Corporate Staff Pay Cuts After Amazon Shares Fall

Employees are likely to receive 15% to 50% below their projected pay targets as a result of stock-based compensation plans

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Over the past year, Amazon's stock has plummeted by nearly 0.97%decrease; red down-pointing triangle.com Inc.'s stock-heavy compensation plan has been roiled, resulting in employee pay being significantly lower than target compensation, according to people familiar with the matter.

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It has been reported that Amazon gives its corporate employees a large chunk of their annual salaries as restricted stock units, so a prolonged slump in the company's share price is resulting in a 15% to 50% lower pay for 2023 than Amazon had projected for its employees, according to some of the people.

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According to an Amazon spokesman who sent me an e-mail statement, "Our compensation model is intended to encourage employees to think like owners, which is why it is linked to the long-term performance of the company," he said. “There are some downsides to that model as well as certain upsides because the stock price can fluctuate from one year to the next, but historically at Amazon, people who have taken a long-term approach have had very good results with that model.”

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It has historically been the case that Amazon pays its employees less in the form of base pay than its big-tech peers, but it makes up for that via stock awards that vest over the course of several years. In the eyes of Amazon employees, the longer an employee stays with the company, the more their compensation is likely to be affected by stock awards, with some employees claiming that stock awards can make up as much as 50% or more of their total income. 

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There has been a broader technology slowdown and slower growth on Amazon's retail side of the business over the past year, causing the shares of Amazon to decline more than 35% over the past year. As a result of Amazon's longstanding assumption that the stock of the company will appreciate at least 15% each year, it is based on the assumption that restricted stock units will be issued to workers who believe Amazon's shares will appreciate by at least 15% each year.

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Until recently, that had largely been the case. The stock price of the company increased an average of 30% per year between 2017 and the beginning of 2022. The stock of Amazon, however, is currently trading around $96 per share, and some employee compensation packages have been designed based on the assumption that Amazon's stock will be trading around $170 per share in the future, some of the people said.

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In response to the decline in its business, Amazon’s human resources team recently sent training documents to managers about how to communicate what effectively amounts to a pay cut to its employees, according to training materials reviewed by The Wall Street Journal. In accordance with the materials, managers should focus on ensuring employees are fully invested in the company's long-term performance and hold on to the restricted stock long-term until there is a recovery in the stock price of the company. 

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According to a recording of the all-hands meeting held by Amazon's CEO Andy Jassy, the situation was discussed at an all-hands meeting held at the Seattle headquarters of Amazon, according to Trade Algo review of meeting's recording. There is no doubt that this is and feels like a really difficult time for you. We are dealing with a very uncertain economy, we just had to bid farewell to 18,000 teammates, the market is in a weird spot”, he said, adding that Amazon and other companies have seen their stock prices drop as a result. “Consequently, compensations are impacted as a result of this. There is a lot of difficulty in doing that. It is not easy to do all of that. However, I am quite optimistic that we have the opportunity to emerge from this challenging time in a relatively stronger position than we entered it in."

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Amazon raised its cash component salary cap from $160,000 to $350,000 last year amid a talent war and a slumping stock price. Some people say the company plans to raise employees by 1% to 4% this year. Some people said the company would not issue more restricted stock to employees to help them reach their compensation targets. 

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There is no doubt that Amazon is experiencing one of the toughest periods of its history in terms of finances. Earlier this month, Amazon began the largest round of layoffs the company has ever undertaken as it adjusts to weakening retail demand in the wake of years of mass hiring coupled with years of declining consumer demand. It is estimated that the company had laid off 18,000 corporate employees by the end of January, the largest number of layoffs made by any technology company during this recent wave of layoffs. 

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This number is added to other cuts made across the tech industry. Large and small companies have laid off workers in recent months, including Alphabet Inc.'s Google, Meta Platforms Inc., and Microsoft Corp. Over 107,000 tech employees have been laid off since the beginning of the year, according to Layoffs. FYI. 

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Also, Amazon rescinded job offers from some candidates who had accepted them but hadn't yet started and delayed the start date for some incoming college hires by six months. Trade Algo reported earlier that the offers had been rescinded. 

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“Because of challenging economic conditions and as part of our annual operating plan review, we made the difficult decision to eliminate certain roles in particular businesses for which we had extended offers but the candidates had yet to join. “We are delaying the start dates for some of our college hires by up to six months,” said a spokesperson from Amazon. 

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Recently, the company has announced that it plans to require employees to be in the office at least three days a week by May 1. This will be a significant change from the previous policy that allowed team directors to determine how often staff would be in the office.