How Does Compensation Work at Amazon?
Lars Phillips | March 4, 2021
This video will help you understand how you get paid at Amazon. It will help new employees and individuals interested in working at Amazon gain a better understanding of the compensation timeline First off, if you are a new Amazon employee congratulations on your new position!!!
How are Amazon employees paid?
There are three different ways Amazon employees are paid
- Base salary: This is very straight-forward, you will receive your base salary every month. Outside of the Bay Area and Greater New York City area, the maximum base salary at Amazon is $160,000.
- Sign-on bonus: Many new employees will also receive a year one and a year two sign-on bonus. The bonus is paid out with every paycheck, so in essence it’s just additional salary for the first two years you are at Amazon. As a quick example: If you were entitled to a $60,000 year one sign-on bonus, you will receive an additional $5,000 per paycheck. The same method of payment (every paycheck) will occur in year two, simply divide your year two sign-on bonus by twelve.
- Restricted Stock Units (RSUs): Stock vests will begin on your first anniversary. You will receive additional stock vests at the end of year 2 and then every 6 months until you’ve been with the company for 4 years. Many Amazon employees receive additional refresher RSUs as an Amazon employee over time.
How do your salary, on-hire bonuses, and Restricted Stock Units add up?
Before we go through the example of what the numbers and percentages look like, it’s important to mention that total compensation will vary substantially depending on your specific role and level. The total comp package for a new employee coming in at Level 4 will likely look substantially different than someone coming in at Level 8.
Outside of the Bay Area and Greater New York City Area, the maximum salary at Amazon in 2021 is $160,000. Even if you join Amazon at a high level, the salary component of your total compensation package may be less than the $160,000 max, as it allows your manager some flexibility to give you a raise down the road.
In this example, your starting salary is $150,000 with a bump to $155,000 in year two and another bump to $160,000 in year three. You received an on-hire bonus of $200,000 in year one and $155,000 in year two. We will also assume you are entitled to $600,000 in restricted stock units and that the initial stock price does not change. RSUs are distributed at the end of the year for your first two years at Amazon, the distribution frequency changes to every six months in years three and four.
You can see the payout timeline in the chart below:
Here is a little more detail about when to receive your stock vests:
- End of year one – 5% of the initial grant ($30,000)
- End of year two – 15% ($90,000)
- Six months later – 20% ($120,00)
- End of year three 20% ($120,000) for a total of $240,000 in year 3
- Six months later – 20% ($120,000)
- End of year four – 20% ($120,000) for a total of $240,000 in year 4
- Your total stock vests = $600,000
You will notice a big difference in RSUs between years one and two, and years three and four. Your on-hire bonus essentially makes up that compensation difference in the first couple of years with the company. Your year one on-hire bonus is almost always going to be a bit bigger than your year two on-hire bonus, because in the second year you have 10% more of your stock vesting.
You’ll also notice that in years one and two, much more of your Amazon compensation is fixed, whereas the longer you’re with the company the more variable your compensation becomes. This is because the value of your RSUs are be directly tied to the stock price of Amazon. Obviously, if Amazon does really well, you could experience positive spikes in your compensation. However, if Amazon’s stock price doesn’t do as well, you could see your total compensation remain relatively flat, or if the stock price drops you could see your total compensation go down.
Long-term Planning for Amazon Employees
We encourage Amazon employees to develop a strategy for managing your RSUs based on your financial goals and needs. Please feel free to schedule time with our team to discuss any questions you may have.