Amazon’s New Higher Minimum Wage Has Big Tradeoffs–and Some Employees Aren’t Happy
‘These are not purely altruistic decisions on the part of Amazon,’ says one Labor economist.
PHOTO CREDIT: Getty Images
The Seattle-based e-commerce giant announced in a post Tuesday that it would increase its minimum wage to $15 for its U.S. workforce starting on November 1, just in time for the holidays. The raise will benefit more than 350,000 workers according to Amazon, which includes full-time, part-time, temporary, and seasonal employees. It follows several months of intense scrutiny over the company's pay policies for its warehouse workers--some of whom have been found to rely on food stamps to make ends meet--with Vermont Senator Bernie Sanders among its most vocal critics. Last month, Sanders introduced a bill that would tax companies with employees on benefits programs. He dubbed it the "Stop BEZOS" Act, a not-so-veiled jab at the Amazon founder, Jeff Bezos.
"We listened to our critics, thought hard about what we wanted to do, and decided we want to lead," Bezos said in a statement. "We're excited about this change and encourage our competitors and other large employers to join us."
The wage increase comes with trade offs, however. On November 1, Amazon will phase out its restricted stock units (RSU) program and variable compensation pay (VCP). The RSU program granted a small number of shares to employees every year, which would vest after two years, and VCP allowed workers to earn extra money if they met certain performance metrics. Now the company is replacing its RSU program with a so-called direct stock purchase plan that will allow employees with shares set to vest in the next two years to buy them outright before the end of 2019.
"The net effect of this change and the new higher cash compensation is significantly more total compensation for employees, without any vesting requirements, and with more predictability," the company said in a statement.
Workers on an employee Facebook group page have been hotly debating the changes ever since the announcement, particularly about the impact of eliminating VCP. One worker noted, "I got almost $600 for the peak months just alone for vcp, the rest of the months is about $200." Another one said: "It's kinda bogus to say 'hey here's [a] 15 nation wide [raise] across the board but I'm tak[ing] XYZ,' that's where the rub is."
Meanwhile, the move has been lauded as a step toward improving worker pay--and maybe it is. However, the real motivations are likely far more practical, says Mark Price, Labor economist for the Keystone Research Center. "These are not purely altruistic decisions on the part of Amazon," he says. "They are in the run-up in terms of staffing right now, they are gearing up for the holiday season. This is a very well planned announcement," Price adds, noting that lower-wage labor markets typically have high turnover rates, which means companies like Amazon need a constant flow of candidates. With this announcement, Amazon is likely to become top of mind for potential new applicants, says Price.
It is also why Price believes many Amazon employees, on balance, won't be that put off by the compensation changes. Also, being able to access benefits like vested shares requires a worker to stay with the company for an extended period of time, which many seasonal workers don't do. "It's not realistic," he adds.
So in the end, if you're competing for the same workers as Amazon, you may want to look at your workflow and figure out if you can streamline processes to cut costs, Price says. Then use those savings to boost employee pay. Or if you can't afford upping the base salary, try to think of what other benefits you could offer that would make your proposal more appealing.
"This is the kind of news that makes people think about their own paychecks," says Price. "When they do, you need to have good answers available as to what you might be able to do for them."