Today, let’s examine a couple of lingering ideas from this post in a little more detail. First, I noted that Iverson felt people always worked hard for above-average pay. This was actually one of three such motivators – the other two were job security and opportunities for advancement.
Nucor’s compensation structure probably helped the former while minimizing the lack of the latter. By paying production bonuses immediately, Nucor was ensuring that a higher wage bill correlated very strongly to revenue. It also meant the reverse – a lower wage bill during down periods. This mechanism played a major role in allowing the company to minimize layoffs and positioned them to offer better job security to prospective employees.
However, the flat structure of the organization suggested to me that opportunities to advance were likely minimal (or at least less outwardly obvious) than they would be when compared with a competitor. An employee who could continue to earn higher pay by ever-improving performance in such an environment would probably not find a lack of advancement very concerning.
A final lingering thought from this post was about the way Nucor measured productivity. In most organizations, an employee’s productivity is their production. This looks OK on paper but assumes that employees are fixed costs from which the most possible output must be squeezed. Nucor’s compensation structure suggested they measured employees by labor cost per product.
On paper, these concepts look basically identical, but the advantage of the latter is that the method allows for greater flexibility in spending decisions. An employee who wants to buy a new piece of technology is going to have a much easier time making the case if production is measured by cost per product – if a 50% spending increase leads to a 100% increase in production, it’s a no-brainer. But if the employee who is regarded as a fixed-cost proposed the same, it seems more likely to me that the idea would get rejected due to the cost implications. In the very worst organizations, management might come back to the employee and ask – why don’t you try to double output without increasing cost?
