Nucor’s CEO is stepping aside, but its culture likely won’t

November 20, 2012

Over the weekend, the Charlotte, N.C.-based steel company Nucor announced that Daniel DiMicco, its CEO since 2000, will be succeeded by the company’s president and COO, John Ferriola. DiMicco, who is credited with increasing sales fivefold at Nucor and overseeing a total shareholder return of 464 percent during his tenure, will remain as executive chairman.

This run-of-the-mill (pardon the pun) news about a CEO succession would barely be worth a comment if it weren’t for Nucor’s innovative approach to managing and leading its employees. Under DiMicco, as well as Ken Iverson, who ran the company before him, Nucor’s management culture has been unique in U.S manufacturing. It takes the sort of employee practices to which many companies give lip service and embraces them fully.

Take “pay for performance.” At many companies, this compensation philosophy mostly applies to the top brass, who are offered millions in stock options and bonuses for hitting target goals but rarely are dinged when performance worsens. Front-line employees who work in reportedly meritocratic cultures might see meager 3-percent raises for a job well done, but the difference between good years and bad years is rarely tangible enough to be felt.

Nucor, on the other hand, practices what it preaches. A full two-thirds of employees’ pay comes from “pay for performance” bonuses that are tied directly to the amount of “prime” steel produced each day. For instance, a 2008 story in the Milwaukee Journal-Sentinel recounts how, at a plant in Oak Creek, Wisc., employees are paid anywhere from about $12.50 to $24 an hour, depending on how well their shift performed. While that kind of variability may not sit well with some employees, for others it can translate into big growth from year to year: A worker at one plant reported his pay growing from $67,000 to $92,000 in four years.  

Of course, when profits are low, that means employees’ pay inevitably suffers. Yet management feels the pain, too: As Nucor’s Web site says, “when times get tight, we believe in ‘pain sharing,’ where top management takes a pay cut before anyone else.” The company also managed to avoid layoffs during one of the toughest periods of the recession.

Nucor also takes seriously the concept of a flat management hierarchy, and sees “empowerment” as more than just a corporate euphemism. While some companies tout they have a lean management structure, Nucor’s is decisively so. Despite being the 138th largest company on the Fortune 500 list and the country’s largest steelmaker by market capitalization, fewer than 100 people work at headquarters. There are only five layers of management. Each mill runs as a largely autonomous operation, and each facility runs its operation with the kind of freedom and line-level decision-making that is rare in Corporate America.

For instance, “The Art of Motivation,” a 2006 BusinessWeek story about Nucor, recounts a story of how three Nucor Corp. electricians, upon hearing the news that a plant’s electrical grid had failed, took it upon themselves to drive hours to the plant or book plane tickets to the area, even though no supervisor had asked them to make the trip. Once there, they worked 20-hour shifts for three days, even though there “wasn’t any direct financial incentive for them to blow their weekends.” In other words, Nucor’s employees actually act like “owners” of the business, rather than employees—yet another management buzzword that many CEOs use, typically out of wishful thinking rather than reality.

Nucor’s management approach is not new—Iverson’s philosophy dates back several decades and gained further attention when he wrote a book about his maverick management style. But that’s precisely why DiMicco’s transition is unlikely to change much at the steelmaker. (The CEO-in-waiting, Ferriola, has said “I consider myself an apostle” for the gospel of Ken Iverson.) The announcement that DiMicco is stepping down as CEO may not be big news. But the success Nucor’s leaders have had at building such a unique culture should continue to be. 

 

Jena McGregor writes a daily column analyzing leadership in the news for the Washington Post’s On Leadership section.
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