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Evaluate a compensation system of your choice in terms of how the compensation reinforces the behaviors needed to meet the company’s objective. Next, propose three improvements to that compensation system based on your evaluation. Provide specific examples using additional sources, if necessary, to support your rationale.

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Sample Answer

Compensation System Evaluation: Tesla’s Performance-Based Pay

Company: Tesla, Inc.

Industry: Electric vehicle manufacturing and clean energy

Compensation System: Performance-based pay, with a mix of salary, bonuses based on individual and company performance metrics, and stock options.

Company Objectives:

  • Become the world’s leading sustainable energy company.
  • Accelerate the world’s transition to sustainable energy.
  • Grow production and sales of electric vehicles significantly.
  • Develop and bring to market innovative clean energy technologies.
  • Attract and retain top talent in the tech and automotive industries.

Full Answer Section


  • Strengths: Aligns with company objectives by incentivizing individual and team performance towards achieving ambitious goals. Rewards innovation and risk-taking, crucial for Tesla’s industry-disrupting approach. Stock options provide ownership stake and long-term commitment.
  • Weaknesses: Can create a culture of competition and internal conflict, potentially hindering collaboration and teamwork essential for complex projects. Overreliance on individual performance metrics might overlook valuable contributions from support staff. High-pressure environment could lead to employee burnout and turnover.

Proposed Improvements:

  1. Introduce team-based bonus structures: Reward teams for exceeding shared goals, fostering collaboration and knowledge sharing. (Ref: Harvard Business Review, “The Performance Paradox”)
  2. Implement broader performance metrics: Include metrics that value employee contributions beyond sales figures, such as innovation, mentorship, and sustainability initiatives. (Ref: MIT Sloan Management Review, “Beyond Metrics: Rewarding the Right Behaviors”)
  3. Offer tiered stock options: Provide options with varying vesting schedules to cater to different risk tolerances and employee lifecycles. Consider phantom stock for non-executive employees to incentivize long-term commitment without ownership dilution. (Ref: Compensation Today, “The Future of Stock Options”)


  • Team-based incentives encourage collaboration and knowledge sharing, crucial for tackling complex engineering and production challenges. This aligns with Tesla’s objective of developing and commercializing innovative technologies.
  • Broader performance metrics recognize valuable contributions from non-sales employees who support innovation, sustainability, and employee well-being. This supports Tesla’s objective of attracting and retaining top talent across diverse disciplines.
  • Tiered stock options cater to individual preferences and career stages, fostering a sense of ownership and long-term commitment. This aligns with Tesla’s objective of building a stable and dedicated workforce to achieve its ambitious goals.

By implementing these improvements, Tesla can strengthen the alignment between its compensation system and company objectives, creating a more collaborative, innovative, and sustainable work environment that attracts and retains top talent for the long haul.

Additional Notes:

  • This analysis is based on publicly available information and may not reflect the full complexity of Tesla’s compensation system.
  • Further research and data analysis could provide deeper insights and tailor the proposed improvements to specific company needs.

I hope this evaluation and proposed improvements provide a valuable starting point for further discussion and refinement of Tesla’s compensation system, ultimately contributing to their continued success in revolutionizing the world of sustainable energy.

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