Motivation is a critical factor affecting employees’ performance and organizational success overall. A successful performance management system builds on employee motivation to achieve better performance. The case of Nucor Steel is an excellent example of the use of work motivation theories in performance management. The company has become a significant player in the steel industry primarily due to the outstanding performance of its employees. Nucor’s application of motivation theories in performance management is manifested in two strategies. First of all, the company has a unique pay scheme, which energizes the workers, directs their behavior, and establishes equality throughout the company. Secondly, the coordination of performance management efforts across plants assists in fostering innovation and cooperation. The present paper will analyze how the two aspects of performance management at Nucor Steel build on motivation theories to achieve the desired effect.
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Pay and Performance
The main aspect of performance management at Nucor Steel is its pay practices. According to Byrnes, the vast part of employees’ pay depends on their performance, as well as the company’s success (57). Nucor Steel uses a system that ensures that high performance is fairly rewarded and poor performance is penalized. Byrnes explains that, whereas the average guaranteed pay per hour in most other steel companies is $16-$21, Nucor offers a guaranteed wage of $10 per hour, which can be tripled by bonuses tied to performance (58). However, if the quality of the product is poor, the workers lose their bonus and may be subject to a fine if the defective steel reaches the customer.
The second important factor in Nucor Steel’s strategy is that bonuses are determined based on the productivity of the entire shift, rather than for each worker individually. This helps to ensure cooperation among the workers and promotes the effectiveness of teams. Lastly, bonuses for performance apply both to the front-line workers and to the management. Managers get significant bonuses based on the plant’s return on assets, and all employees receive a one-time annual bonus if the company is performing well (Byrnes 58). All of these pay practices have helped Nucor to improve performance and increase its profits.
Nucor’s approach to mediating performance through pay is particularly notable due to its use of rewards. According to Kuranchie-Mensah and Amponsah-Tawiah, rewards are widely considered to be among the vital forces in improving motivation (256). The use of rewards and bonuses is justified by Herzberg’s Two-Factor Theory, as well as the contemporary Expectancy Theory. According to Herzberg, recognition of efforts is among the motivating factors that increase job satisfaction and inspire workers to work more productively, whereas the salary itself is a hygiene factor that does not relate to motivation (Robbins and Judge 206). Therefore, Nucor’s strategy is to lower the base pay per hour while offering substantial rewards for high performance.
On the other hand, the Expectancy Theory states that employees “will be motivated to exert a high level of effort when they believe it will lead to a good performance appraisal; that a good appraisal will lead to organizational rewards such as bonuses, salary increases, or promotions; and that the rewards will satisfy the employees’ personal goals” (Robbins and Judge 224). Thus, to enhance employee motivation, the companies need to recognize employee’s efforts with rewards that will be meaningful to them. Nucor’s performance management system uses this mechanism in practice, thus translating employee motivation into higher performance.
Promoting equity within the organization is also a focus of some motivation theories. In particular, the Equity Theory states that employees compare the benefits received from a job correspond with efforts put into it; then, they contrast their ratio of benefits and efforts with those of other workers (Robbins and Judge 221). The highest level of motivation, according to this theory, can only be achieved if all employees are treated equally (Lee and Raschke 164). For example, if the management’s salary is too high compared to the workers’ salary, workers will have low motivation. However, when pay disparities are minimal, the organization will benefit from enhanced motivation.
At Nucor, pay disparities are considerably lower than in most other companies in the industry, which, by the Equity Theory, promotes better performance by improving motivation. Moreover, the company fights inequity by using similar pay practices for managers and front-line workers. When both the workers’ and the managers’ income depends on plant performance, employees are less likely to have feelings of inequity. Thus, this aspect of Nucor’s performance management system diminishes inequity throughout the organization, relating motivation to performance outcomes.
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Performance Management across Plants
Nucor’s approach to performance management across plants is also built on motivation theory, which is why it contributes to organizational success. As noted by Byrnes, while the plants cooperate with one another to reach performance goals and enhance work practices, there is also a share of competition to perform better than the other facilities (62). Indeed, all facilities work towards a shared goal of improving the financial performance of the organization, which is why they share ideas and experience for enhancing productivity. However, workers of individual facilities are also motivated by financial rewards and bonuses, which creates a competitive spirit. The most efficient facility is used for benchmarking, thus allowing other plants to improve.
There are two aspects of plant performance management that are critical to the success of Nucor. First of all, it allows setting clear goals and maintaining a healthy level of competition within the organization. These have a substantial effect on employee motivation, which is explained by the Goal-Setting theory. According to this motivation theory, clear and challenging goals stimulate motivation in employees by helping them to focus and remain energized (Robbins and Judge 212). While internal competition contributes to goal-setting, it is also a powerful motivation tool that can be used independently. Naidoo and Sutherland found that internal competition facilitates motivation, improves task effectiveness, and fosters a favorable organizational climate (77). This, in turn, has a positive effect on performance outputs, thus translating employee motivation into improved performance.
Secondly, Nucor’s approach to managing plant performance fosters cooperation and innovation. While plants compete to deliver the best possible results, they are still working towards a shared goal. Thus, plants share practices and tools for improving efficiency and enhancing performance. According to a study by Chen et al., fostering innovation in working teams supports a positive link between employee motivation and team performance (1018). Thus, Nucor’s approach to promoting innovation through collaboration and goal-setting also contributes to the positive effect of motivation on employee performance.
Nucor’s use of motivation theories offers an example of how evidence-based approaches to motivation can help organizations to achieve excellent performance outcomes. For instance, the company’s use of rewards is consistent with Herzberg’s Two-Factor Theory and the modern Expectancy Theory. Thus, rewards provided by Nucor energize employees and direct their behavior, achieving improved performance. Reduced pay disparities, on the other hand, are consistent with the Equity Theory. They help to reduce feelings of inequity while also increasing motivation. Finally, Nucor’s plant performance management plan aims to set clear goals, thus fostering innovation and collaboration. Overall, the strategies used by Nucor are effective in translating motivation into performance.
Byrnes, Nanette. “The Art of Motivation.” Business Week, 2006, pp. 57-62.
Chen, Gilad, et al. “Teams as Innovative Systems: Multilevel Motivational Antecedents of Innovation in R&D Teams.” Journal of Applied Psychology, vol. 98, no. 6, 2013, pp. 1018-1027.
Kuranchie-Mensah, Elizabeth Boye, and Kwesi Amponsah-Tawiah. ” Employee Motivation and Work Performance: A Comparative Study of Mining Companies in Ghana.” Journal of Industrial Engineering and Management, vol. 9, no. 2, 2016, pp. 255-309.
Lee, Michael T., and Robyn L. Raschke. ” Understanding Employee Motivation and Organizational Performance: Arguments for a Set-Theoretic Approach.” Journal of Innovation & Knowledge, vol. 1, no. 3, 2016, pp. 162-169.
Naidoo, S., and Margaret Sutherland. ” A Management Dilemma: Positioning Employees for Internal Competition versus Internal Collaboration. Is Coopetition Possible?” South African Journal of Business Management, vol. 47, no. 1, 2016, pp. 75-87.
Robbins, Stephen P., and Timothy A. Judge. Organizational Behavior. 15th ed., Pearson, 2013.