If you work at Amazon, you may have heard of their employee stock awards. However, just recently, Amazon announced that they would be scaling back on the stock awards. Let’s find out why!
What are the Awards?
Called Amazon RSU, it is the right to receive either a share or payout at some future date for performance conditions. Amazon gifts to new employees at the beginning of their employment. In case you didn’t know, just one RSU is equivalent to one share of stock.
Amazon used stock grants to get employees by offering a high base cash prize. This strategy has worked for a decade, specifically from 2009 up to 2021. But, the stock value went down 36% since last year. This has caused the stock grants to not be an appealing benefit for employees.
Why is this Happening?
Amazon and many other companies are facing tough times. The economy has been struggling with issues like inflation, trade issues due to the Russian-Ukraine War, and even still from the coronavirus pandemic. Because of these strange times, Amazon has done another round of mass layoffs. Their official statement from their spokesperson also mentions the decline in Amazon stock awards. However, they have not specified when.
“We made the decision to reduce RSU awards in the final outlook year by a small amount (other years are not impacted),” says the spokesperson.
Media reported that these changes in the payment hierarchy would be reevaluated in the 2025 compensation by reevaluating it in the first quarter of 2024. The spokesperson continued on to say, “The company was weighing the possibility of adjusting its compensation model in the future to be more balanced between base cash compensation and equity, after looking at the combination of an uncertain economy and its compensation budget,”.
The decision comes from the fact that last year, Amazon disclosed $20 billion in stock compensation which was up over 50% from the prior year and it doubled from 2020. This has been seen in similar cases with other tech companies. But, research indicates that this type of trend is “completely unsustainable”. Why? Because it has the possibility to decrease future profits.
Just recently, they laid off 100 of their own employees in their video game divisions. The reasoning was part of broad cutbacks. However, this will affect Amazon’s gaming branches like Prime Gaming, Game Growth, and their studio in San Diego. Games Vice President Christoph Hartmann stated in a memo, “Our resources will be aligned to support our focus on content. Going forward, we will continue to invest in our internal development efforts, and our teams will continue to grow as our projects progress.”
For some time now, Amazon has had issues in its gaming department and struggles with allocating resources for it. It even affects their entertainment show on Twitch called the Crown channel.
Overall, the company’s shares have made gains of over 20% just this year. This is positive news for them after experiencing an almost 50% decrease from last year.
What the Company Plans to Do
Amazon is in the midst of reworking its payment system for its employees. The executives are considering changes to the compensation model so that it can be more equal to the base cash compensation and equity. This is because of the tough economy and the compensation budget as well.
The Amazon spokesperson stated that the broader pay structure is possible, but it is not set in stone yet. They also stress that their compensation philosophy “remains unchanged”. The internal memo goes on to say, “Going forward, we will continue to invest in our internal development efforts, and our teams will continue to grow as our projects progress.”
With so many concerned about this, Amazon doubled the base salary cap from $160,000 to $350,000. They are still proceeding with the stocks, but cautiously. Despite many concerns, Amazon feels confident that its stock performance will do better in the future. They estimate a 15% increase in 2024 and 2025.
The world is having many economic issues due to a variety of complicated issues. Even huge multinational companies like Amazon are not safe. While the company does everything to satisfy its employees, it must remain diligent in these troubling times.
If they can’t get their compensation plan figured out, then they may be facing another problem. Employee retention. Time will tell if Amazon can get its stuff together so that it comes out to a win-win situation.