Compensation Strategy for Amazon
Introduction
Compensation entails different forms of financial returns, tangible services, and benefits that organizations offer to personnel as part of the employment relationship. High technology corporation experience a high cost of retaining and recruiting human resources because of the rapid advancement in technology. Such firms are required to train their human resources regularly to equip them with knowledge of current technologies. Effective compensation models are essential to such companies’ bottom lines. Additionally, the best practices are predominantly based on performance priorities that inspire key players. Every technology-based enterprise adapts a strategy for designing compensation plans that assist in understanding employees’ needs, business objectives, and the organization’s environment. For example, an organization with aggressive performance objectives adhere to specific motivation-based compensation plans, while another may choose to implement a comprehensive recompense system. Amazon is an online store that uses different compensation strategies to in its day to day running.
Amazon’s Background
It is an Americ-based online business organization that has become an icon of the Internet industry (Ignat & Maha, 2012). The enterprise was founded by Jeff Bezos in 1994, who launched it as an online bookstore in 1995. Apart from electronic products, the corporate image of Amazon quickly became symbolic as it began to sell other products and services. Undoubtedly, its image has a far-reaching impact in the online retailing world. The amazon.com site is well-designed and has become a point of reference for individuals who want to sell goods online. However, the organization has encountered several challenges. For instance, in 2001, it experienced a financial loss, and it ended up firing over 1000 employees. The experience motivated Bezos to develop the idea of collaborating with other retailers through selling their products via the website. Therefore, through the collaboration and diligence and willpower, Bezos managed to transform the online bookstore into the internationally renowned online store that it is today. Amazon is the largest Internet retailing organization globally, which sells books and electronics to buyers from all over the world. The company is also known for selling its items at lower prices, and it is highly determined to ensure that its customers’ needs are met. The corporation considers itself a fully customer-centric organization, describing itself as “customer-obsessed.” The company believes that for it to succeed, customers’ needs must supersede everything else.
Employees are the greatest assets of all organizations (Aslam, Ghaffar, Talha & Musthaq, 2015). The goal of every firm is to have outstanding workers in terms of productivity, loyalty, and dedication among other qualities. Hence, the effectiveness of workers is reflected in an organizations’ performance level, as those with the best talents tend to yield a higher output compared to those with inexperienced personnel. All workers desire to work in organizations that value their efforts and appreciate them. Therefore, employee motivation plays a major role in retaining the best talent. Indeed, the mentioned form of exchange is exemplified in a common expression of giving and take. Increased demand for competent workers has made enterprises to develop effective compensation models. Managers must be continually cautious with their compensation plans because they are critical in retaining their personnel. In relation to human resource compensation, the managers remunerate employees as stated in their employment pact. Payment encompasses both direct and indirect financial compensation. Organizations’ compensation managers are responsible for examining, instituting, and upholding their pay system. In undertaking this significant responsibility, the compensation managers explore and comprehend the existing and imminent competitive markets for employee pay and benefits. Moreover, organization managers ensure that pay rates are reasonable and impartial to attract and retain employees.
The Amazon organization compensates its employees based on their positions. Its compensation plan is composed of a basic salary and Restricted Stock Units (RSU). Amazon’s RSU future rate is calculated at the current market rate with a yearly percentage increase. A new employee is entitled to receive one RSU with a slight percentage increase at the end of one year. Towards the end of every year, the employees’ compensation is determined by the total recompense against salary and new projections for RSU value. Employees with outstanding performances are guaranteed additional compensation. When there is a minimal decrease or increase in stock, the corporation offers RSUs to enable it to meet the needs of employees even in challenging times. Cash compensation Amazon organization entails several components with the first being base wage. Base wage entails the cash compensation that Amazon pays the work being undertaken. The second form involves periodic variations that take form of merit pay increases or cost-of-living modifications. Merit pay is offered as an increase to the basic base pay as an acknowledgement to a previous conduct. The third element involves incentives provided as a stimulus to enhance effective performance. At Amazon, the incentives are provided to the employees if the performance objectives are attained.
Performance appraisal at Amazon entails a process of evaluating employees’ competency by equating their present performance with the previous conventional standards (Daoanis, 2012). The evaluations in the organization provide feedback to employees about their performance level with an objective of enhancing their skills to meet the organization’s standards. The main goal of a performance assessment at Amazon is aimed at ascertaining the employees’ performance and determine those that need to be trained and the ones that should be promoted. Employees whose performance is deficient with no signs of improvement are dismissed from the organization. Productivity usually determines workers’ performance. Amazon was among the initial organizations that reviewed their performance evaluation process. Successful performance appraisal at Amazon ensured that employees know the organization’s feeling towards their performance, and then letting a collaborating discussion on the employee’s evaluation of the job performance and what can be done to enhance performance. The organization enhances performance assessment in order to have employees improve productivity and confidence through effective interviews.
Consequently, it eradicated mass ranking and adjusted its compensation process to focus on the managers highly. The corporation has continued to make several changes to reflect the mutating nature of human resource management. Amazon’s employee evaluation approach aims at focusing on personnel’s strengths and not weaknesses. The organization’s main objective is to build on the program plan that is centered on what is learned from the employees.
In 2015, aNew York Times article highly criticized the Amazon’s performance management process. The critics mainly focused on the organization’s convenient feedback tool that allowed workers to send approval and denigration information about their colleagues to their managers in incognito. Amazon’s managers reacted to the criticisms by incorporating several changes to address the issues that were raised in the article. These were the first major transformations to performance management that the firm implemented. The alterations were a significant step towards promoting the growth of talent. Currently, the company applies employee ratings centered on a stack-rank system. Besides the media, the new strategy has also attracted reproach and internal complaints. The new review process’ major challenge was the organization’s culture, as employees were used to the popular tradition. Amazon’s conventional performance evaluation process was a mirror of its CEO’s thorough ideals for the organization. Bezos had hope in his managers and entrusted them with raising the performance bar. The managers established measures to ensure that only competent employees were hired and promoted.
The employees’ classification strategy is designed to trigger performance through competition. The personnel whose performance is low are trained and guided in ways on improving their competency. Such employees are assigned mentors who guide them and monitor their performance. Undoubtedly, an organization should be ready to invest in its human resources to enable it to improve its productivity (Patricia & Emilia, 2013). However, with the current employees who are highly knowledgeable and creative, enterprises need to realize that business goals are driven by impact and not primary productivity. Teamwork has begun to prevail over performance. Therefore, organizations need to train their workforce on competency rather than sacking them. Amazon’s employee appraisal reflects this new certainty. All organizations, regardless of their sizes, require a performance evaluation that develops personnel. It has been Amazon’s main goal. An example of performance interview at Amazon entails the data-driven strategy through Organization Level Reviews. The approach allows high and low performers presented to the board of managers to know their bonus and firing decisions respectively.
Conclusion
All organizations need to understand their mission and develop a policy and structure for accomplishing its objectives and goals. High levels of performance on the part of human capital are essential in ensuring that a corporation attracts, maintains, and inspires employees who play a major role in attaining organizational goals. Employee appraisal is the only way that determines what fits the employee in terms of compensation and other benefits, for instance, promotion or dismissal. Moreover, ensuring an equal compensation for employees does not only satisfy employees but also enhance attainment its mission. The compensation program and policy utilization must be effective to ensure the organization’s major decisions are implemented. Workers’ compensation and evaluation must be fair to reflect the needs of personnel. Several options are open if an organization considers paying for performance if it fits the company’s framework and offers more benefits than the shortcomings. Amazon made the right decision in meeting the needs of employees and encouraging teamwork. However, personal performance through appraisal is also important as it helps in evaluating workers at a personal level to doing away with those who are unfit.
References
Aslam, A., Ghaffar, A., Talha, T., & Musthaq, H. (2015). Impact of compensation and reward system on the performance of an organization: An empirical study on banking sector of Pakistan. European Journal of Business and Social Sciences, 4(8).
Daoanis, L. E. (2012). Performance Appraisal System: It’s Implication to Employee Performance. International Journal of Economics and Management Sciences, 2(3), 55-62.
Ignat, I., & Maha, L. G. (2012). E-Commerce across the United States of America: Amazon. com. Economy Transdisciplinarity Cognition, 15(1), 252.
Patricia, R., & Leonina-Emilia, S. (2013). Performance improvement strategies used by managers in the private sector. Annals of the University of Oradea, Economic Science Series, 22(1), 1613-1624.