Amazing Amazon.com
Many Sacrifice Real Desks For Stock Options
Adapted from Rewards That Drive High Performance: Success Stories from Leading Organizations, by Thomas B. Wilson, which will be published this spring by AMACOM and ACA. Amazon.com is a Wilson Group client.
When Jeff Bezos decided to take advantage of the Internet's rapid growth, he recognized that he needed to create a business unlike any that existed off line. So he created a bookstore with 3 million titles.
His business, Amazon.com, is the most successful example of electronic commerce yet, having grown from sales of $511,000 in 1995 to $147.8 million in 1997. Revenues in the first quarter of 1998 were $87.4 million - a 446% increase over the previous year.
At age 33, Bezos has a net worth exceeding $1 billion, but, reflecting the intense competition and low margins of the book retailing business, the culture at Amazon is frugal. Even the top executives use desks made of recycled doors, while milk crates serve as filing cabinets. This Spartan approach frees capital for expansion.
Bezos does not want a culture at Amazon that will appeal to everyone. He seeks to attract only those who share his passion - transforming the way in which people buy products over the Internet.
Along with spectacular revenue growth has come a rapid expansion of the employee population, from 150 at the end of 1996 to almost 900 in mid-1998. What has remained constant, however, is the quality of people the company hires.
Hiring the Best for Less
A Princeton graduate, Bezos seeks to hire the best and brightest, and to keep them motivated - while paying wages that are below market at the upper levels. Why would the top candidates, who can find jobs practically anywhere these days, take a job at relatively low pay at a company where the offices are austere, the benefits are meager and the perquisites are practically nonexistent?
The answer: stock options. Amazon.com went public in May 1997 at an initial public offering price of $18 per share. Slightly more than a year later, the stock had climbed to more than $90 a share. An amazing increase in itself, but double it to $180 to adjust for the stock split that took place in 1998.
Bezos believes all employees should retain some level of ownership in the organization. The $18,000-a-year warehouse workers have benefited from paper gains exceeding $50,000, while the top executives experienced gains worth six or seven figures. So who's going to complain about having to use a door for a desk?
While making the most of available capital and positioning his company for continued rapid growth, Bezos is also ensuring that he will attract the type of employee who shares his long-term perspective. His employees are young, bright, forward thinking and ambitious. His approach also screens out potential employees who are averse to risk and who do not share his entrepreneurial spirit.
Amazon.com's approach is not without its challenges, however. Given the company's explosive growth, there is a danger of stock option dilution. Benefit strategies will have to be reviewed, and pressure on salaries will increase.
However, Bezos' long-term view extends to his reward systems. Amazon.com is already exploring what changes will be needed to adjust its reward systems to changing market conditions.
