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December 31, 2012 7:48 pm
Netflix has doubled the notional pay of chief executive Reed Hastings to $4m for 2013 lifting his remuneration back above the level it stood at before he was penalised for a disastrous 2011 attempt to carve the US video subscription company into separate digital and analogue businesses.
In practical terms, however, Mr Hastings’ actual pay for the year will be determined by the value of his monthly options allowance at the time he receives it – a figure that, based on recent experience, could end up being far higher than the formal figure laid out by the company.
In 2011, for instance, the value of the Netflix chief’s pay soared to $9.3m, up 69 per cent from the year before. Before 2011 began, Netflix had announced that it would raise his pay by 40 per cent to $3.5m.
The difference between notional and actual pay levels represents the accounting method used to assess the full value of the stock options handed to Mr Hastings, taking into account factors such as the high volatility in Netflix’s share price.
Mr Hastings’ projected compensation for 2012 was cut to $2m, from $3.5m in 2011, though the actual value of his pay will not be reported until Netflix publishes its annual proxy statement in February. The reduction followed his attempt to separate the company’s streaming video operations into a separate business from its traditional DVD subscription service, provoking a backlash from customers.
The debacle wiped more than 80 per cent off Netflix’s share price, leaving it vulnerable to attack from an activist shareholder earlier this year when corporate raider Carl Icahn took a stake in the company and suggested it would make a good target for a takeover.
The changing mix of Mr Hastings’ pay may make his actual earnings in 2013 less volatile than in recent years, according to details disclosed in a Netflix filing with the Securities and Exchange Commission on Friday.
His base salary for 2013 has been raised from $500,000 to $2m, while the number of options he will receive have been valued by the company at a notional $2m. While up from $1.5m the year before, that is still less than the $3m of 2011, leaving less scope for the actual value of the options handed to him to send his eventual pay package soaring far above the company’s stated intention.
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