Recently, the New York Times sparked a lot of conversation and debate about the intense nature of startup culture when they ran a story about Amazon.com and their corporate environment. The piece highlighted commentary from interviews with current and former employees of the Seattle ecommerce giant, and the picture the Times painted was widely viewed as less than favorable.
Immediately afterward, discussions and reactions from the general public, as well as still more current and former Amazon staffers, ranged from supporting the theme of the Times article to roundly refuting it. Jeff Bezos spoke out publicly against the characterization of Amazon’s culture as an uncaring one, and his email to current employees was circulated in media outlets nationwide. Commentary by Amazon insiders on LinkedIn continued the conversation, and for the most part, these editorials and their subsequent follow-ups and comment threads focused on issues like work-life balance and the disparity in its meaning among leading technology firms.
What drew less attention was the compensation offered to white-collar workers, and particularly those in senior or managerial positions, by Amazon. Many current and former Amazonians made reference to staying with the company for at least several years, regardless of their attitude towards or opinion of the company, due to the nature of the non-salary compensation they would receive in return. The Times cited an example: mid-level managers could earn the equivalent of a second salary from grants of stock – a stock that, as the Times pointed out, has seen more than a tenfold increase since 2008.
Grants of stock are conditional; employees can retain shares only after a vesting period. For instance, if an employer grants an employee fifty shares of company stock vested over three years, the employee must remain at their employer for three years before being able to retain the stock. This approach gives the employer the benefit of incentivizing their key players to remain in their employ for at least the period of time until they become vested. To employees, grants of stock can offer advantages over options, which must be exercised, and which do not necessarily offer intrinsic value.
While Amazon stock has seen generous appreciation, the Amazonians interviewed by the Times are describing a classic concentrated position. A concentrated position occurs when an individual’s wealth is largely tied up in holdings of a single stock or other security type. Regardless of the performance of your employer and their stock, having a concentrated position is not a recommended strategy for building and maintaining long-term wealth. Diversified portfolios can offer greater ability to minimize risk, and they encourage a rational, emotion-free approach to investment that is central to planning for a healthy financial future.
In addition, since senior employees and those with longer tenures at a firm are likely to have a fundamental belief in the strength of their company and its outlook for the future, it can be easy for these employees to believe that their holdings are safer than others. Although believing in your employer is a key component of a successful career, having such an emotional connection to your investments can complicate the process of rationally planning for your future, your retirement, and your family.
BFA Wealth Management encourages a diversified approach to portfolio management, and we focus intently on helping our clients move away from risk by methodically stepping away from concentrated positions. This approach, and our experience in handling compensation packages in high-growth industries, makes us a great financial partner for employees of companies who reward their critical staff with stock options and / or grants. We see this methodology in place time and time again in sectors like technology, defense, healthcare, energy, and biotech, where retaining top talent is vital to building and growing a successful business.
If you find yourself in a similar position, BFA Wealth Management is here to help. Our collaborative, interactive approach to financial planning is designed to offer you the tools and information you need to make a sound plan for your future, and our emphasis on knowledge and personal relationships means you can always turn to us whenever you have a question about anything that might affect your financial health. No matter what your portfolio looks like now, together we can make a plan that incorporates a risk level you are comfortable with, letting you concentrate on your career, your family, and the rest of your life. Contact BFA Wealth Management today to learn more or get started. Let’s talk.