The Advisors' Blog

Those familiar with Amazon’s executive compensation may not be surprised by this, but, having forgotten about the simplicity of the program, this took me by surprise initially when I saw an Equilar blog with sample PVP disclosures and commentary from the team at Equity Methods. Here’s an excerpt:

Finally, Amazon’s disclosure is a good example of a non-smaller reporting company (SRC) that does not have a company-selected measure (CSM). Remember, the CSM is the most important financial metric that explains changes in CAP. A CSM is required except if there is not a metric that meets the criteria.

Amazon’s proxy includes the following explanation in its PVP disclosure:

Consistent with SEC guidance, no additional performance measures are shown because, as discussed in the Compensation Discussion and Analysis, the Company does not use any financial performance measures to link executive compensation to company performance since our executives’ compensation is tied directly to the creation of shareholder value, as reflected by changes in our total shareholder return.

In the CD&A, in addition to clear disclosure upfront that the company’s executive compensation program consists of base salaries and time-vested RSUs, the proxy calls out a few unique features that reflect the company’s goals and philosophy, including the following bullet:

We do not tie cash or equity compensation to one or a few discrete performance goals. To have a culture that relentlessly pursues invention and is focused on building shareholder value, not just for the current year, but five, ten, or even twenty years from now, we must encourage experimentation and long-term thinking. By definition, this means we do not know in advance exactly what will work. We do not select one or a few discrete goals that address one-, two-, or three-year performance horizons because we do not want employees to focus on short-term returns or discrete criteria at the expense of long-term growth and constant innovation and reinvention. Instead, to align our executives with long-term value creation, we compensate them primarily with restricted stock unit awards that have long vesting periods, generally five years or more. Simply put, while we could establish safe, short-term vesting conditions that constrain innovation and deter our executives from taking longer-term risks (and that could result in above-target payouts even when our stock price declines) and focus on the trees rather than the forest, we believe our consistent focus on performance across the enterprise over the long term has served our Company and our shareholders well since our founding. AWS, Kindle, Alexa, Fulfillment by Amazon, Marketplace, Prime Video, and The Climate Pledge might not exist today if our horizons were so limited.

For Amazon, the 2023 proxy season followed a year of low say-on-pay support, with 56% of votes cast in 2022 supporting the company’s executive compensation program, so the proxy also describes an engagement program and the decision not to grant any CEO equity awards in 2022. Notably, Amazon highlighted the PVP disclosure — in particular, negative compensation actually paid in 2022 — in the say-on-pay proposal:

As shown in the Pay Versus Performance Table on page 106, Compensation Actually Paid to Mr. Jassy in 2022 was negative $148 million, largely attributable to the 2022 decline in value of restricted stock units scheduled to vest over the next 8 years, while his 2022 realized compensation declined by 25% from 2021, both as a result of our stock price decline and fewer shares vesting compared to 2021, showing the alignment between our executive compensation program and our shareholder returns.

As a reminder, on Tuesday, June 13th, at 2 pm Eastern, our esteemed panelists, Weil’s Howard Dicker, Freshfields’ Nicole Foster, Aon’s Daniel Kapinos, and Mercer’s Carol Silverman, will discuss lessons learned from the first year of PVP in our “Pay Vs. Performance: Lessons From Season 1” webcast.

– Meredith Ervine