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Amazon faces recruitment, retention challenges as labor competition grows

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Amazon faces recruitment, retention challenges as labor competition grows

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Supporters of Amazon workers attempting to win a second union election at the LDJ5 Amazon Sort Center rallied in support of the union in April 2022.
Source: Andrew Lichtenstein/Corbis via Getty Images

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This article is part of a series examining the shifting dynamic between workers and employers in the post-pandemic world. Click on the links below for the other articles in the series as they are published.

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Declining labor participation rate threatens long-term growth of US economy

Tight labor market draws in teenagers after decades of declines

Future of the office in doubt as workers hesitate to return

Skills shortage imperils global energy transition

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Amazon.com Inc. is doubling down on efforts to attract and retain employees as it faces growing competition for workers amid wage inflation, labor backlash and other constraints.

Analysts and labor experts say Amazon's ability to retain its leading position in the e-commerce and cloud markets depends on the company's ability to recruit and retain skilled workers, including for high-demand tech roles such as those in software engineering. The company is facing pressure to revamp its corporate culture and compensation practices in a tight labor market.

Amazon has a reputation for burning employees out, both in its corporate offices and in its warehouses. Some former employees and analysts also say the company's compensation packages historically made it a less attractive employer than rivals, particularly those in tech.

"They don't care about retention it seems; it's just about attraction and turnover," said Marcela Pinilla, director of sustainable investing for Boston-based Zevin Asset Management, an investor in Amazon. "They should be thinking more about the long term."

In response, an Amazon spokesperson pointed to recent efforts to boost pay and benefits for employees in various roles and locations.

"We know that our employees and candidates have choices as to where they work, and we regularly review our compensation and benefits to ensure that our offerings are competitive," Amazon spokesperson Bailey Sargent said in an emailed statement to S&P Global Market Intelligence.

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Money talks

Amazon is far from the only U.S. business facing hiring and retention challenges.

In 451 Research's "Voice of the Customer: Macroeconomic Outlook, Business Trends, ESG 2022" survey, conducted from May to June this year, 69% of respondents cited high competition for workers as the main reason their organizations experienced difficulty hiring and rehiring employees. The survey showed that 41% of respondents indicated applicants lacked necessary skills, while 30% said pay and benefits issues were a problem.

U.S. wages and salaries for private sector workers increased 5.7% for the 12-month period ended in June 2022, according to the latest data from the U.S. Bureau of Labor Statistics. The cost of benefits to private sector employers similarly increased 5.3%.

Pandemic-related stimulus benefits and the rise of remote work led many U.S. workers to rethink their jobs and overall lives, said Joshua Freeman, labor expert and professor emeritus of history at Queens College and the Graduate Center of the City University of New York. White-collar workers debated whether they had to go back to the office, while blue-collar workers who were declared essential during the pandemic launched unionization efforts.

Amazon has joined other U.S. employers in boosting base salaries, bonuses and other perks. And its recent compensation changes are getting noticed.

Amazon is undergoing a significant change in its approach to rewarding employees, including increased salaries and cash bonuses, said Mark Shmulik, a managing director with AB Bernstein, whose U.S. internet coverage includes Amazon.

"If you're a talented engineer who wants to work in that industry of hyperscale cloud, there's options and a lot of them are incredibly well-paying," Shmulik said. "We've seen a change and a recognition [by Amazon] to say 'we've got to compensate those people.'"

Among recent steps is boosting base pay to represent a larger part of the total pay package for corporate and tech employees.

Hiking the base

A former Amazon corporate employee who did not want to be identified because they feared negative career repercussions joined the company in 2017 with a base salary of $160,000 and total compensation tied to the value of Amazon's stock. When the stock price fell from a high of more than $3,000 per share, the employee recalled talking to a manager about making up the difference. That manager said there was nothing he could do.

"He didn't see a drop in the stock price as a pay cut, but that's exactly what it is when nearly half of your salary is stock-based," the former employee said.

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An Amazon employee assembling a mobile drive unit in a manufacturing facility near Boston.
Source: Amazon

According to Amazon, for most roles, the new-hire package transitions over time from one that is more heavily weighted in cash to one that has more restricted stock units by year three and beyond.

Amazon recently more than doubled the maximum base pay for many of its corporate employees. The company spokesperson did not provide exact figures regarding salaries, but Geekwire reported in February that Amazon hiked the maximum annual base pay for corporate and tech employees to $350,000 from $160,000.

Competitive pressures have also led Amazon to work on efforts to keep its lower-wage workers and drivers "happy, or at least keep them content," Shmulik said.

Amazon's starting average hourly wage is now more than $18 per hour, and it may go up to $28 per hour in some locations, said company spokesperson Sargent. Duties for an Amazon warehouse worker include scanning, sorting and stacking packages.

Benefits for all regular full-time employees include up to 20 weeks of paid leave, 401(k) company matching, free career advancement training and free mental health services, Sargent said. Amazon also offers flexible work schedule options that allow workers to swap shifts on short notice. The company directly employed 1.1 million full- and part-time U.S. workers as of the fourth quarter of 2021, according to figures posted on a company website.

'Relentless' culture

Increased pay, however, only goes so far to improve retention if employees feel overworked.

"The workload was overwhelming and no matter how hard you worked, it was never enough," the former corporate Amazon employee told Market Intelligence. "My stress levels were through the roof and I never felt appreciated."

The former employee said they left Amazon earlier this year for another company that offered "significantly more" money and required fewer work hours.

Patrick McGah, who worked as a research scientist for Amazon's Prime Air unit starting in 2019, said his base salary was $157,000, along with $120,000 in stock awards spread out over four years. McGah was satisfied with his compensation, but he was unhappy with the company's expected workload. Managers set expectations that required McGah and other employees to work as late as midnight or 2 a.m., he said.

"People just got burnt out," McGah said.

McGah said it was an unwritten rule that he would have to work well over 40 hours a week to be successful in his job.

While the work was "technically interesting" and his colleagues were competent, the volume of work became unsustainable during the pandemic, especially with elementary school-aged children at home during lockdowns, McGah said. He was eventually put on a performance improvement plan in March 2021 and left the company a few days later.

Another former employee who left the company during the pandemic described the culture at Amazon as "absolutely relentless" and difficult for members of dual-income families to sustain. Sarah Schnierer, a former Amazon manager who was part of the company's last mile team, said she regularly worked 60 hours per week but had to cut back due to pandemic-related disruptions with daycare for her two young children.

"People like me don't really make it there," said Schnierer, who left the company nine months ago. "They don't incentivize retention."

Amazon spokesperson Sargent said the company offers a wide variety of jobs that may appeal to people with varying personal needs.

"We provide our employees with as much flexibility as possible to help them manage their work and personal commitments," Sargent said.

War for talent

Given the growth in the overall cloud services market, hiring has become a "huge war for talent" among tech companies, Bernstein's Shmulik said.

Amazon Web Services Inc. has been hiring at a faster pace than Microsoft Corp.'s Azure and Alphabet Inc.'s Google Cloud businesses, with 24,460 job openings for AWS as of mid-September, said Jean Atelsek, a senior analyst on 451's cloud transformation team. By contrast, Microsoft Azure had 2,058 openings and Google Cloud had 1,004 as of mid-September, Atelsek said.

Microsoft and Google recently announced plans to slow down hiring, but AWS wants to keep its "innovation engine going" by hiring hundreds of new employees to roll out new cloud services, which requires a lot of time and talent, Atelsek said.

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The challenges of retaining that talent are reflected in an uptick in recent efforts by Amazon employees to form unions. Amazon Labor Union, the first-ever Amazon union in the U.S., was formed this spring by warehouse workers in New York. The effort followed an unsuccessful union drive for Amazon warehouse workers in Alabama last year.

The COVID-19 era challenged people's assumptions "that the way things were, were the way things had to be," Freeman said. "The urgency of having a job at every moment has been reduced. How long that will last is unclear."

451 Research is part of S&P Global Market Intelligence.