Amazon’s decision to raise workers’ minimum wage to $15 per hour was not welcome news for all employees. Although the minimum hourly wage will go up on November 1, Amazon will be eliminating existing financial incentives and bonus programs, including stock and monthly bonuses that boost total compensation for hourly workers.
Why are some workers unhappy with this? What could Amazon have done differently to alleviate worker concerns about this new compensation plan? Below, I’ll offer my take.
Background
Amazon isn’t the largest employer in the country, but its influence is vast. According to research presented by Business Insider, 43 percent of all online retail sales in the U.S. were made from Amazon last year. By some estimates, Amazon is more valuable than all brick and mortar retailers combined, and there are no signs of that trend slowing down.
Their move to lift the minimum wage to $15 per hour will have an impact on the total compensation for hundreds of thousands of current and future employees. And it sets the tone for large employers around the country.
“We listened to our critics, thought hard about what we wanted to do, and decided we want to lead,” said Jeff Bezos, CEO of Amazon, in a statement, according to CNBC. “We’re excited about this change and encourage our competitors and other large employers to join us.”
Yet, it’s unclear whether Amazon will actually be a leader in terms of total compensation.
How Total Compensation Could Change for Employees
Amazon confirmed that the incentives were being withdrawn, and on a blog post explaining the changes to staff, the company said it had made the changes because “hourly fulfilment and customer service employees [said] that they prefer the predictability and immediacy of cash [to share bonuses].”
Amazon said it would phase out share bonuses and would replace them with a “direct stock purchase plan,” which allows employees to buy shares at a discount over three or five years.
The company added: “The significant increase in hourly cash wages more than compensates for the phase out of incentive pay and [Restricted Stock Units (RSUs)]. We can confirm that all hourly Operations and Customer Service employees will see an increase in their total compensation as a result of this announcement. In addition, because it’s no longer incentive-based, the compensation will be more immediate and predictable.”
“Amazon is taking money away from us”
Some workers spoke with reporters (Guardian and Yahoo Finance) and complained that they will be making less once bonuses and RSUs go away. Most of the workers who voiced concerns have been working for the company for more than two years, and have been earning close to $15 an hour before the raise.
Yahoo Finance spoke with an Amazon employee who makes $15.25 an hour. He’s worked for Amazon for more than three years in Arizona. He crunched the numbers and found that although he is getting a $1 an hour raise, which would equate to as much as $2,080 in additional pay a year, he could have earned a few thousand dollars more from the incentive programs.
“Amazon isn’t giving its employees a raise, they’re taking money from us,” he told Yahoo Finance. “It only looks good if folks don’t know the truth.”
In the past, Amazon used stock units as a key lever in the recruitment process: “One of the ways we foster ownership among employees is through Restricted Stock Unit (RSU) awards. RSUs are a key part of our global compensation program, which has been carefully designed to help us attract, motivate and retain employees of the highest caliber,” according to an Amazon brochure about the program.
Under RSUs, full-time warehouse workers usually receive two or three shares each year after a two-year vesting period. This stock is worth thousands of dollars when cashed, since the stock price is now around $2000 per share.
Another major perk that Amazon is phasing out is employees’ monthly bonuses, called Variable Compensation Pay (VCP). An employee can earn up to 8 percent of their monthly income, but it depends on how many hours they work and the facility site’s production goals. An average worker usually receives $1,800 to $3,000 a year through the VCP program, according to employees who talked to Yahoo Finance.
Some workers voiced frustration that the program is removed now, since VCP doubles during peak months in the holiday season.
What Amazon Could Have Done to Alleviate Worker Concerns
1. Consider Workers on the Margin
In this case, Amazon reported it had surveyed its workers regarding this change and learned that workers preferred “immediate and predictable compensation over bonuses and stock.” I give them props for taking employee preferences into account before implementing the new comp plan, but I am wondering: did they consider workers on the margin?
As the worker who spoke with Yahoo Finance mentioned (who was making $15.25 an hour), the $1 hourly increase to his base pay would be more than offset by the loss of variable pay and RSUs, making him worse off monetarily than before.
Did decision-makers take a look to see how many workers were in this category? Could they have done a more detailed analysis to ensure that this policy doesn’t harm a single worker or perhaps have created a different compensation policy for workers on the margin?
Additionally, it was clear that workers valued their target-based bonuses. Perhaps, decision-makers could have collected more feedback about the variable pay plan to inform whether it should be removed.
2. Be Aware of “Loss Aversion” and Find Ways to Address It
Loss aversion refers to our tendency to strongly prefer avoiding losses over acquiring gains. From an evolutionary perspective, it makes sense that we naturally respond more powerfully to threats than to opportunities.
When an organization decides to add or take away elements of a compensation or benefit package, it’s really important to be aware that this loss-aversion bias exists. In Amazon’s case, they did publish a blog post on October 2 that outlined the changes and anticipated some questions from employees. But, in my opinion, it didn’t go far enough.
These days, workers won’t believe you if you simply say “we’re paying you fairly.” They need to receive sufficient information and understand why you pay the way you do so that they can come to their own conclusions. Giving employees more context and data is the best way to dispel any distrust.
3. Give Employees Context About Your Pay Process
I believe that Amazon’s stated intention is genuine, that they do in fact want to increase pay for hourly workers and make sure pay is predictable. This move is one part of Amazon’s broader agenda to increase minimum wage nationwide. Amazon’s public policy team will also begin advocating for an increase in the federal minimum wage, according to Jay Carney, Sr. VP of Amazon Global Corporate Affairs. I think it’s safe to assume that decision-makers had done a lot of work to understand the impact of the new policy on employees’ take home pay before they put it into effect.
Yet, some workers still felt like this policy was a sneaky way to pay them less.
I do wonder, did Amazon do enough on the communication front?
- Did Amazon give their employees any heads up that the change was coming?
- Did employees receive any context in terms of why the decision was made?
- Did decision-makers share any criteria for making their decision, and were they upfront about the trade-offs they had to make?
- Was there a way for employees to talk to HR to get their questions answered? Or did they find out about the new policy at the same time Amazon published the blog post?
In general, when people hear negative information (real or perceived), they need time to process it before they can accept it. In this case, giving employees time to understand the upcoming change before it was publicized would have helped. They may have meetings or office hours with HR where employees have a chance to ask questions and raise concerns.
Tell us what you think
Do you have ideas on how to communicate compensation changes effectively to employees, especially if the changes are negative? Tell us what you think in the comments below or on Twitter.
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