By Daniel Newman
Shares of Amazon have underperformed its FAANG peers this year — the internet retailer even trails the S&P 500 Index.
One reason is that newly installed CEO Andy Jassy and his predecessor, founder Jeff Bezos, have invested heavily in the business, which produces annualized revenue of over $400 billion.
Jassy’s remarks following Amazon’s /zigman2/quotes/210331248/composite AMZN -5.95% earnings report at the end of October deserve consideration. Two things, in particular, stood out to me as attention-worthy.
First, Amazon is continuing to make the investments that it thinks are necessary to grow despite what that may mean for short-term results.
Second, Amazon is boldly taking on a litany of what the market and media has long considered priority social issues in the U.S. and globally.
However, while there seems to be a longing to see many of these issues addressed through a long list of tax-and-spend activities and greater regulation over tech companies, the market seems to be underwhelmed by Amazon’s substantial efforts.
I believe those efforts, while not entirely altruistic, deserve greater recognition and reward from investors and Wall Street.
A hotly debated topic is a higher federal minimum wage. Despite talk of doubling the amount to $15 an hour as a mandate, lawmakers have been unable to tackle this initiative for a plethora of reasons, even as inflation soars over 5% .
Amazon took the initiative on its own to raise wages nearly three years ago to $15 an hour. With a tightening labor market and surging prices due to supply-chain shortages, the company is now pushing its wages for entry-level workers closer to $18.
With well over half a million entry-level workers at Amazon, the math of the company’s decision has a significant impact on costs and the bottom line. Based on a half-million employee number at that wage level, for every dollar above the federal minimum wage that Amazon pays, it adds about $4 million a day in wage expenses plus benefits and other direct employment costs.
Depending on the location of its centers and varying local employment laws, that can be nearly $8 an hour more than minimum wage, which can easily add $40 million per day in base wage costs for Amazon.
Some may view higher wages as a way for Amazon to deter unionization efforts, but I believe it is also worth considering that the company is using its autonomy and resources to act swiftly to implement a wage policy that will attract high-caliber workers, both front-line and white collar.
Furthermore, backing its financial outlay for higher wages, the company is raising the skills of hundreds of thousands of workers through its Upskill 2025 efforts. It recently announced another $1.2 billion outlay to offer more than 750,000 front-line workers access to free community college. That’s another social initiative that has largely fallen flat with Wall Street.