Steel Man Ken Iverson

 

INC.: We started this discussion about compensation with your salary, so let's return to that for a moment. Compared with other Fortune 500 companies, your executive compensation looks modest.

IVERSON: If we have a good year and we max out, the compensation is really very good. We have no retirement programs, no annuities or anything else; we just have one single plan for officers.

INC.: Profit sharing?

IVERSON: No, officers aren't part of the profit sharing. We have just a single program, a very simple one that's based on stockholders' equity. It kicks in once we reach about 9% return on equity, which is a little below average for manufacturing companies. After that, 5% of everything that's left over from net earnings [before taxes] goes into a pool for the officers that is then divided up based on their salaries.

INC.: So how does that work out?

IVERSON: Executive salaries are 75% of what they would earn in this industry in comparable positions. Now if return on equity for the company reaches, say 20%, which it has, then we can wind up with as much as 190% of our base in salary and 115% on top of that in stock. We get both.

Of course, that's the maximum. Now, in 1982, when we had only a 9% return on equity, it was zero. My base pay right now is $150,000. If we had 20% return on stockholders' equity, all told I'd get about $600,000.

INC.: Not too shabby.

IVERSON: Yeah, but the important thing is if we get only an average return on equity, then the officers are going to earn less than they would in a comparable position.

INC.: Is there a bias in this toward short-term thinking?

IVERSON: You'd think so, but it hasn't worked out that way. You look at all the expansion we've had -- the new fastener plant and new deck plant -- and the officers get hurt financially in the short term by those. But we're all committed to this company in the long term, so we're willing to make sacrifices today knowing we'll benefit down the road.

INC.: We've talked a good deal about this compensation system. Do you think there may be some limitations on how widely applicable it is to other firms, in other industries?

IVERSON: Limitations? No question about it. To design a system like ours, you have to have two things. First, you have to be able to break out a small group of people who all work as a team on some particular function -- by small, I mean maybe 30 to 35 people tops. And in order to give them an incentive, you have to be able to define some measurable product. In our case, it's good billet tons per hour.

INC.: Let's shift gears a little bit. Right now, you're sitting on some $180 million in cash at Nucor, which has caused some speculation on Wall Street that you'll pick up on the trend and go private.

IVERSON: It has been mentioned to us by a number of brokerage firms and investment houses, but we wouldn't even consider it. It wouldn't be fair to the employees, and I don't know whether it would even be fair to the stockholders.

INC.: Why not?

IVERSON: If you go private, then you're going to restrict the growth opportunities of the business because of the burden of carrying so much debt. And in business, you either grow or you die. Oh sure, the officers might make out better under those circumstances, as they usually do in such deals. But certainly the overall company would not be healthier and the opportunities wouldn't be created for people within the company.

INC.: What kinds of opportunities?

IVERSON: Let me give you an example. We are going to make fasteners -- bolts, plain old bolts that you buy in a hardware store. Today, 90% to 95% of them are made outside of the United States. We've studied it for a year now, and we decided that we can make bolts as cheaply as foreign producers and make a profit at it. So we're in the process of constructing a bolt plant in St. Joe, Ind. We'll probably have $30 million in it, including working capital, to produce 40,000 tons of bolts annually. And it will be the most sophisticated, modern bolt plant in the world. We've got things that nobody else has.

The numbers are fantastic. On a standard old bolt maker, you have two guys making 100 bolts per minute -- an operator and an assistant. The assistant is there generally because of the union. But we have a bolt maker that makes 400 bolts per minute and the machine is so automated that if anything happens it automatically shuts down. So one man can operate four machines. That's 1,600 bolts per minute per person, compared with 50 on the old basis. So you're talking about 32 times the productivity.

Actually, we're toying with the idea that we could do even better than that, by "ghosting" -- having those bolt makers loaded up and operated unmanned during a third shift. When they run out of material they shut themselves down. This is exciting -- we wouldn't be able to do these things if we went private.

INC.: Can we expect you to get into lines other than steel, like others in the industry?

IVERSON: No, we're going to stay in steel and steel products. The way we look at it, this company does only two things well, and that is it builds plants economically and it runs them efficiently. That's the whole company. We don't have any financial expertise, we're not entrepreneurs, we're not into acquisitions. Steel may not be the best business in the world, but it's what we know how to do and we do it well. We're very conscious of that.

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