Incentivizing the Downsized at Amazon

Incentivizing the Downsized at Amazon

Incentivizing the Downsized at Amazon

Moneybox
Commentary about business and finance.
Jan. 31 2001 9:00 PM

Incentivizing the Downsized at Amazon

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Generally speaking, there's no good reason for someone who has just been laid off to root for the future good fortune of his or her ex-employer. Instead, a typical response might be to complain that the newly axed have been "sacrificed for Wall Street," as one employee of Amazon.com said in response to that company's decision to cut about 15 percent of its work force. After all, everyone knows that layoffs often help lead to an improved stock price.

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So maybe the most interesting thing about Amazon's layoff strategy is its less widely noted plan  to create a "trust fund" of about $2.5 million in stock on behalf of the 1,300 it has downsized. (The laid-off will also reportedly get 12 weeks of severance pay.) The thinking is that those who are being sacrificed in the effort to mold Amazon into a shape that will redeem its business model (and thus its stock price) will at least kind of, sort of get to be among the beneficiaries of that sacrifice at the same time—they will "share in the fruits" of Amazon's future success, as CEO Jeff Bezos put it.

The fund will be distributed in 2003, and the better the shape AMZN is in by then, the bigger the payoff for the layoff victims. So if, for instance, the stock doubles, that payoff would be around $4,000. Would that be enough to make you cheer on the company that fired you?

Anyway, there's been some surprise at this scheme, which does not seem to have an obvious precedent. But similar notions have been bandied about in theory for years, and I'm actually surprised that it has taken this long for the idea to become a reality. As it happens, the bulk of the announced Amazon layoffs are in Seattle, where there have been some attempts at building support for high-tech unions, and whether or not that played into Amazon's thinking, it's a useful bit of context. In the end, the notion of cutting the downsized in on the action seems like an inevitable step in the evolution of shareholder culture.

The conventional wisdom, remember, is that publicly traded firms aren't servants of Wall Street anymore, they answer to Main Street: Employees, management, Wall Street, and now even the unemployed—we're all on the same side, all bound together in the common love, the common bond, of common stock. Or at least, that's the idea.