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The assignment discusses about Compensation Policy of Amazon- Compensation practice can be applied to positively impact

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Compensation Policy of Amazon

1. Background of the company

For this piece of report where compensation policies and related concepts would be explored, Amazon is selected as the organization on which this exploration will take place. Amazon is known as a global technology company that entirely focuses on e-commerce, cloud computing and artificial intelligence. Amazon’s headquarter is in Seattle, Washington and Amazon is considered as one of the Big Four or “Four Horsemen” of technology along with Facebook, Google and Apple (Rollins and Calabrese 2016). Amazon is also known as the world’s largest online market place and cloud computing platform in terms of revenue and market capitalization. In the year of 1994, Amazon was founded by Jeff Bezos. Initially, Amazon was a just an online book store. However later, it became diversified and started to sell video streaming, MP3 downloads and streaming, software, electronics products, food, jewelry, toys, apparel and furniture. Amazon has also its own publishing company named as Amazon Publishing and a film and television studio named as Amazon Studio (Mandel 2017). In this report the discussion would be provided on the employee compensation method of Amazon. Besides, this report will also identify the challenges that Amazon is facing while applying its compensation practices.

2. Compensation strategy of Amazon and How Amazon applies its compensation practice

For providing compensation to its employees, Amazon heavily relies on stock more than any other organization around the world. Yes, Amazon also provides health benefits to its employees from the first day of joining, however; it is the stock reward that sums up the compensation practices of Amazon (realfinanceguy.com 2019). A senior manager or manager in Seattle receives a compensation package that looks like this,

Wage: $150,000

Bonus at the beginning: $100,000 that paid throughout 2 years

Compensation based on stock (RSU): $300,000 that is given over 4 years with 10% is given on the first year, 20% on the second year, 30% in the third year and 40% in the fourth year.

Total estimated compensation over 4 years, depending on stock value would be: $1 million.

3. Compensation Related Challenges of Amazon

This compensation practice of Amazon can be seen as normal however, it is actually diabolical. The bonus that is provided at the beginning makes up for the comparatively small stock compensation that accrues over the first several years. At this time, AWS can weed out the banter and fire under performing employees. On the other hand, employees that would leave Amazon voluntarily would have to return some of their starting bonus that makes the entire compensation package significantly low.

On the other hand, employees who stay in the organization for a longer amount of time face different issues. The stock prices grow constantly as Amazon has a strong presence in the stock market. When the third year comes around the staff of Amazon’s stock becomes worth double or triple; more than then can ever think about. As a result, employees who are working in Amazon for a longer amount of time can never leave the organization as they never find similar compensation from any other organization.

However, the major challenge related to this compensation practice is yet not faced by Amazon. The real problem within this compensation can be summed up by a single question and that is “what will happen when the stock price will go down?” It is true that by seeing the current performance of Amazon it would be foolish to say that stock price of Amazon will go down however; the question is what will happen if the stock price really goes down. Amazon is an organization with a high turnover rate as standard employee occupancy in Amazon is only 1 year Now, for a normal company that provides higher salary to its employees, a slight change in stock will not create much of a problem. However, for an organization such as Amazon a slight change in stock price can drastically reduce the salaries of the employees. This reduction of salary would be significant for the most important and higher level employees as they get the maximum percentage of their salary compensated from stock (realfinanceguy.com 2019).

Actually, the management of Amazon realized that they can face this problem in the future and that is why; they have eliminated this compensation plan recently by increasing the hourly wage of its employees (realfinanceguy.com 2019). Hourly minimum wage of Amazon employees is now $15 from beginning. Due to this change a lot of employees were unhappy as they believed that Amazon stocks would never go down and by eliminating this practice Amazon management has actually eliminated their chances of getting a huge amount after 3-4 years.

4. Examine the ways in which laws, labor unions, and market factors impact the company’s compensation practices

Amazon always follows national wage policies at the time of deciding salary of its employees. For example, in the United States of America, minimum wage of an employee would be 7.25 USD per hour. Country with highest minimum hourly wage is Australia where minimum wage is USD15 per hour. Therefore, it can be stated that Amazon right now is providing an hourly wage that is as high as possible as it is providing minimum USD15 per hour to all its employees working in the United States and United Kingdom branches (boingboing.net 2019). However, the scenario is not the same in other countries where Amazon operates. For example, German employees of Amazon are on strikes for gaining a better wage from the organization. However, as of now Amazon has only increased wages in the UK and U.S and therefore it can be stated that Amazon is not impacted by employee strikes.

In terms of labor unions, from the day when Amazon was founded, the management of Amazon has always demolished all the efforts of developing a union. According to some experts Amazon highly exploits its employees and therefore, the employees need to form a union. Until now, there is no employee union in Amazon.

This increase of minimum wage in Amazon is actually the result of a significant market factor. Amazon was highly criticized due to its poor employment practices. On the other hand, the organization was also criticized due to its poor warehouse conditions. Some campaigners also demanded to verify how much tax the organization pays (bbc.com 2019). In this condition, Amazon increased the wage of its employees working in the UK and U.S. Therefore, it can be stated that Amazon’s compensation practices are impacted by market factors.

5. Evaluate the effectiveness of traditional bases for pay at the company you researched

It is already mentioned that Amazon is an organization with a high employee turnover rate. It means, its traditional bases of pay were unable to become effective while retaining its employees. However, as Amazon has recently increased its pay, the effectiveness of this decision can be seen in the future.

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