> So do high level employees have to sell shares to pay their mortgages and credit cards?

Employees at this level tend to have a pretty high level of financial management services to manage scenarios like this. I have two associates, not close enough to call them friends but close enough to have some insights, on the edges of this world. What they do:

- Other investments provide so-called passive income and that cash flow plus base salary is used for minimum expenses.

- Spending on larger-ticket items and services is budgeted out and is drawn from a variety of lines of credit secured against things like stock or the underlying holdings of those earlier investments.

- Most spending is planned in advance, either annually or quarterly, based on past income and future expected income. How much is added on the "future" side is financed by (often very inexpensive) leveraged debt and is calculated based on the risk tolerance of the individual.

Securing the debt with assets makes that debt screamingly inexpensive. Paying a handful of percent on debt that will only be borrowed for a few months at a time is, of course, seen as a reasonable cost to smooth out cash flow and leave the other money invested at a much higher return.

One other person I know who is not a higher-level employee but structures his spend very rigidly goes one step further and prepays all of his non-housing bills out of his annual bonus and one of the stock awards during the year. His annual salary and any other stock awards pay for housing, food, and savings.

> Employees at this level tend to have a pretty high level of financial management services to manage scenarios like this.

I think you're seriously overestimating how sophisticated the financial management is of your typical software engineer, who could very well be spending beyond the cap with none of those things you mentioned.

In my experience, most Amazon employees just put everything on a credit card, and then they sell stock to cover the credit card payments if their salary doesn't cut it.

That's pretty much the extent of their financial planning.

But this article isn't about a software engineer. It's about an Amazon VP, which is an executive position.

That's how a lot of the executives budget too though. You'd be surprised how unsophisticated even high level software engineering VPs are when it comes to finance. Their expertise is in software, not finance.

As a case in point, we had to spend a lot of time educating people at Netflix how stock compensation worked, including a lot of VPs. They just didn't care, it was of no interest to them.

Money goes into bank, money comes out. ETrade account has a big number, yay! That was about it.

Of course some of them were much better than that, but just because they are engineering executives doesn't make them good with money.

How do you have so much experience with Amazon employees and their financial management behaviors? AFAIK you've never worked for the company.

I have a lot of friends who do or have worked there, and we swap tax strategies. Much like me and my Netflix coworkers, they don't get a lot of help internally because most of their coworkers don't look into it.

I see from your profile that you work there. Curious if you agree with me or not.

I don't have enough data to say either way. My upbringing prevents me from talking about money on a personal level with friends or colleagues.

I assume my colleagues are capable of managing their finances wisely. I could be wrong.

In any event, I'm not sure a tax strategy discussion is enough to make an overarching conclusion from about someone's financial competency (or, for that matter, an entire group of people's). You can suck at tax optimization strategies without being a reckless overspender.

Tax strategy usually moves into general finance since they go hand in hand. :)

We discuss salaries and total compensation too, so we are better prepared for our own negotiations.

And also, spending on the credit card and then selling stock to pay it off isn’t necessarily reckless or overspending. Imagine if it were all cash. Would you say they’re overspending because they pay out half their paycheck each month saving the other half? Given that for many amazonians their stock is more than half their compensation, selling some stock isn’t really overspending.

Not necessarily, but at least for me, I've never needed to spend a dime of my stock to cover my living expenses (and them some). The salary cap is more than enough to live on for most people - and I count the Bay Area, too, where I live. I personally think that if you're already at the salary cap and are selling stock to cover basic living expenses, they are probably too high, and I suspected you thought the same.

I don't intend to sell my stock except to diversify my portfolio. I intend to live long beyond retirement, and I'll need it.

Let's run a quick budget for a family of two adults and two kids.

The median home in the US is 2,300 sq ft. To get that in the Bay Area in a good school district will run you about $2.3M. Assuming you put 20% down, you'll need to mortgage $1.84M. At today's rates, that's about $7,360/mo in mortgage, and about $2,100 in property tax.

So we're already at $113,520 a year just for housing.

You'll also need to pay taxes on your total comp, including the RSUs that you vest in, whether you sell them or not. Assuming you make $250K a year in total comp, and let's say you have a ton of deductions to get a crazy low tax rate, you'll still pay about 30% in taxes between Federal and State. So that's 75,000 a year.

So just in housing and income taxes, we've already spent more than the Bay Area salary cap (you've spent $188K).

And we haven't even talked about insurance, cars, food, or daycare.

I can easily see a middle class family spending more than the base salary.

If you're trying to live large--which, in the Bay Area, is trying to live like a middle-class American in the midwest--you're obviously going to spend a lot more. A single person without kids is going to obviously spend a lot less (you can get a decent 1BR in Oakland for < $3k/mo and pay no property tax). And a double-income earning family is the norm for married couples, so you might not have to dip into stock if you have enough cash income.

Obviously it depends on your circumstances. But I would not attempt to live like what you describe in the inner Bay Area. That sort of lavishness--which I know is not particularly lavish elsewhere by American standards--is reserved for the truly wealthy here, or someone who bought their home long ago (even 15 years would suffice; less if you bought in Oakland).

> Paying a handful of percent on debt that will only be borrowed for a few months at a time is, of course, seen as a reasonable cost to smooth out cash flow and leave the other money invested at a much higher return.

It's not just that. They also get to avoid paying capital gains taxes on their shares. So they can borrow against those shares to buy income generating assets that more than cover the interest costs and they can do so while avoiding having to pay the taxes on those gains (especially important when those gains are still short term capital gains where they would be taxed as income).

Holding on to equity grants after they vest is probably a bad idea. It's precisely equivalent to using a larger salary to buy stock in your company. Is that what you'd do if you got a raise?

You should evaluate what your ideal investment mix is (keeping in mind that you already have a lot of exposure to the company where you work and have unvested equity) and always rebalance towards that. The source of income is immaterial.

Why wouldn’t you sell?

Thought experiment. If you got paid the same amount in cash that the company gives you in stock - would you use the equivalent amount of money to buy the company’s stock?

> Wow! So do high level employees have to sell shares to pay their mortgages and credit cards?

They give new employees a bonus in their first two years to make up the difference before they start vesting.

After that, yes, they need to sell stock if their expenses exceed the cap. Which is fine as long as Amazon stock keeps going up.

Another side effect of this is that if Amazon's revenue drops, they don't have to move to layoffs so quickly. Everyone's salary will naturally go down, since the shares they get each month are worth less, but it will feel better because "no layoffs and no pay cuts are necessary".

>Everyone's salary will naturally go down, since the shares they get each month are worth less, but it will feel better because "no layoffs and no pay cuts are necessary".

Leaving aside share buybacks, they're still paying the same salary and are still distributing shares from the same allocated pool.

On the other hand, if there is a big share price drop, a lot of your employees have suddenly taken a big compensation hit. (And they may have already paid taxes based on a higher share price at the time of vesting if they didn't immediately sell which is another argument not to hold onto a lot of RSU shares after vesting.)

What's really amazing is that people that don't make $160K/yr aren't eating their own children to survive. I don't have kids so I have no choice but to use extreme willpower to exist on my barely 6 figure comp.

Children are more of a luxury dining experience.

Yes, we can tell sarcasm without listening to verbal inflection.

I really hope you're being sarcastic.

it sounds like a modest proposal to me, why would he be sarcastic?

I would imagine you'd take out loans backed by those shares, if you're betting on the shares increasing in value, to get cash while not losing equity.

At the very least, some method exists to produce liquidity without actually losing equity, or the whole $1-salary but compensated purely by stock CEO model wouldn't make any sense (if they're just immediately selling what they get, then it might as well be a performance-based, or stock-based, bonus)

It depends how much they like to spend

Setup a 10b5-1 then you don’t have to worry about open trading windows.