Why does TESLA not provide employees with a Retirement Fund?

Pratiksha Bajikar Pratiksha Bajikar Jeenal Jain Jeenal Jain
Feb 19, 2021 6 min read
Why does TESLA not provide employees with a Retirement Fund?

In a series of tweets, the twitterati took a dig at the world’s richest man, Elon Musk. The CEO of Tesla was targeted since Tesla skipped matching the 401(k) contribution straight for a third year. Twitter was divided in two parts, one in favor of Elon Musk and the other criticizing him for not doing the needful for the retirement funds of Tesla’s employees. The man in the spot, Musk noticed this tweet and answered that his employees have an option of buying company stocks and the company treats its employees as part owners.

We will be looking closely at how TESLA compensates its employees, how much is the company worth and how largely benefitted its employees actually are. Lets take a look at TESLA, the company.

Tesla in a nutshell
What is 401(k)?
Why does TESLA not match contributions to 401(k)?
How TESLA employees are becoming millionaires?
TESLA and Retirement Contribution - Opinion
FAQs

Tesla in a nutshell

TESLA is a company involved in transportation and energy businesses. It sells cars under its “TESLA Motors” division and stationary battery packs for home, commercial and utility-scale projects under its “TESLA Energy” division.

The company is led by Elon Musk. he is the CEO, co-founder, Chairman and Product Architect.

TESLA has more net worth than all its rivals combined such as Fiat Chrysler ($20 billion), Ford ($24 billion), Ferrari ($32 billion), General Motors ($36 billion), BMW ($41 billion), Honda ($46 billion) and Volkswagen ($74 billion). TESLA’s cars are said to be the most valuable cars in the world.

TESLA is a giant with a market cap of $164 billion dollars and as of 2020 has 70,757 employees working for it.

Now why would a company like TESLA not be contributing to its employees’ retirement fund? How does Tesla compensate its employees? How are Tesla employees becoming millionaires? We are about to find out. Let us first understand how Retirement funds are managed in the USA.


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What is 401(k)?

401(k) plan is a tax-advantaged, defined contribution retirement account provided by employers to their employees in the USA. It is named after a section of US Internal Revenue Code.

401(k) Retirement Plan

Employees can make contributions to the 401(k) accounts thorough automatic payroll withholding and their employers can match some, or all those contributions. These contributions are taxed after the employee withdraws the money, typically after retirement.

Employers who match their employee contributions use different formulas to calculate that match. A common example might be 50 cents or $1 for every dollar the employee contributes up to a certain percentage of salary. Financial advisors often recommend that employees try to contribute at least enough money to their 401(k) plans each to get the full employer match.


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Why does TESLA not match contributions to 401(k)?

TESLA skipped matching the 401(k) contributions to the employee retirement fund consecutively for year three and twitter had its fair share of questions for Elon Musk. The TESLA CEO responded to the accusations on twitter saying that “Everyone at TESLA receives stock. My company is all Stock/Options, which I do not take off the table.”

Elon Musk responded to the tweet accusing him of not matching the contributions to the employees retirement fund

It is not rare for tech companies to compensate their employees through stock options. However, TESLA is an automaker first, mixed with tech. Auto companies do not offer stock options for all employees throughout the organization.

TESLA offers its employees stocks options as compensation. With recent surge in the company’s share prices, TESLA stocks are creating new millionaires. However, over the years TESLA has made salary cuts in various departments, especially sales.


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How TESLA employees are becoming millionaires?

With a recent surge in TESLA share price, (more than 200% this year alone) TESLA’s employees are compounding on their wealth. Here is a glance at TESLA’s top executives and how much of a stake they hold in the company.

  • Drew Baglino, Tesla SVP of Powertrain and Energy Engineering, holds 4,222 Tesla shares. His stake in the company is now worth more than $5.7 million. Baglino is one of the top engineers at Tesla where he gradually moved up the ranks during his 14-year tenure at the automaker.
  • Jerome Guillen, president of TESLA motors, holds 9,752 Tesla stocks worth over $13 million. Guillen has led several key programs at Tesla.
  • Zachary Kirkhorn, Tesla’s young CFO, owns 11,831 shares of Tesla, which are now worth over $16 million. Like Tesla’s stock, Kirkhorn had a meteoric rise of his own at Tesla. At 35, he is the youngest CFO in TESLA.

Of course, no one is getting richer than CEO Elon Musk as part of this incredible run. Musk owns 34,098,597 TSLA shares — making his stake in Tesla worth more than $46 billion.

Musk’s brother, Kimbal Musk, who is also on Tesla’s board, is significantly benefiting from the rise in Tesla’s stock price. He had 130,848 Tesla shares, which are now worth more than $175 million.

Other Tesla VPs, directors, and even managers are likely to benefit greatly from Tesla’s massive stock price increase — creating several new millionaires.

Several key engineers in batteries, manufacturing, and construction, especially the execs behind Gig factory Nevada, also received massive stock grants worth millions at the time. With the recent price run, employees who held onto their shares are now millionaires.

Tesla also awards performance-based equity bonuses, but those have been put on hold amid the coronavirus crisis. Therefore, employees who have been holding shares since last year are the ones benefiting the most from this recent TSLA run.


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TESLA and Retirement Contribution - Opinion

Although TESLA’s employees and executives have amassed great benefits through its price run, financial experts suggest that it is always better to have the employees compensated with access to retirement contributions. Since the stock market is volatile and unpredictable, the employees will benefit only until the stock prices go up. According to reports, TESLA has not been making great profits, but thanks to the price run in shares, no one’s complaining. Having said that, not matching the employers contribution may be risky for the employees as it isn't entirely compensatory to the average employee and without the inflated share price, they would be doomed.

FAQs

How many employees work at TESLA?

Currently, there are 70,757 employees working for TESLA (2021)

How does TESLA compensate its employees?

Along with added bonuses to the salary, TESLA offers its employees stock options as compensation.

Is TESLA coming to India?

Elon Musk confirmed that TESLA would be entering India by setting up a plant in Bengaluru, Karnataka.

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