Investing for the long term is Jeff Bezos’ business strategy to run Amazon. This approach is not only reflected on how Amazon is expanding its business but also reflected on its compensation strategy. As mentioned above, Jeff Bezos’ salary is very low excluding the cost of his personal security detail.
Bezos’ annual compensation is never related to last year’s modest salary, and it is also not consisted with the bonus or any equity-based compensation. So, Bezos’ interest is highly linked with the performance and future of Amazon. The other top executives are in the same situation, they are granted a substantial amount of restricted stock units when they’re hired, which vest over four to six years, ensuring that the company’s leadership team shares the same value with their shareholders. Amazon spent less than their peers on their management while delivering better values for shareholders (Worden, 2011). The strategy of investing in the long term seems to be working well in Amazon’s pay system.
Performance is very competitive and plays heavily in compensation and job satisfaction (Paysa, 2018).
Starting on November 1, 2018, Amazon is increasing minimum wage to $15 per hour, which is probably because Amazon believes that it could increase productivity (Luca, 2018). According to Amazon, more than 250,000 of its employees and as over 100,000 seasonal employees would benefit. Those who are already paid over $15 per hour will get a $1 hourly raise. (Miller, 2018) However, Amazon is not that generous as it seems to be. Amazon has cut the monthly bonus and stock awards of hourly employees. Although the $1 hourly raise adds additional total earning up to $2,080 a year, employees ‘could have earned a few thousand dollars more from the incentive programs’ that Amazon has cut down. (Miller, 2018)
According to an anonymous comment of Amazon employee on teamblind.com, Amazon has a total compensation strategy which means that Amazon will modify your base salary and stock awards if needed to let you earn the exact amount they want you to earn on the upcoming year. So, you might not get a new grant at all if the stocks go higher than predicted, because your earnings are over target. Although the anonymous comment on the website is reliable, the content of this comment is worth reading and offered a unique perspective.
Amazon is also paying lower than you expected. $28,446. That’s the median annual compensation of Amazon employees. Comparing to Google ($54,816), Tesla ($54,816), Facebook ($240,430), Intel ($102,100), IBM ($54,491), it is low. In a statement, Amazon said its median pay figure includes people in more than 50 countries and part-time employees. The company also said it offers ‘highly competitive wage and benefits.'(Ovide, 2018) For clarification, since $28,446 is the number published on April this year, the median annual wage of Amazon employees now could be finitely higher than this number.
Amazon has a very high turnover rate. Amazon is also trying to use compensation strategy to solve this turnover problem. The strategy of stock vesting schedule does not seem effective for Amazon, but it does mitigate the losses of Amazon if they leave.
According to the article “Amazon Rewards Employees Who Stay — But Turnover Is Still High”, 5% of Amazon employees’ shares vest in the first year of their employment, 15% in the second year, 40% in their third, and the final 40% in their fourth year. (O’Donovan, 2015)
In other words, employees are encouraged to stay for three years or more to enjoy the full compensation packaged they’ve got when they were hired.
There is a “pay to quit” program in Amazon, in which the company offers fulfillment-center employees one-time payments to leave Amazon. Each employee gets the offer once a year. The first time, it’s for $2,000. The offer increases by $1,000 each year after that up to a maximum of $5,000. It is a strategy to distinguish and get rid of those who don’t have enough motivation to stay in Amazon, and it also gives the employees a chance to sit back, reflect, and choose whether to recommit to the company and their colleagues (Taylor, 2014).