Tesla has reportedly decided not to give stock-based compensation to employees as part of their annual performance review.
CEO Elon Musk has often claimed that Tesla has the best employee compensation in the auto industry and that’s because of its stock options.
Just last month, Musk told a crowd at a New York Times conference:
“The challenge is: How do we retain great people to do the hard work of building cars when they have, like, six other opportunities that they can do that are easier? We certainly try hard to ensure the prosperity of everyone. We give everyone stock options.”
Yet, a new report from Bloomberg claims that Tesla has decided to skip stock-based compensation this year:
During annual performance reviews, employees usually get salary adjustments as well as merit-based stock grants on top of their existing equity. But this year, even high performers didn’t get the merit-based grants, the employees said. Some Tesla employees who reached the end of their four-year vesting cycle were still given stock “refreshers,” in order to keep their total compensation competitive.
According to the report, Tesla is still doing “modest cost-of-living increases and adjustments to their base salaries”.
Top comment by LR
Tesla has to compete for people with the other industries in the local markets (mainly Austin and SF Bay Area in the US). If the total package they offer becomes unattractive, they will see higher employee churn and might have to adjust. I suspect they will end up doing some course correction down the road.
There is also sometimes confusion between stock options (effectively these only have value if stock price goes up vs where it is today) vs stock grants (which have value assuming the share price is not zero). Broadly speaking stock options on Tesla have had limited value in the last couple years (yes - devil is in the details on the dates but share price has not moved up much). Stock grants are of course very valuable (depending on the number of shares granted).
It’s unclear if this is a one-time move amid a tough year where Tesla had to cut prices and saw its gross margins crash or if it’s a new policy going forward.
Electrek’s Take
Tesla has regularly changed its employee compensations over the years and not always in a straight forward way.
For example, in 2019, it claimed that it would close nearly all physical stores to move all sales online before quickly canceling the move, which was instead an effective compensation reduction for retail employees.
Hopefully, if this report is true, this is only a temporary solution and Tesla plans to go back to stock compensation. Otherwise, recruiting and keeping employees is going to be hard.
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