April 12, 2018
A Netflix shareholder has filed a lawsuit against the streaming video behemoth’s board of directors alleging performance bonuses paid to senior executives were rigged in favor of the company getting lower tax burdens.
The suit, filed by the City of Birmingham Relief and Retirement System in U.S. District Court in San Francisco, alleges performance-based bonuses totaling more than $18 million were awarded by the board to executives CEO Reed Hastings, CCO Ted Sarandos, CFO David Wells, Chief Product Officer Greg Peters and General Counsel David Hyman, among others, for easily-obtainable goals thereby enabling Netflix to reward senior management while also lowering its tax burden.
The plaintiff argues the monies should have been returned to shareholders.
“Through their conduct, defendants rigged the compensation process, guaranteeing Netflix officers huge cash payments while misleading investors into believing that these payments were justified by attainment of real performance goals,” read the complaint.
Netflix scrapped its executive bonus plan at the end of 2017 following the GOP-led tax overhaul. It now pays straight salary to executives as bonuses are no longer deductible under the new corporate tax structure.
Notably, while the suit bemoans “exorbitant, $1+ million per year compensation,” it makes no mention of stock options, which represent of the bulk of Netflix executives’ fiscal largess.
Hastings is slated to receive $28.7 million in stock options in 2018, which Netflix pays no taxes on. Indeed, only Hastings’ $700,000 base salary this year will affect Netflix’s taxes.