The streaming media and video-on-demand service provider, whose share price continues to climb uphill as the company continues to exceed market expectations through its steadily increasing subscriber base and expansion to new markets, has ended its bonus plans for top executives, and is paying only in the form of salary and stock options. (See also: Netflix Subscriber Base Will Rise 44% By 2022: Report.)
Hastings pocketed a total of $24.4 million during the last financial year of 2017, which was a rise of 5% over his pay a year before. However, major part of Hastings’ salary was through stock options. His base salary for the last year stood at $850,000 last year, and he secured $23.5 million worth of employee stock options.
The pay package for Netflix CEO has been structured in a way that grants less of a cash component and more of stock options. Stock options enable employees to purchase or sell shares of the company they work for at a pre-determined price after a pre-determined holding period, as mentioned in the terms of stock option allocation program. It is a popular way to incentivize employees, especially those belonging to the higher management rung, based on the performance that gets reflected in the company’s stock price over a period of time.
Lower Salary, More Stock Options
The base salary component of Hastings’ pay package has declined in recent years, and the total pay rise is attributed to a significant increase in the options component. The trend is expected to continue in future. For instance, his base salary of $850,000 in 2017 will be lowered to $700,000 for 2018, while the options component will go up from $23.5 million of 2017 to $28.7 million in 2018.
It is interesting to note that Hastings’ has not received any cash bonus over the last three years, but Netflix’s stock valuation has tripled during the period making him the ultimate beneficiary. (See also: Netflix Executives’ Stock Options Get a Boost.)
Similarly, Netflix Chief Content Officer Ted Sarandos received total pay of $22.4 million, which was a 18% rise over the previous year. It included $9 million cash bonus.
Last year, Netflix announced plans to eliminate bonuses for its executives, and substituted them into salaries because of a new tax law. (See also: 2 Risks Facing Netflix’s Rally.)