Tesla to Remove Merit-Based Stock Grants from Compensation Packages

Tesla, the innovative electric vehicle company, has announced that it will no longer include merit-based stock grants in its compensation packages. This decision comes after a year of significant growth, with the company's share price doubling.

The reasoning behind this move is not entirely clear. It is possible that Tesla CEO Elon Musk considers the awards to be too generous, or it could be an indication that the company is struggling to meet high expectations.

According to Bloomberg, no employees, including top performers, will receive stock awards this year. These awards were previously used as a tool to attract and retain top talent. The equity would typically vest over a four-year period, incentivizing employees to stay with the company for a longer duration to receive the payouts.

Despite this news, Tesla shares have only seen a slight dip of 0.5% in premarket trading. Year-to-date, the stock has experienced an impressive 108% increase, recovering from a significant drop in 2022. However, it is important to note that the current stock price of around $257 is still far below the all-time high of approximately $400 reached in October 2021.

As of now, Tesla has not provided any further comments regarding this decision.

The electric vehicle pioneer, known for being one of the few manufacturers able to sell their cars at a profit, may be entering a period of transition. With rising interest rates and intensifying competition, Tesla has been forced to reduce prices in its major markets, namely China and the U.S.

In light of these challenges, CFRA analyst Garrett Nelson predicts that Tesla will introduce a lower-priced electric vehicle in 2024. Musk has long promised a mass-market EV, and Nelson estimates it will be priced at around $25,000.

The choice to eliminate stock awards may stem from concerns about potential future margin decreases or the belief that the stock's volatility makes it an unreliable form of compensation.

Additionally, this decision could signify a broader reassessment of Tesla's approach to employee pay. It is possible that the company seeks to address concerns related to worker unions, as recent reports suggest Tesla may increase pay by 10% at a factory in Nevada.