Amazon’s decision to more than double its maximum base pay to $350,000 for corporate and tech employees is getting lots of attention, and not just among the workers who stand to benefit directly from the change. The rest of the industry is also taking notice, given the likely impact on other companies and their employees.
Here’s what we’re hearing from recruiters, compensation experts and others.
This is a sign of a more mature Amazon.
The change is “a perfect example of the way new CEO Andy Jassy can rethink some of Amazon founder Jeff Bezos’s habits that may have overstayed their shelf life,” writes George Anders, LinkedIn’s senior editor at large and author of its Workforce Insights column.
“Day 1” or not, Amazon under Jassy “has gradually been owning up to the fact that it’s now a giant. Annual revenue is nearly $500 billion,” adds Anders. “And that means new hires shouldn’t be treated as half-pay apprentices learning their craft, while waiting years for slow-release stock packages to come good.”
Amazon will have an easier time landing engineers.
Recruiters say the prior base salary of $160,000, significantly lower than many of Amazon’s peers, was increasingly becoming an obstacle for the company.
In addition to base salary, the company’s compensation package also includes a two-year signing bonus restricted stock units, but prior to last week, Amazon shares were down more than 30% over the prior seven months.
“I have had four conversations in the last month with directors of engineering at Amazon who have all been having a painfully difficult time attracting engineers,” said Albert Squiers, managing director of the technology practice at Fuel Talent in Seattle. “A big portion of this is the lower base salary, and I believe by increasing this they will see a big bump in candidate acceptance.”
Squiers added, “Startups in Seattle were already having a difficult time poaching Amazon engineers; this will make it even more difficult.”
Amazon’s move reflects changes already underway in the industry.
Even before Amazon’s announcement, the “Great Resignation,” inflation, and labor shortages were already causing major changes in compensation.
- Results of an annual survey slated to be released by Payscale next week indicate that nearly 60% of technology companies plan to give pay raises of more than 3% this year, significantly higher than in the past.
- In addition, 50% of technology companies now offer stock as a benefit, more than any other industry, and up 3 percentage points since before the pandemic, according to the upcoming 2022 Compensation Best Practices Report from the Seattle-based compensation software and data company.
“Compensation is getting a spotlight, and that’s why you’re seeing a lot more out there, as people try to grapple with what is the right short-term and long-term compensation strategy,” said Shelly Holt, Payscale’s chief people officer.
Amazon’s increases could accelerate the changes in the industry.
Other companies “can’t help but pay attention to it,” says Garry Straker, senior compensation consultant at salary.com. “I think organizations will certainly have to be aware of what’s going on at Amazon and look to try to find ways to differentiate themselves from Amazon in terms of their overall value proposition and what they have to offer as an alternative. Money’s important, but it’s not everything.”
However, he said it’s important for companies to be cautious.
“My advice is not to take a knee-jerk reaction to this. Wait and see how it all plays out,” Straker said. “The labor market could change pretty rapidly in the next six months. But I think the key for a lot of organizations is making sure that their compensation programs are sustainable.”
Compensation isn’t everything.
Amazon is in a unique financial position to make these changes, thanks to the strength of its Amazon Web Services business, as evidenced by its earnings last week. But companies can still compete on other perks and culture.
“We’re going to see quite a bit more in the total rewards space,” said Payscale’s Holt.
Whereas companies would have provided in-office amenities in the past, she said, they will increasingly compete by offering different perks such as travel vouchers, gym access and general flexibility in how employees can work.
Look out for inequities.
Amazon will need to act with purpose and transparency as new compensation levels are set, to ensure the pay increases are given out in an equitable manner, without racial or gender bias, or other inequities.
“If you are in an environment where big bumps in salary are given to a segment of the population without any clear understanding of how and why that happened, that will raise eyebrows, and that will cause some concerns around internal equity,” said Straker of salary.com.