Amazon is not giving base pay increases to many of its senior employees this year, according to people familiar with the matter.
This pay freeze is due to a surge in Amazon shares, which are up more than 75% in the past year. Stock comprises a major part of Amazon employees' compensation, so when the price soars they are better off. However, this also gives the company leeway to hold back on lifting cash-based salaries.
Perhaps in anticipation of employee push back, Amazon has internally shared guidelines for managers on how to address questions over this matter, according to a copy of the Q&A document obtained by BI.
If someone asks, "Why is my employee not seeing an increase in their base pay?" the manager is instructed to point to Amazon's stock price appreciation over the past year and how that has pushed many employees' total compensation beyond the pay range set for their respective positions.
Advertisem*nt
Level 6 versus other employees
The base pay freeze only applies to those in Level 6 positions or above. These are staff in senior manager or engineering roles, the people familiar said. Given a bigger portion of their pay comes in equity, and Amazon's stock price has jumped, their total compensation has surpassed their pay band in most cases this year.
Related stories
Other Amazon employees lower down the corporate hierarchy will likely do better in terms of base pay raises this year.
"Because of our ownership model, this year, for L6+ employees in particular, the stock price growth has led to current year compensation that meaningfully exceeds total compensation targets (TCT) set in the previous year," the Amazon's guideline states. "In light of this, the base pay and stock components of compensation may have been slightly adjusted based on the updated stock price and merit budgets available, and you will see that we prioritize base pay increases for L1-5 employees whose compensation is weighted more heavily towards base pay."
In an email to BI, Amazon's spokesperson confirmed the changes. Fortune previously reported the lack of base pay raises.
Advertisem*nt
"Due to the growth in Amazon's stock price over the past year (approximately 77%), many employees' compensation will meaningfully exceed the amount that the company planned for them to earn when we set compensation last year and in prior years' compensation cycles. As a result, for this year's compensation cycle, we are prioritizing cash base pay increases for employees whose compensation is weighted more heavily in base pay as opposed to stock," the spokesperson said in a statement.
Unique compensation model
The change reflects Amazon's unique pay structure, which has been a source of employee frustration for many years, as BI previously reported. Employee angst over Amazon's pay model led to higher attrition rates in recent years, including the departures of some high-profile executives.
For many years, Amazon's base pay was capped at $160,000 a year. As employee complaints grew, Amazon raised that salary cap to $350,000 in 2022, but many workers told BI that they only saw meager increases in the following year.
Most employees expect their upside to come through stock grants. Every year, they get a total compensation target plan that typically maps out their anticipated pay for the next two to five years.
Advertisem*nt
But things can get tricky if Amazon's stock price grows more than anticipated. For example, Amazon typically bakes in a 15% increase in its stock price every year when calculating future compensation. But if you're promised $100,000 worth of Amazon shares that vest the following year, and Amazon's stock price doubles the next year, your total compensation can exceed the normal pay band set for your position.
Amazon's spokesperson told BI that this model is "intended to reinforce the Leadership Principle of Ownership by tying employees' compensation to Amazon's continued ability to innovate and invent on behalf of customer."
"Amazon's compensation philosophy emphasizes ownership, which means that a portion of employee compensation includes RSUs. The more senior you are in the company, the more your compensation includes RSUs than cash base pay," the spokesperson said.
Do you work at Amazon? Got a tip?
Advertisem*nt
Contact the reporter, Eugene Kim, via the encrypted-messaging apps Signal or Telegram (+1-650-942-3061) or email ([email protected]). Reach out using a nonwork device. Check out Business Insider's source guide for other tips on sharing information securely.
)
