Amazon to Grant Employees $8 Trillion in Stock Compensation? ... Changes Driven by Tech Stock Decline [JjinBit]

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] "It is expected that $6 billion (about 7.7 trillion KRW) will be spent on stock-based compensation costs in the second quarter of this year alone."

Brian Olsavsky, Amazon Chief Financial Officer (CFO), said this during Amazon's earnings announcement on the 28th of last month (local time). According to the U.S. economic media Business Insider, Amazon pays wages by mixing cash base salary, bonuses, and stock compensation. Among these, they plan to increase the scale of stock compensation. The $6 billion is the largest quarterly amount ever and represents a 66% increase compared to the same period last year.

The reason Amazon is increasing the scale of stock compensation is to respond to wage decreases caused by the stock price decline. As previously reported in Jjinbit (April 2nd article "Don't like 'stock compensation'? Why tech company employees who dreamed of big wins turned away"), IT companies sometimes substitute wages with stocks in addition to cash salaries. This year, as the tech stock downturn has prolonged, it has become even harder to retain employees amid labor shortages, and the value of compensation has also fallen. Considering this, while it is difficult to raise stock prices, they are increasing the scale of stock compensation itself.

Amazon's stock price has fallen 35% just this year. The stock price, which was in the $3,400 range at the beginning of January, plummeted to the $2,200 range as of the 16th. Considering the stock price decline that started in the fourth quarter of last year, Amazon reportedly paid employees 1.4 million Restricted Stock Units (RSUs?a performance compensation system where stocks are granted upon achieving company-set goals within a certain period) in the first quarter of this year, more than double compared to the same period last year, according to Business Insider.

MS, Twitter, Roku, etc. Catch Talent with Stocks

[Image source=AP Yonhap News]

Amazon is not the only one expanding stock compensation. Microsoft (MS) also announced on the same day that it would expand compensation to prevent talent outflow and considering high inflation. According to Bloomberg, Satya Nadella, MS CEO, announced in a memo to employees that the cash salary budget would nearly double and that stock compensation for some employees would increase by at least 25%. This compensation is for employees at the partner level and below, i.e., from new hires to mid-level employees. CEO Nadella explained the reason for this measure by saying, "There is high demand for talent."

Twitter, the social networking service (SNS) that Elon Musk, Tesla CEO, attempted to acquire, also gave massive stock compensation to employees in the first quarter of this year. Business Insider analyzed U.S. Securities and Exchange Commission (SEC) data and found that Twitter granted 35.85 million RSUs to employees in the first quarter of this year, more than 10 times the 3.26 million RSUs granted in the first quarter of last year. TV streaming platform Roku increased RSUs granted by 3,813% during the same period, ride-sharing company Uber by 210%, Meta Platforms by 62%, and Google by 24%. Many tech companies such as DoorDash, Pinterest, and Snap have significantly increased stock compensation.

Neil Campling, head of Technology, Media & Telecommunications at Swiss bank Mirabaud, said, "(Large companies like Facebook and Google) are using their scale as a weapon to retain talent through stock-based compensation plans." Considering the global tech industry's labor shortage, this is an inevitable choice to catch talent amid the tech stock downturn.

Given a lot but dissatisfaction grows over losses... "Ultimately a limited resource"

However, it does not seem easy to sustain these measures in the long term. The tech stock decline has not ended quickly but has continued for several months, causing the value of granted stock compensation to drop sharply. Employees need to be satisfied with receiving these and decide not to leave or consider joining the company, but there are increasing reports that satisfaction is not very high. While these measures do not yield significant effects, since these labor costs increase expenses, continuing to expand stock compensation amid tech stock declines will inevitably worsen profitability.

[Image source=Reuters Yonhap News]

In fact, an Amazon employee who has worked less than a year told Business Insider that more than $250,000 of the total compensation he was supposed to receive disappeared due to the stock price decline. An Uber employee said that he was supposed to receive RSUs worth $178,000 when the stock price was $60.64, but the value dropped to the $60,000 range as the stock price fell to the $20 range. An employee at Block, a fintech company founded by Twitter creator Jack Dorsey, received $250,000 in RSUs when the stock price was $234, but the value of that compensation dropped to the $70,000 range as the stock price fell to the $70 range.

Alap Shah, managing director at New York-based consulting firm Pearl Meyer, said companies are not only giving more stocks as compensation but also providing them more frequently and to more employees, calling this "completely unsustainable." He analyzed that RSUs or salary increases are ultimately a "limited resource" (May 11th article "They said talent shortage but tech companies started layoffs... What happened?") and that this could eventually lead to workforce adjustments or layoffs. It is expected that the tech stock decline caused by labor shortages due to COVID-19, U.S. monetary tightening policies, and high inflation could spread as another risk to the tech industry.

Editor's Note[Jjinbit] is short for 'Jeong Hyunjin's Business Trend' and 'Real Business Trend,' a corner that shows corporate management trends such as organizational culture and personnel systems. We will deliver fresh and differentiated information and perspectives based on analyses from foreign media and major overseas institutions that have not received much attention so far.