A fascinating aspect of Ken Iverson’s Plain Talk was the way he described Nucor’s philosophy for paying employees. The approach was based on a number of principles he believed were essential foundations for a company that wanted to remain successful over the long term.
The first principle was that a good pay system must encourage specific behaviors that are known to make the business more competitive. Iverson felt that the most important behavior Nucor needed to encourage was a strong team ethos and therefore his organization paid team bonuses instead of individual bonuses. As Iverson put it, organizations that reward exceptional individuals get exceptional individuals while those that reward exceptional teams get exceptional teams.
The second principle was that companies remain competitive in the long term if they retain loyal and motivated employees. One way Iverson applied this principle was by compensating executives mostly through bonuses and equity. This structure helped Nucor control wages during down periods and prevented the organization from undermining its employees’ trust through layoffs (or even worse, layoffs happening simultaneously to increases in executive compensation).
The third and final principle was that people tend to work hard for above-average pay (1). This isn’t breaking news, of course, but most organizations use financial incentives over time periods as long as half a decade. Iverson didn’t think this was a fast enough turnaround to interest most people and found ways to use money as a daily motivator instead. As many psychologists have ‘discovered’ through carefully crafted studies, people behave very differently when the prospect of a reward is immediate. By harnessing the power of this basic reality, I’m sure Nucor returned far more value for their dollar than did their competitors.
