Nucor Corp. could very well be the biggest small company in America. Nucor has almost 4,000 employees working in 18 plants around the counry, with sales last year of $758 million. For years it has been listed on the Fortune 500. Yet here is a company run by a corporate staff of only 16, working out of 8,000 square feet in an anonymous office building located across the street from a shopping mall on the outskirts of Charlotte, N.C.

There's a modesty and simplicity about this company that reflect its chairman and chief executive officer, F. Kenneth Iverson. Iverson has put the lie to the notion that the American steel industry is dead, with a company that has continued to grow at a compound annual rate of 23% over the past 10 years, selling nothing but steel and steel products. Much of his success derives from a commitment to hands-on management, investment in steel technology, and an unusual compensation program that keeps productivity high, turnover low, and has job applicants lined up around the block.

Editor George Gendron spoke with Iverson about how his management style and how Nucor find both stability and profits in one of the nation's most troubled industries.

INC.: In the steel industry, you're something of a renegade for opposing the industry's call for protectionism.We all know the general arguments against trade barriers. But why not at least give the industry some temporary relief, time to regroup and modernize and find some way to protect workers from the effects of cutthroat international competition?

IVERSON: If you look, we've had this "temporary" relief for a long time. We had a voluntary quota system in the early 1970s. We had trigger prices in the late 1970s. And what happened during these periods? As soon as prices began to rise so that the steel companies began to be profitable, they stopped modernizing. It's only under intense competitive pressure -- both internally from the minimills, and externally from the Japanese and the Koreans -- that the big steel companies have been forced to modernize. I think you'll find that, nationally, our continuous casting has jumped from 25% of our output to 39%. We're still behind the rest of the world -- in Japan, close to 90% of their steel is continuously cast -- but we are modernizing, closing down these old facilities that cannot be made economically viable or environmentally acceptable, which is what we should do. We have an excess of steel-manufacturing capacity, and the only way to get around that is to shut down the old facilities.In 1980, we still had rolling mills that rolled steel back in the Civil War.

INC.: So your argument is that protectionism tends to make the industry weaker, not stronger.

IVERSON: That's right. Unless you're under intense competitive pressure and it becomes a question of the survival of the business to do it, you're just going to lapse back into your old ways. There's no other answer. But out of all this will come a lot of things that are beneficial: more of an orientation toward technology, greater productivity, certainly a lot of changes in management structure.

INC.: But isn't the big problem with the American steel industry a wage structure that makes it impossible to compete internationally, no matter how much technology you bring in?

IVERSON: At Nucor we produce more than twice the steel per man-hour as workers in large steel companies. Since we're not unionized, I've heard people say that Nucor is proof that unions per se have a negative impact on worker productivity. That's nonsence! That conveniently ignores vital questions like: What's the quality of direction being given the workers? Where are the resources the workers need to get the job done efficiently? Where's the opportunity for workers to contribute ideas about how to do the job better? The real impediment to producing a higher-quality product more efficiently isn't the workers, union or nonunion; it's management.

INC.: But that's easy for you to say -- you don't have to deal with unionized workers with inflexible union wages and work rules. Isn't that the big advantage you have over the integrated mills?

IVERSON: Look, I'd be the last to say that unions don't present some problems. But you've got to look at why we don't have unions here. For one thing, we pay our people well. The average hourly worker at our plant in Darlington, N.C., for example, with bonus and everything, earned more than $30,000 last year. In addition, employees know that we are not going to lay anybody off, and that has a tremendous impact on the way people approach their jobs. Many of the work rules that have grown up in the unionized plants -- the ones that have led to featherbedding and the resistance to new technology -- these are the response to worker demands for some form of job security. Can anyone blame workers for wanting that? I can't. So if there is any responsibility for how these work rules have developed, how they have been negotiated and implemented, I think it belongs with management. At Nucor, we think we've been able to avoid those problems by dealing with the job-security problem right up front.

INC.: The unions aren't at your door, then?

IVERSON: As a matter of fact, the last time we had a union organizer in Darlington, we had to send out management in order to protect the union guy passing out the pamphlets.

We're fortunate -- people like to work here. Last fall, Darlington needed eight people, and we put a little ad in the county weekly newspaper that said, "Nucor Steel will take some applications on Saturday morning at 8:30 for new employees." When we went out there for the interviewing, there were 1,200 people lined up in that plant. We couldn't even get into the plant to get to the personnel department. Twelve hundred people! Finally, we called the state police and said, "You've got to do something. We've got a traffic jam out here." And the cop on duty said, "We can't do it, because we've got three people out there applying for jobs ourselves!"

INC.: But doesn't that prove the point -- that American steelworkers earning $30,000 a year have priced the industry out of business?

IVERSON: And they earn every bit of it. That's one thing I really object to, the people in the large steel companies saying the steelworker earns too much. Sure, it's generous -- I would guess it's about 70% more than the average manufacturing worker. But what people forget is that in every industrialized country in the world, the steelworker earns more than the average industrial worker; in Japan, the premium is close to 50%. And there's a reason for it. It's hard, hot, dirty, dangerous, skilled work. We have melters who earn more than $40,000, and I'm just glad they can earn it. But it's not what a person earns in any absolute sense; it's what he earns in relation to what he produces that matters.

INC.: You've said elsewhere that you have absolutely no aversion to hiring a worker who has worked for an integrated steel company. In fact, you like it.

IVERSON: Yeah, we've hired a lot.

INC.: But you won't touch management?

IVERSON: No, because we've not had any success with older management. Now we can hire a fellow who is 40 or under and that will work out OK, because over a period of time we can change him. But older than that we've found that we will never be able to change him.

INC.: In what ways?

IVERSON: Being open to change, for one. Anyone who has worked a certain way, in plants with very rigid rules that have done things the same way for years, has very deeply ingrained habits. It's very hard to break loose from that. We've also found that someone like this has trouble developing the type of communications skills we require between department heads and employees.

INC.: What does that mean?

IVERSON: Well, he has to be willing to get down and communicate with the employees and get them working as a team. He has to do it directly. He can't do it through 14 guys that he builds up between him and the individual, which is how he is used to operating at the big companies.

INC.: That seems to define a significant problem with the steel industry.

IVERSON: Yes, and not just in steel. The most important thing American industry needs to do is to reduce the number of management layers. It is probably the single most important factor in a business -- the number of layers you have between the foreman and the president of the corporation, for example -- because it not only allows you to make decisions faster, it also allows you better communication. That's one thing we are really fanatical about.We have four management layers. We have a foreman, and the foreman goes directly to a department head, and the department head goes directly to the general manager -- and he goes directly to this office.

INC.: What's interesting, though, is that if you talk to almost anybody, whether it's an INC.-size company or U.S. Steel, I don't think anyone would disagree with you. These things seem to almost develop a life of their own. Organizations seem to breed complexity.

IVERSON: Absolutely. But it's management's responsibility to fight that tendency. I think there's reason to believe the message is beginning to be heard. I spent two days as a lecturer at a business school not long ago. One of the students heard me talk about this and spoke up and said that he was at U.S. Steel's new automated pipe mill near Birmingham, Ala., and he said the thing they were the most proud of wasn't the technology, but that they had only 4 management layers, instead of the usual 10. So even U.S. Steel is getting the message.

But there's more to it than that. One other important characteristic about Nucor is we try very consciously to eliminate any differentiation between management and everybody else. That's the reason we don't have any assigned parking places, no executive dining rooms. Everybody wears the same colored hard hat. Green is the color you wear. No gold hats for the president.

That hat idea came from me. And after we announced it, I got about four letters from foremen who said something like, "It's my recognition. I put it in the back of my car so everyone can see it! All of my neighbors know I'm a foreman." And I wrote back and was sympathetic but said that the recognition has to come from your leadership ability and not from the color hard hat you wear.

INC.: Along these lines of "recognition," several years ago you were the Fortune 500 CEO with the lowest compensation.

IVERSON: Something I was really a little proud of.

INC.: Is that something you communicated to your employees?

IVERSON: You bet your life. That's why, when I walked through a plant during that period of time when we had to cut back to a four-day workweek, or even three and a half days, I never got an employee who complained. His pay may be cut 25%, but he knows the department head is cut more and that the officers are cut, percentagewise, even more. I call it our "Share the Pain" program.

INC.: How do the percentages work out?

IVERSON: Well, it's really a function of our bonus system. If we go to a three-and-a-half-day week, which we have on occasion in order to avoid layoffs, the department head will get cut by 35% to 40%. His bonus is tied to the earnings of that particular plant, which suffer because we're not using equipment efficiently. And then the officers, at the next level, their salaries are tied in with return on stockholders' equity, and that gets hurt even more when production is cut back. Their total compensation will drop 60% or 70%.

INC.: As was the case for you.

IVERSON: Yes. And that's how it should be. I don't care what the reasons are, but if a company's not successful in one year, excuses don't matter. Management should take the biggest drop in pay because they have the most responsibility.

INC.: Does that make it difficult to recruit good managers?

IVERSON: I'd put it another way. It helps narrow the field to the type of managers we want -- someone who has enough confidence in his own abilities that he's sure he's going to make that division succeed.

INC.: Have you ever identified somebody you wanted to hire for whom the compensation policies were an obstacle?


INC.: I can imagine an instance where you have a really good manager doing a good job but, for some reason out of his control, the numbers from a division just are not that good for a given period. Do you ever make up for that with some form of discretionary bonus?

IVERSON: We don't have any discretionary bonuses -- zero. It's all based on performance. It really don't want anyone to sit in judgment, because it never is fair. If you're giving a discretionary bonus and it's at the end of the year, you're bound to be influenced by the performance of that individual in the last two or three months. Now maybe something happened to him. Maybe he did great during the first four or five months of the year and then he ran into some family problems at the end.There is no way you can sort that our and be really fair to everyone.

INC.: So all your compensation is a function of company performance on one level or another?

IVERSON: Right. Now in the case of the lowest level, it's the production-incentive compensation that is probably the most important of all. Everything is arranged in groups of 25 to 35 people who are doing some complete task. For example, in the steel mills, there are nine bonus groups: there're three in melting and casting, three in rolling, three in finishing and shipping. Take melting and coating, for example. We start with a base of 12 tons of good billets per hour: above that, the people in the group get a 4% bonus for every ton per hour. So if they have a week in which they run, say, 32 tons per hour -- and that would be low -- that's an 80% bonus. Take the regular pay, the overtime pay, everything, multiply it by an additional 80% -- and we give them that check along with their regular check the next week.

INC.: So the incentive is right there.

IVERSON: Right. If you work real hard and you get real good performance, you get the payment for that the next week so that you can very easily relate to the fact that you worked like a dog and there's the money -- not at the end of the year, but now.

INC.: Is that a system everyone is comfortable with?

IVERSON: It's geared toward performance-oriented employees. There are lots of people who don't like to work that hard, and they don't last very long with us, because the rest of the people are not going to let them. We've had groups that got so mad at a guy who wasn't carrying his weight they chased him around a joist plant with a piece of angle iron and were gonna kill him.

INC.: So the system's really self-policing in a way.

IVERSON: Yeah, it sure is.

INC.: How does that work out, say, when you start up a new plant with all new workers?

IVERSON: It's not unusual for us to have a 200% to 300% turnover the first year. But once we settle down, and once we've found those performance-oriented individuals, then the turnover rate is almost nothing. The last time we kept track of that, in a plant with 500 workers, we had 3 people leave in the course of a year. So that's pretty good.

INC.: In addition to performance bonuses, you also have profit sharing. Is there anything unusual about your approach to that

IVERSON: Well, to a lot of employees, profit sharing was just an abstract idea -- it wasn't real money they'd get their hands on one day. Others really believed that the contributions were still the company's money -- that we could take it from them at any time and do with it whatever we wanted.

INC.: So what did you do?

IVERSON: Well, we decided we would make part of the profit sharing in cash. It's a small percentage, but along with the regular profit sharing that goes into the trust, we send a check. Well, the first time we did it, we made all the checks green because everything in the profit sharing is green -- the certificates, the letters, and so on. And we had a bunch of checks that weren't cashed. So I called up the general manager and said, "Charlie, why haven't these 50 checks been cashed?" And so he went out and found that when they got the check, they didn't think it was real, they thought it was something about the annuity they would get at retirement. Some of them threw the checks away, others gave them to the kids to play with. So we replaced them. Now, though, they don't lose them anymore!

INC.: I hear very distinct themes in what you say. At one moment, you talk about the nice touch of paying out a bit of profit sharing in cash, and about your policy of not laying off workers during a recession or a downturn. Another moment, you speak rather matter-of-factly about a compensation system that is almost ruthless when it comes to the question of performance demands.

IVERSON: Don't get the idea that we're paternalistic, because we're really not. This bonus system, for example, is very tough. If you're late even 5 minutes, you lose your bonus for the day. If you're late more than 30 minutes, or you're absent because of sickness or anything else, you lose your bonus for the week. Now, we do have what we call four "forgiveness" days during the year when you can be sick or you have to close on a house or your wife is having a baby. But only four. We have a melter, Phil Johnson, down in Darlington, and one of the workers came in one day and said that Phil had been in an automobile accident and was sitting beside his car off of Route 52, holding his head. So the foreman asked, "Why didn't you stop and help him?" And the guy said, "And lose my bonus?"

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.