What’s With the Change in Netflix’s (NASDAQ:NFLX) Executive’s Compensation Plan?

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By Thomas Copeland on December 26, 2014 Economy

The online video streaming company, Netflix (NASDAQ:NFLX), recently posted its compensation plan for the executives of the company. Netflix recently filed an 8-K with the Securities and Exchange Commission whereby the company posted lower salaries for its board members. Where the basic salaries were kept low, the board members were given wide stock options.

Market experts are trying to find answers as to why Netflix (NASDAQ:NFLX) has done so. One set of analysts believe that the board is not happy with the management of the company, and thus wants to punish it. However, the other set believes that the executives are placing their eggs in the stock basket, for they are expecting higher gains for the year 2015.

Let’s have a look at the base salaries of the executives of Netflix (NASDAQ:NFLX). The company’s chairman and chief executive officer, Reed Hastings, has a basic salary of $3 million for the year 2013. However, the figures are cut down to $1 million for the year 2014. As for the chief content officer of the company, Ted Sarandos, the salary came down from $2.8 million to $1 million during the same time period.

Neil Hunt, who is the chief product officer of the company, will get a basic salary of $1 million. The guy previously got $1.75 million in remunerations. The salary of streaming and partnerships officer will stay the same: perhaps the reason is that the basic salary was already at $1 million. What is interesting to note here is the fact that where the salaries of all other executives either went down or remained unchanged, the basic salary of the chief financial officer of Netflix (NASDAQ:NFLX) rose from $0.95 million to $2 million.

Now let’s have a look at the stock options of these executives. The CFO, David Wells, saw a 300 percent increase in its stock options. The total value of stock allowance was recorded to be at $1.675 million. The stock options allowance together with the cash increase in salary brought the total compensation at 145 percent.

The stock options of Greg Peters, streaming and partnership officer, increased by 300 percent, thus bringing the total value to $3.725. The options of Neil Hunt rose by 7.5 percent only. The total salary dropped by 18 percent and came to $2.875 million. But wait. Netflix (NASDAQ:NFLX) has introduced bonuses for its leadership from this year onwards, and word has it that Neil Hunt will be getting a bonus of $5 million next year. As for Sarandos and Peters, chances are that they will get bonuses of $2 million and $1 million respectively.

The market analysts are puzzled as to why the company has done these changes in its salary structure.

The company previously had a cap on its stock options plans. The executives could only use 50 percent of their salaries to pump the stock options. The cap has been removed this year. Where this shows that the executive board has a confidence in the stocks of the company, some of the reasons are not as prominent. The company has also done so in order to avoid the tax payments, for the tax does not apply to the first $1 million of salaries.