Last week, shareholders came within 6 percentage points of voting down Amazon's proposed executive compensation. Nine days later, Dave Clark, CEO of Amazon's worldwide consumer division and a 23-year Amazon veteran, announced his resignation. With compensation of more than $55 million, Clark was Amazon's fourth highest-paid executive, after CEO Andy Jassy, executive chair Jeff Bezos, and CFO Brian Olsavsky.
In their joint statement, neither Jassy nor Clark gave much of a reason for Clark's departure. Jassy merely noted that Clark was leaving "to pursue other opportunities." All Clark had to say on the subject was this: "As much as I have loved the ride, it is time for me to say goodbye to start a new journey."
That leaves investors and employees to wonder what happened, and there's plenty to speculate about. The past few months have been difficult for Amazon's retail business. In April, the company reported its first unprofitable quarter in seven years, thanks to a combination of rapid expansion during the pandemic, rising labor costs in a tight labor market, inflation, and the rapidly rising price of oil.
An advisory vote
Even if shareholders had voted down executive compensation, it would have been advisory only--Amazon could still pay its leaders whatever it wanted. But it does portend a mood swing among the company's investors. Two major shareholder advisory firms, Institutional Shareholder Services and Glass Lewis, each took the unusual step of recommending a no vote on executive compensation. The executive pay only passed because of Jeff Bezos, who holds 12.7 percent of the company's outstanding shares and presumably voted yes.
Several other shareholder initiatives also got widespread support, including an outside audit of working conditions at Amazon warehouses, a report on its lobbying activities, and a resolution to reduce its use of plastic packaging. It looks like all of these would have passed if not for Bezos's presumed vote against them.
There are some important lessons here, though they may be tough to hear if you're a startup founder or other business leader.
1. Sometimes you get punished for doing the right thing.
In early 2020, Amazon swiftly expanded its footprint, adding millions of square feet of warehouse space. The company now says that contributed to $10 billion in costs this year. It is seeking to sublease or renegotiate the rental of some of the space. Clark, as head of retail, oversaw the expansion and may be taking the blame for it.extra space was more than it needed, and
But expanding Amazon's warehouse footprint was absolutely the right thing to do from the vantage point of early 2020. With demand booming out of control, with a nation of housebound shoppers forced to buy nearly everything online, and with threats looming over the supply chain, building the capacity to get more stuff to more people was not only the right business move, it was morally right as well. Given everything that's happened since, it makes sense for the company to readjust its footprint downward again. And, frankly, no one should be surprised or dismayed if Amazon's profits falter while it does so.
2. Investors are more trusting of an iconoclast founder than his (or her) successor.
Bezos ran Amazon at a loss or breakeven for many years because he was plowing any potential profits back into the company. A few grumpy hedge fund managers publicly swore off Amazon stock (which they likely lived to regret), but no one else complained very much.
Admittedly, there's a difference between a new company losing money while it rapidly grows, and having a down quarter after turning a profit for years. But given that the past two-and-a-half years have seen one black swan event after another, I have to think that investors would have been much more forgiving if Bezos had still been at the helm.
Jassy, like Tim Cook, appears to be a levelheaded company veteran taking over after a charismatic and flamboyant founder steps down. When the dying Steve Jobs left Apple in Cook's care, many predicted the downfall of the company. Instead, Apple has flourished under Cook's leadership, and Amazon may well flourish under Jassy's, especially since Bezos is still part of the company. But it seems investors aren't as willing to give Amazon's current leadership the benefit of the doubt as they might have done with Bezos.
3. Insensitivity is not a good look.
Perceptions matter. What investors see right now is a company announcing a loss for the first time in years while simultaneously giving its top executives jaw-dropping bonuses in the form of stock grants (over $211 million for Jassy and over $55 million for Clark). This is the reason the two advisory firms recommended a vote against the company's executive compensation. "Shareholders should be concerned with this year's disconnect between pay and performance driven by one-off awards," Glass Lewis said, according to Bloomberg.
There is an explanation for the disconnect. As Amazon said in a statement, when Jassy stepped into the CEO role, he got a one-time stock grant that vests over several years but must be reported as current compensation. The same is true for Clark, who was promoted to CEO of the consumer division last year, following the departure of former consumer CEO Jeff Wilke.
While it's customary to give executives large stock grants when they take over bigger roles, it isn't mandatory. Considering the company's need to cut costs, Amazon's board could have deferred those stock grants for a year. Or the executives in question might have considered the optics and made that choice for themselves.
But that's not what happened. Now Clark is gone. And Amazon's remaining leadership has to make good on the promise of lower costs and higher profits to come. Otherwise, they might wind up facing a bigger, stronger shareholder revolt next time around.