Tesla announced that it would eliminate any form of employee bonuses tied to quarterly delivery quotas. But at the same time, Tesla has raised base salaries for sales and delivery employees to make up for lost bonuses.
However, with or without a pay rise, the move still looks set to result in an across-the-board drop in compensation for most Tesla employees. Tesla is known to employ a different distribution model than most other automakers, with stores across the U.S. rather than relying on third-party dealers.
This means that Tesla can control not only its own sales and deliveries around the world but also employee compensation in both areas. Tesla’s direct-selling model has been controversial for years, and the electric-car maker still can’t legally sell its vehicles in certain U.S. states.
Things started to change in 2019, when Tesla CEO Elon Musk said they planned to move all sales online, close most stores and reduce the number of retail employees.
That led Tesla to slash retail employee pay and close its first stores, but the automaker eventually shelved some of the changes. Not only has the company kept most of its stores open since then, but it has now significantly expanded its retail operations.
While the idea of closing stores has been put on hold, employee compensation has been reduced, especially after the commission model was scrapped.
Tesla is still giving out bonuses to employees responsible for sales and deliveries, but it’s tied to larger quarterly delivery quotas based on stores and regions. If these quotas are met, employees will receive a bonus equal to 25% of their salary in cash or stock options.
Now, however, Tesla will also eliminate those employee bonuses, according to people familiar with the matter. To make up for the reduction in bonuses, though, Tesla increased the base salary for sales and delivery employees by 12.5%.
The bonus model has been quite successful for Tesla, which has broken delivery records for seven consecutive quarters. Historically, most Tesla employees have been paid quarterly bonuses for the past two years. After the compensation plan adjustment, means that the total compensation of employees will be reduced.
However, there are also plenty of places where employees don’t get delivery-related bonuses, and perhaps a full pay raise will create a more level playing field for Tesla’s salespeople, where EV adoption isn’t as widespread as in California, etc. so wide.
In addition, the move will also help remove the enormous pressure to meet quarterly delivery quotas. Late last year, Tesla began telling employees to pay less attention to quarter-end delivery numbers, which have historically been an important part of Tesla’s quarterly results.
The start-up of new plants in Berlin, Germany and Austin, Texas, U.S. is expected to improve vehicle deliveries throughout the quarter, reducing the need to focus on delivering more vehicles at the end of the quarter. It’s likely that at some point, Tesla has produced so many cars and is ready to deliver that the bonus will become meaningless.