Netflix
Annual Meeting: June 3, 2020
Total disclosed compensation for Netflix CEO and Chair Reed Hastings was $38,577,129, over twice what the median S&P 500 CEO receives. The company also offered an unusual cash payment to incoming CFO Spencer Newmann. In addition, the company awarded Chief Content Officer Ted Sarandos $18,000,000 in cash and an additional $16,575,902 stock options that do not require any vesting period.
In late 2017 Netflix became the poster child for high cash compensation when it announced that it would respond to changes in the tax code (section 162m) by moving to extraordinarily high cash compensation. The salary of the Chief Content Officer increased from $1 million to $18 million. In 2017, over 95% of shareholders had supported Netflix compensation, the next year that level of support fell to 61%. Over 34% of shareholders voted against the plan, making their objections very clear. Netflix did not listen and in 2019, 50% of shareholders voted against the package.
According to the current proxy statement “each year” the compensation committee decides on a dollar amount of compensation (for two executives this is $30 million) and then allows the executives to choose how much to receive in cash and how much in stock options. For 2019, CEO Reed Hastings chose to receive 97% in stock options but the other six executives for which this data is disclosed chose to receive more than 50% in cash.
According to an article in Deadline, Institutional Shareholder Services has recommended not simply against the pay package but also against directors “to express dissatisfaction ‘with the board’s lack of meaningful action to address critical governance issues.’”
One problem with these extreme payments is that they pave the way for others to ratchet up compensation. Several companies added Netflix to their peer groups, probably to inflate base compensation. The most outrageous example of that was Schlumberger, which I wrote about in 2019, asking, “What does an oilfield services company have in that common with a video streaming service?” I am pleased to note that, presumably due to some shareholder pressure, Schlumberger quietly removed Netflix from its peer group in 2020.