview.”

CAPITAL SPENDING.  Nucor’s production teams have a degree of financial autonomy that’s unprecedented within the steel industry. Team members regularly issue purchase orders in the tens of thousands of dollars without consulting plant management. Before pulling the trigger, they’ll consult with colleagues, but the goal is to get input, not approval.

DEPLOYING NEW TECHNOLOGY.  Nucor’s teams are constantly on the hunt for technology that will give their business a competitive edge. Here, as elsewhere, frontline operators are deeply involved in the decision-making process.

The $230 million expansion at the Hickman division mentioned earlier was meant to give the mill access to rolling machines that could switch between different product specs in minutes rather than hours. The project team, led by Jay Wheeler, a former maintenance engineer, included both operators and managers. After visiting equipment suppliers in Europe and Asia, they arrived in Vienna for talks with a local vendor. During the meeting, engineers from the supplier probed the Nucor team members to better understand their needs and constraints. Wheeler recalls the Austrian engineers were confused when their questions were answered not by Nucor managers but by frontline team members.

The logic of relying on operators to source and deploy technology seems obvious to people at Nucor. After all, it’s the people at the sharp end of the business who have the best perspective on what they need to succeed.

INTERACTING WITH CUSTOMERS.  In large industrial companies, it’s rare for frontline employees to interact directly with customers, unless they’re in a sales or tech support role. Not so at Nucor. From the crane operator to the forklift driver, everyone knows the customer. Production teams make regular customer visits, known as “line-to-line” meetings. A mill team, for example, will spend a day at an automotive plant talking to the manufacturing teams who turn steel sheets into car parts. The visitors will pepper their hosts with questions: How does the machine handle our steel? How do results compare with our competitors’ products? Where can we improve? These conversations generate a myriad of ideas and create personal relationships that ensure future issues are speedily resolved.

CONTINUOUS EXPERIMENTATION.  At Nucor, teammates have both the incentives and the freedom to experiment with new production techniques. The result: a company where everyone innovates. In one case, an employee in the Blytheville melt shop worked for several years to redesign the ladle—the giant container that feeds the caster with molten steel. Through a series of experiments, he reworked the cauldron’s liner using materials that were more resistant to decomposition. The new design doubled the reliability of the ladle and yielded reductions in downtime and maintenance expenses. Experiments like this happen across the company, and are core to Nucor’s competitive advantage.

Though it’s widely regarded as one of the world’s most innovative steelmakers, Nucor doesn’t have a central R&D function, nor does it boast a chief technology officer. Yet as Ferriola notes, “It’s not quite right to say that Nucor lacks an R&D department. We do have one, and it’s 26,000-people strong.”

With empowerment comes a degree of personal risk—what happens to you if you screw up? In a rule-worshipping culture, that risk may not be worth taking, but at Nucor, the tolerance for “smart” failures runs deep. Said Ferriola: “We encourage our people not to fear failure. You cannot stretch the limits of your knowledge, your imagination, or your skills, if you’re afraid to fail. It’s very typical to hear a manager or a supervisor coach a new teammate by saying something like: ‘If you’re not failing, you’re not pushing the limits of your abilities.’ ”