Netflix doubles CEO's pay after strong year
Netflix has doubled CEO Reed Hastings' compensation after stocks tripled. Most of the Netflix CEO's pay is in the form of stocks.
Hastings' $5.52 million pay package consisted mostly of stock options that he received at the beginning of each month last year, according an Associated Press' analysis of regulatory documents filed Wednesday. The options were valued at a combined $5 million at the time of the granted.
Netflix, which is based in Los Gatos, gave Hastings compensation valued at $2.76 million in 2009. That package included options valued at $1.76 million.
Just how much Hastings' stock options are ultimately worth will depend on how Netflix's stock performs. It rocketed last year, soaring from $55 to nearly $176. Hastings took advantage of the run-up by exercising 184,500 of the options that he received in previous years to realize an $18.5 million gain.
Even bigger jackpots loom. Hastings holds 266,500 stock options with an exercise price of $1.50 that expire within the next 10 months. Netflix shares closed Thursday at $252.22, leaving it with a gain of more than 40 percent so far this year.
The stock options granted to Hastings last year had exercise prices ranging from $53.48 to $200.14.
The stock's robust gains reflect an expectation that millions more people will sign up for Netflix's service, which streams video over high-speed Internet connections and rents DVDs that are delivered through the mail.
Netflix ended last year with 20 million subscribers in the U.S. and Canada, giving it an audience larger than pay-TV channels such as Liberty Media Corp.'s Starz and CBS Inc.'s Showtime. It added 7.7 million subscribers last year, helping its earnings to rise 39 percent to $161 million.
Hastings, who co-founded Netflix in the late 1990s, signaled his confidence in the stock by agreeing to cut his salary in half last year in return for more options. That left his 2010 salary at $519,231, down from $1 million in 2009. He didn't receive a bonus in either year.
Fortune magazine was so impressed with Netflix that it named Hastings, 50, as its businessperson of the year for 2010.
Netflix's board said it evaluated Hastings using the same measures that the company does for all employees. The criteria, unusual even by Silicon Valley's quirky standards, include: judgment, innovation, impact, curiosity, communication, courage, honesty, selflessness and passion.
The AP's formula calculates an executive's total compensation during the last fiscal year by adding salary, bonuses, perks, above-market interest the company pays on deferred compensation and the estimated value of stock and stock options awarded during the year. The AP formula does not count changes in the present value of pension benefits. That makes the AP total slightly different in most cases from the total reported by companies to the Securities and Exchange Commission.
The value that a company assigned to an executive's stock and option awards for 2010 was the present value of what the company expected the awards to be worth to the executive over time. Companies use one of several formulas to calculate that value. However, the number is just an estimate, and what an executive ultimately receives will depend on the performance of the company's stock in the years after the awards are granted. Most stock compensation programs require an executive to wait a specified amount of time to receive shares or exercise options.