Amazon RSU Plan: Comprehensive Case Study

Company Overview - Amazon

Amazon, an online retail platform, was founded in July 1994 by Jeff Bezos right out of his garage. The company is headquartered in Washington, United States of America and its business is internet based commerce or e-commerce. Amazon is a marketplace platform where any individual or any company can sell their products directly to the consumers. Amazon has an Omni-channel strategy which aims to provide a seamless shopping experience for the consumers across all channels and puts consumers in the focus. Omni-channel makes multiple communication and purchase options available to customers.

Amazon generates employment for around 16 lakh people worldwide. Amazon offers a great range of benefits for its employees and eligible family members. The Amazon compensation package such as RSU Amazonis designed to attract the best talent. Amazon builds diverse teams composing people from different cultures, backgrounds, gender, race, age, national origin etc. Amazon is also committed to sustainability and hence invests heavily to make its business sustainable.

Amazon RSU 

Amazon RSUs or Restricted Stock Units are a form of equity compensation awarded to employees in the form of company’s stocks or cash equivalent to stocks in value. RSUs are being increasingly adopted by the companies (particularly tech start-ups) to attract and retain the talented employees. RSUs are provided on fulfillment of some vesting conditions which could be time-based or performance-based or a composition of both. RSUs are being utilized by big giants like Uber, Verizon, and one such big name issuing Amazon RSU. 

Amazon RSUs are a type of equity compensation offered to employees by Amazon. The vesting schedule policy of Amazon is quite distinctive than what is offered by other companies. We will now delve more into understanding how Amazon curates its RSU policy keeping employees in the focus.

Understanding Amazon RSU Policy

The distribution of RSUs to employees largely depends on Amazon compensation's policies and practices. Some companies may award RSUs to all employees, some may award only to senior executives or key managerial personnel, but Amazon RSU plan is a part of total employee compensation package to each employee and to award them for reaching a set performance milestone. Amazon tries to align the interests of the company with the employees and to do this, RSUs form a component of every employee’s compensation package. RSUs are offered to new joiners as a part of their job offer but RSUs can’t be sold unless completely vested over the course of four years.The Amazon RSU vesting schedule is designed to ensure long-term employee retention, allowing the RSUs to vest over the course of four years. However, RSUs cannot be sold unless fully vested. 

The number of RSUs offered to employees differs for different employees. It depends on many factors such as level of experience, budget for equity compensation and employee’s role within the company. Let us have a look on the vesting schedule of RSUs offered by Amazon:

Amazon RSU Vesting Schedule 

While the typical vesting schedule for most of the companies is 25%-25%-25%-25% (means 25% of RSUs vest each year for consecutively four years), Amazon RSU vesting schedule is 5% in the first year, 15% in the second year and then 20% each six months till the end of 4th year. This has been elaborated in more detail below:

• Year 1: 5% of the total granted RSUs will vest after an employee completes 1 year at Amazon.
  
  
• Year 2: 15% of the granted RSUs will vest after an employee completes 2 years at Amazon.
  
  
• Year 3: 20% of the grant will vest at the end of six months of the third year i.e. at a point in time where an employee has been working at Amazon for 2.5 years. Again, at the end of next six years of the third year, 20% options will be vested i.e. at the end of the third year as an employee at Amazon. This aggregates to 40% of the grant which is vested at the end of third year.
  
  
• Year 4: The remaining 40% follows the same pattern over the 4th year as an Amazon employee as done in the third year

The Amazon RSU vesting schedule ensures that the bulk ofRSU Stock amazon is invested in the later years of employment, which helps to encourage employees to stay a bit longer with the entity. 

Retention Strategies at Amazon

As of 2022, the majority of Amazon’s employees were eligible for RSUs. By each subsequent year, an employee may be eligible for additional RSU grants depending on how the financial performance of the company looks like, how the RSU stock Amazon has performed over the year and how much an employee has contributed to the company. This is decided by the annual performance review during year end appraisals. If additional RSU grants are provided, then the vesting cycle of 4 years (or maybe 5 years) will be followed again. If an employee leaves the company without vesting, then, all the rights to vest the RSUs will also be lost. RSUs awarded during annual performance review don’t necessarily follow an even schedule. They are mostly vested in the months of May and November each year.

By following this pay-out structure, Amazon incentivizes its talented employees which they select after the rigorous hiring procedure. This boosts their morale and inclines them to stay with the company for a longer-term and hence improves its retention of the employees. 

Amazon’s compensation package and promotional strategies aim to keep the outstanding performing employees with the organization by granting them more RSUs at each annual review cycle. Such a form of compensation makes the people working for Amazon owners in the business that Amazon does rather than just the employees of a company and hence factor in the short-term and long-term benefits of the company while making any decisions. This benefits the employee as well as the organization.

Amazon RSU in India 

Amazon RSUs are also available in various regions, including Amazon RSU India, although terms and conditions may vary due to local regulations. Even so, RSUs are a globally impactful compensation tool due to the same fundamental principles of vesting, performance evaluation, and employee retention across geographies.

Conclusion

There are many kinds of Employee Benefit Plans used by organizations to attract and retain key performing employees but RSUs plans are gaining attention each successive day. As per Foley and Lardner LLP,” In a recent survey of 325 companies, 72% reported using RSUs in their long-term incentive compensation programs compared to only 47% ten years earlier and 4% 21 years earlier” which means that RSUs are gaining attraction since the last decade and this is evident from how big firms like Amazon are continuously expanding and utilizing benefits of RSUs to retain their talented employees. Thus, RSUs are immensely valuable with benefits accruing to employees as well as employers.