Why Netflix Doubled CEO Hastings' Pay

Netflix (NASDAQ: NFLX  ) CEO Reed Hastings must be doing something right. In an SEC filing posted on Friday, the company said it will double his paycheck in 2013. Cash and stock options of $2 million each add up to $4 million, up from $1.5 million in options and a paltry $500,000 cash portion in 2012.

This is the largest cash payment Hastings has ever received. The options component doesn't break any records, but it matches the second richest stock-based award in the CEO's rocky history. The sum total is a brand new all-time high:

I know what some of you are thinking. "Is the compensation committee insane? Are they rewarding Hastings for mediocre performance at best, along with a disastrous long-term business strategy?" After all, he has essentially promised that there won't be any bottom-line profits or positive cash flows for the next few years while Netflix invests in international expansion projects. Meanwhile, he's signing billion-dollar content contracts where the payoff lies many years ahead. Crazy, crazy, crazy.

And I call shenanigans on that myopic thinking. Hastings is meeting the performance targets his board set up, and that committee clearly trusts that he isn't driving the company off a cliff without a parachute.

Netflix has a history of bumping Hastings' pay after big victories, rather than giving him incentives for charging ahead. So we're looking at a break in tradition here. This isn't a reward for services past, but a sign that the board trusts Hastings and his leadership.

Yes, there's an unprecedented amount of competition in the domestic market. Coinstar (NASDAQ: OUTR  ) and Verizon (NYSE: VZ  ) are booting up their part-subscription Redbox Instant service as we speak. Hulu is seeking new direction, and may end up a far closer Netflix rival in the next few months. Cable companies are paying more attention to digital media and on-demand programming, and I'm betting my own money that TiVo (NASDAQ: TIVO  ) will help them do it right. And I haven't even mentioned Amazon.com (NASDAQ: AMZN  ) and its increasingly independent movie rental services.

And against that ominous backdrop, Hastings sets his sights on distant shores?

Yes indeed, I would argue that the board is telling him to go ahead and secure his company's long-term future. Domestic growth won't last forever, but there are billions of potential customers just waiting for a serious digital entertainment option overseas. Hastings deserves an "attaboy" for chasing them while the fruit still hangs low.

You heard it here first.

Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why we've released a brand-new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2174069, ~/Articles/ArticleHandler.aspx, 4/23/2014 9:17:58 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement