Understanding Amazon RSUs: A Strategic Guide for Executives

Introduction

At Amazon, Restricted Stock Units (RSUs) are more than just a benefit. For many senior level employees and executives, RSUs represent a significant share of annual income and long-term wealth creation. This guide explores how Amazon RSUs work, from eligibility and grant mechanics to vesting timelines and strategic decisions around liquidity and tax planning.

Eligibility

As a senior full-time Amazon employee or executive, you are likely eligible for RSUs. As your time at the company grows, the amount of your wealth tied to the stock price will grow as well. In fact, you may have your wealth, your income, and your family’s medical insurance all tied to the same company so understanding this dynamic for yourself and your staff is vital.

How Your RSU Grant is Determined

The number of RSUs you receive at Amazon is not a fixed amount for all employees. Instead, your RSU grant is determined based on your target compensation level, which varies depending on your role and job level. This approach aligns Amazon employees’ interests with the company’s success by giving them a stake in the business.

Amazon uses a dynamic approach to determine RSU awards. Target compensation is based on a combination of role, job level, and annual performance rating. For example, total compensation for a Distinguished Engineer / GM (Level 10) can range up to $1.66M per year. Base salary may cover ~$305K of that total, with the remaining value (~$1.325M) delivered through RSUs. With these elevated levels of compensation comes added risk with the stock price swings.

The Unique Amazon RSU Vesting Schedule

Amazon’s RSU vesting schedule sets it apart from many other companies. Instead of the typical 25% vesting each year over four years, Amazon’s RSU vesting schedule is as follows:

Year 1: 5% of the initial grant vests at the end of your first year.

Year 2: 15% of the grant vests at the end of your second year.

Year 3: 20% of the grant vests at the six-month point of your third year, with another 20% vesting at the 12-month mark, totaling 40%.

Year 4: The vesting schedule for the fourth-year mirrors that of the third.

The standard vesting dates occur on the 21st of February, May, August, and November each year. To illustrate this schedule, let’s consider an example. Suppose you’ve been granted $1,000,000 in Amazon RSUs, equivalent to 5,000 shares based on a $200 per share stock price at the grant date. Assuming a constant stock price over the four-year grant period and ignoring taxes, your vesting would look like this:

Year 1: $50,000 vests after one year.

Year 2: $150,000 vests after year two.

Year 3: $200,000 vests half way through the year and another $200,000 at the end (20% at six months and 20% at 12 months).

Year 4: Another $400,000 vests as in the Year 3 schedule.

RSU Payout Options

Amazon offers two options for how RSUs are delivered each year:

• Option 1: Receive 100 percent of the RSU grant, vesting quarterly

• Option 2: Receive 75 percent in RSUs and take the remaining 25 percent as a cash bonus, paid in equal installments on the same quarterly schedule

The value of the cash portion is based on a pre-determined planning price per share. This price varies depending on when employees access their compensation portal, so it is important to refer to the official RSU grant documents for exact figures.

For those who prefer to continue with the traditional path, no action is needed; you will receive 100% of your RSUs as planned.

Enrollment Period

For 2025, Amazon employees were given the opportunity to choose between Option 1 and Option 2 and that choice needed to be confirmed during the election period from May 7 to May 21, 2025. In 2024 those dates were May 3rd to 17th. Employees who did not opt in were automatically enrolled in Option 1. Final selections were confirmed in a personal compensation summary document distributed after the election period. If your election period has passed, reviewing the structure and implications of your most recent grant can help inform planning for future compensation cycles.

Strategic Planning Considerations

For executives and top earners, RSUs are not just an income source but a planning challenge. With quarterly vesting now the norm for annual grants, it is important to consider:

• How equity timing aligns with personal liquidity needs

• Whether partial cash conversion provides greater flexibility or tax efficiency

• How RSUs integrate into long-term financial planning

• How to plan for the tax implications with respect to estimated quarterly tax payments or the safe harbor rules

One prospective planning strategy compares the cash value offered by Amazon to the theoretical cost of acquiring AMZN shares in the future using a forward contract. Based on current interest rates and pricing models, there are scenarios where electing for the cash option and using that cash to purchase stock at a later date could result in a more favorable outcome. This kind of analysis may not apply to everyone, but it underscores why high earners benefit from a thoughtful, data-driven approach to equity compensation. In general, we find that executives are already over exposed to the stock price and diversifying is often the more prudent strategy.

A second topic worth considering with your financial planner on a regular basis is how many vested shares you should keep, which ones to sell for the optimal tax outcome, and how your portfolio performs with a concentrated stock position. This may drive you and your advisor to consider our H.O.P.E.S. framework for solving the concentrated stock puzzle.

Lastly, with significant compensation tied in RSU grants and the variable stock price, it may be prudent to consult with your tax advisor to determine whether and how the safe harbor treatment should be implemented given your particular facts and circumstances to avoid underpayment tax penalties.

Final Thoughts

Remember, Amazon RSUs are a powerful component of long-term wealth accumulation. For senior professionals, the way RSUs are structured, taxed, and integrated into a broader financial plan and tax strategy can have a significant impact on outcomes. At Avantia, we specialize in helping clients make strategic decisions around equity compensation, so they can focus on building value with confidence. Let’s explore how thoughtful planning can turn today’s opportunities into lasting success. Reach out when you’re ready to begin.

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