Insights into Amazon’s Compensation Philosophy & Salary Negotiation Tactics

Learn how to get the best possible offer from Amazon.

June 2, 2022
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Amazon has a one of a kind remuneration approach that sets them apart from other FAANG companies. You’ll need to have a thorough understanding of how Amazon structures compensation when it comes time to evaluate your offer.

Wondering what your compensation will look like as an employee at Amazon? We sat down with one of our top coaches and former Amazon recruiters, Shelli (view her profile on Carrus), to share insights on what to expect and tips for offer negotiation.

Amazon’s salary model, deconstructed:

Amazon has a salary structure that is based on a four-year model. This model has remained pretty consistent over the years and includes a mix of guaranteed cash and stock to incentivize employees. There are three main components:

  1. Base Salary
  2. Annual Payout
  3. Restricted Stock Units (“RSUs”) that vest over a four year period

The first two years you work at Amazon, you’ll receive payouts (formerly known as “bonuses”) and then after year two, you’ll stop receiving payouts and instead receive an increase in RSUs.

An RSU is compensation offered by an employer to an employee in the form of company stock. The employee doesn’t receive the stock immediately, but rather at the end of a predetermined length of time (vesting period). The RSU payout system at Amazon is another unique factor of their compensation structure. Stocks or equity is most commonly paid out in equal portions over a 4 year period.

The model at Amazon looks like this:

  • Year 1: Base Salary + Payout + 5% RSU
  • Year 2: Base Salary + Payout + 15% RSU
  • Year 3: Base Salary + 40% RSU
  • Year 4: Base Salary + 40% RSU

By employing this payout structure, Amazon incentivizes the top talent they carefully selected during their rigorous hiring process to stay with the company longer. In fact, many of Amazon’s skill development, promotion and compensation strategies aim at keeping outstanding employees once they’ve been hired. 

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Levels

Every role at Amazon is categorized into compensation levels, which all have a salary range associated with them. There are 12 levels at Amazon. Full-time workers who are entering the workforce start at Level 4 with a salary range of $50,000-$70,000 per year. The highest level (other than Jeff Bezos, who is the sole Level 12) is Level 11 for senior VPs with compensation above $1 million.

They base the level of role you’re considered for on two factors: years of experience and interview performance.

Amazon equates years of experience with each level as follows:

  • Level 4: 1-3 Years of Experience
  • Level 5: 3-10 Years of Experience
  • Level 6: 8-10+ Years of Experience
  • Level 7: 10 + Years of Experience. Although at this level, Amazon prefers to promote from within and will rarely hire external talent.

Even though the tiered levels indicate differences in total compensation, Amazon has a base salary ceiling of $160,000 no matter what level an employee is at. What that means is that Amazon prioritizes granting RSUs to employees which has been a positive incentive given that Amazon stocks have never gone down (knock on wood).

What that also means is that a candidate who is currently making $220,000 as a base salary will likely require a mindset shift to consider the $160,000 base salary ceiling. Even though a candidate might feel they are getting a salary cut, the total compensation will be fairly reflective of the role. And, candidates who are making less than $160,000 should be careful about attempting to push beyond this point.

By the way, there’s a great website called levels.fyi where you can see the salary ranges per level and even cross-compare levels at different companies. Here’s an example of Amazon levels for Product Manager in comparison to the levels at Google and Facebook:

What does the compensation at Amazon look like with numbers?

Here’s an example of a hypothetical offer to help you get a sense of the numbers: (with Amazon stock price at $1,000/share, 100 RSUs being equal to $100,000 over four years):

  • Year 1: $120k base + $40k Sign on Bonus + 5% RSUs (5K) = $165k
  • Year 2: $120k base + $40k Sign on Bonus + 15% RSUs (15K) = $175k
  • Year 3: $120k base + 40% RSUs (40K) = $160K
  • Year 4: $120k base + 40% RSUs (40K) = $160K

You might have noticed that in this model, total compensation is down after year 2. This is unlikely to happen in a real-case scenario because stock prices are assumed to go up over time.

“Don’t worry about the stock going down. If for whatever reason it does, Amazon will make sure that your salary is fine.” Shelli reassures us. Also, keep in mind that in this example, an employee could receive a raise on their base salary over time.

Amazon has its own “Compensation Philosophy”

Here are the key elements of Amazon’s compensation philosophy:

1. They always give employees fair compensation according to their role, level, and situation.

“Amazon will always pay you fairly for the job you’re going to do. They don’t have a philosophy to get someone as cheap as they can. Nor is it to overpay, neither!” says Shelli.

2. Amazon likes to think “big picture”. Employees are considered part-owners of the company and they want you to think about what your total compensation is projected to be at the end of 4 years.

“During the first 2 years, you are learning how to do your job so the sign-on payments help keep your salary whole. Part of the philosophy is that people are part owner of the company. They give you a picture of where you can be in 4 years and they incentivise you.” comments Shelli.

3. They don’t want to lose out on hiring a great talent because of money.

4. Most hiring managers or recruiters are trained to start base salaries at the middle of the range for a candidate’s role and level. While the base salary can be negotiated up or down, the total compensation must remain the same. So keep in mind that if you aim to increase your base, something else will have to come down.

Here are a couple of sample scenarios of when you’d want to negotiate your compensation

A candidate who will relocate to another location with their family might request a higher sign-on payment to cover immediate moving costs, and lower the initial RSU they receive. A candidate who was supposed to receive stock compensation from their current company but won’t be able to receive it if they transfer to Amazon before the stock vests can negotiate a payout.

“You don’t always get the full amount and it’s a moving target in almost every scenario. Sometimes it depends on the team itself and whether they have it in their budget. But it’s never been declined, not even once. Amazon is not willing to lose a great candidate over money.” says Shelli.

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What to be careful of when it comes to salary negotiation

Given that the compensation structure has been well-developed with fairness in mind, you might be wondering if there are any negotiation tactics that could compromise how valuable you appear to the company.

The only scenario in which negotiation can be challenging is when candidates don’t look at the big picture total compensation and only focus on the base salary. Sometimes, candidates – especially junior candidates – wind up comparing their base salary with what their friends are making or what companies are paying for similar roles in other companies, and this can cause them to emotionally over-negotiate their base. Shelli shares,

“What are your long term goals? Keep in mind that your future boss is going to see your compensation structure, and be mindful of the impression you are leaving.”

Tactics aside, there’s one more thing to look out for: while most hiring managers and recruiters are trained to start base salaries at midpoint, that doesn’t mean that all of them follow this protocol. Be sure to check that the person you are corresponding with on salary negotiation has not started your salary below midpoint.

“If you’re working with a recruiter, then the more you discuss compensation beforehand, the better. Be on the same page. Don’t wait till the end of the hiring process to have this conversation,” says Shelli.

If there’s one thing that’s clear about compensation at Amazon, it’s this: you’ll get compensated fairly and the company values hearing the views of the talent they know will be great contributors to the company.

Ready to prepare yourself for the hiring process at Amazon? Come check out our Amazon Coaching Program and schedule a call with our ex-Amazon coaches!

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