Amazon is one of the world’s most valuable companies being valued at one trillion dollars. It is also one of the largest employers globally. In the US alone, Amazon employs roughly 1 out of every 170 people. That is a lot of people and that is a lot of jobs.

Despite Amazon's massive size, its massive growth in recent years, and its massive employee base, Amazon does not offer an Employee Stock Purchase Plan (ESPP).

We’ve written extensively about employee stock purchase plans and have even written specific articles about specific companies’ ESPPs. We find it a little hard to believe that Amazon does not offer an ESPP, but we’ll offer a few reasons we suspect they choose not to.

Reason #1 Amazon Doesn’t Offer an ESPP - They Seem to Prefer Restricted Stock Units

One of the primary reasons we think Amazon chooses not to offer an ESPP is that Amazon seems to have a preference for Restricted Stock Units (RSUs).

RSUs are the most common form of equity compensation for public companies largely because they’re simple compared to other equity compensation methods. 

In addition to their simplicity, companies like them because employees who receive them need to stay with the company long enough for them to “vest.” Amazon’s vesting schedule typically follows the following timeline:

• Year 1 - Receive 5%

• Year 2 - Receive 15%

• Year 3 - Receive 40%

• Year 4 - Receive 40%

This schedule means that in order for employees to receive all of their RSUs, they would need to stay with Amazon for 4 years. Most of the value doesn’t really begin rolling in until years 3 and 4.

On one of Amazon’s benefits pages, it discusses exactly who is eligible to receive RSUs. If you work for Amazon and work 30+ hours a week, we’d recommend examining what it would take for you to receive a grant of RSUs.

Reason #2 Amazon Doesn’t Offer an ESPP - They Offer a Direct Stock Purchase Program (DSPP) Instead

Another reason Amazon might not offer an ESPP is that they already offer what’s called a Direct Stock Purchase Plan (DSPP).

It might seem as though a DSPP would be very similar to an ESPP but really their only similarities are: (1) it provides a way for you to purchase company stock and (2) you save up to buy company stock by setting aside money with each paycheck.

The biggest difference between Amazon’s DSPP compared to a typical ESPP is that there is no discount on Amazon shares when purchased through their DSPP. In contrast, companies that provide ESPPs for their employees usually offer a 5%-15% discount and if the company’s share price goes up, that discount can be even greater.

Although ESPPs are typically more beneficial for employees, Amazon seems satisfied to offer their employees a DSPP instead.

Reason #3 Amazon Doesn’t Offer an ESPP - An ESPP Could Dilute Shareholder Value

Another reason Amazon might be choosing not to offer an ESPP is that they are afraid that an ESPP would dilute/reduce the value of their company stock.

In “Selected Issues in Equity Compensation,” the article’s authors discuss the three primary traits of ESPPs that can cause dilution.

1. Shares need to be set aside for people participating in the ESPP.

2. Shares are typically discounted.

3. ESPPs typically offer lookbacks. Lookbacks allow employees to buy at whichever stock price was cheaper at the beginning or end of a purchase period.

Since Amazon has so many employees, these dilutive effects could be sizable. If Amazon were to offer an ESPP, we imagine that they’d need to put pretty restrictive limits on the plan.

Reason #4 Amazon Doesn’t Offer an ESPP - It Could Be Too Expensive

The last reason we think Amazon may not offer an ESPP is because of the administrative cost to the company.

ESPPs, like 401(k)s, are not free programs that companies can freely offer to employees. They are employee benefits and usually cost the companies providing them a considerable amount of money.

Here are a few of the ESPP costs that need to be taken into account when a company is making a decision whether or not to implement one.

• Designing the ESPP - lawyers need to draw up the paperwork, filings need to be made to the proper regulatory authorities, and everything needs to be approved by shareholders.

• Administering the ESPP - either an internal team would need to be in charge of assisting employees and answering their questions or a 3rd party company would need to be hired.

• Accounting for the ESPP - most employees are probably not concerned about this, but the expense the company tracks for shares purchased under an ESPP is not easy to calculate. Not only does the company need to track the expense, but they also need to make sure that the expense they’re tracking is accurate so as not to understate/overstate their financial reports.

• Audits of the ESPP - To ensure the plan is functioning properly the ESPP should be audited to ensure best practices are being followed and that people are staying under/at IRS limits.

We’ll investigate further to see if we can find the average cost of an ESPP plan to an employer, but based on what we know of these programs, it’s likely a huge cost.

Given that Amazon is known for its frugality, the large administrative costs of these ESPP programs could be another reason it chooses not to offer one.

Will Amazon Offer an ESPP in the Future?

Given Amazon’s recent troubles with employee satisfaction and rumors of warehouse workers unionizing, it’s possible to envision a future in which Amazon decides to offer an ESPP to its employees. Of course, the pressure for that change will have to come from Amazon employees themselves. If enough employees added an ESPP to the list of the demands they’re pushing for, it’s possible that Amazon could join the ranks of the many other companies offering them. But because of the reasons we’ve discussed in this article, we think that’s unlikely…at least for now. 

If Amazon ever chooses to offer an ESPP to employees, it’ll probably be a good one. But until that time comes, we recommend learning the basics of ESPPs. As always, thank you for reading!