Amazon’s Compensation Plan

Amazon’s Compensation Plan

Amazon.com is an American online retailer employing more than 600,000 people worldwide. The company has attained tremendous success in e-commerce, AI, consumer electronics, cloud computing, and other technological inventions. Amazon started as an online book distribution firm. Then the founding CEO, Jeff Bezos, ventured into other lines of business, including video streaming, music, and audiobooks. The company has become the world-leading online vendor in the world and has set the trend in e-commerce.  Amazon’s portfolio includes more than forty subsidiaries, including Twitch, Zippos, Audible, and IMDb. The company attributes some of its success from its highly motivated and dedicated workforce. Amazon has managed to retain a team of highly competitive, satisfied, and devoted employees.

This research evaluates Amazon’s compensation plans and strategies to understand how it can be improved. Compensation plan refers to the complete package of employees, including essential elements like wages, salaries, commissions, bonuses, and other benefits. In the past, organizations based their compensation strategies on standardized design. However, organizations should strategically align reward programs to support the company’s goals. Current compensation plans reflect the business and cultural priorities of an organization. The essay investigates Amazon’s reward program and identifies its impact on the organization’s output. Amazon has a comprehensive compensation plan with base pay and numerous benefits designed to attract and retain the best talent in the market.

Existing Compensation Plan

Amazon has an attractive reward system allowing the organization to create job opportunities and value to employees. The comprehensive compensation mix includes the following elements.

Pay: The Company offers different levels of compensation based on the roles, experience, and geographical location. However, Amazon offers $15 as the minimum base an hour for either full-time or part-time workers. The policy applies to individuals hired by agencies and other seasonal entrepreneurs. Each job description includes an article indicating the starting pay for that position.

Benefits: Besides, Amazon’s reward system includes other benefits to full-time and regular employees and their eligible family members. The range of bonuses accessible to an individual employee and heir beneficiaries differs depending on their locations, duration of employment, and job status. Some of these benefits include a 401 (k) saving plan (50% match by the company), Paid time-off and overtime pay, discount on Amazon purchases (Ferracone par 6-9)). The company offers comprehensive healthcare upon employment. Amazon’s Ramp Back Program and Leave Share Program permit the sharing of paid leave with their spouses. Associates who reach one year after job are offered opportunities for innovative care choice program that involves paying 95%of fees on courses with high demand in the market. Other programs are designed to facilitate overall wellbeing and medical coverage.

Beneficial Ratio

The compensation system communicates the value and business goals of an organization to help align the reward system to performance. The pay strategy should promote fairness and equity. Internal equity occurs when an organization’s pay structure commensurate with the perceived value of the employee. It is a difficult concept to measure because it requires analysis of different market full of variations. Wage differentiation occurs due to at Amazon depending on location, and education or level of experience. Internal consistency requires an organization to pay wages commensurate with the relative value of an employee (Mehmood 64). The company achieves this through the Restructured Stock Unit (RSU) distributed to those who make value-creating achievements with prospects of long-term success.

Besides, Amazon’s attain external consistency by positioning its pay above-market rates paid through equity. Moreover, the reward system is characterized by below-market salaries and elimination of the bonuses, with exceptions on sign-on and new hires. Amazon provides employees with a flexible reward system, which allows the employees to take control of what they earn. Amazon’s compensation plan support the overall strategies and implementation tactics. It has inspired employees to innovate and invest relentlessly with the long-term focus of enhancing customer experience (JavadiKhasraghi and Mohammadi). Besides, it has helped the organization attract and retain talented individuals who have played a significant role in growing the company. Else, the company has paid tuitions to more than 16000 employees to pursue degrees and promote their professional development.

The analysis demonstrates that Amazon’s internal consistency represents the most effective compensation plan in the company. Reward systems should be used for performance management and in the process of value creation. Amazon’s compensation plan should emphasize on enhancing employee’s value by providing them with the necessary resources and support network.

The compensation strategy adopted by an organization provides an opportunity to recognize employees and reward them for their contributions. It is a strategic approach used to create motivation necessary to transform their habits, attitudes, and behavior. This is an essential HRM practice, which results in a range of benefits for both the employee and the organization. There are numerous types and variations of reward system implemented by various companies around the world. Amazon’s reward system has received the distinction from distinguished organizations. The company topped Linkedln and Harris Poll’s Corporate Reputation Survey list of most admired institutions. Besides, Fortune World ranked Amazon, the second company in its ratings. These factors demonstrate the relevancy of sourcing on internal consistency in designing compensation strategy. Amazon should focus on enhancing internal equity by promoting the system of pay for performance. However, the market has a substantial; influence on market outcomes. Hence, Amazon needs to reconsider its base pay policy to ensure market consistency.

Amazon’s Current Pay Structure

A pay structure refers to a framework that outlines an individual pay on a job role contingency upon their contribution and value to facilitate organizational effectiveness. The organization adopts different approaches to differentiate pay among employees. An organization pay structures list all the elements of compensation included in the reward mix. Amazon has a comprehensive pay program based on the policy of pay for performance. The strategy allows the organization to implement its value-based compensation strategy aimed at facilitating value-creation. There are numerous positions, which have different requirements, risks, and responsibilities (Mehmood 66). Amazon’s pay structure reflects the internal diversity and intention to attain internal equality.

An analysis of Amazon’s pay structure indicates that it has three standards elements. The first element of pay is the base salary, which differs and refers to the predictable and stable aspects of the total package.  Amazon offers below-market rates to employees and cap base salary to the $165-$175K range depending on ones’ geographical location and job description. A sign-on bonus represents the second element of Amazon’s pay structure. These elements play an intermediary before an individual attain equity compensation. The final component of the firm’s pay structure is Equity (RSU). The unique equity compensation plan creates interest for employees (Cesário and Chambel 154). The RSU shares are provided on a layering basis, usually takes a more extended vesting period to grand equity. The system applies to all the employees and aligns the compensation management plan up and down the organization.

Recommendations for Improving the Effectiveness

Amazon has one of the most attractive compensation plans according to rating by different organizations in the world. The organization has an opportunity to attract the best talent to facilitate the promotion of value-creation and enhancing the competitiveness of an organization. Employees are invited by an organization that offers higher salaries, opportunities for higher earning, and avenues for personal and professional development. Amazon’s pay structure reveals that the company provides on low-market base salary. Employees are expected to earn higher income through sign-on bonuses and RSUs. Therefore, the company should increase its base pay to attract employees who are pessimistic and not specific on the bonus and equality plans.

Besides, Amazon’s pay structure includes three factors used to calculate the total pay. Sign-on on new customer represent a regular source of additional revenue. However, RSUs have a more extended vesting period, which makes it difficult for new employees to observe instant benefits. Therefore, Amazon should introduce commissions on sales as a strategy to diversify sources of extra income to complement the base salary. Other alternatives include annual profit bonuses and group incentives to recognize teams’ contributions.

Employer-Sponsored Retirement Plans and Health Insurance Programs

Amazon offers a comprehensive healthcare plan for its employees. The company has a medical policy that provides employees with a range of options that is suitable for their circumstances. The program consists of a Health Saving Account based on employee-employer constructions. The company allows associates to receive coverage from a network of other providers. The medical package includes dental and vision care. Besides, the associates have access to the company’s 24/7 medical advice line for consultation with nurses at a small fee. A doctor may also carry out diagnosis and recommend some prescription in emergency cases. Other benefits available include free employee assistance programs, financial counseling, and online support resources to parents struggling with persons with disabilities and paid-in disability. Amazon has a differentiated compensation plan, which allows the company to address diversity and achieve equality.

Besides, a strategic compensation plan should include retirement plans for employees. Amazon uses the 401 (k) plan with a 50% contribution match to facilitate the retirement plans for employees. This is a government-defined plan, which involves contributions into a 401 (K) account through automatic deductions. These contributions are not taxed until they are due for withdrawal.  The company has its paid basic life and accident death & dismemberment insurance scheme. The company’s retirements and welfare strategy help employees to achieve an appropriate life-work balance by enhancing their experiences.

Conclusions

Amazon’s compensation plan represents strategic tools that facilitate value creation and promote profitability in the organization. An evaluation of its pay structure demonstrates that the Amazon reward mix consists of three-element, namely base [pay, sign-on bonus, and RSUs. The company offers above-market total compensation, although it is mostly derived from the sign-on and equity option. Amazon’s below-market base salary represents the most unattractive feature of the compensation mix. Therefore, the organization should increase the level of base layers to attract the best talent in the firm. Besides, the success of the strategy depends on the performance of the stock. Therefore, the organization should introduce other avenues to complement employees’ total pay, including the use of commissions and annual loyalty bonus schemes.