Evaluation Of Performance Compensation And Policy Of Tesla Company In An Essay.

Chief Talent Officer of Strong Suit Executive Search, in his opinion piece in Entrepreneur in 2016, titled ‘Why paying your team members the way Tesla pays Elon Musk will improve their performance’, suggests the following: Top performers should earn outsized bonuses and raises as compared to poor performers. Consider using stock or stock options in addition to cash to reward exceptional people who are vital to organisation’s success.

The peanut butter approach (spreading bonus money around so that everyone gets something and no one gets too much) does not encourage superior performance. Compensation plan must support a culture that allows rock stars to flourish and weeds out poor performers. In light of the above, critically evaluate the current compensation practices in your organisation or an organisation you know well. Address the following tasks in your assignment using relevant concepts and principles outlined in this subject. Task You are required to: Provide a brief des?r?ption of the organisation and the current compensation/pay and benefits offered in your chosen organisation. Briefly discuss the advantages and disadvantages of variable compensation pay policies and practices in an organisation. Analyse some of the variable compensation pay/benefits used in the chosen organisation to motivate or encourage superior performance by applying relevant motivational theories.

Evaluate the pros and cons of ‘peanut butter approach’ in rewarding and motivating the employees. Apply relevant pay and remuneration concepts in the subject to recommend a suitable compensation plan that builds a high-performance culture in your organisation. State the benefits your organisation will achieve when the recommendations are implemented in the chosen organisation. Reference Hyman, J 2016, Why paying your team members the way Tesla pays Elon Musk will improve their performance, viewed 30 July 2018.

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.

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).

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).

Brief Description of the Organisation and the Current Compensation Plan

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 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 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 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.

Variable Compensation Pay/Benefits to Motivate Superior Performance by Applying Relevant Motivational Theories

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-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 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.

Evaluating the Pros and Cons of 'Peanut Butter Approach' in Rewarding and Motivating Employees

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).

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).

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).

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 perform better and this can be done by the company by its certain compensation and management of the company (Zhang, Gao and Wang 2015).

Recommending a Suitable Compensation Plan to Build a High-Performance Culture in a Company

Conclusion:

The compensation plans and policies discussed above in the Tesla Company 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 their career. The recognition policy of the company was 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. Thus it is crucial for the company to have a compensation plan which will recognise the key employee of the company as well as the bottom level of the employee structure of an company so that the team structure of the company gets motivated to deliver better return and earn better.

Reference: 

Bennett, B., Bettis, J.C., Gopalan, R. and Milbourn, T., 2017. Compensation goals and firm performance. Journal of Financial Economics, 124(2), pp.307-330.

Benson, A.M. and Sajjadiani, S., 2018. Are Bonus Pools Driven by their Incentive Effects? Evidence from Fluctuations in Gainsharing Incentives. ILR Review, 71(3), pp.567-599.

Bettis, J.C., Bizjak, J., Coles, J. and Kalpathy, S., 2018. Performance-vesting provisions in executive compensation. Journal of Accounting and Economics.

Blanco, B., Gomez-Mejia, L.R., Guillamon, E., Guiral, A., Martin, G. and Tribo, J.A., 2018, July. CEOs’ Debt-Based Compensation and CSR. Its effect on Risk and Performance. In Academy of Management Proceedings (Vol. 2018, No. 1, p. 11775). Briarcliff Manor, NY 10510: Academy of Management.

Buckingham, M. and Goodall, A., 2015. Reinventing performance management. Harvard Business Review, 93(4), pp.40-50.

Cooper, M., Gulen, H. and Rau, P.R., 2016. Performance for pay? The relation between CEO incentive compensation and future stock price performance.

Darma, P.S. and Supriyanto, A.S., 2017. The Effect of Compensation on Satisfaction and Employee Performance.

Efing, M., Hau, H., Kampkötter, P. and Steinbrecher, J., 2015. Incentive pay and bank risk-taking: Evidence from Austrian, German, and Swiss banks. Journal of International Economics, 96, pp.S123-S140.

Essl, A. and Jaussi, S., 2017. Choking under time pressure: The influence of deadline-dependent bonus and malus incentive schemes on performance. Journal of economic behavior & organization, 133, pp.127-137.

Fang, Z.H.O.U., 2016. A Study on the Relationship between Executive Compensation and Corporate Performance of Listed Coal Companies in Henan Province. Journal of Management, 6, p.008.

Gupta, N. and Shaw, J.D., 2014. Employee compensation: The neglected area of HRM research. Human Resource Management Review, 24(1), pp.1-4.

Jenter, D. and Kanaan, F., 2015. CEO turnover and relative performance evaluation. The Journal of Finance, 70(5), pp.2155-2184.

O'Connell, V. and O'Sullivan, D., 2014. The influence of lead indicator strength on the use of nonfinancial measures in performance management: Evidence from CEO compensation schemes. Strategic Management Journal, 35(6), pp.826-844.

Odunlami, I.B. and Matthew, A.O., 2014. Compensation Management and Employees Performance in the Manufacturing Sector, A Case Study of a Reputable Organization in the Food and Beverage Industry. International Journal of Managerial Studies and Research (IJMSR), pp.108-117.

Rutledge, R.W., Karim, K.E. and Kim, T., 2016. The FASB's and IASB's New Revenue Recognition Standard: What Will Be the Effects on Earnings Quality, Deferred Taxes, Management Compensation, and on Industry?Specific Reporting?. Journal of Corporate Accounting & Finance, 27(6), pp.43-48.

Ryan, A., Sutton, M. and Doran, T., 2014. Does winning a pay?for?performance bonus improve subsequent quality performance? Evidence from the hospital quality incentive demonstration. Health services research, 49(2), pp.568-587.

Samnani, A.K. and Singh, P., 2014. Performance-enhancing compensation practices and employee productivity: The role of workplace bullying. Human Resource Management Review, 24(1), pp.5-16.

Silverman, B., Hejazi, W. and Perekoppi, B., 2017. Piece-Rate Compensation and the Performance of Non-Routine Work. In Academy of Management Proceedings (Vol. 2017, No. 1, p. 11442). Briarcliff Manor, NY 10510: Academy of Management.

Strunk, K.O. and Zeehandelaar, D.B., 2015. Added bonus? The relationship between California school districts’ specialized teacher staffing needs and the use of economic incentive policies. Educational Policy, 29(2), pp.283-315.

Tag, M.N. and Seth, A., 2015. Cognitive Diversity Executive Compensation and Resource Allocation Efficiency in Multibusiness Firms. In Academy of Management Proceedings (Vol. 2015, No. 1, p. 14489). Briarcliff Manor, NY 10510: Academy of Management.

Van Essen, M., Otten, J. and Carberry, E.J., 2015. Assessing managerial power theory: A meta-analytic approach to understanding the determinants of CEO compensation. Journal of Management, 41(1), pp.164-202.

Zhang, R., Gao, J. and Wang, X., 2015, June. A literature review of the relationship between corporate performance and executive compensation. In Service Systems and Service Management (ICSSSM), 2015 12th International Conference on (pp. 1-3). IEEE.