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Tesla has decided to cancel any employee bonuses tied to its quarterly delivery quotas. The automaker is also raising base salaries for sales and delivery employees to compensate for the bonuses going away.
However, it looks like it will result in an overall reduction in compensation for most of those Tesla employees.
Tesla famously uses a different distribution model than most other automakers by owning stores across the US instead of relying on third-party dealerships.
That means that it also controls the compensation of its sales employees. Many people believe that it means Tesla doesn’t use commissions, but the automaker actually did for years.
Things started to change in 2019 when CEO Elon Musk said that they plan to move all sales online-only, close most stores, and reduce retail headcount.
It resulted in Tesla slashing retail employee compensation and closing a first wave of stores, but the automaker ended up reversing some of those changes and has since not only kept most stores open, but it has now significantly expanded its retail presence.
While the idea of closing stores went away, the reduction in employee compensations, especially through removing the commissions model, stayed.
Tesla was still offering bonuses to its sales and delivery staff, but it was based on bigger store-based and region-based quarterly delivery quotas. If those quotas were made, employees would get a 25% bonus on their salaries issued in a choice of cash or stock options on a vesting schedule.
Now sources familiar with the matter told Electrek that Tesla is canceling those employee bonuses too.
In order to compensate for the bonuses going away, Tesla is raising sales and delivery employee base salaries by 12.5%.
The bonus model was quite successful for Tesla with delivery records for seven quarters in a row. Historically, most Tesla employees have been getting their bonuses every quarter for the past two years, and therefore, it will be a reduction in total compensation for them.
But it will remove the stress of hitting the quarterly quotas.
Late last year, Tesla started to tell employees to focus less on the end-of-quarter delivery waves, which have historically been a big part of Tesla’s quarterly results.
Production at new factories in Berlin and Austin is expected to improve the flow of vehicles throughout the quarters and reduce the need to squeeze more deliveries toward the end of quarters, but the impact is mostly going to be felt once production ramped up at those facilities, which is expected to happen during the second half of the year.
As discussed, this is effectively another reduction in overall compensation for sales and delivery employees, who have already seen their compensation slashed on several occasions over the last three years.
In hindsight, the changes to the compensation model in 2019 were more understandable considering we later learned that Tesla was in a massive cash crunch related to introducing the Model 3 in Europe at the time.
But now a few years later, Tesla is in a completely different financial position with record deliveries and record profits. Those sales and delivery employees are a big part of what made that success possible.
Unfortunately, it looks like Tesla doesn’t feel like it needs to compensate them for it due to the demand currently being organically extremely strong. It’s a shame.
What do you think? Do you think the salary increase is enough to compensate for the bonuses going away? Let us know in the comments section below.
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