Netflix Pay Vote May Fail Again this Year, but it is Unlikely to Fail as Badly as Last Year: Here’s Why

Total disclosed compensation for Netflix then Co-CEO, President and Chairman Reed Hastings was $51,073,237 for 2022. Co-CEO and Chief Content Officer Ted Sarandos had total disclosed compensation of $50,299,296. These compensation packages represent a pay increase for both executives. Despite a year of poor stock performance, these outrageously large pay packages will likely have more support than last year when 73% of shareholders opposed pay.

This is because after years of rebuffing shareholder concerns, Netflix has announced significant changes in its unusual compensation packages beginning in 2023. As I have described in prior blog posts, since 2017 Netflix has had an unusual policy of offering extraordinary high pay packages and allowing executives to choose whether to receive the pay in cash or equity. Going forward, the three top executives will be required to take 50% of their “allottable compensation” in the form of stock options.

The reform, first announced in an 8-K in December, also caps at $3 million the salaries of Co-CEOs Reed Hastings and Ted Sarandos. Hastings, who has since resigned from the co-CEO position and is now Executive Chair, had generally received a more modest salary, given his large and growing equity stake in the company. In prior compensation packages, his salary was $650,000. For Sarandos however, the decline in salary represents a $17 million dollar change in cash. It should be noted, however, that the company has added the potential of annual bonuses to the mix. The estimated target cash bonus is $17 million.  

Thus, it remains to be seen to what degree the compensation changed the definitions or buckets of compensation over the substance and size of compensation. The annual bonus added for the co-CEOs, called the "Performance Bonus Program," now covers all non-salary cash compensation for the co-CEOs, so the rigor of those plans and the metrics they include must still be evaluated. Moving from the very highest salary to one of the highest and accompanying the salary cap with a bonus target, (one that translates if target is met to the same outrageous cash amount) is a change to be acknowledged, but not necessarily rewarded.

Shareholders may also be unhappy that the change was limited to two executives and still left them with extraordinary pay.

Finally, the equity awards lack performance conditions and have minimal vesting requirements. These factors alone will be sufficient to drive some shareholders to vote against the pay package.

Overall, the analogy would be that the compensation plan overall moved from an F to a D. The question is whether shareholders will grade on a curve.  

Rosanna Landis Weaver