Some big changes are coming up for Amazon shareholders and employees. Amazon recently announced a stock split, share buyback program, and a compensation increase. The changes are expected to take place in early June 2022.
Here are some of the details regarding these big changes:
- A 20-to-1 stock split
- A $10 billion dollar share buyback program
- An increase in maximum base salary compensation from $160,000 to $350,000
So, what do these changes mean for Amazon employees?
AMZN Stock Split
With Amazon’s stock split, the value of one current share will be split into 20 shares. Imagine having one large, delicious cheese pizza, and then cutting it into twenty slices. You will own the exact same pizza, but instead of one whole pie, you own twenty smaller pieces. The value of a share of Amazon stock will be divided by twenty, so while you will have 20x more shares, each share will be worth 20x less.
A stock split often occurs when a company’s stock price increases drastically and the company feels the need to split to increase access for investors, effectively making it easier for retail investors to purchase shares of Amazon. This stock split by itself should not intrinsically create any value. Owning 10 shares of Amazon at $2,200/share is the exact same as owning 200 shares of Amazon at $110/share. With that said, after the recent announcement, Amazon’s stock surged over 5%.
If you hold Amazon RSUs, the value of your RSUs will not change due to the split, you will simply have 20x the shares at 1/20th the price/share.
From a company perspective this split will also make it easier for Amazon to specifically target employee compensation. As a simple example, if Amazon wanted to grant an employee $7,000 of RSUs, that’s difficult to achieve with a stock price of ~$2,000/share (three vs. four shares). With a stock price of ~$100/share, $7,000 is much easier to target (70 shares).
Amazon Share Buyback Program
Amazon is also implementing a share buyback program. Amazon is a company worth ~$1.1 trillion. Buying back $10 billion of stock is akin to Amazon buying back ~0.91% of the company. Share buybacks are a tax efficient method to bring value to shareholders compared to dividends, which when paid out are a taxable event in taxable investment accounts. Stock buybacks in big tech are not unusual, with Apple and Microsoft both also having also implemented stock buyback programs.
Base Salary Increase at Amazon
Amazon has increased its maximum base salary to $350,000. For many Amazon employees this could mean a decrease in RSUs as a portion of total compensation, and an increase in base salary.
Overall, new Amazon hires might see a higher fixed base salary, but lower variable RSU compensation compared to before – though RSUs will still play a major role Amazon employees total compensation package.