Administration

In 1986, Ken Iverson, by now 61 years old, was still Nucor's chief executive officer and had just been named the " Best CEO in the Steel Industry" by The Wall Street Transcript. Iverson chaired Nucor's board of directors, which included two other long-serving managers: chief operating officer David Aycock, who began his career as a welder at the joist plant in South Carolina in 1955, and chief financial officer Sam Siegel. The only " outside" director, Richard Vandekieft, had previously also been an officer of Nucor.

Nucor's top managers agreed that if knew how to do two things well: build steel plants • economically and operate them efficiently. While they admitted that steel was not the best business in the world, " they saw no future for Nucor outside it. Unlike top executives at integrated steelmakers' and many other minimills, they supposed free trade. Iverson, for example, published an op-ed article in The Wall Street Journal on August 21, 1986, with the subtitle " Protection Ensures Stagnation."

Nucor's top management also believed that the best companies had the fewest layers of management. In Iverson's words, " The fewer you have, the more effective it is to communicate with employees and the better it is to make rapid and effective decisions." Nucor had five layers of management, compared to a dozen or so at the typical integrated U.S. steelmaker: a chief executive officer, a chief operating officer, plant general managers (one per plant), department heads (an average of six per plant) and foremen (15 - 36 per plant). These layers supervised an average of about 275 employees per plant. Iverson appointed Aycock president and chief operating officer in 1984 to share his load of managing the company but resisted the idea of installing another management layer of group vice presidents. " That's the same old Harvard Business School thinking, " he teased subordinates who pressed him on the point.⁷

To make this flat hierarchy work, Nucor decentralized as many decisions as the next layer down could manage. This meant, in practice, that all decisions except capital expenditures, major changes in plant organization, hiring and firing at the department head level (or higher), and pricing were made at the plant level. According to Iverson, " We don't do much here at Charlotte. That's not a joke. Except the cash. We handle the cash." ⁸ Headquarters handled the cash by demanding that each plant general manager achieve an annual contribution, before corporate overhead, of at least 25% of the net assets employed at his plant, or be able to explain why not. Although managers had been dismissed for failing to meet this target – at least one manager had been fired for meeting it by cutting back on investment and thereby compressing the asset base at his plant—exceptions to this target were made for new plants and for depressed market conditions. To compare the performance of its plants, headquarters received, in order of importance, monthly operating reports, weekly tonnage reports and monthly cash management reports from each of them. The monthly operating reports from each plant were shared with all plant general managers.

Because Nucor's top managers believed that " the best motivation is green, " they complemented these controls with high-powered performance incentives. Base compensation began well below industry norms for officers (corporate and plant managers) and production workers, and grew linearly with group performance beyond thresholds with some built-in " stretch" and, except for production workers, was capped, although at a level so high that it rarely proved to be a constraint (see Exhibit 8 and, for more detail on production incentives, the next subsection). Other incentive programs shared 10% of each year's pre-tax profits among non-officers, awarded non-officers discretionary bonuses in years when corporate performance was particularly strong, granted stock options to officers and other key employees, and offered all employees except officers a college education allowance for their children. Finally, an employee stock ownership program helped ensure that each employee held some of Nucor's stock. In 1986, Iverson's stockholdings amounted to 1.3% of the total shares outstanding, other officers' 4.8%, and all other employees' 3.9%. No other shareholder owned as much as 5% of Nucor's stock.

⁷Richard Preston, American Steel (New York: Prentice Hall, 1991): 35.

⁸Richard Preston, " Hot Metal, Part I, " The New Yorker (February 25, 1991): 43

Apart from these monetary incentives, Nucor made strenuous efforts to minimize status-related differences among its employees. Everybody received the same insurance coverage and holidays. On the factory floor, everybody, wore green spark-proof jackets and hard hats (unlike integrated mills, where different colors signalled different levels of authority). There were no assigned parking places or company cars, boats or planes. All air travel was in coach class and frequent flyer awards earned on business travel were redeemed for future business travel. Corporate headquarters still consisted of a rented suite of offices in the building Nucor had moved into in 1966 and Phil's Deli, across the street in a shopping center, served as the executive dining room. Iverson answered his own phone and along with the other officers promised to get an answer to any employee's question within 24 hours. Each year's annual report listed all employees on its cover in alphabetical order.

Nucor tried, in addition, to encourage both openness and risk-taking by emphasizing rather than denying the possibility of managerial mistakes. Iverson was particularly eloquent on this point: " We try to impress upon our employees that we are not King Solomon. We use an expression that I really like, and that is, 'Good managers make bad decisions.' We believe that if you take an average person and put him in a management position, he'll make 50% good decisions and 50% bad decisions. A good manager makes 60% good decisions. That means 40% of those decisions could have been b.etter. We continually tell our employees that it is their responsibility to the company to let the managers know when they make those 40% decisions that could have been better...The only other point I'd like to make about decision making is, don't keep making the same bad decisions." ⁹