With the treatment of Amazon workers under intense scrutiny, we assess the facts and outline our engagement approach.
- Amazon’s scale and complexity mean there are many positives and negatives in its ESG practices and environmental and social outcomes to weigh up.
- We focus on Amazon’s treatment of its employees, given that this is one of its most material risks.
- Amazon has faced intense pressure from politicians, investors and its workforce to improve its ESG impact.
Amazon is the largest online retailer in the world. It is estimated that for every one dollar spent online in the US, around 38 cents go to Amazon versus just 6 cents at the second-largest player.1 However, many critics believe this has come at a cost – both to Amazon workers and to society at large. While Amazon’s approach to tax and competition has been widely reported and discussed, in this case study we focus specifically on the reputational, financial and operational risk posed by Amazon’s management of its low-wage workforce in its fulfilment centers.
As of September 2022, Amazon’s fulfilment centers totaled over 250 in the US and over 150 more globally,2 and while it does not disclose staffing levels in those centers, it has significantly increased its number of employees globally in recent years. With more shoppers swapping bricks-and-mortar stores for online purchases, warehouse jobs like the ones offered by Amazon are proliferating, and Covid-19 accelerated this trend.
While some customers may be unaware of reports of poor worker treatment or uninterested in them, there has been clear political focus on employment practices at Amazon, and material pressure from its investors, as demonstrated at its most recent annual general meeting.
Evidence of Benefit to Society: Essential Part of Social Infrastructure, Job Creation, Wages and Benefits
Amazon is widely recognized for its customer-centric approach and is being increasingly relied upon for customers’ everyday demands. It also offers a wide catalogue of products that address numerous different customer wants and requirements. Amazon has been hugely successful in opening up several underserved customer segments by better understanding and predicting customer behavior and demand through the use of artificial intelligence. It has also mastered the art of speedy and large-scale deliveries, which has helped expand its reach and customer base. Throughout global lockdowns during the pandemic, it became an essential part of social infrastructure. During this time, customers relied increasingly on Amazon for delivery of groceries (in the US in particular) and other essential home supplies while the bricks-and-mortar stores remained closed. Amazon is now regarded as an essential service for many customers.
Amazon Strong Job Creation
As a high-growth company, Amazon is providing jobs in the global economy. Amazon employees total over 1.6 million people worldwide, making it among the world’s largest employers. It is estimated that almost one person out of every 150 in the US is an Amazon worker.3 Amazon added 500,000 jobs in 2020 to meet the growing demand for its marketplace and cloud computing services, which was largely fueled by the pandemic. The 500,000 people hired were chiefly ones whose jobs in hospitality, restaurants, travel and other industries had been lost or furloughed.4
Amazon’s role in job creation has been crucial to maintaining its reputation as a good corporate actor. In 2021, Just Capital, which ranks US companies via independent assessments and polling, ranked Amazon joint first overall (out of 928) and joint first within its industry (out of 48) in the category of job creation in the US, and 133rd overall and second within its industry on worker treatment.5 Similarly, the company was ranked tenth (out of 100) in the Harris Poll on corporate reputation.6 This suggests consumers are either not aware of issues in Amazon’s distribution centers (despite graphic media reports), or find it more convenient to ignore them.
Amazon Benefits for Employees
In terms of wages and benefits for its employees, Amazon offers a starting minimum wage of US$15 per hour for all staff in the US (including agency and seasonal workers), announced in November 2018 following intense political pressure. In its most recent sustainability report, it goes further in stating that the average starting wage is US$18. This is significantly more than the current US federal minimum wage of US$7.25 an hour. Full-time employees (not agency workers) also get numerous other benefits including health care, 401(k) (pension) with 50% match, up to 20 weeks’ parental leave and a leave share program – although the company notes this depends on location, number of hours worked and length of employment.7 It seems to be that for lower-skilled workers, Amazon offers far better wages and benefits than would be accessible elsewhere in the labor market. It could also be argued that this has increased pressure for other large US employers to increase wages.
Furthermore, Amazon has pledged to upskill 100,000 US employees for in-demand jobs by 2025, investing US$700 million to do so.8 This will take place across the company’s workforce, so it is unclear how much this will affect the low-wage workforce.
Evidence of Cost to Society – Amazon’s Low Wages = High Subsidies
So how well paid are Amazon workers? Evidence suggests that Amazon’s benefits are not as ‘industry-leading’ as the company claims.
Research from The Economist suggests that in US counties with an Amazon distribution center, the average annual wage for distribution-center workers falls.9 The Economist quotes data from the US Bureau of Labor Statistics which shows that warehouse workers in counties where Amazon operates a fulfilment center earned about US$41,000 per year, compared with US$45,000 per year in the rest of the US. This 10% difference could be explained by the staff benefits offered by the company, such as health care, share schemes and savings plans, which could make up the difference in wages. A less generous explanation is that with Amazon’s dominance in many communities means that it can offer wages that are well below those of its competitors.
Furthermore, there is evidence that Amazon’s low pay is a drag on the state. When work doesn’t pay enough, workers have to turn to public assistance programs like Medicaid, food stamps and public housing to meet their basic requirements. A study from UC Berkeley Labor Center shows that the growth in wages and benefits for most American workers has continued to stagnate, with real (inflation-adjusted) wages of the median American worker just 5% higher in 2013 than in 1979, while the real wages of the bottom decile of earners were 5% lower in 2013 than in 1979. The research also estimates that low-wage worker use of federal benefits cost taxpayers US$152.8bn a year.10
A study by The Counter (formerly The New Food Economy) found that of the five states that responded to a freedom of information request for a list of the top employers of workers using food stamps, Amazon was in the top 20 in four of them. Meanwhile, in Arizona, one in three Amazon employees relies on the use of food banks.11 With Amazon already receiving substantial amounts in state subsidies (estimated at US$1.2bn by 2021), critics claim the American people are financing Amazon’s pursuit of an e-commerce monopoly.
Added to this, research from the independent, non-profit Economic Policy Institute in the US questions the commonly held idea that Amazon is a job creator and that the proliferation of Amazon fulfilment centers is positive for states’ economic growth.12 Its study shows that when Amazon opens a new fulfilment center, the host county gains around 30% more warehousing and storage jobs, but no new net jobs overall as these new jobs are offset by job losses in other industries. The research concludes that investment in public services would be more effective than providing tax incentives to Amazon.
It should be acknowledged that the studies mentioned above are backward-looking and do not account for Amazon’s increase in its minimum wage at the end of 2018.
Cost to Workers – Amazon Workers’ Conditions
There is a substantial amount of evidence13 that Amazon’s working conditions are in clear violation of international labor laws. According to some reports, workers are required to pick 400 items an hour –one item every seven seconds. Employees who can’t keep up (25% of employees according to one first-hand account) are said to be severely reprimanded. This leads to cases of physical and psychological harm, which bring an indirect health-care cost to the state. Amazon also pays a price for this intense work, with staff turnover said to hover at around 3% a week, or 150% a year.14
Amazon – Anti-Union Stance in the US
In recent years there have also been numerous instances of disruption and protest globally. Most recently, there have been wildcat strikes in the UK as pay rises were offered of between 35 and 50 pence (approximately 3%) per hour.15 Amazon has taken a strong anti-trade union stance in the US, with leading Democratic politicians Bernie Sanders and Elizabeth Warren criticizing the company specifically on this subject. Strikes by Amazon workers have also been witnessed in Germany, Italy, Poland and Spain. Amid the Covid-19 pandemic, Amazon also faced criticisms over alleged inadequate safety measures followed at its warehouses.16 There have also been reports that Amazon fired a New York warehouse worker who had organized a protest over inadequate safety precautions at the local warehouse,17 and there have since been further allegations that whistle-blowers and staff encouraging unionization and other industrial action have been dismissed.
In the past, Amazon repeatedly claimed that it “does not recognize” such allegations around treatment of workers, but the frequency with which they appear suggest that this issue is systemic. More recently, Amazon founder Jeff Bezos acknowledged the “need to do better”.18 In his annual shareholder letter released in April 2021, Bezos said “It’s clear to me that we need a better vision for how we create value for employees – a vision for their success.”
Amazon AGM
By this year’s AGM (annual general meeting), tension and shareholder pressure had increased. Amazon faced numerous shareholder proposals, including relating to rights to freedom of association and collective bargaining. It has been alleged that the anti-union tactics that have been deployed contradict Amazon’s own policies and in places have even breached legal requirements. Moreover, according to the filings to the US Department of Labor, Amazon paid a total of US$4.3 million to external consultants who conducted anti-union meetings which employees were obliged to attend. As shown below, there were more close votes at this year’s AGM than at any other point in Amazon’s recent history. While these shareholder proposals must reach the 51% mark to be passed, it is important to note that about 13% of the company’s voting stock is controlled by Jeff Bezos. The numbers below reveal an undertone of shareholder disapproval to Amazon’s board and management on issues including executive pay, the environment, and working conditions. Furthermore, the level of support has increased on every resolution, and in some cases significantly, which echoes the growing support for these issues and indicates that they are here to stay.
Our Engagement With Amazon on ESG Issues
At Newton, we undertook our initial ESG (environmental, social and governance) review of Amazon in December 2016, and that highlighted our concerns around the company’s treatment of its labor force, its relations with unions, and a poor working culture.
In July 2019, we sent our first letter encouraging Amazon to respond to the Workforce Disclosure Initiative (WDI). Newton is a signatory of the WDI, which is a global program that seeks to address the lack of transparency around workforce policies and practices in companies’ direct operations and supply chains. By providing comprehensive, standardized data, the initiative aims to give investors additional tools to assess how companies treat their workers.
In November 2019, we had our first engagement meeting with Amazon, and at that meeting we covered the topic of labor management, and again emphasized the importance of better disclosure. We discussed innovations the company had made to enable employees to provide feedback to the company and programs to retrain and re-skill workers, and encouraged the company to make these better known.
We have also engaged with the company on a variety of other topics. We have repeatedly voted against executive officers’ compensation and members of the remuneration committee given the lack of disclosure on what drives the size of the equity awards, and the fact that the vesting is driven purely by time, rather than by performance-related measures. The lack of specifics about what accomplishments have led to the awards makes it difficult for shareholders to link performance to reward. Analysis of executive remuneration practices can provide important insights into how executives are incentivized. Without adequate disclosures, it is difficult for investors to understand whether pay is sufficiently linked to performance, as well as how executives are motivated.
In addition, we have supported shareholder proposals which would require an independent chair on the board. As is common for US companies, the CEO/chair role at Amazon was for a long time combined, but recently the role was split, with Jeff Bezos becoming the executive chair. We have supported shareholder proposals requiring an independent board chair because we believe an independent chair, having a more objective view of the company’s strategy, would be in a better position to lead the board by providing effective challenge to management, and would represent an enhancement to minority shareholders’ rights and board oversight.
At Amazon’s 2021 AGM, we also backed all 11 shareholder resolutions that requested actions and/or improved disclosures on a variety of ESG issues, such as the gender pay gap, impacts of plastic packaging, civil and human rights, and anti-competitive practices.
We have also updated our ESG analysis of the company, and that continues to highlight our concerns around Amazon’s human capital practices, besides a few other environmental and governance-related concerns. On a positive note, we have taken account of efforts by Amazon to decarbonize its operations, such as investments in renewable energy, reforestation projects and climate mitigation technologies. On the social front, besides the efforts to address concerns around wages and working conditions, we also appreciate Amazon’s performance on diversity and its commitment to ensure freedom of association and collective bargaining. We hope to see this publicly communicated through enhanced disclosures, including on how Amazon will be implementing these measures in a practical sense.
In addition, in 2022, we met management again during its investor outreach program. We sought to better understand how the company manages the key ESG risks affecting its business, in particular human capital management, and took the opportunity to understand any potential evolution of the company’s governance practices following the leadership transition. A positive takeaway from this meeting was hearing the innovative ways in which the company seeks regular feedback from its employee base. We were pleased to hear some examples of changes which the company made to its approach based on direct employee feedback, such as the provision of immigration support which had been identified as a significant pain point for employees.
We are encouraged that Amazon has been ready to listen to our views and concerns, and we will continue to follow its progress and engage with the company to seek further improvements in the future.
Sources
1 Statista June 2022 https://www.statista.com/statistics/274255/market-share-of-the-leading-retailers-in-us-e-commerce/#:~:text=As%20of%20June%202022%2C%20Amazon,by%20Apple%2C%20with%203.9%20percent.
2 Annual report 2021 https://s2.q4cdn.com/299287126/files/doc_financials/2022/ar/Amazon-2021-Annual-Report.pdf
3 Business Insider Jul 30, 2021, https://www.businessinsider.com/amazon-employees-number-1-of-153-us-workers-head-count-2021-7?r=US&IR=T
4 Amazon 2020 Sustainability Report (https://sustainability.aboutamazon.com/pdfBuilderDownload?name=amazon-sustainability-2020-report) accessed September 30, 2021.
5 Just Capital (https://justcapital.com/companies/amazon-com-inc) accessed September 30, 2021.
6 The Harris Poll – 2021 Corporate Reputation Rankings (https://theharrispoll.com/wp-content/uploads/2021/05/Axios-Harris-Poll-100-2021-Report.pdf) accessed September 30, 2021.
7 Compensation and benefits, Amazon corporate website (https://www.aboutamazon.com/amazon-fulfillment/working-here/compensation-and-benefits) accessed September 30, 2021.
8 Upskilling 2025, Amazon corporate website (https://www.aboutamazon.com/working-at-amazon/upskilling-2025) accessed September 30, 2021.
9 What Amazon does to wages, The Economist (https://www.economist.com/united-states/2018/01/20/what-amazon-does-to-wages), January 20, 2018
10 The High Public Cost of Low Wages, UC Berkeley Labor Center (https://laborcenter.berkeley.edu/the-high-public-cost-of-low-wages/), April 13, 2015
11 Amazon gets huge subsidies to provide good jobs—but it’s a top employer of SNAP recipients in at least five states, The Counter (http://thecounterorg.wpengine.com/amazon-snap-employees-five-states/), April 19, 2018
12 Unfulfilled promises: Amazon fulfillment centers do not generate broad-based employment growth, Economic Policy Institute (https://www.epi.org/publication/unfulfilled-promises-amazon-warehouses-do-not-generate-broad-based-employment-growth/), February 1, 2018
13 What’s wrong with Amazon?, US Retail, Wholesale and Department Store Union (https://www.rwdsu.info/new_report_what_s_wrong_with_amazon), November 28, 2018
14 https://www.theguardian.com/technology/2022/jun/22/amazon-workers-shortage-leaked-memo-warehouse#:~:text=Before%20the%20pandemic%2C%20Amazon%20was,than%20half%20of%20Amazon%27s%20turnover.
15 https://www.computerweekly.com/news/252523767/UK-Amazon-workers-stage-series-of-wildcat-strikes-over-pay-offers
16 Why Amazon’s Covid-19 response has been criticized more than Chinese rivals Alibaba and JD.com, CNBC (https://www.cnbc.com/2020/06/25/amazons-covid-19-response-criticized-alibaba-jd.html) June 25, 2020
17 Coronavirus: Amazon workers strike over virus protection, BBC (https://www.bbc.com/news/business-52096273), March 31, 2020
18 Bezos defends Amazon worker treatment but acknowledges ‘need to do better’, Fortune (https://fortune.com/2021/04/15/jeff-bezos-amazon-workers-union-election-bessemer-alabama/), April 15, 2021
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