In the various companies I worked for, my stock options were always underwater, if I recall correctly.
That's the risk with stock options.
I also know several Amazon millionaires who got that way via stock options.
That's the reward with stock options.
Remember when Boeing stock tanked after the 737MAX crisis? The employees complained that Boeing management still got their performance bonuses - because the shareholders demanded that those bonuses be based on multi-year returns, not just short-term previous quarter results. The employees complained that their quarterly bonus disappeared - because the union demanded it be based on the previous quarterly results.
1. be careful what you ask for
2. accept with grace when you get what you asked for
See angarg12's comment [1]. TLDR, Amazon comp is largely comprised of RSUs, negotiated, granted, and adjusted as if they were base comp. The comp structure is not the same as options you'd get from a startup (which are rightly considered largely worthless).
i.e., by Amazon's comp philosophy, this is effectively a pay cut for anyone whose comp was negotiated/adjusted during the pandemic. Management not adjusting for this is likely intentional belt-tightening which Amazon has seen a lot of lately.
"Amazon elects to lower comp bands in concert with drop in stock price" might be a better title.
Okay, there are stupid headlines and REALLY stupid headlines. This is the latter.
There is a reason "equity components" of compensation are called "variable compensation" just like bonuses are. Anyone who "counts on them" is really setting themselves up for disappointment.
That people "believe" they are wealthier than they are because they are counting stock that they either don't have, or hasn't vested yet, at face value? Well that problem is quite old.
During the dot com meltdown, so many people put down payments on houses that they were going to buy with "stock options" but didn't exercise the options because once they do that, they would "stop going up." Our neighbor who was a realtor, has 8 houses "fall out of escrow" because the buyer withdrew (giving up their good faith money) before the close during 1999.
Stock based compensation == 0 until it is sold and the taxes paid, then it is worth what ever you were left with. But counting it as "income" before you sell it? Not smart.
Years ago, my neighbor would always refer to his car as his "quarter million dollar Oldsmobile". I finally got curious enough to ask him the origin of the name, as the car didn't look like a high dollar collector car to me.
He laughed and said that's what his stock options would have been worth today if he hadn't sold them to buy the Olds.
While you're absolutely right, I can tell you first-hand that managers at Amazon tell their engineers that if the stock falls, they'll get more stock.
Furthermore, Amazon has a "target compensation" value for every employee, and this target implicitly assumes a 15% YoY gain in stock price. When employees with RSUs are given their compensation breakdown, they don't get to see the target comp, but they do see their expected compensation listed as part of their "total compensation."
So, yes, you're right that people shouldn't be counting their chickens before they're hatched -- but Amazon strongly encourages employees to do so, and pretends that the chickens are fully hatched during compensation reviews.
Amazon regularly adjusts RSU grants up and down to keep any given employee's total comp within a band. The story is that they are electing not to do so this year, despite last year's significant price drop. The net effect is the same as an across-the-board pay cut.
It's the old story ... don't count the money until the check has been cleared and the balance is in your account. Until then it's just a dodgy IOU. Same for all forms of paper "wealth".
Amazon actually tells employees that they have a "total compensation" philosophy, which means that when the value of unvested shares increases then Amazon will take that into account when issuing new grants (ex: as part of the performance review and compensation process).
For example, if Amazon thinks you should be paid $250k per year and your total comp for the next year is at $300k based on the value of your granted but not yet vested stock awards, then Amazon will not award anymore stock awards to vest in that year. This is different from most other companies that usually just give you a stock award with a standard vest schedule (ex: 25% vest over 4 years).
Amazon has justified this buy telling employees that if the stock drops below your TC target, then they'll award more shares to make you whole. So the question is are employees going to be down from their TC target, or from an inflated compensation number from during the pandemic when many employees were likely making more than their TC targets.
At least this was how it worked when I was employed at Amazon in around 2017.
It’s like people treating a tax return like they got a bonus. If these things fool someone, they’re likely not managing their finances well, if at all.
On the other hand, life loses a certain spice when the money just disappears into the money pile, serving only to balance the Spreadsheet of Predictability.
It’s the nature of a compensation package. Part of it is risk. If you didn’t adjust for risk during negotiating your pay, or was expecting more purely from past performance of the stock, that’s on them
The company was not giving raises when the stock was going up with the rationale that there is a compensation target that was exceeded.
Now that the compensation is way below the target the company is silent.
So 0 risk for the company, all the risk goes to the employees.
And btw the stock that AMZN was giving to the employees was coming out of thin air. Not from buybacks. So they were compensating people with dilution ?
Amazon doesn't treat stock compensation the same way other employers do. The messaging has consistently been: if the stock goes up, we won't issue refreshers if your total comp (including elevated stock) is above our pay target for you. But also: if the stock goes down, we will (eventually) issue more stock to put you back into the target pay band.
Because Amazon actually assumes a 15% growth in stock price every year. So even if the stock stays flat, you make 15% less. I used to be a manager there.
Yeah, it's a deceptive headline. In the article it says "For those who have been with the online behemoth the longest, up to 50% of their total income is balanced on market outcomes."
So if it goes to zero. Though presumably people would lose their salary then too.
Amazon does a weird thing where the mix of stock to cash varies by tenure. So, someone might have been at 85% cash 15% stock in year 1, but are now at 50% cash, 50% stock. So they're getting more stock now than in earlier years.
I’m one of those affected. It’s not particularly interesting to discuss if people are aware that stock can go down. No one is disputing that.
However, if the market pulls back X% on compensation, but Amazon pulls back Y% with Y > X, people are going to leave… and not the ones you want to leave.
Unfortunately not. I just interviewed around for VPE roles at Series B companies, and they aren't even able to be competitive with non-Director compensation at FAANG.
This debate is a bit more nuance that it might look like.
Some people use the argument "you didn't give stocks back when price was going up". That's true, but there are unique feature of Amazon compensation package that make the current situation... peculiar.
This is a short primer: your compensation is composed of a base salary and RSU, which is calculated as a dollar value and converted to shares. When the RSU vest (twice a year) you get the shares at whatever market value. If they've gone up (as they historically did a lot) you win. If they go down (as the last ~2 years) you lose.
This is fair TBH. When you take part of your comp in stocks, you are assuming some amount of risk.
There are a few problems though.
a) Amazon bakes in a 15% stock price increase when calculating future compensation, and they adjust the amount of shares accordingly. This means that they effectively limit the employees upside. Also, think how ridiculous it is when your salary assumed a 15% price increase and it went down 30% instead.
b) Amazon has compensation bands, and target each employee comp to a certain spot in the band (say 50%) based on performance. If you are above band (for example, due to stock appreciation) you get nothing or a nominal amount. Notice this is different from similar Big Tech which issue "memoryless refreshers" i.e. stock refreshers are independent of previous ones.
c) Amazon issues raises one year out after the performance reviews happen. So say you did a good job in 2022, and you get your performance review in 2023, then they will issue new shares for 2024. I believe it also used to work like that for promotions (i.e. you get promoted now, but you'll see your raise next cycle), but they changes it recently.
d) Unlike comparable companies it doesn't have performance bonus, spot bonuses, or others.
We are waiting for our performance reviews to happen but rumor has they are not giving increases to make up for the lost stock value, meaning many people will be underwater.
Funnily enough this creates a very weird situation due to another quirk of Amazon compensation system. New offers include a 4 year compensation package, with most of the comp as cash for years 1 and 2, and backloaded RSU for years 3 and 4. Afterwards there is a "cliff" and comp is decided on a rolling yearly basis.
So the newest hires are going to be virtually unaffected while tenured employees will lose a big chunk of their comp. This is compounded by the fact that many recent offers have been overpriced w.r.t. existing employees due to the incredibly competitive job market.
At the end of the day this might sound like the world smallest violin coming from overpaid tech workers. In any event it has created huge disparities due to timing and luck rather than skills or value. Curious to see what'll happen later this year and next.
Overall interesting overview of how amazon specific details combine right now, but I don't think "underwater" is the right term here - in normal usage that refers to an asset that has become worth less than what is currently owed on it, e.g. by selling it you lose money. I can't see how that applies here, did I miss something? Surely you still come out ahead, just not as much as you thought you would?
Assuming that is the case, it's really two separate problems - one is people assuming continuous performance and baking those assumptions in, the other is weird distortions in employee comp that happen when those assumptions prove not to be true.
I doubt people have too much sympathy for the former, it's classic counting your chickens before they hatch. But the latter is a real workplace problem, and not easy to fix.
Honestly, I felt the same way about several people I knew who made a small fortune off tech company stock. They weren't necessarily any more skilled than other devs I knew, but they lived in the right areas to get recruited and took the risk - and that's the nature of risk.
This is why I always quote my total comp as cash when negotiating. I have multiple times been able to turn total comp into salary (with a slight bump overall). Last time I did it, former employer's stock tanked shortly after I left. Dodged one there.
YMMV, but I've never been successful doing this, and the compensation available in salary + stock (modulo some expected risk) has always greatly exceeded cash-only compensation.
Share prices went up due to increased spending at the start of the pandemic (after the initial lockdowns) and it’s weird that people didn’t expect them to come back down - they’re basically back where they were in 2019
I think it's complex. The obvious reasons are the covid-19 bump is gone, and all tech stocks are down.
The less obvious reason is that Amazon retail growth doesn't seem to have as much of a long-term due to:
1) Market saturation
2) Declining customer service
3) Fakes, frauds, and cons
... and so on.
A lot of this might have happened due to poorly handling the covid-19 surge. Somehow, whatever made Amazon work before stopped working. It's now been going on for long enough that Amazon is losing reputation, and people (or at least I) am sceptical it can be fixed. Or perhaps it's related to Andy Jassy taking helm.
In either case, a lot of people I know have been trickling away from Amazon. It's not enough to make a dent yet, but it's definitely not growth.
Shares of Amazon (and really most of tech) are only "down" from their peaks during the pandemic, when they were artificially inflated due to stimulus money as well as people thinking that the world's tech reliance would stay the same after things went back to normal. If you go back further, to say 2019 or early 2020, they are still up.
[+] [-] WalterBright|3 years ago|reply
That's the risk with stock options.
I also know several Amazon millionaires who got that way via stock options.
That's the reward with stock options.
Remember when Boeing stock tanked after the 737MAX crisis? The employees complained that Boeing management still got their performance bonuses - because the shareholders demanded that those bonuses be based on multi-year returns, not just short-term previous quarter results. The employees complained that their quarterly bonus disappeared - because the union demanded it be based on the previous quarterly results.
1. be careful what you ask for
2. accept with grace when you get what you asked for
[+] [-] anonuser123456|3 years ago|reply
[+] [-] WalterBright|3 years ago|reply
[+] [-] colanderman|3 years ago|reply
i.e., by Amazon's comp philosophy, this is effectively a pay cut for anyone whose comp was negotiated/adjusted during the pandemic. Management not adjusting for this is likely intentional belt-tightening which Amazon has seen a lot of lately.
"Amazon elects to lower comp bands in concert with drop in stock price" might be a better title.
[1] https://news.ycombinator.com/item?id=34889838
[+] [-] ChuckMcM|3 years ago|reply
There is a reason "equity components" of compensation are called "variable compensation" just like bonuses are. Anyone who "counts on them" is really setting themselves up for disappointment.
That people "believe" they are wealthier than they are because they are counting stock that they either don't have, or hasn't vested yet, at face value? Well that problem is quite old.
During the dot com meltdown, so many people put down payments on houses that they were going to buy with "stock options" but didn't exercise the options because once they do that, they would "stop going up." Our neighbor who was a realtor, has 8 houses "fall out of escrow" because the buyer withdrew (giving up their good faith money) before the close during 1999.
Stock based compensation == 0 until it is sold and the taxes paid, then it is worth what ever you were left with. But counting it as "income" before you sell it? Not smart.
[+] [-] WalterBright|3 years ago|reply
He laughed and said that's what his stock options would have been worth today if he hadn't sold them to buy the Olds.
[+] [-] jwestbury|3 years ago|reply
Furthermore, Amazon has a "target compensation" value for every employee, and this target implicitly assumes a 15% YoY gain in stock price. When employees with RSUs are given their compensation breakdown, they don't get to see the target comp, but they do see their expected compensation listed as part of their "total compensation."
So, yes, you're right that people shouldn't be counting their chickens before they're hatched -- but Amazon strongly encourages employees to do so, and pretends that the chickens are fully hatched during compensation reviews.
Source: Spent almost six years working at AWS.
[+] [-] colanderman|3 years ago|reply
[+] [-] GianFabien|3 years ago|reply
[+] [-] tiffanyh|3 years ago|reply
But when the stock goes up every year for 20-years straight, it’s hard for people to not think its part of their guaranteed base pay.
[+] [-] tjdetwiler|3 years ago|reply
For example, if Amazon thinks you should be paid $250k per year and your total comp for the next year is at $300k based on the value of your granted but not yet vested stock awards, then Amazon will not award anymore stock awards to vest in that year. This is different from most other companies that usually just give you a stock award with a standard vest schedule (ex: 25% vest over 4 years).
Amazon has justified this buy telling employees that if the stock drops below your TC target, then they'll award more shares to make you whole. So the question is are employees going to be down from their TC target, or from an inflated compensation number from during the pandemic when many employees were likely making more than their TC targets.
At least this was how it worked when I was employed at Amazon in around 2017.
[+] [-] Waterluvian|3 years ago|reply
On the other hand, life loses a certain spice when the money just disappears into the money pile, serving only to balance the Spreadsheet of Predictability.
[+] [-] spacephysics|3 years ago|reply
It’s the nature of a compensation package. Part of it is risk. If you didn’t adjust for risk during negotiating your pay, or was expecting more purely from past performance of the stock, that’s on them
[+] [-] whatever1|3 years ago|reply
Now that the compensation is way below the target the company is silent.
So 0 risk for the company, all the risk goes to the employees.
And btw the stock that AMZN was giving to the employees was coming out of thin air. Not from buybacks. So they were compensating people with dilution ?
[+] [-] loeg|3 years ago|reply
See this much more detailed comment on how weird it is: https://news.ycombinator.com/item?id=34889838
[+] [-] Aunche|3 years ago|reply
[+] [-] xerxesaa|3 years ago|reply
[+] [-] ska|3 years ago|reply
[+] [-] ojbyrne|3 years ago|reply
So if it goes to zero. Though presumably people would lose their salary then too.
[+] [-] umeshunni|3 years ago|reply
[+] [-] DMell|3 years ago|reply
[+] [-] kilburn|3 years ago|reply
> The past two years have not been as rosy for Amazon’s stock price. It fell 2.3% in 2021 and a whopping 49.5% last year.
This explains the headline. I guess that the figures depend on the specific dates you pick?
[+] [-] ntonozzi|3 years ago|reply
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] weeeeelp|3 years ago|reply
[+] [-] tictacttoe|3 years ago|reply
However, if the market pulls back X% on compensation, but Amazon pulls back Y% with Y > X, people are going to leave… and not the ones you want to leave.
[+] [-] davidw|3 years ago|reply
[+] [-] jchonphoenix|3 years ago|reply
[+] [-] angarg12|3 years ago|reply
Some people use the argument "you didn't give stocks back when price was going up". That's true, but there are unique feature of Amazon compensation package that make the current situation... peculiar.
This is a short primer: your compensation is composed of a base salary and RSU, which is calculated as a dollar value and converted to shares. When the RSU vest (twice a year) you get the shares at whatever market value. If they've gone up (as they historically did a lot) you win. If they go down (as the last ~2 years) you lose.
This is fair TBH. When you take part of your comp in stocks, you are assuming some amount of risk.
There are a few problems though.
a) Amazon bakes in a 15% stock price increase when calculating future compensation, and they adjust the amount of shares accordingly. This means that they effectively limit the employees upside. Also, think how ridiculous it is when your salary assumed a 15% price increase and it went down 30% instead.
b) Amazon has compensation bands, and target each employee comp to a certain spot in the band (say 50%) based on performance. If you are above band (for example, due to stock appreciation) you get nothing or a nominal amount. Notice this is different from similar Big Tech which issue "memoryless refreshers" i.e. stock refreshers are independent of previous ones.
c) Amazon issues raises one year out after the performance reviews happen. So say you did a good job in 2022, and you get your performance review in 2023, then they will issue new shares for 2024. I believe it also used to work like that for promotions (i.e. you get promoted now, but you'll see your raise next cycle), but they changes it recently.
d) Unlike comparable companies it doesn't have performance bonus, spot bonuses, or others.
We are waiting for our performance reviews to happen but rumor has they are not giving increases to make up for the lost stock value, meaning many people will be underwater.
Funnily enough this creates a very weird situation due to another quirk of Amazon compensation system. New offers include a 4 year compensation package, with most of the comp as cash for years 1 and 2, and backloaded RSU for years 3 and 4. Afterwards there is a "cliff" and comp is decided on a rolling yearly basis.
So the newest hires are going to be virtually unaffected while tenured employees will lose a big chunk of their comp. This is compounded by the fact that many recent offers have been overpriced w.r.t. existing employees due to the incredibly competitive job market.
At the end of the day this might sound like the world smallest violin coming from overpaid tech workers. In any event it has created huge disparities due to timing and luck rather than skills or value. Curious to see what'll happen later this year and next.
[+] [-] ska|3 years ago|reply
Overall interesting overview of how amazon specific details combine right now, but I don't think "underwater" is the right term here - in normal usage that refers to an asset that has become worth less than what is currently owed on it, e.g. by selling it you lose money. I can't see how that applies here, did I miss something? Surely you still come out ahead, just not as much as you thought you would?
Assuming that is the case, it's really two separate problems - one is people assuming continuous performance and baking those assumptions in, the other is weird distortions in employee comp that happen when those assumptions prove not to be true.
I doubt people have too much sympathy for the former, it's classic counting your chickens before they hatch. But the latter is a real workplace problem, and not easy to fix.
[+] [-] JustLurking2022|3 years ago|reply
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] whateveracct|3 years ago|reply
[+] [-] loeg|3 years ago|reply
[+] [-] micromacrofoot|3 years ago|reply
[+] [-] blagie|3 years ago|reply
I think share prices had all of those baked in. "New normal" would have meant the end of retail.
Now that we know where things landed, it's possible to re-adjust.
[+] [-] tylerag|3 years ago|reply
[+] [-] geodel|3 years ago|reply
[+] [-] paxys|3 years ago|reply
[+] [-] quest88|3 years ago|reply
Edit: sorry for the duplicate question. The first question's response asked me to try again.
[+] [-] TrackerFF|3 years ago|reply
[+] [-] redtriumph|3 years ago|reply
[+] [-] Vapormac|3 years ago|reply
[+] [-] GianFabien|3 years ago|reply
[+] [-] quest88|3 years ago|reply
[+] [-] blagie|3 years ago|reply
The less obvious reason is that Amazon retail growth doesn't seem to have as much of a long-term due to:
1) Market saturation
2) Declining customer service
3) Fakes, frauds, and cons
... and so on.
A lot of this might have happened due to poorly handling the covid-19 surge. Somehow, whatever made Amazon work before stopped working. It's now been going on for long enough that Amazon is losing reputation, and people (or at least I) am sceptical it can be fixed. Or perhaps it's related to Andy Jassy taking helm.
In either case, a lot of people I know have been trickling away from Amazon. It's not enough to make a dent yet, but it's definitely not growth.
[+] [-] paxys|3 years ago|reply
[+] [-] markdown|3 years ago|reply
[+] [-] umeshunni|3 years ago|reply
[+] [-] x3n0ph3n3|3 years ago|reply