Business columns: Netflix shows the way on CEO pay

Chris O’Brien

MercuryNews.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.

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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.