[US] Wider implications of Amazon doubling salary limits

In an internal blog post Amazon has announced its intention to increase the cap on the cash component of compensation to salaried employees from $160,000 per year to $350,000. The retail giant attributed the change to a competitive labour market, Forbes reports.

Resignations in the tech industry have practically become an epidemic in their own right, therefore it is sensible for Amazon to continue to compete for good candidates in a squeezed market. Numerous reports received by Fortune suggest that many salaried employees have been leaving Amazon over work-life balance issues during the COVID pandemic as supply chain problems made things challenging for shippers. While skilled labour is in high demand, it is tempting for workers with Amazon experience on their CVs to make a change.

However, Forbes contributor Richard Kestenbaum says there is more to the story and it is connected to Amazon’s stock price. On February 8, 2021, Amazon’s stock price was $3322.94. On February 7 this year it closed at $3158.71. As Mr Kestenbaum expained in this November 2018 article, Amazon’s best talent receive most of their compensation in stock. With the stock price flat, work problems escalating and demand for skilled labour high, it is no surprise that Amazon would increase the cash compensation it pays. It was highly probable that when Amazon stock flattened many employees would reconsider their commitment to the company.

The future

What does a flat or dropped stock price mean for Amazon’s future? For a start, Amazon needs to focus more on cash compensation for its salaried employees in the foreseeable future. With its scale and its recently-reported high level of earnings, that is a manageable expectation for the company to meet. But one of the things to make Amazon a desirable place to work in the past was its rising stock price rewarding employees with far better compensation overall than they would have made in salary alone at Amazon or anywhere. Having to compete for talented employees based on cash alone will make Amazon a less competitive employer.

Wider implications

A more significant issue is that Amazon is far from alone in using its rising stock price to compensate employees. The practice has reportedly been well established in the technology industry, where a meaningful percentage of the company has been handed to employees to incentivise them to join and feel that they hold a stake in their employer’s success. It has proved to be an effective practice and mushroomed technology industry employees’ chances to get rich from their jobs.

One question that is yet to be dealt with by the industry is the fairness of the practice. Is it fair to shareholders - particularly in young startups - for their capital to be put at risk while a meaningful percentage of company equity is given to employees who put no capital at risk and who receive salaries besides? Each case is different but the industry has inflated employees’ expectations and enabled them to develop true personal wealth from their jobs. 

Traditionally, such gains went to investors who put up capital and got a high return for their risk if things worked out positively. Now the return is lower to investors and higher to employees. Was it unfair in the past or is it unfair now? As long as a company is open with its investors about what it is doing, there’s nothing illegal going on and they have the right to sell their stock. However, when a young technology company is private and there is no liquidity for shareholders, the shareholders have no choice when the board decides to allocate as much as a quarter of the company to its employees. There is no formula for determining how much is fair for employees to receive.

Another question that the industry has failed to deal with is what happens when the growth cycle matures and the stock price stop their steep ascent? As the news about Amazon demonstrates, that situation requires companies to come up with more cash and not every company will be able to handle that. Inevitably, employee compensation will not be able to keep up.

Is it right for middle-level employees to get millions for a year’s worth of work? Is it fair to shareholders? Is it smart to raise employees’ expectations when it is inevitable that companies will mature and those expectations will ultimately not be met? These are only some of the questions Amazon’s announcement raises. And they are important questions that will only now start to be addressed.

Source: Forbes

(Link via original reporting)

In an internal blog post Amazon has announced its intention to increase the cap on the cash component of compensation to salaried employees from $160,000 per year to $350,000. The retail giant attributed the change to a competitive labour market, Forbes reports.

Resignations in the tech industry have practically become an epidemic in their own right, therefore it is sensible for Amazon to continue to compete for good candidates in a squeezed market. Numerous reports received by Fortune suggest that many salaried employees have been leaving Amazon over work-life balance issues during the COVID pandemic as supply chain problems made things challenging for shippers. While skilled labour is in high demand, it is tempting for workers with Amazon experience on their CVs to make a change.

However, Forbes contributor Richard Kestenbaum says there is more to the story and it is connected to Amazon’s stock price. On February 8, 2021, Amazon’s stock price was $3322.94. On February 7 this year it closed at $3158.71. As Mr Kestenbaum expained in this November 2018 article, Amazon’s best talent receive most of their compensation in stock. With the stock price flat, work problems escalating and demand for skilled labour high, it is no surprise that Amazon would increase the cash compensation it pays. It was highly probable that when Amazon stock flattened many employees would reconsider their commitment to the company.

The future

What does a flat or dropped stock price mean for Amazon’s future? For a start, Amazon needs to focus more on cash compensation for its salaried employees in the foreseeable future. With its scale and its recently-reported high level of earnings, that is a manageable expectation for the company to meet. But one of the things to make Amazon a desirable place to work in the past was its rising stock price rewarding employees with far better compensation overall than they would have made in salary alone at Amazon or anywhere. Having to compete for talented employees based on cash alone will make Amazon a less competitive employer.

Wider implications

A more significant issue is that Amazon is far from alone in using its rising stock price to compensate employees. The practice has reportedly been well established in the technology industry, where a meaningful percentage of the company has been handed to employees to incentivise them to join and feel that they hold a stake in their employer’s success. It has proved to be an effective practice and mushroomed technology industry employees’ chances to get rich from their jobs.

One question that is yet to be dealt with by the industry is the fairness of the practice. Is it fair to shareholders - particularly in young startups - for their capital to be put at risk while a meaningful percentage of company equity is given to employees who put no capital at risk and who receive salaries besides? Each case is different but the industry has inflated employees’ expectations and enabled them to develop true personal wealth from their jobs. 

Traditionally, such gains went to investors who put up capital and got a high return for their risk if things worked out positively. Now the return is lower to investors and higher to employees. Was it unfair in the past or is it unfair now? As long as a company is open with its investors about what it is doing, there’s nothing illegal going on and they have the right to sell their stock. However, when a young technology company is private and there is no liquidity for shareholders, the shareholders have no choice when the board decides to allocate as much as a quarter of the company to its employees. There is no formula for determining how much is fair for employees to receive.

Another question that the industry has failed to deal with is what happens when the growth cycle matures and the stock price stop their steep ascent? As the news about Amazon demonstrates, that situation requires companies to come up with more cash and not every company will be able to handle that. Inevitably, employee compensation will not be able to keep up.

Is it right for middle-level employees to get millions for a year’s worth of work? Is it fair to shareholders? Is it smart to raise employees’ expectations when it is inevitable that companies will mature and those expectations will ultimately not be met? These are only some of the questions Amazon’s announcement raises. And they are important questions that will only now start to be addressed.

Source: Forbes

(Link via original reporting)