Insights on Excellence | "Insights on Excellence" Archive

How to get an entire work force pulling together

by Stephen Hawley Martin
for Virginia Business
Oct. 3, 2006

Studies have shown that not everyone in the typical company is working to move the ball forward. A recent one indicates that about 25 percent of the work force is actively engaged and working the way management would like and hope. About 50 percent is neutrally engaged. They represent warm bodies. They come to work, muddle along and don't do any damage to the company. But the scary part of this study said that about 25 percent of the work force is activity working against the company. You might label this group "disgruntled." These workers could be stealing from the company, involved in fraud or conducting any of a number of counterproductive activities.

One company, the steel maker Nucor Corp., has found a way to deal with this. Nucor ties a big percentage of employees' and managers' compensation directly to steel output and the quality of that output. Nucor's management is aware that compensation is where the rubber meets the road for employees. You get what you pay for.

An experienced steelworker at other companies can easily earn $16 to $21 an hour. At Nucor the guaranteed pay is closer to $10. But get this: Employees can triple their take-home pay through a bonus system tied to the number of batches of defect-free steel that their shifts produce.

Nucor gave out more than $220 million in profit sharing and bonuses to rank-and-file employees last year. What did that mean to the average Nucor steelworker? He or she took home nearly $79,000, plus a $2,000 one-time bonus to mark the company's record earnings in 2005. In addition, almost $18,000, on average, in profit sharing can be added to that $79,000 average pay check.

But that's only part of the story. At Nucor, not only is good work rewarded, but bad work is penalized. Bonuses are calculated on every order and paid out every week. If workers make a bad batch of steel and catch it before it has moved on, they lose the bonus they otherwise would have made on that shipment. But if defective steel gets to the customer, employees lose three times the amount.

Steel plant workers at Nucor aren't the only ones with a big percentage of their pay at risk. The take-home pay of managers depends heavily on results as well. Department managers typically get a base pay that's 75 to 90 percent of the market average. But in a great year, managers might get bonus worth 75 or even 90 percent of their base pay, depending on the return on assets of the whole plant.

This situation results in managers and workers who think like and act like owners of the business rather than employees who are there to put in their time so they can pick up a paycheck. When workers act like owners, good things happen for the business and its shareholders. The proof is seen in the company's financial results. Nucor had sales of $12.7 billion last year, up from $4.6 billion in 2000. In 2005, net income was $1.3 billion, up from $311 million in 2000. The value of the company's stock increased 387 percent from 2000 through 2005. This puts Nucor, a representative of a Rust-Belt-industry, ahead of New Economy icons such as Amazon.com, Starbucks and eBay.

Surprised at these results? An incentive plan that put every worker at Nucor in business for himself was a major reason.
Think about it. How many people do you know who aren't looking out for No. 1?

-----------------------------------------------------

Stephen Hawley Martin is a former principal of The Martin Agency in Richmond and the author of more than half a dozen books including his newest, Lean Enterprise Leader: How to Get Things Done Without Doing It All Yourself. He is editor and publisher of The Oaklea Press, a book publishing business dedicated primarily to helping business executives increase productivity.