Shareholder Claims Netflix Execs ‘Rigged’ Compensation Packages to Hit Bonus Targets

Netflix’s booth at San Diego Comic-Con 2017 (Photo Credit: Gage Skidmore/Wikipedia)

(CN) – A shareholder derivative action against Netflix alleges company officers “rigged” their compensation packages to ensure they will make their full bonuses regardless of performance goals.

The City of Birmingham Relief and Retirement System filed a federal derivative action on behalf of Netflix against the company’s CEO Reed Hastings and its board of directors in San Jose, California.

Under federal tax law, Netflix can deduct top executives’ minimum $1 million-per-year compensation, provided that the compensation is tied to performance goals.

For the last two years, Netflix’s executives exactly hit their target performance goals in seven out of eight quarters, resulting in the company paying them $18.73 million out of a target of $18.75 million.

The Financial Times called the company out for this “uncanny accuracy,” and questioned whether Netflix’s executive compensation is actually performance-based or just a fait accompli.

“The record shows that the Financial Times ‘hit the nail on the head,’” the pension fund’s heavily redacted April 6 complaint states. “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.”

Six full pages detailing the executives’ alleged misrepresentations to investors to guarantee their huge compensation packages are redacted.

The fund says it should be excused from making a demand on the board given that board members are implicated in the alleged conspiracy to file false proxy statements and violating federal tax laws.

It is represented by John T. Jasnoch with Scott+Scott in San Diego.

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