Better.com, an online mortgage lender, will allow Amazon.com Inc. employees to utilize their firm shares as collateral when buying homes.
A new Better.com tool, Equity Unlocker, will allow employees to pledge stock for loans for down payments, the companies said, rather than needing to sell the stock to raise cash.
Primary Compensation
Better.com said it will charge 0.25 to 2.5 percentage points above the market rate on employees’ mortgages pledging stock, depending on the down payment, to protect itself from a sustained decrease in Amazon’s stock price.
In contrast to stock-based loans, which include the danger of margin calls and require borrowers to post additional collateral or sell assets to lower debts, Amazon employees’ loan arrangements would be safeguarded if the stock price declines, according to Better.com Chief Executive Vishal Garg.
Amazon typically has paid fewer cash payments to employees than its big-tech peers and tries to make up the difference through restricted stock units granted to employees that vest over several years.
The longer an individual remains with Amazon, the greater their salary may depend on these stock awards, with some executives receiving more than half of their income from shares. Last year, in response to a tight labor market and a falling stock price, Amazon increased the cash component salary ceiling from $160,000 to $350,000.
The stock-based compensation was premised on Amazon’s stock increasing by at least 15% per year, which it had been exceeding until lately. The Journal reported that Amazon’s share price had fallen over 35% in the past year, lowering compensation below internal targets.
The Better.com arrangement is comparable to a service that banks offer high-net-worth clients, granting loans secured by their portfolios of stocks and bonds. Such securities-backed loans might be dangerous for banks during periods of significant asset price declines.
The cooperation between Amazon and Better.com would allow Amazon employees to keep shares longer if they wish to wait for the price to recover, while still being able to participate in the home-buying process.
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Amazon Launches New Service
Garg of Better.com stated, in reference to restricted stock units, that any company that wishes to retain an RSU-centric strategy will need to be innovative in determining how to make RSUs useful to employees who do not wish to sell them while stock prices are down.
A spokeswoman for Amazon claimed that the new service is consistent with the company’s benefits package, which strives to support the employees’ financial, mental, and physical wellness.
The program, which launches on Tuesday in Washington, New York, and Florida, will also be available to terminated Amazon employees who still own restricted stock units. Amazon has fired off over 18,000 people over the past six months, joining other internet businesses in reducing headcount to minimize expenses in response to weakening demand.
Better.com is a customer of Amazon Web Services, the cloud computing business of Amazon. Garg stated that the company presented the collaboration to Amazon’s innovation team as a result of their friendship.
He aims to collaborate with other businesses utilizing Better.com’s Equity Unlocker software. The firm benefited from the spike in property values and a wave of mortgage refinancing caused by the pandemic and low-interest rates.
Since then, it has been jolted by a rise in interest rates, a sharp fall in refinancings, and a dispute surrounding the termination of 900 employees by Garg via Zoom call in late 2021. He expressed regret for how he handled the layoffs. Since then, the company has eliminated hundreds of additional workers.
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