Performance management is a series of actions managers and employees take to create an effective work environment and to oversee and evaluate the employee's work goals and amount of contribution. It is more than just a simple performance review because it is a continual process of goal setting, assessing, and coaching to ensure employees fulfill their objectives.
Nucor Steel uses several performance management strategies. One strategy concerns the fair and equal treatment of its employees, across all levels of hierarchy. All members of the Nucor Steel team, including the CEO, are given equal benefits. The company further strives to treat all employees equally and fairly by promising employees who do their job well will never be laid off, by allowing employees to express themselves in "crew meetings, department meetings, shop dinners and employee surveys," and by giving employees a means of appeal should they think they have been given unfair treatment (Smith, G., "How Nucor Steel Rewards Performance Productivity," Business Know-How).
A second performance management strategy the company employs is the development of an earnings plan based on performance. The employees receive up to a quarter of their salaries based on the calculation of the "Return on Assets (ROA)," according to their "individual productivity" (Smith). To pay based on performance, the company gives employees an hourly rate that is lower than the average hourly rate in the steel industry, but employees are paid a substantial bonus if their work exceeds hourly expectations. Smith gives us the following example:
[T]he steel industry average says an individual should be able to straighten 10 tons of steel an hour. Nucor's goal is to straighten 8 tons an hour. Employees get an additional 5 percent bonus for every ton over 8 tons they can straighten. They typically average 35 to 40 tons an hour. ("How Nucor Steel Rewards")
Nucor Steel's unique compensation plan is a particularly effective performance management strategy.
We can see Nucor Steel's performance management system as being related to Herzberg's motivation-hygiene theory, also called the two-factor theory or the dual-factor theory. Psychologist Frederick Herzberg theorized that a certain set of factors leads to job satisfaction, whereas a completely separate set of factors leads to job dissatisfaction. Based on this theory, he posited that fulfilling basic-level needs, such as safe working conditions, pleasant working environment, and minimal salary requirements, is not enough to create job satisfaction. Instead, employees need to feel they have fulfilled an accomplishment, been given responsibility, been given recognition, and are being given more responsibilities in order to feel satisfied. Also, since he theorized that job satisfaction and job dissatisfaction are actually not related but rather independent, he further posited that work-environment characteristics unrelated to the work itself actually lead to job dissatisfaction such as lack of leadership skills among supervisors, poor relationships between workers and supervisors, and inadequate company policies.
One way in which Herzberg's motivation-hygiene theory is reflected in Nucor Steel's performance management system is with respect to the company's unique compensation plan. While the employees' hourly wage is less than average, their goal is also less than average, and their bonus for exceeding their goal is substantial; therefore, the bonus motivates the employees to exceed their goal, resulting in substantially higher industry payment overall and much higher rates of productivity, essentially energizing employee behavior.
We further see Herzberg's theory reflected in the treatment of the employees. By giving all employees the exact same benefits, even the CEO, the company is reducing feelings of inequity and helping to eliminate any tensions that create poor relationships between workers and supervisors. The company is further strengthening relationships by developing avenues for employees to speak their minds freely and to make appeals. In addition, allowing employees to speak their minds freely and promising they will be heard further helps guarantee that the company will create and initiate only policies that employees agree with and feel comfortable with, eliminating chances of job dissatisfaction.
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