University Report: Performance Compensation and Management in Tesla

This report provides an in-depth analysis of Tesla's performance compensation and management practices. It begins with an executive summary outlining the project's objective: to evaluate Tesla's compensation plan and its alignment with employee performance. The report delves into Tesla's organizational structure and current compensation plan, highlighting the importance of monetary and non-monetary incentives in motivating employees. It examines the advantages and disadvantages of variable compensation, detailing the specific types of policies implemented by Tesla, such as incentive programs and bonus structures. The report discusses the 'peanut butter approach' and its suitability, emphasizing the need for tailored reward systems. It applies relevant remuneration concepts, outlines the benefits of implementing effective reward and compensation policies, and concludes with a summary of the key findings. The report emphasizes the critical link between employee performance, compensation, and overall organizational success, particularly within a high-growth company like Tesla. The analysis includes the company’s motivation equation and the impact of policies on employee retention and productivity.

Running head: PERFORMANCE COMPENSATION AND MANAGEMENT
Performance Compensation and Management in Tesla
Name of the Student:
Name of the University:
Author’s Note:

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Executive Summary
The aim of the project is to evaluate the performance and the compensation plan in the Tesla
Company and the relevant compensation structure for the employees of the company. The
compensation and the pay structure is important in an organisation which binds the
employees of the company to work more and get motivated Monetary and non-monetary
incentives are some of the best part of compensation plan, which enables the employees of
the company to work more and earn higher. The recognition policy of the company has also
been identified in the project after evaluation of the company’s policy with respect to
employee’s performance and the linkage and mapping of the same with the compensation and
performance management they get. Finally the benefits flowing to the organisation in
implementing the discussed compensation strategies and the benefits flowing from the same
are discussed.

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Table of Contents
Introduction................................................................................................................................4
Discussions.................................................................................................................................5
Brief Description of the Organisation and the Current Compensation Plan..........................5
Advantages and Disadvantages of Variable Compensation Pay Policies..............................7
Types of Variable Compensation Policies selected by the Management of the Company....8
Pros and Cons of Peanut Butter Approach...........................................................................10
Application of Relevant Remuneration Concept.................................................................10
Benefits of Implementation of Reward and Compensation Policies...................................11
Conclusion................................................................................................................................11
Reference..................................................................................................................................12

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Introduction
Hardwork is a key to success and we all work hard to achieve success in our lives.
The success in our life depends on the quality of work we do but at the same time recognition
of the same work plays an important factor for consideration. The compensation plans and
policies in an organisations should be such which would motivate the employees of the
company in working better and hard to achieve success and align better towards long term
growth in there career. The policies and the work place of every organisation should be such
that it recognizes the employees who implement a key strategy in doing a work. In a big
employee base there are several who give their best performance and outperforms other in
terms of productivity and output results (Benson and Sajjadiani 2018). It is crucial to note
that the peanut butter approach may not be suitable as an appropriate policy for an larger
employees base where the weightage given to those outperforming employees and
underperforming employees are given the same amount of performance pay instead the
company should reward higher in terms of monetary and non-monetary compensation way to
those outperforming (Buckingham and Goodall 2015).
The Company we elected for the performance compensation and evaluation was
Tesla Company. The performance and the compensation policy of the company was reviewed
in order to get an brief of how does the company plans its performance and compensation
plan to keep upright the motivation of the employees of the company to help them achieve
success and growth and produce better productivity. Motivating is the key factor to perform
better and this can be done by the company by its certain compensation and management of
the company. There are several advantages and the benefits of the same are flowed to the
company if the employees of the company perform better in terms of productivity and output
level.

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The motivation equation is a kind of basic management tool for assessing the
fundamentals of motivation. Monetary Benefits, Achievements and recognitions, Appraisals,
progress report certification security after retirement and setting up general and special funds
programmes for the employees of the company are some of the certain principle components
for motivating the employees of the company (Blanco et al. 2018).
Discussions
Brief Description of the Organisation and the Current Compensation Plan
The company we have selected for the financial evaluation was the Tesla Musk
Company which is based in United States of America an Automobile and an Energy
Company. The company caters the automobile and the energy sector by delivering world
class better products in the industry (Darma and Supriyanto 2017). The company was
founded in the year 2003 by a group of engineers who wanted to deliver an exclusive
automobile products but by replacing the traditional use of fuel with the electricity. The Tesla
Company is known for delivering world class exclusive products in the field of electric
products. The publically listed company is listed in NASDAQ with its key or ticker symbol
as (TSLA). The founders of the company are Martin Eberhard and Marc Tarpenning. The key
people in the company is the Chairman and the Chief Executive Officer of the company Elon
Musk. The company currently has an employee base of around 45,000 employees working in
the company. The company has also acquired a subsidiary company as an inorganic growth
strategy in the year 2012 where the employee’s base of the company increased significantly
(Cooper, Gulen and Rau 2016).
As per the recent article in the New York times it was stated that Elon Musk is the
highest paid employee of Tesla Company where he would be compensated if the valuation of

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the Tesla Company increases from the current level to optimistic level of growth the growth
of the company is linked to the performance of the key employee of the company. The
company has several policies and guidelines set up for the recognition of the key employees
of the company which bring out material changes in the business activity and overall marks
the growth and success of the company. The compensation plan of the key employees of the
company is directly linked to the some metric policy of the compensation and performance
pay that is determined by the management of the company. Setting up such policies and
implementation of the key policies within the company helps recognise employee which has
the capability to perform better and deliver better returns in terms of yield to the company on
the total capital invested. The return on total capital is an important factor for determining the
overall financial position of the company and the profitability for the Tesla Company has
been outstanding because of the key employees of the company. The Tesla Company has
policies and compensation plan set up in such a way that would make key employees of the
company earns in billion dollars because the performance of the company is directly linked or
mapped to the employee success. The company valuation growth will be seen as the company
makes progress b diversifying its product portfolio and through increase in sales and revenue.
The long term growth of the company in terms of profitability and the long term growth in
the compensation plan of the employee’s compensation or pay motivates them work harder
and reach towards their goal (Bennett et al. 2017). The company also conceives the
employees plan as in important tool of investment as the Base Salary or the Total
Compensated paid by the company is a kind of investment done by the company in the
employees of the company. The investment done in the employees of the company should
also bring out a kind of return for the company in terms of better productivity and output
results by increasing revenue by increasing the product portfolio basket of the company. The
performance assessment of the company helps in the assessment of the overall profitability of

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the company and the same is marked by the compensation paid to the employees of the
company. The company does not follow the peanut butter approach where the employees of
the company is paid equally on the base of the overall profitability of the company instead the
company follows the key approach of paying as per the outputs produced by the employees
of the company. The company believes in recognition policy while implementing the long
term policy of growth and retention of employees where they can be retained with the long
term appraisal policy and policies that are linked to the long term growth of the firm and the
payment of the same to the employees of the company. The company has similarly made
such plan for Elon Musk that if the valuation of the company reaches from the current
valuation of around 60 billion dollars to 100 billion dollars then the campanili be paying him
an amount which will be in the form of employee stock option plan and certain monetary and
non-monetary benefits, which will be linked to the performance of the company in terms of
Yield.
Advantages and Disadvantages of Variable Compensation Pay Policies.
The compensation plan followed in the Tesla Company is the Variable Compensation
Plan where the assessment of the performance of the employees of the company are paid in
terms of their performance. The variable compensation pay policies allows the management
of the company earn higher return based on the performance of the company. The variable
compensation pay allows the management of the company recognises and reward the key
employees of the company (Essl and Jaussi 2017). The variable compensation plan allows the
key employee of the company earn better and superior return and the compensation is paid to
them in the form of stock options, stock grants, Employee Stock Option Plan, Special
Employee fund which is linked to the performance of the company and a nominal amount of
profit is deposited to the fund. These variable compensation policies and plan benefits both
the employees and the management of the company in terms of alignment of growth in the

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long term and the success of the company and the yield better returns for the company (Fang
2016).
The key benefits of having a variable compensation plan is that the employees who
perform better are rewarded instead other employees are also inspired to work hard and earn
better. The key employees of the company expectations with the company increases as there
efficiency in the work level increases. The retention ratio for the efficient employees of the
company should be high so that the key employees of the company does not get demotivated
and leave the company. The recognition and reward or the R&R policy should be well
involved with the proper work ethics of the company. Thus it is crucial to note that the
variable pay policy can not only bring potential changes to the company employee’s base but
also increase the efficiency in the working of the company and motivate the employee of the
company.
The key disadvantage in following the variable pay based compensation plan by the
Tesla Company is that the employee base of the company is around 45,000 employee
working directly and every employees works a crucial role or part in the development and
success of the organisation. The recognition of top management structure in the company
always and developing an superior employee base where the compensation structure and the
reward and recognition policy for the top level executive is given more weightage may
demoralize the bottom level employee of the company.
Types of Variable Compensation Policies selected by the Management of the
Company.
The Tesla Company generally follows three basic variable pay programmes for the
employees of the company that are incentive programme, bonus policies and the recognition
policy. The recognition policy and the incentive programme are the performance based pay-

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out programme arranged and structured by the management of the company in the
recognition and reward policy followed by the company (Odunlami and Matthew 2014). The
Incentive plans are both long term and short term which are based on the performance
assessment of the employee of the Tesla Employees. The motivation matrix policy and the
black box incentive compensation plan are some of the crucial variable compensation plan set
up by the management of the Tesla Company (O'Connell and O'Sullivan 2014). The use of
motivation matrix policy rewards every employees of the company who performs better in
their field of expertise by delivering better output returns and productivity (Jenter and Kanaan
2015). The key matrix policy setup by the management of the company is simple crystal clear
where the employees achieving there set of goals and delivering exceptionally better returns
are paid with what they were promised on meeting the productivity and output. The Black
Box incentive compensation plan is the other type of variable compensation plan, which is
introduced by the management of the company in the Tesla Company where the rules specific
to the incentive plans and payment are not mentioned but they are compensated if they meet
management expectation and performance of the employee on an overall basis (Gupta and
Shaw 2014).
The incentive plan followed by the company is based on monthly performance of the
employee and the results of productivity and output delivered by the employee is matched
with the set up benchmark level. The monthly variable compensation plan introduced by the
management of the company helps the management of the company and the employees of the
company track records in terms of work delivered. It also acts as an assessment tools and
important motivation tool for the management of the company (Bettis et al. 2018). The bonus
plan is an annual compensation pan for the employee of the company, which is paid at the
end of the financial year. The bonus is paid to all the employees of the company irrespective
of their performance and the level of productivity it is a type of a loyalty and annual

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compensation policy followed to motivate the employees of the Tesla Company. The Reward
and Recognition policy is the other key policy followed by the management of the company
where the key employees within the organisation who plays an integral and crucial role for
determining the overall growth of the company are recognised and awarded. The key
employee of the company is recognised via monetary and non-monetary benefits which gives
them the motivation to work better and produce better return and deliver better productivity
for the company.
Pros and Cons of Peanut Butter Approach
The peanut butter approach of compensation and performance assessment is an important
management compensation tool where the management distributes the bonus and profit
equally among the overall employees base of the company irrespective of their productivity
and output delivered (Samnani and Singh 2014).
The key advantage in following the peanut butter approach of compensation plan by
the Tesla Company is that the employee base of the company is around 45,000 employee
working directly and every employees works a crucial role or part in the development and
success of the organisation (Rutledge, Karim and Kim 2016). Every employee effort is
considered on a joint effort basis and the employee of the company are paid equally to
maintain equality and the team gets motivated to work together ad better superior
performance on an overall basis. The recognition of top management structure in the
company always and developing an superior employee base where the compensation
structure and the reward and recognition policy for the top level executive is given more
weightage may demoralize the bottom level employee of the company (Ryan, Sutton and
Doran 2014).

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The key disadvantage of having a peanut butter approach plan is that the employees
who perform better are not rewarded instead other employees also do not get inspired to work
hard and earn better. The key employees of the company expectations with the company
increases as there efficiency in the work level increases but if the management of the
company follows the policy the key employees who deliver superior performance and
productivity may be demotivated as they are not been paid extra for the extra efforts applied
by them (Strunk and Zeehandelaar 2015).
Application of Relevant Remuneration Concept
The incentive plan followed by the company is based on monthly performance of the
employee and the results of productivity and output delivered by the employee is marked
with the set up benchmark level (Van Essen, Otten and Carberry 2015). The company
recognises the key policies via monetary and non-monetary benefits which gives them the
motivation to work better and produce better return and deliver better productivity for the
company. The motivation matrix policy and the black box incentive compensation plan are
some of the crucial variable compensation plan set up by the management of the Tesla
Company (Silverman, Hejazi and Perekoppi 2017). Thus the management of the company
deploys various remuneration concept in the company to compensate the employees of the
company (Tag and Seth 2015).
Benefits of Implementation of Reward and Compensation Policies
Setting up of policies and implementation of the key policies within the company will
helps recognise employee which has the capability to perform better and deliver better returns
in terms of yield to the company on the total capital invested (Bennett et al. 2017). It will also
acts an important assessment tool for measuring the capability of the company when 100%
efficiency is shown by the management of the company. Motivating will be key factor to