Tesla has decided to remove merit-based stock grants from its compensation packages following a year of significant stock price growth. The move has raised questions about the motives behind the decision, with some speculating that CEO Elon Musk may view the awards as overly generous, while others believe it reflects concerns about the company’s ability to meet high expectations in the competitive electric vehicle market.
According to Bloomberg, no employees at Tesla will receive stock awards this year, including top performers. In the past, these grants were used as an incentive for recruitment purposes, as they required a four-year vesting period, encouraging employees to stay with the company in order to receive the payouts.
As news of the canceled stock awards broke, Tesla’s premarket trading saw a slight decline of 0.5%. Nevertheless, the stock has experienced an impressive 108% increase this year, rebounding from a significant drop in 2022. However, it is important to note that the current stock price of approximately $257 still lags behind its all-time high of around $400 attained in October 2021.
Tesla has yet to address this change in its compensation structure and has not provided a comment on the matter.
The decision to eliminate stock grants may arise from concerns about potential future narrow profit margins or the inherent volatility of the stock as a reliable form of compensation. Moreover, it could be part of a broader reassessment of Tesla’s pay practices as the company aims to prevent worker unionization. Recent reports have indicated that Tesla might increase pay by 10% at one of its Nevada factories this year in response to growing employee interest in forming unions.
Looking ahead, industry analysts anticipate that Tesla will unveil a more affordable electric vehicle (EV) in 2024. CEO Elon Musk has long been committed to creating a mass-market EV, and experts estimate that it will be priced around $25,000.
In summary, Tesla’s decision to eliminate merit-based stock grants raises questions about its future direction and employee compensation. As the electric vehicle market becomes increasingly competitive and interest rates rise, Tesla has been forced to reduce prices in its major markets, China and the U.S. The cancellation of stock awards may be a strategic move to address potential profitability concerns and ensure the company’s long-term stability.