Amazon Years 4-5 comp question.

Microsoft / Eng Ruc
Sep 30, 2018 8 Comments

Yes another Amazon comp question.

So I know in Amazon you have a TC target, and that target is expected to be inclusive of a stock value + 15% each year.

In year 5 when all initial vests are gone, what target do they refresh you at?

For example let’s I start at 150k TC, but because stock keeps growing 15% I end up in year 4 with a comp target of around 190k TC.

In year 5 is my TC target then inclusive of another 15% increase in stock value or is it reset to my first year comp target?

Surely law of large numbers comes in here because if stock keeps growing 15%, and your target comp grows every year in line with that then your going to have very huge comp targets after a few years....

Please explain what this target is after year 4


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TOP 8 Comments
  • New EVlp62
    Target comp is not your actual comp. For example, if I start at 250 amazon, Tc for subsequent years are 1 to 4 percent from it every year. For simplicity sake, based on my performance let's day my target Tc jumped by one percent every year, my 4th year target TC would be somewhere in 260s. But stock may have gone up and I could be making 350. On 5th year your TC would be one to four percent from 260 (unless promoted), not actual tc you are making at 350
    Sep 30, 2018 3
    • Microsoft / Eng Ruc
      So basically if the 15% growth does happen you are looking at a cliff for year 5 no matter what?
      Sep 30, 2018
    • Sometimes? The bands are really wide. They don't want a cliff but when the stock quadruples over that time there will likely be a cliff
      Sep 30, 2018
    • Microsoft / Eng Ruc
      Yeah but at these levels 15% year on year growth amounts to a lot of money so it seems inevitable...
      Sep 30, 2018
  • Oracle FuToi
    There will be a compensation cliff in year 5 unless you get promoted. The cliff will be very pronounced because of the large gains made by the stock and the 40% RSU vests in year 3 and 4.
    Sep 30, 2018 0
  • It all depends. The target will be different based on your performance over those 4 years. If you get promoted it be higher. If you get solid reviews it will be high in your existing band.

    Each level and role have different pay scales and your target will be somewhere in those scales
    Sep 30, 2018 0
  • Amazon / Eng jNeo42
    I haven’t seen it yet, but here’s my understanding. Assume you are an HV performer, not an LE (because that will likely end your tenure) or a TT (which will likely lead to promotion). You get hired with base 130K, a first year signing bonus of 30K, and an RSU grant which equates to 120K to be earned over 4 years. This means year one TC is 130 + 30 + 7 (which is a 5% vest of the 120K in RSUs, plus the expected annual 15% increase in their value, and a small rounding of 100). This establishes your “target comp” and expectations at $167K per year. The next 3 years seek to maintain that, with your base appreciating slowly (mostly at cost of living), and shares expected to increase 15% each year. Amazon counts on that 15% growth to help fill in the TC figure — nobody really knows what will happen in practice if that were to stop. Over 4 years, that 167K comp isn’t intended to increase dramatically, but has been in years 3 and 4 because those RSUs have way outpaced the expected 15%. That’s just free (taxable) money. When you’re approaching year 5, though, the company is refreshing your RSUs to get you back to where your TC should be — let’s assume that 167K looks like 185TC for year 5 (your supersized gains don’t grow your TC). You might have a base of 150 by then, so your refresher will be whatever # of shares it takes at the current market value (which is somewhere in your 3rd or 4th year, which may be a much higher price). The assumption is that eventually this hyper growth will end and returns will be more inline with the rest of the market. So your refreshers may jump only the expected 15% when they’re paid out, not 100%+ like it has for some.
    Sep 30, 2018 1
    • Microsoft / Eng Ruc
      So basically it’s very likely there will be a year 5 cliff if 15% year in year growth continues due to this? Target does not move in line with this expected growth.

      Also - I think stocks vest as a % of your stock amount not value. Example 5% of 80 stocks is 4 stocks not necessarily the value of 5% if your actual Grant.

      This stems from the fact that my year 4 price target assuming 15% year on year growth is $3147 per share - up from 2737 the year before. Because these would be 40% vest years it would mean a very large bump in TC.
      Sep 30, 2018