Employee motivation is one of the critical factors for any company. Successful companies make it a priority to ensure that employees are motivated and engaged in their work.
There are multiple factors impacting employee motivation. Interesting projects, work environment, learning opportunities, career growth opportunities, and of course money — all of them play a huge role. In this post, I will only discuss the Money aspect and how it works at Amazon.
At Amazon, most new employees receive base salary and RSUs. RSUs vest in the 5-15–20–20–20–20 ratio. 5% after first year, 15% after second year, and 20% every 6 months after that. The last 20% vest on completion of 4 years from initial joining date. This is very different from the 25–25–25–25 followed by most other companies, 25% after each year for first four years. New joinees at Amazon also get joining bonus paid over first two years that is roughly equal to the value of RSUs they receive in 3rd and 4th years. And, 3rd year onwards, employees get more RSUs every year which vest 2 years later. The base pay for anyone at Amazon maxes out at $160K per annum approx and rest of the pay is through RSUs. There are a few exceptions to this pay structure, but for most people the above holds true.
What does this have to do with employee motivation, because most companies pay in RSUs? Amazon RSUs are heavily loaded in future years. Amazon has understood that money itself is not a huge motivator especially once you have already earned it. However, ‘hope for money’ is a huge motivator and it keeps people going. It is like a huge carrot in front of you that keeps getting bigger as you walk towards it.
Does that mean Amazon employees earn more over time? May be not. Consider this. Over time, most people in the workforce gain more experience and get promoted so they should anyways earn more over time. At Amazon, employees get visibility of their future pay today and that becomes a motivating factor. Employees feel motivated to run towards that future and work hard for it. Yes, there are many other motivating factors like learning and growth opportunities, and I am not discounting those factors. However, I definitely think that the future loaded pay structure based on RSUs is one of the main factors.
Advantages: Employees stay motivated and focus on work instead of thinking about their pay every now and then. Company pays people in RSUs, instead of cash making it easier to manage free cash flows. It becomes difficult for competitors to attract the loyal employees of Amazon who would have large number of unvested stocks.
Disadvantages: If stock goes down, the pay drops significantly and company has to somehow make up for it. Generally, the company pays more RSUs again future loaded.
Overall, I strongly believe that the pay structure and stock based compensation works heavily in favor of Amazon.
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