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Business columns: Netflix shows the way on CEO pay

As Netflix has prospered, so has Hastings—but in tandem with other shareholders rather than at their expense, said Chris O’Brien in MercuryNews.com.

Chris O’BrienMercuryNews.com

Netflix CEO Reed Hastings is “making cash by the barrelful these days,” said Chris O’Brien, but in a way that even critics of lavish executive pay should applaud. At most Silicon Valley companies, Hastings would collect an eight-figure cash bonus for presiding over a 250 percent rise in Netflix shares in the past 12 months. But Hastings earns only $2.7 million a year—“modest by Silicon Valley CEO standards.” Remarkably, he gets no bonus at all.

Instead, Hastings’ wealth rises and falls with the company’s stock price. Here’s how: Netflix executives are paid a predetermined amount each year, which they can take in cash, stock options, or some combination of the two. Hastings takes $1 million in cash and $1.7 million in options, which he exercises “like clockwork” every two weeks in 20,000-share increments. Over seven years, this practice has netted him $118 million—an annual average of $15.5 million. As Netflix has prospered, so has Hastings—but in tandem with other shareholders rather than at their expense. Maybe other Valley companies will now follow suit. Yeah, right.

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