DEF 14A 1 d721989ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant                              Filed by a Party other than the Registrant 

Check the appropriate box:

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under Rule 14a-12

NETFLIX, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box)

 

  No fee required.
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(set forth the amount on which the filing fee is calculated and state how it was determined):
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    2   Form, Schedule or Registration Statement No.:
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    4   Date Filed:

 

 

 

 

 


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       Letter from Our Lead

       Independent Director

 

 

 

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FELLOW SHAREHOLDERS,

 

As the world grapples with the greatest health crisis of our generation, the global impact of COVID-19 is daunting. Like you, we are focused on health and safety, and the general welfare of those around us. We are working to protect the well-being of our employees, and are taking steps to assist those directly impacted, while ensuring that we continue to operate our business as best we can under these difficult circumstances. We hope that Netflix can also provide some comfort to our members during these challenging times, whether by entertaining, enlightening, or simplyproviding an outlet for our members to remain connected while we wait for the world to stabilize. Through it all, our goal remains the same—to provide world class content that brings joy to our members around the globe.

In 2019, Netflix entertained more than 160 million members with original stories that were nominated for 117 Emmys and an industry-leading 24 Academy Awards. We hit financial milestones, achieving $20 billion in revenue and $2.6 billion of operating income, and over the last decade, we were the highest-returning stock in the S&P 500. As consumers shift away from linear television, we seek to continue to redefine how the world watches movies and TV shows. I’m honored to be a part of this consumer-centric company.

To continue to serve our members, we must be nimble and we must have the flexibility to plan and execute for the long term. Parts of our governance structure and our compensation program don’t fit the typical mold – we pay our employees with only cash and stock options, and we have a culture of transparency, providing the Board broad access to information and management as well as their decision making process. We believe these features have contributed to our success, but are also willing to revisit our positions. In 2019, we adopted proxy access for director elections.

Our recent say on pay vote showed that there are concerns about our unique approach to pay. We welcome the input from our shareholders and have gained valuable insights during our conversations with many of you throughout the past year. We appreciate the time you shared with us. We take your feedback seriously and hope that you value our willingness as a board to do what we believe is in the best interest of our shareholders, even when my fellow board members and I feel the consequences in the form of withhold votes.

A theme we heard frequently during our discussions was a call for clearer and more transparent disclosure. In response to this feedback we published an ESG report, referencing SASB’s reporting framework for the “Internet & Media Services” and “Media & Entertainment” industries. We have also enhanced

this proxy statement, with the intent of providing clearer discussion of our governance and approach to executive compensation. We hope that we’ve made this year’s proxy easier to read.

We are proud of the role Netflix plays not only in entertaining our members but also ensuring more people see their lives and cultures reflected on screen. On behalf of the Board, we thank you for your investment and wish you and your families good health.

Warm regards,

 

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Jay C. Hoag

Lead Independent Director

 


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       Notice of Annual Meeting

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 4, 2020

 

To the Stockholders of Netflix, Inc.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Netflix, Inc., a Delaware corporation (the “Company”), will be held on June 4, 2020 at 3:00 p.m. Pacific Time. You can attend the Annual Meeting via the internet, vote your shares electronically and submit your questions during the Annual Meeting, by visiting www.virtualshareholdermeeting.com/NFLX2020 (there is no physical location for the Annual Meeting). You will need to have your 16-Digit Control Number included on your Notice or your proxy card (if you received a printed copy of the proxy materials) to join the Annual Meeting. The Annual Meeting will be held for the following purposes:

 

1.

To elect three Class III directors to hold office until the 2023 Annual Meeting of Stockholders;

 

2.

To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2020;

 

3.

Advisory approval of the Company’s executive officer compensation;

 

4.

Approval of the Netflix, Inc. 2020 Stock Plan;

 

5.

To consider three stockholder proposals, if properly presented at the Annual Meeting;

 

6.

To transact such other business as may properly come before the meeting or any adjournment or postponement of the meeting.

These business items are described more fully in the Proxy Statement accompanying this Notice. Only stockholders who owned our common stock at the close of business on April 8, 2020 can vote at this meeting or any adjournments that may take place.

All stockholders are cordially invited to attend the meeting via the internet.

For ten days prior to the meeting, a complete list of the stockholders entitled to vote at the meeting will be available for examination by any stockholder for any purpose germane to the meeting during ordinary business hours at the address of the Company’s executive offices located at 100 Winchester Road, Los Gatos, California, 95032. If our offices are closed at that time due to COVID-19, including any related government restrictions, please email board@netflix.com to make alternate arrangements to examine the stockholder list. The stockholders list will also be available during the annual meeting by visiting www.virtualshareholdermeeting.com/NFLX2020 and entering your 16-Digit Control Number.

By order of the Board of Directors

 

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David Hyman

Chief Legal Officer and Secretary

April 22, 2020

Los Gatos, California

 


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YOUR VOTE IS IMPORTANT. PLEASE VOTE OVER THE INTERNET, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING VIA THE INTERNET. IF YOU RECEIVED A PAPER PROXY CARD AND VOTING INSTRUCTIONS BY MAIL, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING VIA THE INTERNET.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 4, 2020: THIS PROXY STATEMENT, THE NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND THE ANNUAL REPORT ARE AVAILABLE AT WWW.PROXYVOTE.COM.

 


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       Table of Contents

 

 

Information Concerning
Solicitation and Voting
    1  

Proposal One: Our Board of Directors

Election of Directors

    4  
Who We Are     6  
How We are Selected, Elected and Evaluated     15  
How We Govern and are Governed     17  
How We are Organized     19  
How to Communicate with Us     22  
How We are Paid     23  
Certain Relationships and Related Transactions     25  

Proposal Two: Our Auditors

Ratification of Appointment of Independent Registered Public Accounting Firm

    26  
Report of the Audit Committee of the Board of Directors     29  

Our Company

Executive Officers

    30  

Proposal Three: Our Pay

Advisory Approval of
Executive Officer Compensation

    34  
Compensation Discussion and Analysis     36  
A Message from the Compensation Committee Chair     36  
Our Company and 2019 Performance     38  
Shareholder Engagement and the 2019 Say on Pay Vote Result     38  
Compensation Philosophy     39  
2019 Named Executive Officers     39  
Determining Executive Compensation Magnitude     39  
Elements of Compensation     41  
Executive Compensation in 2019     42  
Termination-Based Compensation and
Change in Control Retention Incentives
    45  
Tax Considerations     46  
Prohibition on Hedging     47  
Compensation Risk     47  
Code of Ethics     47  
Compensation Committee Report     48  
Compensation of Executive Officers and Other Matters     49  
Potential Payments under Termination or
Change-in-Control
    69  
Pay Ratio Disclosure     70  

Proposal Four

Approval of the Netflix, Inc.
2020 Stock Plan

 

 

71

 

Proposal Five

Shareholder Proposal for Political Disclosures

 

 

86

 

Proposal Six

Shareholder Proposal for Simple Majority Vote

 

 

89

 

Proposal Seven

Shareholder Proposal for EEO Policy Risk Report

 

 

92

 

Security Ownership of Certain Beneficial Owners and Management     95  
Stockholders Sharing an Address     98  
Other Matters     99  

Appendix A

Netflix, Inc. 2020 Stock Plan

    A-1  
 


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       Information Concerning

       Solicitation and Voting

 

 

General

 

 

The attached proxy is solicited on behalf of the Board of Directors (the “Board”) of Netflix, Inc., a Delaware corporation (the “Company”), for use at the Annual Meeting of Stockholders to be held on June 4, 2020, at 3:00 p.m. Pacific Time (the “Annual Meeting”), or at any adjournment or postponement of this meeting, for the purposes set forth in this Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders and form of proxy. This year’s annual meeting will be held entirely via the internet. Stockholders may participate in the annual meeting by visiting the following website: www.virtualshare holdermeeting.com/NFLX2020. To participate in the annual meeting, you will need the 16-digit control number included on your Notice, on your proxy card or on the instructions that accompanied your proxy materials. We encourage you to access the Annual Meeting webcast prior to the start time. Online check-in will begin, and stockholders may begin submitting written questions, at 2:45 p.m Pacific Time, and you should allow ample time for the check-in procedures. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the virtual shareholder meeting log in page.

Hosting the Annual Meeting via the internet provides expanded access, improved communication, reduced environmental impact and cost savings for our stockholders and the Company. Hosting a virtual meeting enables increased stockholder attendance and participation since stockholders can participate and ask questions from any location around the world. In addition, we intend that the virtual meeting format provides stockholders a similar level of transparency to the traditional in person meeting format, including the ability to submit questions during the meeting.

Pursuant to rules promulgated by the Securities and Exchange Commission (“SEC”), we have elected to provide access to our proxy materials over the internet. Accordingly, the Company will mail, on or about April 22, 2020, a Notice of Internet Availability of Proxy Materials to stockholders of record and beneficial owners as of the close of business on April 8, 2020, referred to as the Record Date. On the date of mailing of the Notice of Internet Availability of Proxy Materials, all stockholders will have the ability to access all of the proxy materials at http://www.netflix investor.com/financials/annual-reports-and-proxies. Should you request it, we will make paper copies of these proxy materials available free of charge. To request a copy, please send your request to the Company’s Secretary at the address listed below.

Our principal executive offices are located at 100 Winchester Circle, Los Gatos, California 95032, and our telephone number is (408) 540-3700. Our internet website address is www.netflix.com. You may find our SEC filings, including our annual reports on Form 10-K, on our Investor Relations website at https://www.netflixinvestor.com/financials/sec-filings.

Revocability of Proxies

 

 

You may change your vote at any time prior to the vote at the Annual Meeting. If you are a stockholder of record as of the Record Date, you may change your vote by granting a new proxy bearing a later date (which automatically revokes the earlier proxy), by providing a written notice of revocation to the Company’s Secretary at the address above prior to your shares being voted, or by attending the Annual Meeting and voting via the internet. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically make that request. For shares you hold beneficially in the name of a broker, trustee or other nominee, you may change

 

 

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your vote by submitting new voting instructions to your broker, trustee or nominee, or, if you have obtained a legal proxy from your broker or nominee giving you the right to vote your shares, by attending the meeting and voting via the internet.

Voting and Solicitation

 

 

Only stockholders of record at the close of business on the Record Date will be entitled to notice of and to vote at the Annual Meeting. At the close of business on the Record Date, there were 439,804,035 shares of common stock outstanding and entitled to vote. Each holder of record of shares of common stock on that date will be entitled to one vote for each share held on all matters to be voted upon at the Annual Meeting.

You may vote via the internet by going to www.proxyvote.com and following the instructions on the screen. As explained in greater detail in the Notice of Internet Availability of Proxy Materials, to vote your shares, you may vote via the internet by visiting www.proxyvote.com and having available your 16-digit control number(s) contained on your Notice of Internet Availability of Proxy Materials. If you received your proxy materials by mail, you may vote by completing the enclosed proxy card, dating and signing it and returning it in the postage-paid envelope provided, or you may vote by phone by following the instructions on your proxy card. You may vote via the internet or by phone up until 8:59 PM Pacific Time on June 3, 2020. If you vote by mail, your proxy card must be received by June 3, 2020. If you are a stockholder of record on the Record Date, you can participate in the Annual Meeting online at www.virtualshareholdermeeting.com/NFLX2020 and vote your shares during the Annual Meeting.

Properly delivered proxies will be voted at the Annual Meeting in accordance with the specifications made. Where no specifications are given, such proxies will be voted “FOR” all nominees, “FOR” proposals Two, Three, and Four, and “AGAINST” proposals Five through Seven. It is not expected that any matters other than those referred to in this Proxy Statement

will be brought before the Annual Meeting. If, however, any matter not described in this Proxy Statement is properly presented for action at the Annual Meeting, the persons named as proxies in the enclosed form of proxy will have authority to vote according to their own discretion.

The required quorum for the transaction of business at the Annual Meeting is the presence via the internet or by proxy of holders of a majority of the stock issued and outstanding and entitled to vote at the annual meeting as of the Record Date. Shares that are voted “FOR,” “AGAINST,” “WITHHELD” or “ABSTAIN,” referred to as the Votes Cast, are treated as being present at the Annual Meeting for purposes of establishing a quorum. An abstention will have the same effect as a vote against proposals Two through Seven. Broker non-votes will be counted for purposes of determining the presence or absence of a quorum for the transaction of business, but such non-votes will not be counted for purposes of determining the number of Votes Cast with respect to any proposal. Thus, a broker non-vote will not affect the outcome of the voting on proposals One through Seven. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions with respect to that proposal from the beneficial owner.

If you hold your shares through a broker, bank or other nominee (“street name”) it is critical that you cast your vote if you want it to count in the election of directors (Proposal One of this Proxy Statement), advisory approval of executive officer compensation (Proposal Three of this Proxy Statement), approval of the Netflix, Inc. 2020 Stock Plan (Proposal Four of this Proxy Statement), or any of the stockholder proposals (Proposals Five, Six and Seven of this Proxy Statement). Thus, if you hold your shares in “street name” and you do not instruct your bank or broker how to vote in the election of directors, no vote will be cast on your behalf on these proposals.

The cost of soliciting proxies will be borne by the Company. The Company may reimburse banks and brokers and other persons representing beneficial

 

 

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owners for their reasonable out-of-pocket costs. The Company may use the services of its officers, directors and others to solicit proxies, personally or by telephone, facsimile or electronic mail, without additional compensation. If you vote using the internet or by phone, you may incur data or telephone usage charges from internet access providers or phone companies. The Company will not reimburse those costs.

Stockholder Proposals

 

 

Stockholder proposals that are intended to be presented at our 2021 Annual Meeting of Stockholders in our proxy materials for such meeting must comply with the requirements of SEC Rule 14a-8 and must be received by our Secretary no later than December 23, 2020 in order to be included in our Proxy Statement and proxy materials relating to our 2021 Annual Meeting of Stockholders.

Stockholder nominations for director that are intended to be presented at our 2021 Annual Meeting of Stockholders in our proxy materials for such meeting must comply with our bylaws and must be received by our Secretary no earlier than November 23, 2020 and no later than December 23, 2020 in order to be considered for inclusion in our Proxy Statement and proxy materials relating to our 2021 Annual Meeting of Stockholders. A stockholder proposal or a nomination for director or on any other matter that will not be included in our Proxy Statement and proxy materials, but that a stockholder intends to present via the internet at the meeting, must generally be submitted to our Secretary no earlier than February 6, 2021, and no later than March 8, 2021. Such proposal or nomination must also comply with the requirements set forth in our bylaws. Proposals and nominations should be mailed to: Netflix, Inc., 100 Winchester Circle, Los Gatos, California 95032, Attention: Secretary. Our bylaws have been filed with the SEC and are available at www.sec.gov.

 

 

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Proposal 1

 

 

Our Board of Directors

Election of Directors

 

 

 

 

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The Board unanimously recommends

that the stockholders vote “FOR”

Reed Hastings, Jay C. Hoag and

Mathias Döpfner

 

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Directors Standing For Election

 

 

Three Class III directors, Reed Hastings, Jay Hoag and Mathias Döpfner, are to be elected at the Annual Meeting. Unless otherwise instructed, the proxy holders will vote the proxies received by them for Mr. Hastings, Mr. Hoag and Mr. Döpfner, each of whom is currently a director of the Company. If Mr. Hastings, Mr. Hoag or Mr. Döpfner is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for a substitute nominee designated by the Board to fill the vacancy. Mr. Hastings, Mr. Hoag and Mr. Döpfner each has agreed to serve as a director of the Company if elected. The term of the office of directors elected at this Annual Meeting will continue until the Annual Meeting of Stockholders held in 2023 or until such director’s successor has been duly elected or appointed and qualified, or until their earlier resignation or removal.

 

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Nominee

   Age      Principal Occupation

Reed Hastings

     59      Chief Executive Officer, President, Chairman of the Board, Netflix, Inc.

Jay C. Hoag

     61      General Partner, Technology Crossover Ventures

Mathias Döpfner

     57      Chairman and CEO of Axel Springer SE

 

Each nominee has extensive business experience, education and personal skills that qualifies him or her to serve as an effective Board member. The specific experience, qualifications and skills of Mr. Hastings, Mr. Hoag and Mr. Döpfner are set forth below. The Nominating Committee evaluates potential candidates for service on the Board. Mr. Döpfner was recommended by executive officers of the Company.

Required Vote

 

 

The three nominees receiving the highest number of affirmative Votes Cast will each be elected as Class III directors.

Netflix Recommendation

 

 

The Board unanimously recommends that the stockholders vote “FOR” the nominees listed above.

 

 

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       Who We Are

 

 

 


Board Overview

 

 

Our Board is comprised of 11 highly experienced, talented, and qualified directors with experience as board members and executives at some of the world’s most successful companies. We believe that this is the right Board, with the right structure and responsibilities, to navigate the changing competitive terrain that Netflix operates within. The Board has led Netflix through its evolution from a US DVD-by-mail company to a global streaming company to one of the foremost producers of content in the world, while effectively managing risk and overseeing management performance. By successfully navigating this evolution, Netflix became the top performing stock in the S&P 500 from 2010 through 2019.

 

 

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Board Tenure

 

    

 

 

 

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Gender Diversity

 

 

 

Board balances fresh thinking, new perspectives, and emerging skill needs with institutional knowledge and stability        

    

 

49% of our employees are women, and a significant portion of our subscribers are women; the board is increasingly reflecting that – 4 of 11 directors are female

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Our Directors

 

 

Directors standing for election:

 

     

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Reed Hastings

 

Chief Executive Officer of the Company, Chairman of the Board

 

Director and Chairman since 1997

 

Class III

 

Age: 59

    

Why this director is valuable to Netflix

 

Mr. Hastings, as co-founder and CEO, deeply understands the technology and business of Netflix and brings strategic and operational insight to the Board. He is also a software engineer, holds an MSCS in Artificial Intelligence from Stanford University, and has unique management and industry insights.

 

Also...

 

Mr. Hastings is an active educational philanthropist: he served on the California State Board of education from 2000 to 2004, and after receiving his B.A. from Bowdoin College in 1983 served in the Peace Corps as a high school math teacher in Swaziland. Mr. Hastings previously served on the board of Facebook, Inc. from 2011-2019.

  

Career Snapshot:

 

• Founder, CEO and Chairman of Netflix (since 1997)

 

• Founder, Pure Software (1991) through IPO (1995) and ultimate sale to Rational Software

 

Other Public Company Boards:

 

• None

 

 

Committees:

 

• None

 

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Jay C. Hoag

 

Lead Independent Director

 

Independent Director since 1999

 

Class III

 

Age: 61

    

Why this director is valuable to Netflix

 

As a venture capital investor, Jay brings strategic insights and financial experience to the Board. He has evaluated, invested in and served as a board member on numerous companies, both public and private, and is familiar with a full range of corporate and board functions. His many years of experience in helping companies shape and implement strategy provide the Board with unique perspectives on matters such as risk management, corporate governance, talent selection and management.

 

Also...

 

Mr. Hoag has been a technology investor and venture capitalist for more than 37 years, involved in a large number of technology investments including Altiris (acquired by Symantec), CNET, Expedia, Facebook, Fandango (acquired by Comcast), Intuit, and Sybase. Mr. Hoag is on the Investment Advisory Committee at the University of Michigan, the Board of Trustees of Northwestern University, and the Board of Trust at Vanderbilt University. Previously, Mr. Hoag has served on the board of directors of numerous other public and private companies, including TechTarget, Inc. from 2004-2016. Mr. Hoag holds an M.B.A. from the University of Michigan and a B.A. from Northwestern University.

  

Career Snapshot:

 

• Founding General Partner at Technology Crossover Ventures (since 1995), a venture capital firm

 

Other Public Company Boards:

 

• Electronic Arts

 

• Peloton Interactive

 

• TripAdvisor

 

• Zillow Group

 

Committees:

 

• Nominating & Governance (Chair)1

 

     

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Mathias Döpfner

 

Independent Director since 2018

 

Class III

 

Age: 57

    

Why this director is valuable to Netflix

 

As a media executive located in Germany, Mr. Döpfner brings international perspective, media experience and business acumen to the Board.

 

Also...

 

Mr. Döpfner has extensive experience in media and digital transformation and a strong track record of increasing revenues related to digital activities. He previously served on the boards of Vodafone Group plc (2015-2018) and Time Warner Inc. (2006-2018). Additionally his relationships and honorary offices at entities including the American Academy, the American Jewish Committee and the European Publishers Council among many others provide him with relevant insight and perspective in international media. He studied Musicology, German and Theatrical Arts in Frankfurt and Boston.

  

Career Snapshot:

 

• Chairman and CEO, Axel Springer SE, Europe’s leading digital publishing house (since 2002)

 

• His former roles at Axel Springer SE include editor-in-chief of Die Welt (1998 – 2000) and as a member of the Management Board (starting in 2000)

 

• Visiting Professor in media at University of Cambridge, St. John’s College (2010)

 

Other Public Company Boards:

 

• None

 

 

Committees:

 

• Compensation2

 

1.   Mr. Hoag served on Netflix’s Compensation Committee until March 2020, and so is identified in this proxy as having been on the Compensation Committee during the fiscal year ending December 31, 2019, including being identified on the Compensation Committee report since he participated in the review, discussion and recommendation with respect to such report.
2.   Mr. Döpfner joined the Netflix Compensation Committee in March 2020.

 

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Directors not standing for election:

 

     

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Richard Barton

 

Independent Director since 2002

 

Class I (expires 2021)

 

Age: 52

    

Why this director is valuable to Netflix

 

Having founded successful internet-based companies (including Zillow, Expedia and GlassDoor), Mr. Barton provides strategic and technical insight to the Board. In addition, Mr. Barton brings experience with respect to marketing products to consumers through the internet.

 

Also...

 

Mr. Barton was a venture partner at Benchmark, a venture capital firm that has been an early-stage investor in companies like Twitter, Instagram, Uber and Zillow, from 2005 until 2018. He has served on many public company boards. Mr. Barton holds a B.S. in general engineering: industrial economics from Stanford University.

  

Career Snapshot:

 

• Chief Executive and co-founder of Zillow-Group (since 2010)

 

• Co-founder and Chairman of GlassDoor (2007-2018)

 

• Founder and Chief Executive Officer of Expedia (1996-2003)

 

Other Public Company Boards:

 

• Qurate (formerly Liberty Interactive)

 

• Zillow Group

 

Committees:

 

• Audit

 

     

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Rodolphe Belmer

 

Independent Director since 2018

 

Class I (expires 2021)

 

Age: 50

    

Why this director is valuable to Netflix

 

As a media executive located in France, Mr. Belmer brings a unique international perspective to the Board. In addition, his media experience and business acumen provides the Company with valuable insight as it expands its global operations.

 

Also...

 

Mr. Belmer began his career in the marketing department of Procter & Gamble France before joining McKinsey in 1998. He is a graduate of France’s HEC business school.

  

Career Snapshot:

 

• CEO of Eutelsat, the leading satellite operator in Europe, the Middle East and Africa (since 2016)

 

• CEO of Canal + Group (2012 - 2015); various additional roles since joining in 2001

 

Other Public Company Boards:

 

• None

 

 

Committees:

 

• Compensation

 

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Timothy Haley

 

Independent Director since 1998

 

Class II (expires 2022)

 

Age: 65

    

Why this director is valuable to Netflix

 

As a venture capital investor, Mr. Haley brings strategic and financial experience to the Board. He has evaluated, invested in and served as a board member on numerous companies. His executive recruiting background also provides the Board with insight into talent selection and management.

 

Also...

 

Mr. Haley was President of Haley Associates, an executive recruiting firm serving the high technology industry from 1986 – 1998, and serves on the boards of several private companies. Mr. Haley holds a B.A. from Santa Clara University.

  

Career Snapshot:

 

• Managing Director, Redpoint Ventures, a venture capital firm (since 1999)

 

• Managing Director, Institutional Venture Partners, a venture capital firm (since 1998)

 

Other Public Company Boards:

 

• 2U, Inc.

 

• Zuroa

 

Committees:

 

• Compensation (Chair)

 

     

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Leslie Kilgore

 

Director since 2012

(Independent since 2015)

 

Class II (expires 2022)

 

Age: 54

    

Why this director is valuable to Netflix

 

Ms. Kilgore’s experience as a marketing executive with internet retailers and consumer product companies provides a unique business perspective and her numerous managerial positions provide strategic and operational experience to the Board.

 

Also...

 

As the former Chief Marketing Officer of Netflix, Ms. Kilgore deeply understands the Netflix business and is able to bring years of marketing experience to the Board. She holds an M.B.A. from the Stanford University Graduate School of Business and a B.S. from The Wharton School of Business at the University of Pennsylvania. She previously served on the board of LinkedIn Corp. from 2008-2016.

  

Career Snapshot:

 

• Chief Marketing Officer of Netflix (2000 – 2012)

 

• Director of Marketing at Amazon (1999 – 2000)

 

• Brand manager at The Procter & Gamble Company (1992 – 1999)

 

Other Public Company Boards:

 

• Medallia

 

• Pinterest

 

Committees:

 

• Audit

 

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Ann Mather

 

Independent Director since 2010

 

Class II (expires 2022)

 

Age: 59

    

Why this director is valuable to Netflix

 

Ms. Mather’s experience as an executive with several major media companies provides a unique business perspective. As a former CFO and senior finance executive at major corporations, she brings more than 20 years of financial and accounting expertise to the Board. Additionally, Ms. Mather’s numerous managerial positions and service on public company boards provides strategic, operational and corporate governance experience.

 

Also...

 

Ms. Mather’s prior board experience includes Central European Media Enterprises Group, a developer and operator of national commercial channels and stations in central and eastern Europe; MoneyGram International, a global payment service company; Solazyme, Inc., a renewable oil and bioproducts company; and Shutterfly, Inc., a photography and image-sharing company (2013-2019). She has also been an independent trustee to the Dodge & Cox Funds board of trustees since May 2011. She received her M.A. from Cambridge University, and is an Honorary Fellow of Sidney Sussex College Cambridge.

  

Career Snapshot:

 

• Executive Vice President and CFO of Pixar (1999 – 2004)

 

• Executive Vice President and CFO of Village Roadshow Pictures (1999)

 

• Various executive positions at The Walt Disney Company (1993 – 1999)

 

Other Public Company Boards:

 

• Alphabet (formerly Google)

 

• Arista Networks

 

• Glu Mobile

 

Committees:

 

• Audit (Chair, financial expert)

 

 

     

LOGO

 

Ambassador Susan Rice

 

Independent Director since 2018

 

Class II (expires 2022)

 

Age: 55

    

Why this director is valuable to Netflix

 

As a U.S. diplomat and National Security Advisor, Ambassador Rice brings her unique experience and expertise in international affairs, global security, governmental and public policy matters to the Board.

 

Also...

 

Ambassador Rice began her career as a management consultant with McKinsey and Company in Toronto, Canada, and she currently holds positions as a Research or Senior Fellow at institutions including American University’s School of International Service, and Harvard’s Kennedy School of Government and was formerly a Senior Fellow at the Brookings Institution from 2002–2008. Ambassador Rice received a B.A from Stanford University and attended New College in Oxford as a Rhodes Scholar, earning both a Masters and a Doctorate of Philosophy in International Relations.

  

Career Snapshot:

 

• U.S. National Security Advisor (2013 – 2017)

 

• U.S. Permanent Representative to the United Nations (2009 – 2013)

 

• Assistant Secretary of State for African Affairs (1997 – 2001)

 

• Special Assistant to the President, National Security Council, The White House (1995-1997)

 

Other Public Company Boards:

 

• None

 

Committees:

 

• Nominating & Governance

 

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Brad Smith

 

Independent Director since 2015

 

Class I (expires 2021)

 

Age: 61

    

Why this director is valuable to Netflix

 

With a leading role at Microsoft, Mr. Smith brings broad business and international experience on a variety of issues including government affairs and public policy to the Board. Mr. Smith also brings experience playing a key role in representing Microsoft externally and in leading Microsoft’s work on a number of critical issues including privacy, security, accessibility, environmental sustainability and digital inclusion, among others provides additional expertise to the Board.

 

Also...

 

Mr. Smith has led a push for diversity within Microsoft’s legal division, advocating for increasing employment of diverse employees at the company and associated law firms. Mr. Smith holds a B.A. in international relations and economics from Princeton, a J.D. from Columbia University School of Law and also studied international law and economics at the Graduate Institute of International Studies in Geneva.

  

Career Snapshot:

 

• President and Chief Legal Officer of Microsoft (since 2015); he originally joined Microsoft in 1993

 

• Associate and then Partner, Covington & Burling (1986–1993)

 

Other Public Company Boards:

 

• None

 

Committees:

 

• Nominating & Governance

 

     

LOGO

 

Anne Sweeney

 

Independent Director since 2015

 

Class I (expires 2021)

 

Age: 62

    

Why this director is valuable to Netflix

 

Ms. Sweeney has held various senior positions with large entertainment companies, which provided her with broad strategic and operational experience. Her experience in the entertainment industry provides a unique business perspective to the Board as Netflix builds its global internet TV network.

 

Also...

 

Ms. Sweeney’s entertainment experience spans more than three decades, including her oversight of Disney’s cable, broadcast and satellite properties globally for 18 years. During that time, she was charged with launching and running over 118 Disney Channels in 164 countries in 34 languages, and had oversight over various ABC properties including ABC Television Network, ABC Studios and the Disney ABC Cable Networks Group. Prior to Disney, she was CEO of FX Networks, Inc. from 1993 to 1996 and spent more than 12 years at Viacom’s Nickelodeon Network. She holds an Ed. M. From Harvard University and a B.A. from the College of New Rochelle.

  

Career Snapshot:

 

• Co-chair of Disney Media Networks and President of Disney/ABC Television Group (1996 – 2015)

 

• Chairman and CEO of FX Networks, part of the Fox Entertainment Group/21st Century Fox (1993 – 1996)

 

Other Public Company Boards:

 

• None

 

Committees:

 

• Compensation

 

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Board Skills and Experience

 

 

Our Board believes that having a diverse mix of directors with complementary skills, experience, and expertise is important to meeting its oversight responsibility. That diversity, combined with transparent and broad access to information and exposure to management beyond the executive officers, allows the Board to exercise effective management oversight and to ensure the care of our shareholders’ interests. Below are a number of skills that our Board members bring to Netflix. If an individual is not listed under a particular attribute, it does not signify a director’s lack of ability to contribute in such area.

 

 

LOGO

 

Leadership

 

      🌑  🌑  🌑  🌑  🌑  🌑  🌑  🌑  🌑  🌑  🌑
 

 

Experience and expertise in identifying and developing opportunities for long-term value creation, including experience in driving innovation, opening markets, improving operations, identifying risks, and executing successfully.

   

Richard Barton

 

Rodolphe Belmer

 

Mathias Döpfner

 

Timothy Haley

 

Reed Hastings

 

Jay Hoag

 

Leslie Kilgore

 

Ann Mather

 

Ambassador Susan Rice

 

Brad Smith

 

Anne Sweeney

 

LOGO

 

Strategy

 

      🌑  🌑  🌑  🌑  🌑  🌑  🌑  🌑  🌑  🌑  🌑
 

 

Experience and expertise in identifying and developing opportunities for long-term value creation, including experience in driving innovation, opening markets, improving operations, identifying risks, and executing successfully.

   

Richard Barton

 

Rodolphe Belmer

 

Mathias Döpfner

 

Timothy Haley

 

Reed Hastings

 

Jay Hoag

 

Leslie Kilgore

 

Ann Mather

 

Ambassador Susan Rice

 

Brad Smith

 

Anne Sweeney

LOGO

 

Finance & Accounting

 

      🌑  🌑  🌑  🌑  🌑  🌑  🌑  🌑  🌑
 

 

Management or oversight of the finance function of an enterprise, resulting in proficiency in complex financial management, capital allocation, and financial reporting processes.

   

Richard Barton

 

Rodolphe Belmer

 

Mathias Döpfner

 

Timothy Haley

 

Reed Hastings

 

 

Jay Hoag

 

Leslie Kilgore

 

Ann Mather

 

Anne Sweeney

 

LOGO

 

Entertainment & Media

 

      🌑  🌑  🌑  🌑  🌑  🌑  🌑
 

 

Experience and expertise with the entertainment and media industry, resulting in a deep understanding of consumer expectations and innovations in content and delivery.

   

Richard Barton

 

Rodolphe Belmer

 

Mathias Döpfner

 

Reed Hastings

 

Leslie Kilgore

 

Ann Mather

 

Anne Sweeney

 

LOGO

 

Demographic Diversity

 

      🌑  🌑  🌑  🌑  🌑  🌑
 

 

Representation of gender, ethnic, race, geographic, cultural, or other perspectives that expand the Board’s understanding of the needs and viewpoints of our members, partners, employees, governments, and other stakeholders worldwide.

   

Rodolphe Belmer

 

Mathias Döpfner

 

Leslie Kilgore

 

Ann Mather

 

Ambassador Susan Rice

 

Anne Sweeney

 

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LOGO

 

Global Business & Government Relations

 

      🌑  🌑  🌑  🌑  🌑
 

 

Expertise in global business cultures, consumer preferences, and /or government relations gained through local experience in international markets or senior positions overseeing public policy.

   

Rodolphe Belmer

 

Mathias Döpfner

 

Ann Mather

 

Ambassador Susan Rice

 

Brad Smith

 

LOGO

 

Technology

 

      🌑  🌑  🌑  🌑
 

 

Experience and expertise in technology-related business or technology functions, resulting in knowledge of how to anticipate technological trends, understand and manage technology related risks, generate disruptive innovation, and extend or create new business models.

   

Richard Barton

 

Reed Hastings

 

Jay Hoag

 

Brad Smith

 

LOGO

 

Marketing

 

      🌑  🌑  🌑
 

 

Experience and expertise developing strategies to grow market share, package and position product offerings, build brand awareness and equity, and enhance enterprise reputation.

   

Richard Barton

 

Rodolphe Belmer

 

  Leslie Kilgore

 

LOGO

 

Human Capital Management

 

      🌑  🌑
 

 

Experience and expertise related to human resource issues such as attracting and retaining talent, succession planning, engagement of employees, and the development and evolution of culture, including the alignment of culture and long-term strategy.

   

Timothy Haley

 

Reed Hastings

 

Director Independence

 

 

The Board has determined that each of Messrs. Barton, Belmer, Döpfner, Haley, Hoag and Smith, and Mses. Kilgore, Mather, Rice and Sweeney are independent under the applicable rules of the SEC and the listing standards of the NASDAQ Stock Market; therefore, every member of the Audit Committee, Compensation Committee and Nominating and Governance Committee is an independent director in accordance with those standards.

 

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       How We are Selected,

       Elected and Evaluated

 

 

Consideration of Director Nominees

 

 

Director Qualifications

In discharging its responsibilities to nominate candidates for election to the Board, the Nominating and Governance Committee has not specified any minimum qualifications for serving on the Board. However, the Nominating and Governance Committee endeavors to evaluate, propose and approve candidates with business experience, diversity, as well as personal skills and knowledge with respect to technology, finance, marketing, financial reporting and any other areas that may be expected to contribute to an effective Board. With respect to diversity, the committee may consider such factors as diversity in viewpoint, professional experience, education, international experience, skills and other individual qualifications and attributes that contribute to board heterogeneity, including characteristics such as gender, race, and national origin.

Identifying and Evaluating Nominees for Directors

The Nominating and Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. Candidates may come to the attention of the Nominating and Governance Committee through management, current Board members, stockholders or other persons. These candidates are evaluated at meetings of the Nominating and Governance Committee as necessary and discussed by the members of the Nominating and Governance Committee from time to time. Candidates may be considered at any point during the year.

The Nominating and Governance Committee considers properly submitted stockholder

nominations for candidates for the Board. Following verification of the stockholder status of persons proposing candidates, recommendations are aggregated and considered by the Nominating and Governance Committee. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials are forwarded to the Nominating and Governance Committee. The Nominating and Governance Committee also reviews materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a stockholder.

Stockholder Nominees

The Nominating and Governance Committee considers properly submitted stockholder nominations for candidates for membership on the Board as described above under “Identifying and Evaluating Nominees for Directors.” Any stockholder nominations proposed for consideration by the Nominating and Governance Committee should include the nominee’s name and qualifications for Board membership. In addition, they should be submitted within the time frame as specified under “Stockholder Proposals” above and mailed to: Netflix, Inc., 100 Winchester Circle, Los Gatos, California 95032, Attention: Secretary.

Our bylaws provide a proxy access right for stockholders, pursuant to which a stockholder, or a group of up to 20 stockholders, owning at least three percent of outstanding shares of our common stock continuously for at least three years, may nominate and include in our annual meeting proxy materials director nominees constituting up to the greater of (a) two directors or (b) twenty percent of the Board, subject to certain limitations and provided that the stockholders and nominees satisfy the requirements specified in our bylaws.

 

 

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Our Board Evaluation Process

 

 

Each year, our Board conducts a self-evaluation process to help assure and enhance its performance. This process is overseen by the Nominating and Governance Committee, and involves interviews of

each director by our Chief Legal Officer. Feedback is sought primarily in the following areas: (a) the Board’s effectiveness, structure, culture and composition, (b) the quality of and access to information shared with the Board about the Company’s business and (c) performance of the directors and quality of Board discussions.

 

 

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       How We Govern

       and are Governed

 

 

Our Approach to Corporate Governance

 

 

Corporate Governance Philosophy

Netflix operates in a dynamic industry and has been in a state of constant innovation since inception. We have redefined how people watch video—first through DVD-by-mail, then streaming video, and now as a leading global content producer with more than 182 million members in 190 countries. Our success has not gone unnoticed, and we are seeing increasing competition, even as this dynamic market continues to evolve.

Our corporate governance structure is built against this backdrop. Governance, in this context, means finding the right balance of rights and responsibilities among shareholders, the Board, and management, and ensuring that there are appropriate checks and balances in place. With the rapid evolution of technology and the changing media landscape, we are continually adjusting our service to meet the dynamic needs and desires of our consumers. Our governance structure is built to help us to do that. Our focus is on creating long-term value for our shareholders, and we have been successful at that – we were the highest returning stock in the S&P 500 over the decade from 2010-2019.

Our governance structure is unconventional. We have several provisions that give our Board and our management team the freedom to be forward-thinking, such as making investments to build our own production studios and developing our own animation capabilities, with the confidence that they will be able to see those investments to fruition. At the same time, we have paid attention to our shareholders and increased our accountability to them by adopting provisions such as proxy access. Nonetheless, we are proud of our governance structure, both because of

how it has supported our success to date and for being innovative, such as the way that our Board has unfettered access to management and is able to seek information directly from employees all around the enterprise.

We strive to stay in tune with our ownership base. This year, our Board and our management team engaged directly with our shareholders, and our Board and its committees considered shareholders’ feedback in assessing our governance structure, including our compensation program. The discussions provided a good opportunity to share views and answer questions; the input from our shareholders will continue to inform our ongoing evaluation of our structure.

We believe our approach to governance will continue to provide the greatest benefit to Netflix and its shareholders. We realize that elements of our structure may not fit within the standard corporate governance practices and that some shareholders take a different view. But we believe that Netflix’s long-term value is currently best optimized with our approach to governance.

Shareholder Engagement and 2019 Shareholder Proposals

At our 2019 annual meeting, shareholders presented two proposals for vote. One proposal requested additional disclosure around political spending; a majority of shareholders did not support this proposal. The second proposal requested that Netflix lower the two-thirds supermajority requirement for amending our company’s charter and bylaws to a simple majority. This proposal did receive majority support from shareholders.

We consider the voting results for shareholder proposals in our Board discussions and as we contemplate the company’s governance structure.

 

 

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We also undertook a shareholder engagement campaign to solicit the feedback from shareholders on a broad range of topics including these shareholder proposals. In our campaign, we held 22 meetings (either in person or on the phone) with investors representing approximately 50% of our common shares outstanding. Members of the Board, as well as members of management, participated in these conversations as appropriate.

The feedback we received from shareholders was largely centered on our decision to not adopt majority supported shareholder proposals in the last few years. We explained our approach to governance, including our goal of ensuring that we are best able to execute our long-term vision, which we believe is in the best interests of all shareholders.

We further note that our current practice with respect to our supermajority provision is a mainstream practice. According to data from Institutional Shareholder Services, more than forty percent of S&P 500 companies have supermajority provisions in place. Further, according to data from FactSet, our threshold is common and among the lower thresholds that companies have adopted. After consideration of shareholder feedback, industry trend data, and our corporate governance philosophy, we decided at this point not to lower the voting requirement from its current supermajority level. We will continue to monitor and evaluate this issue.

The Role of the Board in Risk Oversight

 

 

The Board’s role in the Company’s risk oversight process includes reviewing and discussing with members of management areas of material risk to the Company, including strategic, operational, financial and legal risks. The Board as a whole primarily deals with matters related to strategic and operational risk. The Audit Committee deals with matters of financial and legal risk, including cybersecurity risk. The Compensation Committee addresses risks related to compensation and other talent-related matters. The Nominating and Governance Committee manages risks associated with Board independence and corporate governance. Committees report to the full Board regarding their respective considerations and actions. In connection with the recent COVID-19 outbreak, management, with the support of our Board and Audit Committee, quickly engaged, assessed and led our efforts to mitigate operational, employee and other risks to our business associated with the pandemic.

 

 

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       How We are Organized

 

 

Board Meetings and Committees

 

 

The Board held four meetings during 2019. Each Board member attended at least 75% of the aggregate of the total number of Board meetings and meetings of the Board committees.

As of the date of this Proxy Statement, the Board has three standing committees: (1) the Compensation Committee; (2) the Audit Committee; and (3) the Nominating and Governance Committee.

Compensation Committee

In 2019, the Compensation Committee of the Board consisted of four non-employee directors: Messrs. Belmer, Haley (Chair), and Hoag and Ms. Sweeney. Mr. Hoag was replaced by Mr. Döpfner in March 2020. Each member of the Compensation Committee is independent in compliance with the rules of the SEC and the listing standards of the NASDAQ Stock Market as they pertain to Compensation Committee members. Each of the Compensation Committee members is also a non-employee director under Rule 16b-3 of the Exchange Act and an outside director under section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation Committee reviews and approves all forms of compensation to be provided to the executive officers and directors of the Company. For a description of the role of the executive officers in recommending compensation and the role of any compensation consultants, please see the section entitled “Compensation Discussion and Analysis” below. The Compensation Committee held three meetings in 2019. Each member attended at least 75% of the aggregate of the Compensation Committee meetings held in 2019.

The Report of the Compensation Committee is included in this Proxy Statement. In addition, the

Board has adopted a written charter for the Compensation Committee, which is available on the Company’s Investor Relations website at https://www.netflixinvestor.com/governance/governance-docs/default.aspx.

Audit Committee

The Audit Committee of the Board consists of three non-employee directors: Mr. Barton, and Mses. Kilgore and Mather (Chair), each of whom is independent in compliance with the rules of the SEC and the listing standards of the NASDAQ Stock Market as they pertain to audit committee members. The Board has determined that Ms. Mather is an audit committee financial expert as defined by Item 407(d)(5)(ii) of Regulation S-K of the Securities Act of 1933, as amended.

The Audit Committee engages the Company’s independent registered public accounting firm, reviews the Company’s financial controls, evaluates the scope of the annual audit, reviews audit results, consults with management and the Company’s independent registered public accounting firm prior to the presentation of financial statements to stockholders and, as appropriate, initiates inquiries into aspects of the Company’s internal accounting controls and financial affairs. The Audit Committee met seven times in 2019. Each member attended at least 75% of the Audit Committee meetings held in 2019.

The Report of the Audit Committee is included in this Proxy Statement. In addition, the Board has adopted a written charter for the Audit Committee, which is available on the Company’s Investor Relations website at https://www.netflixinvestor.com/governance/governance-docs/default.aspx.

 

 

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Nominating and Governance Committee

The Nominating and Governance Committee of the Board consists of three non-employee directors, Messrs. Hoag (Chair) and Smith and Ambassador Rice, each of whom is independent under the listing standards of the NASDAQ Stock Market. The Nominating and Governance Committee reviews and approves candidates for election and to fill vacancies on the Board, including re-nominations of members whose terms are due to expire, and reviews and provides guidance to the Board on corporate governance matters. The Nominating and Governance Committee met two times in 2019. Messrs. Hoag and Smith and Ambassador Rice attended all the meetings in 2019.

The Board has adopted a written charter for the Nominating and Governance Committee, which is available on the Company’s investor relations website at https://www.netflixinvestor.com/governance/governance-docs/default.aspx.

Compensation Committee Interlocks and Insider Participation

 

 

None of the Company’s executive officers serves on the board of directors or compensation committee of a company that has an executive officer that serves on the Company’s Board or Compensation Committee. No member of the Company’s Board is an executive officer of a company in which one of the Company’s executive officers serves as a member of the board of directors or compensation committee of that company.

In 2019, the Compensation Committee consisted of Messrs. Belmer, Haley, and Hoag and Ms. Sweeney, none of whom is currently or was formerly an officer or employee of the Company. None of Messrs. Belmer, Haley, or Hoag or Ms. Sweeney had a relationship with the Company that required disclosure under Item 404 of Regulation S-K. In addition to Messrs. Belmer, Haley, and Hoag and Ms. Sweeney, the Company’s Chief Executive Officer and Chief Talent Officer participated in the executive compensation process

as described below in the section entitled “Compensation Discussion and Analysis.”

Policy Regarding Director Attendance at the Annual Meeting

 

 

The Company’s policy regarding directors’ attendance at the annual meetings of stockholders and their attendance record at last year’s annual meeting of stockholders can be found on the Company’s Investor Relations website at https://www.netflixinvestor.com/governance/governance-docs/default.aspx.

The Board’s Leadership Structure

 

 

The Board combines the role of Chairman and Chief Executive. While the Board reassesses maintaining the combined role from time to time, the Board believes that the Chief Executive Officer is best situated to serve as Chairman because he is the director most familiar with the Company’s business and industry and is therefore best able to identify the strategic priorities to be discussed by the Board. The Board also believes that combining the role of Chairman and Chief Executive Officer facilitates information flow between management and the Board and fosters strategic development and execution. The Board has appointed Jay Hoag as its lead independent director. As lead independent director, Mr. Hoag’s responsibilities include:

 

    coordinating the activities of the independent directors, and authorization to call meetings of the independent directors;

 

    coordinating with the chief executive officer and corporate secretary to set the agenda for Board meetings, soliciting and taking into account suggestions from other members of the Board;

 

    chairing executive sessions of the independent directors;

 

    providing feedback and perspective to the chief executive officer about discussions among the independent directors;
 

 

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    helping facilitate communication between the chief executive officer and the independent directors;

 

    presiding at Board meetings where the Chair is not present; and

 

    performing other duties assigned from time to time by the Board.

 

In addition, the Board maintains effective independent oversight through a number of governance practices, including, open and direct communication with management, input on meeting agendas, annual performance evaluations and regular executive sessions.

 

 

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       How to Communicate with Us

 

 

 


Communications with the Board

 

 

The Company provides a process for stockholders to send communications to the Board through the email address board@netflix.com. Information regarding stockholder communications with the Board can be found on the Company’s Investor Relations website at https://www.netflixinvestor.com/governance/governance-docs/default.aspx.

 

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       How We are Paid

 

 

Since 2015, none of the Company’s directors receive cash for services they provide as directors or members of Board committees but may be reimbursed for their reasonable expenses for attending Board and Board committee meetings. Each non-employee director receives stock options pursuant to the Director Equity Compensation Plan. The Director Equity Compensation Plan provides for a monthly grant of stock options to each non-employee director of the Company in consideration for services provided to the Company and subject to the terms and conditions of the Company’s 2011 Stock Plan. If shareholders approve the Netflix, Inc. 2020 Stock Plan, stock option awards that are granted after the 2020 annual meeting will instead be subject to the terms and conditions of the Netflix, Inc. 2020 Stock Plan. Details about the Netflix, Inc. 2020 Stock Plan can be found in Proposal Four of this Proxy Statement.

We believe that for our company, compensating directors only with options is appropriate and creates the right incentives and long-term value alignment with shareholders. Without long-term value creation,

directors are not compensated as the intrinsic value of options on dates of grant is zero.

The actual number of options granted each month to each of the Company’s directors is determined by the following formula: $25,000 / ([fair market value on the date of grant] x 0.40). Each monthly grant is made on the first trading day of the month, is fully vested upon grant and is exercisable at a strike price equal to the fair market value on the date of grant. The table below sets forth information concerning the compensation of the Company’s non-employee directors during 2019.

In September 2018, Compensia advised the Board on the Company’s compensation program for our Board for 2019, based on a comparison against our 2019 peer group’s board compensation programs and other compensation-related developments. The prior time Compensia reviewed our Board’s compensation program was in 2015, and we adjusted our Board’s compensation program in 2016. We did not make any changes to the compensation program for our Board in 2017, 2018 or 2019.

 

 

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Name

    

Option Awards

($)1

      

Total

($)

 

Richard N. Barton

       366,555          366,555 2 

Rodolphe Belmer

       366,531          366,531 3 

Mathias Döpfner

       366,566          366,566 4 

Timothy M. Haley

       366,555          366,555 5 

Jay C. Hoag

       366,555          366,555 6 

Leslie Kilgore

       366,555          366,555 7 

Ann Mather

       366,555          366,555 8 

Susan E. Rice

       366,666          366,666 9 

Bradford L. Smith

       366,566          366,566 10 

Anne M. Sweeney

       366,566          366,566 11 
1.   Option awards reflect the monthly grant of stock options to each non-employee director on the dates and at the aggregate grant date fair values computed in accordance with FASB ASC Topic 718 as shown below.

 

   

Grant Date

     Fair Value
($)
 

1/2/2019

       31,886

2/1/2019

       31,972

3/1/2019

       31,971

4/1/2019

       30,965

5/1/2019

       31,025

6/3/2019

       31,079

7/1/2019

       29,794

8/1/2019

       29,672

9/3/2019

       29,760

10/1/2019

       29,468

11/1/2019

       29,460

12/2/2019

       29,504

 

2.   Aggregate number of option awards outstanding held by Mr. Barton at December 31, 2019 was 55,185.
3.   Aggregate number of option awards outstanding held by Mr. Belmer at December 31, 2019 was 4,479.
4.   Aggregate number of option awards outstanding held by Mr. Döpfner at December 31, 2019 was 2,919.
5.   Aggregate number of option awards outstanding held by Mr. Haley at December 31, 2019 was 35,627.
6.   Aggregate number of option awards outstanding held by Mr. Hoag at December 31, 2019 was 53,547.
7.   Aggregate number of option awards outstanding held by Ms. Kilgore at December 31, 2019 was 12,425.
8.   Aggregate number of option awards outstanding held by Ms. Mather at December 31, 2019 was 14,667.
9.   Aggregate number of option awards outstanding held by Ms. Rice at December 31, 2019 was 4,029.
10.   Aggregate number of option awards outstanding held by Mr. Smith at December 31, 2019 was 21,673.
11.   Aggregate number of option awards outstanding held by Ms. Sweeney at December 31, 2019 was 9,506.

 

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       Certain Relationships and

       Related Transactions

 

 

Agreements with Directors and Executive Officers

 

 

The Company has entered into indemnification agreements with each of its directors and executive officers. These agreements require the Company to indemnify such individuals, to the fullest extent permitted by Delaware law, for certain liabilities to which they may become subject as a result of their affiliation with the Company.

Procedures for Approval of Related Party Transactions

 

 

The Company has a written policy concerning the review and approval of related party transactions. Potential related party transactions are identified through an internal review process that includes a review of payments made in connection with

transactions in which related persons may have had a direct or indirect material interest. Those transactions that are determined to be related party transactions under Item 404 of Regulation S-K issued by the SEC are submitted for review by the Audit Committee for approval and to conduct a conflicts-of-interest analysis. The individual identified as the “related party” may not participate in any review or analysis of the related party transaction.

Mr. Hastings beneficially owned two aircraft which were leased to Netflix by him under time-sharing agreements for Netflix business related travel by Mr. Hastings and other Netflix employees. These agreements were terminated in 2019. Under the terms of the time-sharing agreements, Netflix provided payment to Mr. Hastings for such travel based on the aggregate incremental cost of each specific flight pursuant to applicable FAA regulations. In 2019, Netflix reimbursed Mr. Hastings $508,438 under these time-sharing agreements.

 

 

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Proposal 2

 

 

Our Auditors

Ratification of

Appointment of

Independent Registered

Public Accounting Firm

 

 

LOGO

  

The Board unanimously recommends that the

stockholders vote “FOR” the ratification of the

appointment of Ernst & Young LLP as the company’s

independent registered public accounting firm for

the year ending December 31, 2020

 

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The Audit Committee of the Board has selected Ernst & Young LLP (“Ernst & Young”), an independent registered public accounting firm, to audit the financial statements of Netflix, Inc. for the year ending December 31, 2020. The Company is submitting its selection of Ernst & Young for ratification by the stockholders at the Annual Meeting. A representative of Ernst & Young is expected to be present at the Annual Meeting, will have the opportunity to make a statement and is expected to be available to respond to appropriate questions. Ernst & Young has served as our independent registered public accounting firm since March 21, 2012. Neither applicable law nor the Company’s Bylaws require that stockholders ratify the selection of Ernst & Young as the Company’s independent registered public accounting firm. However, the Company is submitting the selection of Ernst & Young to stockholders for ratification as a matter of good corporate practice. If stockholders do not ratify the selection, the Audit Committee will reconsider whether to retain Ernst & Young. Even if the selection is ratified, the Audit Committee at its discretion may change the appointment at any time during the year if they determine that such a change would be in the best interests of the Company and its stockholders.

Principal Accountant Fees and Services

 

 

During 2019 and 2018, fees for services provided by Ernst & Young was as follows (in thousands):

 

     
        2019        2018  

Audit Fees

     $ 4,936        $ 4,343

Tax Fees

       2,927        1,858

Total

     $ 7,863        $ 6,201

Audit Fees include amounts related to the audit of the Company’s annual financial statements and internal control over financial reporting, and quarterly review of the financial statements included in the Company’s

Quarterly Reports on Form 10-Q. Audit fees also include amounts related to accounting consultations and services rendered in connection with the Company’s issuance of senior notes in 2019 and 2018, respectively, as well as fees for statutory audit filings.

Tax Fees include fees billed for tax compliance, tax advice and tax planning services.

There were no other fees billed by Ernst & Young for services rendered to the Company, other than the services described above, in 2019 and 2018.

 

The Audit Committee has determined that the rendering of non-audit services by Ernst & Young was compatible with maintaining their independence.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

 

 

The Audit Committee pre-approves all audit and permissible non-audit services provided by the Company’s independent registered public accounting firm. These services may include audit services, audit-related services, tax and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. During 2019, services provided by Ernst & Young were pre-approved by the Audit Committee in accordance with this policy.

 

 

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Required Vote

 

 

The affirmative vote of the majority of the Votes Cast is required for ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2020. The vote is an advisory vote, and therefore not binding.

 

Netflix Recommendation

 

 

The Board unanimously recommends that the stockholders vote “FOR” the ratification of the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for the year ending December 31, 2020.

 

 

 

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       Report of the Audit Committee

       of the Board

 

 

The Audit Committee engages and supervises the Company’s independent registered public accounting firm and oversees the Company’s financial reporting process on behalf of the Board. Management has the primary responsibility for the preparation of financial statements and the reporting process, including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2019 with management, including a discussion of the quality of the accounting principles, the reasonableness of significant judgments made by management and the clarity of disclosures in the financial statements.

The Audit Committee reviewed with Ernst & Young LLP (“Ernst & Young”), the Company’s independent registered public accounting firm, who is responsible for expressing an opinion on the conformity of the Company’s audited financial statements with accounting principles generally accepted in the United States of America, its judgments as to the quality of the Company’s accounting principles and the other matters required to be discussed with the Audit Committee under the auditing standards generally accepted in the United States of America, including the matters required by Auditing Standard No. 1301, Communications with Audit Committees, issued by the Public Company Accounting Oversight Board (“PCAOB”). In addition, the Audit Committee has discussed with Ernst & Young its independence from management and the Company, including the written disclosures and the letter regarding its independence as required by PCAOB Rule 3526, Communication with Audit Committees Concerning Independence.

The Audit Committee also reviewed the fees paid to Ernst & Young during the year ended December 31, 2019 for audit and non-audit services, which fees are described under the heading “Principal Accountant Fees and Services.” The Audit Committee has determined that the rendering of all non-audit services by Ernst & Young were compatible with maintaining its independence.

The Audit Committee discussed with Ernst & Young the overall scope and plans for its audit. The Audit Committee met with Ernst & Young, with and without management present, to discuss the results of its examinations, its evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in the annual report on Form 10-K for the year ended December 31, 2019, for filing with the Securities and Exchange Commission.

Audit Committee of the Board

Richard N. Barton

Leslie Kilgore

Ann Mather

 

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Our Company

Executive Officers

 

 

 

  

 

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Our executive officers are as follows:

 

     

Executive Officers

   Age      Position

Reed Hastings

     59      Chief Executive Officer, President, Chairman of the Board

David Hyman

     54      Chief Legal Officer and Secretary

Jessica Neal

     43      Chief Talent Officer

Spencer Neumann

     50      Chief Financial Officer

Greg Peters

     49      Chief Product Officer

Ted Sarandos

     55      Chief Content Officer

Rachel Whetstone

     52      Chief Communications Officer

For more information about Mr. Hastings, see “Proposal One – Election of Directors.” Information about our other executive officers is set forth below:

 

     

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David Hyman

 

Chief Legal Officer

 

Age: 54

    

About:

 

As Chief Legal Officer, David is responsible for all legal and public policy matters for the Company. He also serves as the Company’s Secretary.

 

Also...

 

David practiced law at Morrison & Foerster in San Francisco and Arent Fox in Washington, DC. He earned his JD and Bachelor’s degrees from the University of Virginia.

  

Career Snapshot:

 

•  Chief Legal Officer and Secretary of Netflix (since 2002)

 

Prior:

•  General Counsel of Webvan, an online internet retailer

 

 

     

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Jessica Neal

 

Chief Talent Officer

 

Age: 43

    

About:

 

Jessica leads the team that maintains the Company’s unique corporate culture, hires new talent and keeps the organization lean and flexible despite enormous growth.

 

Also...

 

Jessica is a Netflix veteran, starting at the company in 2006 when DVD was king and streaming just a dream, and has been heavily involved in improving the Netflix culture as the company grew. After roles at Coursera and Scopley, she rejoined the Netflix team in her current role. Jessica also serves on the board of directors of the Association for Talent Development.

  

Career Snapshot:

 

•  Chief Talent Officer at Netflix (since 2017)

 

Prior:

•  Chief People Officer at Scopely, a leading player in the mobile gaming industry (2015-2017)

•  Head of Human Resources at Coursera, which provides online access to the world’s best university courses

 

 

 

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Spencer Neumann

 

Chief Financial Officer

 

Age: 50

    

About:

 

Spencer was named CFO of Netflix in January of 2019, utilizing his finance and accounting experience in software, media and service oriented companies to continue to build on the company’s track record of success and innovation.

 

Also...

 

Spencer also worked at the private equity firms of Providence Equity Partners and Summit Partners. Additional positions at The Walt Disney Company, which he initially joined in 1992, included executive vice president of the ABC Televisions Network and CFO of the Walt Disney Internet Group. He is a member of the national board of directors of Make-A-Wish America. Spencer holds both a B.A. in economics and an M.B.A. from Harvard University.

  

Career Snapshot:

 

•  CFO of Netflix (since 2019)

 

Prior:

•  CFO of Activision Blizzard, a video gaming company (2017-2019)

•  CFO and executive vice president of Global Guest Experience of Walt Disney Parks and Resorts, among other positions at the Walt Disney Company, a diversified multinational media and entertainment company (2012-2017)

 

 

     

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Greg Peters

 

Chief Product Officer

 

Age: 49

    

About:

 

As Chief Product Officer, Greg leads the product team, which designs, builds and optimizes the Netflix experience including applications and user interfaces.

 

Also...

 

Greg previously held positions at digital entertainment software provider, Mediabolic Inc., Red Hat Network, the provider of Linux and Open Source technology, and online vendor Wine.com. He holds a degree in physics and astronomy from Yale University. Greg joined the board of 2U, Inc., a global leader in education technology, in March of 2018.

  

Career Snapshot:

 

•  Chief Product Officer of Netflix (since 2017)

 

Prior:

•  International Development Officer of Netflix (2015-2017)

•  Chief Streaming and Partnerships Officer of Netflix

•  Senior Vice President of consumer electronics products for Macrovision Solutions Corp. (later renamed Rovi Corporation), a technology company

 

 

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Ted Sarandos

 

Chief Content Officer

 

Age: 55

    

About:

 

Ted oversees the teams responsible for the acquisition and creation of all Netflix content including original series from around the world. He has been responsible for all content operations since 2000, and led the company’s transition into original content production that began in 2013 with the launch of series such as House of Cards, Arrested Development and Orange is the New Black.

 

Also...

 

With more than 20 years’ experience in home entertainment, Ted is recognized in the industry as an innovator in film acquisition and distribution and was named one of Time Magazine’s 100 Most Influential People of 2013. He is a Henry Crown Fellow at the Aspen Institute and serves on the board of Exploring The Arts, a nonprofit focused on arts in schools. Ted also serves on the Film Advisory Board for the Tribeca and Los Angeles Film Festivals, is an American Cinematheque board member, an Executive Committee Member of the Academy of Television Arts & Sciences and is a trustee of the American Film Institute.

  

Career Snapshot:

 

•  Chief Content Office of Netflix (since 2000)

 

Prior:

•  Executive at video distributor ETD and Video City/West Coast video, a video rental retail chain

•  Producer/Executive Producer for award-winning and critically acclaimed documentaries and independent films including the Emmy-nominated Outrage and Tony Bennett: The Music Never Ends.

 

 

     

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Rachel Whetstone

 

Chief Communications Officer

 

Age: 52

    

About:

 

Rachel is responsible for leading communications on a global basis.

 

Also...

 

Rachel has spent the last 13 years working on communications and policy issues for US technology companies. She also serves as a director of Udacity. Rachel is a graduate of Bristol University and spent the first half of her career working as a policy advisor for the UK Conservative Party.

  

Career Snapshot:

 

•  Chief Communications Officer at Netflix (since 2018)

 

Prior:

•  Vice President of Communications at Facebook, a social media and technology company (2017-2018)

•  Senior Vice President of Communications & Public Policy at Uber, a multinational ride-sharing company (2015-2017)

•  Senior Vice President of Communications & Public Policy at Google, an internet-related services and products company

There are no family relationships among any of our directors, nominees for director and executive officers.

 

2020 PROXY STATEMENT    33


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Proposal 3

 

 

Our Pay

Advisory Approval

of Executive Officer

Compensation

 

 

LOGO

  

The Board unanimously recommends that the

stockholders vote “FOR” approval of our

Executive Officer Compensation disclosed

in this Proxy Statement.

 

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As required by section 14A of the Securities Exchange Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), we are providing our stockholders with the opportunity to cast a non-binding advisory vote on the compensation of our named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC (also referred to as “say-on-pay”).

We currently hold our advisory say-on-pay every year. Shareholders will have an opportunity to cast an advisory vote on the frequency of say-on-pay votes at least every six years. We currently expect that the next advisory vote on the frequency of the say-on-pay votes will occur at the 2023 annual meeting of shareholders.

As described in our Compensation Discussion and Analysis, we have adopted an executive compensation philosophy designed to attract and retain outstanding performers. The Company’s compensation practices are guided by market rates

and tailored to account for the specific needs and responsibilities of the particular position as well as the performance and unique qualifications of the individual employee, rather than by seniority or overall Company performance.

Required Vote

 

 

The affirmative vote of the majority of the Votes Cast is required to approve the compensation of our named executive officers disclosed in this Proxy Statement. The vote is an advisory vote, and therefore not binding.

Netflix Recommendation

 

 

The Board unanimously recommends that the stockholders vote “FOR” approval of our executive officer compensation disclosed in this Proxy Statement.

 

 

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       Compensation Discussion

       and Analysis

 

 

 


A Message from the Compensation Committee Chair

 

 

We have designed the Netflix compensation program to be simple, highly aligned with our shareholders’ interests, and to attract and retain the most talented employees from around the globe. We understand that our program is different. However, in light of Netflix’s long-term stock performance, our low voluntary employee turnover rate of 4%, and our three-year average dilution rate of just 0.55%, we believe that “different” is better for our company and our shareholders.

We recognize that with our Say-on-Pay proposal receiving 49.8% approval last year, many shareholders may not share our perspective. Following our last annual meeting, I and other members of the Board met with shareholders to better understand their concerns and questions about our compensation program. This effort provided an opportunity for us to hear shareholder views, and to explain our rationale behind the various elements of the program.

Our shareholder engagement efforts highlighted that we could do a better job of explaining our program to investors. Our goal is to do that here in this CD&A and achieve an improved understanding of our executive compensation program, as I believe we accomplished during our direct shareholder discussions.

The key elements of our program and how they align with our compensation philosophy are as follows:

 

   

Only two components, salary and stock options. Our compensation program consists of only salary and stock options. It is the same program for our executives as it is for other full-time Netflix employees. We use options as we believe that they correlate compensation with shareholder returns, and encourage a long-term perspective, especially given how we’ve designed the stock option allocation portion of our program in which employees can allocate cash compensation toward stock options. Importantly, as described below, the stock price needs to appreciate 40% before the employee is better off allocating cash to stock options. We do not use performance-based bonuses as we believe that they tend to incentivize specific, typically short-term focused behavior rather than encourage long-term shareholder value creation.

 

   

Personal Choice. We set a dollar-denominated compensation amount for each employee (“allocatable compensation”) who can then choose to allocate any portion of that compensation amount toward stock options. We believe that providing choice and flexibility helps us better compete for talent as the individual employee can customize their compensation to fit varying lifestyle needs.

 

   

Monthly Grants. We grant options on the first trading day of each month with the number of options granted based on the closing stock price on that trading day. We believe granting options monthly provides a dollar cost averaging effect—unlike annual grants which are more subject to the vagaries of the market—which helps reduce the potential negative impacts with employee distraction and morale.

 

   

Minimum option grants. In addition to the choice outlined above, each salaried employee, including executive officers, is awarded a minimum annual stock option allowance (generally based upon 5% of their total allocatable compensation) so that each employee is invested in the long-term success of the Company and aligned with shareholders regardless of whether they allocate cash compensation to the stock option program.

 

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Objective and Transparent Stock Option Grant Formula. The number of monthly options granted is determined by the following formula:

 

(the amount of an employee’s total

annual stock option allocation/12)

(the closing trading price of a share

of our stock on the grant date x 0.40)

For example:

If the stock price is $375 on the date of grant and the recipient allocated $1,500 per month of their allocatable compensation to stock options, the recipient would receive 10 stock options with an exercise price of $375.

 

 

$1500     =      1500     =    

10 options with an

exercise price of $375.

$375*0.40    150

The stock price would need to rise to $525 (40% appreciation from $375) for the recipient to earn back the $1,500 of cash they traded for the options:

$525- $375 = $150 x 10 shares = $1,500

Anything below a 40% appreciation in the stock means that the employee would have been better off electing cash. We believe that this structure significantly aligns our employee interest with that of our shareholders.

In 2019, 100% of Named Executive Officers elected to allocate a portion of their cash compensation to this stock option program. Our CEO allocated 97.7% of his cash compensation toward our stock option program and the average election across our Named Executive Officers was 46.5%.

 

   

Vested 10-year Options. We grant fully vested 10-year options, which means that employees have 10 years from the date of grant to exercise their options. We believe a 10-year option life is important to encourage participation in the equity portion of our program and reinforce a long-term focus. As the options generally must increase by 40% from the date of grant before they break even with the traded cash, as a practical matter, it takes time before it is worthwhile for an employee to exercise the vested options.

We do not believe that vesting over a certain period of time and forced exercise upon termination creates a healthy environment or secures a high-performing workforce. We want our employees to stay at Netflix because they are passionate about their roles and want to help Netflix be successful in the long run, rather than merely waiting for their options to vest.

The Board and Compensation Committee continue to strongly believe that our program’s design is a significant contributor to Netflix’s success and is highly aligned with shareholder interests. Therefore, we are not making material changes to the executive compensation program for 2020. However, in response to other feedback we have received, we have attempted to better describe our program and have added an anti-hedging and anti-pledging policy. We will continue to explore ways that we can implement changes to the program desired by shareholders while preserving the program’s general design and value to Netflix and our shareholders.

Thank you for being a shareholder and joining us on this journey to change the way people are entertained. We appreciate your commitment to Netflix and we will continue to endeavor to make your commitment worthwhile.

Tim Haley

Compensation Committee Chairperson

 

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Our Company and 2019 Performance

 

 

Netflix, Inc. is the world’s leading subscription streaming entertainment service with more than 182 million paid streaming memberships in over 190 countries enjoying TV series, documentaries and feature films across a wide variety of genres and languages. We launched our streaming service in 2007, and have since added increasing amounts of content that enable consumers to enjoy entertainment directly on their internet-connected screens. Our content is increasingly exclusive and curated, and includes our own original programming.

We believe that Netflix remains a growth venture, even though it has been a public company for more than 20 years. Our streaming revenue grew by 29% in 2019, with 23% coming from an increase in average streaming paid memberships and 5% coming from Average Revenue Per User (“ARPU”) growth (9% excluding the impact of foreign currency). Our profitability also improved, with operating income rising 62% year over year while operating margins increased from 10% to 13%. We manage our business for the long term with a focus on shareholder value creation. Consistent with this approach, Netflix was the best performing S&P 500 stock of the 2010-2019 decade, returning approximately 45% on an annualized basis to our shareholders over this time period (compared with approximately 14% for the S&P 500).

In 2019, we continued to invest heavily in content to great success. As noted in our investor letters, some of our big hits included new seasons of Stranger Things, La Casa de Papel (aka, Money Heist), and The Crown as well as new series like Umbrella Academy, Unbelievable and The Witcher, while our original films initiative premiered a wide variety of successes such as The Irishman, Marriage Story, Six Underground and The Two Popes. As a testament to the quality of our programming, our titles were nominated for 117 Emmys and an industry-leading 24 Academy Award nominations within the last year. We’re also proud to lead the industry in nominations at both the 2020 NAACP Image Awards (42 nominations) and the GLAAD Media Awards (15 nominations). We are also

producing content from countries all over the world as we believe great stories can come from anywhere and can be enjoyed everywhere.

Shareholder Engagement and the 2019 Say-on-Pay Vote Result

 

 

In 2019, 49.8% of voted shares approved the compensation of our Named Executive Officers. At the time of the 2019 vote, the Compensation Committee had already approved the design of our 2019 executive compensation program. The Compensation Committee reviewed these voting results, and in response, the Company, including members of the Compensation Committee, undertook an extensive shareholder engagement campaign to solicit the feedback of shareholders regarding our compensation program.

We held 22 meetings (either in person or on the phone) with investors representing approximately 50% of our common shares outstanding. Members of the Board, as well as members of management, participated in these conversations. We also engaged with major proxy advisors covering our company.

In our meetings, we discussed a wide range of topics including executive compensation, compensation governance, corporate governance, ESG issues, corporate strategy, financial and operational performance, and executive succession. Through our conversations, we heard that:

 

    Our disclosures about the design and operation of our compensation program could be improved;

 

    Many shareholders appreciate our compensation program and its alignment with shareholder interests;

 

   

Other shareholders question our unique approach to compensation, particularly with respect to our use of immediately vested options. After explaining our equity program, including that the stock must appreciate 40% from grant before an employee earns from the options the amount that would have been guaranteed to the employee by

 

 

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    electing cash, shareholders generally agreed that our current structure is effective in motivating our management team to pursue long-term shareholder value creation, even if they continue to disagree with certain aspects of the program.

Our Compensation Committee considered shareholder feedback (including feedback shared with the management team immediately following the 2019 annual meeting) in its deliberations regarding 2020 compensation and will continue to consider feedback in ongoing executive compensation decisions.

Compensation Philosophy

 

 

We aim to provide highly competitive compensation packages for all our key positions, including our Named Executive Officers. Our compensation practices are also tailored to account for the specific needs and responsibilities of the particular position as well as the performance and unique qualifications of the individual employee, rather than by seniority or overall Company performance. Individual compensation is nonetheless linked to Company performance by virtue of the stock options granted by the Company.

The Compensation Committee aims for the program to be simple to understand and administer, to be transparent to both shareholders and executives, and to create a long-term alignment between our shareholders and our executives.

The Company’s compensation practices are evaluated by the Compensation Committee on an ongoing basis to determine whether they are appropriate to attract, retain and reward outstanding performers. Such evaluations may result in refinements to the compensation program, including changes in how compensation is determined and awarded.

2019 Named Executive Officers

 

 

This Compensation Discussion and Analysis describes the compensation programs for the

Company’s Named Executive Officers. During 2019, these individuals were:

 

    Reed Hastings, Chief Executive Officer, President, Chairman of the Board

 

    Spencer Neumann, Chief Financial Officer

 

    Ted Sarandos, Chief Content Officer

 

    Greg Peters, Chief Product Officer

 

    David Hyman, Chief Legal Officer

 

    David Wells, former Chief Financial Officer

 

    Kelly Bennett, former Chief Marketing Officer

Mr. Wells’s employment with the Company ended on January 18, 2019, and Mr. Bennett’s employment with the Company ended on June 30, 2019.

Determining Executive Compensation Magnitude

 

 

We aim to pay all employees at the top of their personal market. We believe this helps us attract and retain the most talented employees from around the globe. To establish the top of personal market for each of our Named Executive Officers, the Compensation Committee (A) reviews and considers the performance of each Named Executive Officer and (B) considers, for each Named Executive Officer, the estimated amount of compensation:

 

  (i)

the Company would be willing to pay to retain that person;

 

  (ii)

the Company would have to pay to replace the person; and

 

  (iii)

the individual could otherwise command in the employment marketplace.

The Chief Executive Officer, in consultation with the Chief Talent Officer, reviews comparative data derived from publicly available market compensation information for each of the other Named Executive Officers. The Chief Executive Officer then makes recommendations to the Compensation Committee regarding compensation for each other Named Executive Officer. The Compensation Committee

 

 

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reviews and discusses the information and then determines a dollar-denominated amount available for allocation to salary and stock options for each such Named Executive Officer, as it deems appropriate. The Compensation Committee also approves the stock option allocation amount for each named executive officer.

The Chief Executive Officer’s compensation is determined by the Compensation Committee outside the presence of the Chief Executive Officer. The Compensation Committee’s decision regarding compensation for the Chief Executive Officer is based on the philosophy outlined above. It includes a review of comparative data, including the compensation paid by the Company’s peer group companies to their chief executive officers, and consideration of the accomplishments of the Chief Executive Officer in developing the business strategy for the Company, the performance of the Company relative to this strategy and his ability to attract and retain senior management. In establishing the Chief Executive Officer’s compensation, the Compensation Committee is also mindful of the results of the stockholder’s Advisory Vote on Executive Compensation for the prior year.

Role of the compensation consultant

In determining compensation for 2019, the Compensation Committee retained Compensia, a consulting firm providing executive compensation advisory services, to help the Compensation Committee assess the competitiveness of the Chief Executive Officer’s compensation, obtain a general understanding of chief executive compensation practices in the marketplace, and serve as a resource for its deliberations concerning the Chief Executive Officer’s specific compensation. Total fees paid to Compensia were less than $120,000 in each of 2018 and 2019.

Peer group and benchmarking

In 2018 and 2019, the Compensation Committee worked with Compensia in determining an appropriate peer group of companies. Compared with 2018, there were a number of changes to the peer group for

2019. These changes were made to account for Netflix’s considerable growth, to better align Netflix with the median revenue of the peer group, to eliminate small and acquired peers, and to continue to prioritize media and consumer-facing companies. Twitter, AMC, Workday, Scripps and Time Warner were removed from the peer group, and Charter, Comcast, Intuit, Microsoft, Oracle and VMWare were added. The peer group for 2019 was comprised of the following companies:

 

 

2019 Netflix Peer Group

 

   

Activision Blizzard

  

Lions Gate Entertainment

Adobe Systems

  

Microsoft

Booking Holdings

  

Oracle

CBS

  

PayPal Holdings

Charter Communications

  

salesforce.com

Comcast

  

Sirius XM Holdings

Discovery Communications

  

Twenty-first Century Fox

DISH Network

  

Viacom

eBay

  

VMWare

Electronic Arts

  

Walt Disney

Intuit

    

With respect to each of the Named Executive Officers, in determining compensation, the Compensation Committee considered the Company’s compensation philosophy as outlined above, comparative market data and specific factors relative to each Named Executive Officer’s responsibilities and performance. The Company does not specifically benchmark compensation for its Named Executive Officers in terms of picking a particular percentile relative to other individuals with similar titles at peer group companies. The Company believes that many subjective factors unique to each Named Executive Officer’s responsibilities and performance are not adequately reflected or otherwise accounted for in a percentile-based compensation determination.

 

 

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Elements of Executive Compensation

 

 

We use only salary and stock options, augmented by very limited perquisites, to compensate our Named Executive Officers. Across the broader employee base, the Company also utilizes salary and stock options as its key compensation components to remain competitive within the marketplace. Similarly situated companies typically offer employees an equity component as part of their overall compensation and as such, the Company believes it is important to provide this opportunity to its employees, including the Named Executive Officers. By permitting employees to request a customized combination of salary and stock options, the Company endeavors to tailor individuals’ compensation to personal compensation preferences and thereby offer a more compelling compensation package.

Cash Compensation

As described above, our compensation program offers our executives the opportunity to select the proportion of cash and equity compensation they receive each year. While our executives generally have elected to receive a significant portion of their compensation in equity, the remaining compensation is paid in cash as salary.

Stock Options

The Company believes that equity ownership, including stock and stock options, helps align the interest of the Named Executive Officers with those of the Company’s stockholders and links executive compensation to long-term company performance.

Furthermore, because the stock options are granted at fair market value on the date of the option grant and are not generally transferable, they are only of value to the recipient if the market value of the Company’s common stock increases after the date of grant, thereby linking compensation in the form of stock options to Company performance.

Offering grants monthly provides employees with a “dollar-cost averaging” approach to the price of their option grants. By granting options each month rather than on a less frequent basis, the Company believes it alleviates to a great extent the arbitrariness of option grant timing and the potential negative employee issues associated with “underwater” options.

Vested stock options can be exercised for up to ten (10) years following grant regardless of employment status. The Company believes that this increase in the life of the options enhances the value of such options for each employee and thereby encourages equity ownership in the Company, which is helpful in aligning employee and shareholder interests. The Company does not believe that staggered vesting of stock options or expiration of options closely following employment termination has a desirable impact on retention. Rather, the Company believes that creating and maintaining a high-performance culture and providing highly competitive compensation packages are the critical components for retaining employees, including its Named Executive Officers.

Empirically, stock options have proven to be an effective way of creating long-term alignment between executives and shareholders. Even though the options are vested, our executives often do not exercise their options for an extended period of time. Our CEO, in particular, consistently holds his options until they are near expiration.

Other Components of Compensation

Each Named Executive Officer, like all of the Company’s employees, is eligible to receive an additional $15,000 in annual compensation that may be used to defray the cost of health care benefits previously paid by the Company. Any portion of this allowance not utilized toward the cost of health care benefits will be paid as salary, up to a maximum of $5,000.

In addition to salary and stock options, all exempt employees, including Named Executive Officers, also have the opportunity to participate in the Company’s 401(k) matching program which enables them to receive a dollar-for-dollar Company match of up to

 

 

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3.5% of his or her compensation to the 401(k) fund, subject to limitations under applicable law. Messrs. Neumann, Sarandos, Hyman, Bennett and Wells all participated in this program in 2019 and therefore the Company matched their 401(k) contributions as shown in the compensation tables of this Proxy Statement.

The Company also maintains a group term life insurance policy for all full-time employees, including the Named Executive Officers. The Company permits

named executive officers and their family members and guests to use the Company’s corporate aircraft for personal use, and considers amounts related to such travel to be a perquisite. Additionally, named executive officers are permitted to use a company-provided car service under certain circumstances. All of these perquisites are reflected in the All Other Compensation column of the Summary Executive Compensation table.

 

 

Executive Compensation in 2019

 

 

Each year, we allow our Named Executive Officers to allocate their compensation between cash and stock options. Each year, our executives continue to express their confidence in the Company and our growth strategy by electing to receive a substantial percentage of their compensation through at-risk stock option awards. These elections are made prior to the compensation year and are irrevocable. For 2019, the following elections were made by our executive team:

 

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Named Executive Officer

   Allocatable
Compensation
($)
     Amount of Allocatable
Compensation Elected
to be received as
Stock Options
(%)
     Amount of Allocatable
Compensation Elected
to be received as
Cash Salary
(%)
 

Reed Hastings, Chief Executive Officer, President,
Chairman of the Board

     30,000,000      97.7        2.3  

Spencer Neumann, Chief Financial Officer

     9,524,000      47.5        52.5  

Ted Sarandos, Chief Content Officer

     30,000,000      40.0        60.0  

Greg Peters, Chief Product Officer

     16,000,000      37.5        62.5  

David Hyman, Chief Legal Officer

     7,000,000      50.0        50.0  

David Wells, former Chief Financial Officer

     6,000,000      41.7        58.3  

Kelly Bennett, former Chief Marketing Officer

     7,000,000      11.4        88.6  

 

The Company also provides a minimum annual stock option allowance (generally equal to 5% of the Named Executive Officer’s allocatable compensation) which is added to the amount allocated to stock options by the Named Executive Officer to arrive at the total annual stock option allocation. While the total annual stock option allocation is expressed in a dollar denomination, the total annual stock option allocation is used by the Company only to calculate the number

of stock options to be granted. The total annual stock option allocation is not available to the employees as cash compensation, except where an employee who has allocated a portion of their compensation toward stock options receives severance payments and as otherwise set forth in the Company’s Amended and Restated Executive Severance and Retention Incentive Plan (the “Severance Plan”) described below.

 

 

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In determining compensation for the Named Executive Officers for 2019, the Compensation Committee considered the philosophy outlined above. In addition, the following factors were considered for each Named Executive Officer:

 

    for Mr. Hastings, as noted above, the Compensation Committee reviewed comparative data and considered his accomplishments in developing and evolving the business strategy for the Company, the performance of the Company relative to this strategy and his ability to attract and retain senior management, and increased his allocatable compensation from $28,000,000 to $30,000,000 for 2019.

 

    for Mr. Neumann, consideration was given to his experience in leading a financial organization in the media industry, as well as the increasing complexity of Netflix’s financial reporting as it engages in original productions around the globe. Mr. Neumann was not employed by the Company in 2018.

 

    for Mr. Sarandos, consideration was given to his global stature as a leading media executive and his role in obtaining globally relevant content for the Company’s international expansion, his significant contributions to the Company’s original content strategy, the buildout of the infrastructure to support that strategy, and the market demand for high-level content programming talent. Consideration was also given to Mr. Sarandos’s new role in leading the Marketing organization. Mr. Sarandos’s allocatable compensation was increased from $25,000,000 to $30,000,000 for 2019.
    for Mr. Peters, consideration was given to his responsibility for the development and deployment of the Company’s increasing engineering systems and product offerings across the globe and in multiple languages, as well as the continued market demand for engineering talent. His allocatable compensation was increased from $12,000,000 to $16,000,000 for 2019.

 

    for Mr. Hyman, consideration was given to his performance in managing and developing a global legal and public policy function, and his allocatable compensation was increased from $5,500,000 to $7,000,000 for 2019.

 

    for Mr. Wells, consideration was given to his performance in managing the finance organization as the Company’s business continued to evolve and grow internationally. Mr. Wells’s allocatable compensation increased from $5,000,000 to $6,000,000 for 2019.

 

    for Mr. Bennett, consideration was given to his responsibilities for managing a global marketing team tasked with promoting the Company and its content slate, and in particular its original content, around the world. Mr. Bennett’s allocatable compensation remained flat at $7,000,000 for 2019.

Individual employee performance, including that of our Named Executive Officers, is evaluated on an ongoing basis. To the extent such performance exceeds or falls short of the Company’s performance values, the Company may take action that includes, in the case of star performers, promotions or increases in compensation or, in the case of under performers, demotion, a reduction in compensation or termination.

 

 

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After considering the above, in 2019, the compensation components for the Named Executive Officers were as follows. Please see the Summary Executive Compensation table provided in this Proxy Statement for a complete description of the compensation of the Named Executive Officers:

 

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Name and Position

   2019 Annual
Cash Salary
($)
    

2019
Total Annual
Stock Option
Allocation, with
1/12 granted
monthly

($)1

 

Reed Hastings, Chief Executive Officer, President, Chairman of the Board

     700,000      30,800,000

Spencer Neumann, Chief Financial Officer

     5,000,000      5,000,000

Ted Sarandos, Chief Content Officer

     18,000,000      13,500,000

Greg Peters, Chief Product Officer

     10,000,000      6,800,000

David Hyman, Chief Legal Officer

     3,500,000      3,850,000

David Wells, former Chief Financial Officer

     3,500,000      2,800,000

Kelly Bennett, former Chief Marketing Officer

     6,200,000      1,150,000
1.   The dollar amounts set forth in this column are different than the amounts in the “Option Awards” column of the Summary Executive Compensation table because the amounts in this column are reflective of the total compensation amount attributable to stock option grants, rather than the accounting valuation which is reflected in the Summary Executive Compensation table.

 

Further, in connection with their mutually agreed departure from Netflix, Mr. Wells and Mr. Bennett entered into Netflix’s standard form of release agreement which included customary confidentiality and release provisions and each received a lump sum cash payment calculated in accordance with the Severance Plan of $4,500,000 and $5,250,000 respectively. Upon joining the Company, Mr. Neumann received a one-time cash payment of $1,700,000, which served as an inducement for him to join the Company.

Method for determining monthly stock option grants

After the total annual stock option allocation is established, the Named Executive Officers receive monthly option grants pursuant to the Company’s monthly option grant program, which is applicable to all salaried employees. Under this program, salaried employees, including the Named Executive Officers, receive on the first trading day of the month fully vested options granted at fair market value as

reflected by the closing price of our stock on the date of the option grant. The number of stock options granted monthly fluctuates based on the closing price of our stock on the date of the option grant.

In 2019, the actual number of options granted to the Named Executive Officers each month was determined by the following formula: (The amount of an employee’s total annual stock option allocation/12) / ([the closing price of our stock on the date of option grant] x 0.40).

For stock option accounting purposes, the dollar values of stock options granted by the Company, as reflected in the Summary Executive Compensation table, below, are different than the dollar values of the total annual stock option allocation in the table above. The difference arises as the stock option allocation in the table above is the amount used to determine the number of options granted whereas the dollar values of stock option grants in the Summary Executive Compensation table reflects their grant date fair value under the accounting rules.

 

 

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Named Executive Officer Compensation for 2020

Allocatable compensation for the Named Executive Officers in 2020 was determined in consultation with

Compensia. For the fiscal year ending December 31, 2020, the compensation components for the Named Executive Officers serving in 2020 are being allocated as follows, based on the methods described above:

 

 

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Name and Position

   2020
Annual Salary
($)
    

2020

Annual Stock

Option Allocation1
($)

    

2020

Monthly Stock

Option Allocation1
($)

 

Reed Hastings
Chief Executive Officer, President, Chairman of the Board

     650,000      34,000,000      2,833,333

Spencer Neumann
Chief Financial Officer

     6,050,000      5,500,000      458,333

Ted Sarandos
Chief Content Officer

     20,000,000      14,650,000      1,220,833

Greg Peters
Chief Product Officer

     12,000,000      6,900,000      575,000

David Hyman
Chief Legal Officer

     5,500,000      3,950,000      329,167
1.   Includes the annual stock option allowance of 5% of allocatable compensation.

 

Termination-Based Compensation and Change in Control Retention Incentives

 

 

The Named Executive Officers are beneficiaries of the Company’s Severance Plan. Under this Severance Plan, each employee of the Company at the level of Vice President or higher (“Covered Executive”) is entitled to a severance benefit upon termination of employment (other than for cause, death or permanent disability) so long as he or she signs a waiver and release of claims and an agreement not to disparage the Company, its directors or its officers in a form reasonably satisfactory to the Company.

The severance benefit consists of a lump sum cash payment equal to nine (9) months of allocatable compensation, or, for newly hired Covered Executives only, a cash payment equal to 24 months of allocatable compensation, which is reduced by an amount equal to one (1) month of allocatable compensation for each month of tenure at the Company for the first 15 months of continuous

employment following hire by the Company, such that the minimum benefit for such newly hired Covered Executives is the cash equivalent of nine (9) months of allocatable compensation. The right to receive a severance benefit terminates upon a change in control transaction, so that the Covered Executives under the Severance Plan are not entitled to both a change in control benefit as well as a severance benefit.

In lieu of the severance benefit described above, the Severance Plan provides that employees covered by the Severance Plan who are employed by the Company on the date of a change in control transaction are entitled to receive a lump sum cash payment equal to twelve (12) months of allocatable compensation regardless of whether their employment terminates.

The Company also maintains a plan for its director level employees (the “Director Plan”) that provides those employees who are employed by the Company on the date of a change in control transaction with a lump sum cash payment equal to six (6) months of

 

 

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allocatable compensation, regardless of whether their employment terminates. While director level employees are not guaranteed any severance upon termination of employment, to the extent any severance is provided to a director level employee, payment associated with the change in control will be in lieu of or otherwise offset against any such severance payment.

We have a single trigger change in control plan for our executives. Given our monthly grants of fully vested options, a change in control does not trigger acceleration of unvested shares, which is a typical concern about single triggers. We use a single trigger change in control plan because we believe that double trigger plans, which require the occurrence of both a change in control and the executive’s termination of service from the Company for an executive to receive severance, create a misaligned incentive for executives to attempt to be terminated from the Company in the event of a change in control. We would rather encourage our executives to continue to focus on the long-term success of the Company instead of severance opportunities.

The benefits owing under the Severance Plan or Director Plan are to be paid to an individual covered under the applicable plan by the Company as soon as administratively practicable following the completion of all conditions to the payment, but in no event more than two and one half months following the date of the triggering event. The Company believes that benefits under the Severance Plan are consistent with similar benefits offered to executive officers of similarly situated companies and moreover, the Severance Plan is an important mechanism for attracting and retaining outstanding performers. Each of the terms “allocatable compensation,” “cause” and “change in control” are defined in the Severance Plan, a copy of which is attached as Exhibit 10.14 to the Company’s Form 10-Q filed on July 19, 2017.

Tax Considerations

 

 

Section 162(m) of the Internal Revenue Code was among the provisions that were amended pursuant to

The Tax Cuts and Jobs Act (the “Tax Act”), which was signed into law on December 22, 2017. The prior version of Section 162(m) generally disallowed a tax deduction for compensation that we paid to our Chief Executive Officer or any of the next three most highly compensated executive officers (excluding the Chief Financial Officer) to the extent that the compensation for any such individual exceeded $1 million in any taxable year. However, this deduction limitation did not apply to compensation that was “performance-based” under Section 162(m). The Tax Act amended Section 162(m) to eliminate the exception for performance-based compensation. As a result, effective for our 2018 fiscal year and thereafter, the maximum U.S. federal income tax deduction that we may receive for annual compensation paid to any officer covered by Section 162(m) will be $1 million per officer, subject to a transition rule that is described below.

The Tax Act also expanded the individuals covered by Section 162(m) to include our Chief Financial Officer and certain of our former officers. Separately, the Tax Act included a transition rule with respect to compensation that is provided pursuant to a written binding contract in effect on November 2, 2017 and not materially modified after that date. The Company continued to grant stock options in 2019, although such grants will not be deductible to the extent the total compensation for each officer subject to the rules of Section 162(m) exceeds $1 million in the year in which the stock options are exercised.

The Compensation Committee considers the tax impact of the Company’s compensation programs, and will generally seek to preserve the deductibility of any performance-based compensation that is subject to the transition rule of the Tax Act, to the extent practicable and in the best interests of the Company and its stockholders. However, the Compensation Committee reserves the right to pay compensation that is not tax deductible.

 

 

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Prohibition on Hedging

 

 

The Company’s Insider Trading Policy, which was updated in March 2020, prohibits our section 16 officers and directors from engaging in any transactions involving any hedging or derivatives of Company equity securities, including trading in futures and derivative securities and engaging in hedging activities relating to our securities (including forward sales contracts, equity swaps, collars, puts, calls, exchange traded options and exchange funds), or otherwise engaging in transactions that are designed to hedge or offset decreases in the market value of the Company’s equity securities, provided that it does not limit director and officer participation in the Company’s stock option program. This prohibition applies only to transactions initiated on or after March 4, 2020 and applies to Company equity securities that are (i) granted to the section 16 officer or director by the Company as part of their compensation or (ii) held, directly or indirectly, by the section 16 officer or the director.

Compensation Risk

 

 

The Company’s compensation policies for non-executive salaried employees are the same as

those outlined for its Named Executive Officers. Given the design of our compensation structure, as detailed in the foregoing Compensation Discussion and Analysis, we do not believe that our compensation policies and practices are reasonably likely to have a material adverse effect on the Company.

Moreover, as described in Proposal Four, if the Company’s proposed Netflix, Inc. 2020 Stock Plan is adopted by shareholders, the Netflix, Inc. 2020 Stock Plan will allow us to recover certain performance-based equity awards or amounts paid in respect of such awards in the event of certain acts of misconduct by award recipients. Such misconduct generally relates to contributing to or failing to take reasonable steps to prevent an accounting restatement due to material noncompliance with financial reporting requirements.

Code of Ethics

 

 

The Company has adopted a Code of Ethics for its directors, officers and other employees. A copy of the Code of Ethics is available on the Company’s Investor Relations website at http://www.netflixinvestor.com/governance/governance-docs. Any waivers of the Code of Ethics will be posted at that website.

 

 

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       Compensation Committee Report

 

 

 


The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on the review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Compensation Committee of the Board

Rodolphe Belmer

Timothy M. Haley

Jay C. Hoag

Anne Sweeney

 

 

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       Compensation of Executive

       Officers and Other Matters

 

 

Summary Executive Compensation

 

 

The following Summary Executive Compensation table sets forth information concerning the compensation paid by the Company to: (i) the Chief Executive Officer (the Company’s principal executive officer), (ii) the Chief Financial Officer (the Company’s principal financial officer), and (iii) the Company’s other named executive officers listed below. A description of the method for determining the amount of salary in proportion to total compensation is set forth above in “Compensation Discussion and Analysis.”

 

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Name and

Principal Position

   Year     

Salary

($)

   

Bonus

($)

    

Option

Awards

($)1

     Non-Equity
Incentive Plan
Compensation
($)2
    

All Other

Compensation

($)

   

Total

($)

 

Reed Hastings

 

Chief Executive Officer, President, Chairman of the Board

     2019        700,000          37,411,492             465,637 5      38,577,129  
     2018        700,000          35,380,417                   36,080,417  
     2017        850,000          23,527,499                   24,377,499

Spencer Neumann

 

Chief Financial Officer

     2019        4,981,693 3      1,700,000 4       5,272,020     

 
     29,008 6      11,982,721

Ted Sarandos

 

Chief Content Officer

     2019        18,000,000          16,575,902             98,497 7      34,674,399  
     2018        12,000,000          17,615,220             32,251 8      29,647,471  
     2017        1,000,000          12,389,532      9,045,000      8,100 9      22,442,632

Greg Peters

 

Chief Product Officer

     2019        10,000,000          8,287,734             340,976 10      18,628,710  
     2018        6,000,000          7,985,902             832,687 11      14,818,589  
     2017        1,000,000          3,725,022      2,763,750      1,748,718 12      9,237,490

David Hyman13

 

Chief Legal Officer

     2019        3,500,000          4,643,129             15,550 14      8,158,679
     2018        2,500,000          3,914,510             11,890 15      6,426,400
     2017        1,761,538          1,435,074      1,608,000      309,027 16      5,113,639

Kelly Bennett17

 

Former Chief Marketing Officer

     2019        3,234,615 18         702,806             5,287,099 19      9,224,520  
     2018        5,284,616          1,124,402             47,550 20      6,456,568  

David Wells

 

Former Chief Financial Officer

     2019        365,385 21         260,975             4,506,222 22      5,132,582
     2018        2,800,000          3,030,461             8,250 23      5,838,711
     2017        2,500,000                2,127,673             553,641 24      5,181,314
1.  

Dollar amounts in the Option Awards column reflect the grant date fair value with respect to stock options during the respective fiscal year. The dollar amounts set forth in the Option Awards column are different than the stock option allocation amounts described in the section above entitled “Compensation Discussion and Analysis”

 

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  because the stock option allocation amounts are reflective of the total compensation amount attributable to stock option grants, rather than the accounting valuation. For a discussion of the assumptions made in the valuation reflected in the Option Awards column, refer to Note 7 to the Company’s consolidated financial statements for the fiscal year ended December 31, 2019 and the discussion under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Stock-Based Compensation” in the Company’s Form 10-K filed with the SEC on January 29, 2020.
2.   In accordance with the Company’s Performance Bonus Plan as approved by the Compensation Committee, the dollar amounts represent the amount earned in 2017 for the achievement of the established performance goals.
3.   Amount reflects the prorated payment of Mr. Neumann’s salary based on his employment start date of January 7, 2019.
4.   Amount represents a one-time cash payment Mr. Neumann received upon joining the Company, which served as an inducement for him to join the Company.
5.   Includes $465,637 for personal use of company aircraft.
6.   Includes $6,731 representing our matching contribution made under our 401(k) plan and $22,277 for car services.
7.   Includes $9,800 representing our matching contribution made under our 401(k) plan, $74,282 for personal use of company aircraft and $14,415 for car services.
8.   Includes $8,250 representing our matching contribution made under our 401(k) plan, $19,599 for personal use of company aircraft, and $4,402 for commuting expenses.
9.   Includes $8,100 representing our matching contribution made under our 401(k) plan.
10.   Includes $340,471 for personal use of company aircraft and $505 for commuting expenses.
11.   Includes $829,025 for living allowances and taxes paid by the Company to tax equalize the employee for an expatriate assignment and $3,662 for commuting expenses.
12.   Includes $1,746,105 for living allowances and taxes paid by the Company to tax equalize the employee for an expatriate assignment and $2,613 for commuting expenses.
13.   Mr. Hyman was not a Named Executive Officer for 2018 but was a Named Executive Officer for 2017.
14.   Includes $9,800 representing our matching contribution made under our 401(k) plan, $1,481 reimbursed by the Company for tax preparation, $4,118 for commuting expenses, and $151 for car services.
15.   Includes $8,250 representing our matching contribution made under our 401(k) plan and $3,640 for commuting expenses.
16.   Includes $8,100 representing our matching contribution made under our 401(k) plan and payment of $300,155 for living allowances, taxes paid by the Company to tax equalize the employee for an expatriate assignment and $772 of commuting expenses.
17.   Mr. Bennett was not a Named Executive Officer for 2017.
18.   Amount reflects the prorated payment of Mr. Bennett’s salary based on his employment end date of June 30, 2019.
19.   Includes $9,800 representing our matching contribution made under our 401(k) plan, $1,481 paid by the Company for tax preparation, $25,818 for car services and $5,250,000 calculated in accordance with the Severance Plan.
20.   Includes $8,250 representing our matching contribution made under our 401(k) plan and payment of $13,532 for living allowances and taxes paid by the Company to tax equalize the employee for an expatriate assignment, $25,327 for car services and $441 for commuting expenses.
21.   Amount reflects the prorated payment of Mr. Wells’s salary based on his employment end date of January 18, 2019.
22.   Includes $4,711 representing our matching contribution made under our 401(k) plan, $1,511 paid by the Company for tax preparation, $4,500,000 calculated in accordance with the Severance Plan.
23.   Includes $8,250 representing our matching contribution made under our 401(k) plan.
24.   Includes $8,100 representing our matching contribution made under our 401(k) plan and payment of $545,541 for living allowances and taxes paid by the Company to tax equalize the employee for an expatriate assignment.

 

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Grants of Plan-Based Awards

 

 

The following table sets forth information concerning grants of awards made to the Named Executive Officers during 2019. As described above in “Compensation Discussion and Analysis,” the Company grants employees, including the Named Executive Officers, fully vested stock options on a monthly basis. These stock options can generally be exercised up to 10 years following the date of grant, regardless of employment status. These are the only equity awards made to the Named Executive Officers. The material terms of these stock option grants, including the formula for determining the number of stock options to be granted, are set forth above in “Compensation Discussion and Analysis.”

 

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Name

   Grant Date     

All Other
Option Awards:
Number of Securities
Underlying Options

(#)

    

Exercise
or Base Price
of Option Awards

($/Sh)

    

Grant Date
Fair Value of Stock
and Option Awards

($)

 

Reed Hastings

     1/2/2019        22,338        267.66      3,056,980  

Reed Hastings

     2/1/2019        18,881        339.85      3,280,781  

Reed Hastings

     3/1/2019        17,958        357.32      3,280,804  

Reed Hastings

     4/1/2019        17,486        366.96      3,185,022  

Reed Hastings

     5/1/2019        16,939        378.81      3,185,022  

Reed Hastings

     6/3/2019        19,061        336.63      3,184,943  

Reed Hastings

     7/1/2019        17,130        374.60      3,056,095  

Reed Hastings

     8/1/2019        20,083        319.50      3,055,914  

Reed Hastings

     9/3/2019        22,181        289.29      3,056,021  

Reed Hastings

     10/1/2019        23,802        269.58      3,023,273  

Reed Hastings

     11/1/2019        22,373        286.81      3,023,393  

Reed Hastings

     12/2/2019        20,699        309.99      3,023,244  

Spencer Neumann

     2/1/2019        1,308      339.85      227,279

Spencer Neumann

     3/1/2019        2,916      357.32      532,733

Spencer Neumann

     4/1/2019        2,838      366.96      516,933

Spencer Neumann

     5/1/2019        2,750      378.81      517,079

Spencer Neumann

     6/3/2019        3,095      336.63      517,150

Spencer Neumann

     7/1/2019        2,781      374.60      496,147

Spencer Neumann

     8/1/2019        3,260      319.50      496,055

Spencer Neumann

     9/3/2019        3,601      289.29      496,133

 

2020 PROXY STATEMENT    51


Table of Contents

LOGO

 

         

Name

   Grant Date     

All Other
Option Awards:
Number of Securities
Underlying Options

(#)

    

Exercise
or Base Price
of Option Awards

($/Sh)

    

Grant Date
Fair Value of Stock
and Option Awards

($)

 

Spencer Neumann

     10/1/2019        3,864      269.58      490,796

Spencer Neumann

     11/1/2019        3,632      286.81      490,813

Spencer Neumann

     12/2/2019        3,361      309.99      490,899

Ted Sarandos

     1/2/2019        11,091        267.66      1,517,816  

Ted Sarandos

     2/1/2019        8,276        339.85      1,438,046  

Ted Sarandos

     3/1/2019        7,871        357.32      1,437,978  

Ted Sarandos

     4/1/2019        7,664        366.96      1,395,975  

Ted Sarandos

     5/1/2019        7,425        378.81      1,396,115  

Ted Sarandos

     6/3/2019        8,355        336.63      1,396,055  

Ted Sarandos

     7/1/2019        7,508        374.60      1,339,472  

Ted Sarandos

     8/1/2019        8,802        319.50      1,339,349  

Ted Sarandos

     9/3/2019        9,723        289.29      1,339,601  

Ted Sarandos

     10/1/2019        10,433        269.58      1,325,175  

Ted Sarandos

     11/1/2019        9,806        286.81      1,325,142  

Ted Sarandos

     12/2/2019        9,073        309.99      1,325,180  

Greg Peters

     1/2/2019        5,137        267.66      703,004  

Greg Peters

     2/1/2019        4,168        339.85      724,236  

Greg Peters

     3/1/2019        3,965        357.32      724,379  

Greg Peters

     4/1/2019        3,861        366.96      703,270  

Greg Peters

     5/1/2019        3,739        378.81      703,040  

Greg Peters

     6/3/2019        4,209        336.63      703,291  

Greg Peters

     7/1/2019        3,782        374.60      674,731  

Greg Peters

     8/1/2019        4,434        319.50      674,696  

Greg Peters

     9/3/2019        4,897        289.29      674,692  

Greg Peters

     10/1/2019        5,255        269.58      667,477  

Greg Peters

     11/1/2019        4,939        286.81      667,436  

Greg Peters

     12/2/2019        4,570        309.99      667,483  

David Hyman

     1/2/2019        2,549      267.66      348,833

 

52    NETFLIX


Table of Contents

LOGO

 

         

Name

   Grant Date     

All Other
Option Awards:
Number of Securities
Underlying Options

(#)

    

Exercise
or Base Price
of Option Awards

($/Sh)

    

Grant Date
Fair Value of Stock
and Option Awards

($)

 

David Hyman

     2/1/2019        2,360      339.85      410,076

David Hyman

     3/1/2019        2,245      357.32      410,146

David Hyman

     4/1/2019        2,186      366.96      398,173

David Hyman

     5/1/2019        2,117      378.81      398,057

David Hyman

     6/3/2019        2,383      336.63      398,180

David Hyman

     7/1/2019        2,141      374.60      381,967

David Hyman

     8/1/2019        2,511      319.50      382,084

David Hyman

     9/3/2019        2,772      289.29      381,916

David Hyman

     10/1/2019        2,976      269.58      378,004

David Hyman

     11/1/2019        2,796      286.81      377,840

David Hyman

     12/2/2019        2,587      309.99      377,851

Kelly Bennett

     1/2/2019        739      267.66      101,133

Kelly Bennett

     2/1/2019        705      339.85      122,502

Kelly Bennett

     3/1/2019        670      357.32      122,404

Kelly Bennett

     4/1/2019        653      366.96      118,942

Kelly Bennett

     5/1/2019        633      378.81      119,022

Kelly Bennett

     6/3/2019        711      336.63      118,802

David Wells

     1/2/2019        1,907        267.66      260,975  

 

2020 PROXY STATEMENT    53


Table of Contents

LOGO

 

Outstanding Equity Awards at Fiscal Year-End

 

 

The following table sets forth information concerning equity awards for each Named Executive Officer that remained outstanding as of December 31, 2019. All options are fully vested and can generally be exercised up to 10 years following the date of grant.

 

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

Reed Hastings

     83,692        9.96      3/1/2020  

Reed Hastings

     77,777        10.71      4/1/2020  

Reed Hastings

     57,197        14.57      5/3/2020  

Reed Hastings

     54,369        15.33      6/1/2020  

Reed Hastings

     53,193        15.67      7/1/2020  

Reed Hastings

     57,260        14.55      8/2/2020  

Reed Hastings

     43,239        19.27      9/1/2020  

Reed Hastings

     37,716        22.09      10/1/2020  

Reed Hastings

     34,853        23.91      11/1/2020  

Reed Hastings

     29,148        28.59      12/1/2020  

Reed Hastings

     32,697        25.49      1/3/2021  

Reed Hastings

     41,097        30.41      2/1/2021  

Reed Hastings

     42,763        29.23      3/1/2021  

Reed Hastings

     36,141        34.58      4/1/2021  

Reed Hastings

     36,890        33.88      5/2/2021  

Reed Hastings

     32,739        38.18      6/1/2021  

Reed Hastings

     32,648        38.28      7/1/2021  

Reed Hastings

     33,222        37.63      8/1/2021  

Reed Hastings

     37,513        33.32      9/1/2021  

Reed Hastings

     77,266        16.18      10/3/2021  

Reed Hastings

     109,249        11.44      11/1/2021  

Reed Hastings

     130,263        9.60      12/1/2021  

 

54    NETFLIX


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

Reed Hastings

     121,121        10.32      1/3/2022  

Reed Hastings

     35,581        17.57      2/1/2022  

Reed Hastings

     38,801        16.11      3/1/2022  

Reed Hastings

     38,388        16.28      4/2/2022  

Reed Hastings

     53,774        11.62      5/1/2022  

Reed Hastings

     69,503        8.99      6/1/2022  

Reed Hastings

     64,477        9.69      7/2/2022  

Reed Hastings

     80,276        7.79      8/1/2022  

Reed Hastings

     78,225        7.99      9/4/2022  

Reed Hastings

     78,057        8.01      10/1/2022  

Reed Hastings

     56,315        11.10      11/1/2022  

Reed Hastings

     57,561        10.86      12/3/2022  

Reed Hastings

     47,551        13.14      1/2/2023  

Reed Hastings

     35,399        23.54      2/1/2023  

Reed Hastings

     30,807        27.05      3/1/2023  

Reed Hastings

     31,976        26.06      4/1/2023  

Reed Hastings

     27,398        30.42      5/1/2023  

Reed Hastings

     26,278        31.71      6/3/2023  

Reed Hastings

     26,012        32.04      7/1/2023  

Reed Hastings

     23,415        35.59      8/1/2023  

Reed Hastings

     20,188        41.29      9/3/2023  

Reed Hastings

     17,969        46.37      10/1/2023  

Reed Hastings

     17,717        47.04      11/1/2023  

Reed Hastings

     16,030        51.99      12/2/2023  

Reed Hastings

     16,079        51.83      1/2/2024  

Reed Hastings

     21,637        57.77      2/3/2024  

Reed Hastings

     19,635        63.66      3/3/2024  

Reed Hastings

     23,996        52.10      4/1/2024  

 

2020 PROXY STATEMENT    55


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

Reed Hastings

     25,998        48.07      5/1/2024  

Reed Hastings

     20,734        60.29      6/2/2024  

Reed Hastings

     18,494        67.59      7/1/2024  

Reed Hastings

     20,566        60.77      8/1/2024  

Reed Hastings

     18,361        68.09      9/2/2024  

Reed Hastings

     19,943        62.69      10/1/2024  

Reed Hastings

     22,526        55.49      11/3/2024  

Reed Hastings

     25,599        48.83      12/1/2024  

Reed Hastings

     25,074        49.85      1/2/2025  

Reed Hastings

     45,290        63.01      2/2/2025  

Reed Hastings

     41,601        68.61      3/2/2025  

Reed Hastings

     48,363        59.02      4/1/2025  

Reed Hastings

     35,868        79.58      5/1/2025  

Reed Hastings

     32,067        89.00      6/1/2025  

Reed Hastings

     30,485        93.64      7/1/2025  

Reed Hastings

     25,360        112.56      8/3/2025  

Reed Hastings

     26,977        105.79      9/1/2025  

Reed Hastings

     26,933        105.98      10/1/2025  

Reed Hastings

     26,513        107.64      11/2/2025  

Reed Hastings

     22,765        125.37      12/1/2025  

Reed Hastings

     25,959        109.96      1/4/2026  

Reed Hastings

     42,176        94.09      2/1/2026  

Reed Hastings

     40,374        98.30      3/1/2026  

Reed Hastings

     37,547        105.70      4/1/2026  

Reed Hastings

     42,629        93.11      5/2/2026  

Reed Hastings

     39,097        101.51      6/1/2026  

Reed Hastings

     41,055        96.67      7/1/2026  

Reed Hastings

     42,055        94.37      8/1/2026  

 

56    NETFLIX


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

Reed Hastings

     40,755        97.38      9/1/2026  

Reed Hastings

     38,670        102.63      10/3/2026  

Reed Hastings

     32,188        123.30      11/1/2026  

Reed Hastings

     33,857        117.22      12/1/2026  

Reed Hastings

     31,130        127.49      1/3/2027  

Reed Hastings

     31,373        140.78      2/1/2027  

Reed Hastings

     30,961        142.65      3/1/2027  

Reed Hastings

     30,062        146.92      4/3/2027  

Reed Hastings

     28,431        155.35      5/1/2027  

Reed Hastings

     27,097        162.99      6/1/2027  

Reed Hastings

     30,216        146.17      7/3/2027  

Reed Hastings

     24,264        182.03      8/1/2027  

Reed Hastings

     25,275        174.74      9/1/2027  

Reed Hastings

     24,952        177.01      10/2/2027  

Reed Hastings

     22,306        198.00      11/1/2027  

Reed Hastings

     23,641        186.82      12/1/2027  

Reed Hastings

     21,966        201.07      1/2/2028  

Reed Hastings

     22,557        265.07      2/1/2028  

Reed Hastings

     20,590        290.39      3/1/2028  

Reed Hastings

     21,332        280.29      4/2/2028  

Reed Hastings

     19,085        313.30      5/1/2028  

Reed Hastings

     16,612        359.93      6/1/2028  

Reed Hastings

     15,016        398.18      7/2/2028  

Reed Hastings

     17,670        338.38      8/1/2028  

Reed Hastings

     16,444        363.60      9/4/2028  

Reed Hastings

     15,676        381.43      10/1/2028  

Reed Hastings

     18,839        317.38      11/1/2028  

Reed Hastings

     20,597        290.30      12/3/2028  

 

2020 PROXY STATEMENT    57


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

Reed Hastings

     22,338        267.66      1/2/2029  

Reed Hastings

     18,881        339.85      2/1/2029  

Reed Hastings

     17,958        357.32      3/1/2029  

Reed Hastings

     17,486        366.96      4/1/2029  

Reed Hastings

     16,939        378.81      5/1/2029  

Reed Hastings

     19,061        336.63      6/3/2029  

Reed Hastings

     17,130        374.60      7/1/2029  

Reed Hastings

     20,083        319.50      8/1/2029  

Reed Hastings

     22,181        289.29      9/3/2029  

Reed Hastings

     23,802        269.58      10/1/2029  

Reed Hastings

     22,373        286.81      11/1/2029  

Reed Hastings

     20,699        309.99      12/2/2029  

Spencer Neumann

     1,308        339.85      2/1/2029  

Spencer Neumann

     2,916        357.32      3/1/2029  

Spencer Neumann

     2,838        366.96      4/1/2029  

Spencer Neumann

     2,750        378.81      5/1/2029  

Spencer Neumann

     3,095        336.63      6/3/2029  

Spencer Neumann

     2,781        374.60      7/1/2029  

Spencer Neumann

     3,260        319.50      8/1/2029  

Spencer Neumann

     3,601        289.29      9/3/2029  

Spencer Neumann

     3,864        269.58      10/1/2029  

Spencer Neumann

     3,632        286.81      11/1/2029  

Spencer Neumann

     3,361        309.99      12/2/2029  

Ted Sarandos

     25,130        79.58      5/1/2025  

Ted Sarandos

     22,470        89.00      6/1/2025  

Ted Sarandos

     21,357        93.64      7/1/2025  

Ted Sarandos

     15,952        125.37      12/1/2025  

Ted Sarandos

     26,125        94.09      2/1/2026  

 

58    NETFLIX


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

Ted Sarandos

     25,008        98.30      3/1/2026  

Ted Sarandos

     26,405        93.11      5/2/2026  

Ted Sarandos

     25,430        96.67      7/1/2026  

Ted Sarandos

     26,050        94.37      8/1/2026  

Ted Sarandos

     25,245        97.38      9/1/2026  

Ted Sarandos

     19,938        123.30      11/1/2026  

Ted Sarandos

     20,972        117.22      12/1/2026  

Ted Sarandos

     19,282        127.49      1/3/2027  

Ted Sarandos

     16,279        140.78      2/1/2027  

Ted Sarandos

     15,679        146.17      7/3/2027  

Ted Sarandos

     11,574        198.00      11/1/2027  

Ted Sarandos

     11,397        201.07      1/2/2028  

Ted Sarandos

     11,200        265.07      2/1/2028  

Ted Sarandos

     10,223        290.39      3/1/2028  

Ted Sarandos

     10,592        280.29      4/2/2028  

Ted Sarandos

     9,476        313.30      5/1/2028  

Ted Sarandos

     8,248        359.93      6/1/2028  

Ted Sarandos

     7,456        398.18      7/2/2028  

Ted Sarandos

     8,773        338.38      8/1/2028  

Ted Sarandos

     8,165        363.60      9/4/2028  

Ted Sarandos

     7,783        381.43      10/1/2028  

Ted Sarandos

     9,354        317.38      11/1/2028  

Ted Sarandos

     10,227        290.30      12/3/2028  

Ted Sarandos

     11,091        267.66      1/2/2029  

Ted Sarandos

     8,276        339.85      2/1/2029  

Ted Sarandos

     7,871        357.32      3/1/2029  

Ted Sarandos

     7,664        366.96      4/1/2029  

Ted Sarandos

     7,425        378.81      5/1/2029  

 

2020 PROXY STATEMENT    59


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

Ted Sarandos

     8,355        336.63      6/3/2029  

Ted Sarandos

     7,508        374.60      7/1/2029  

Ted Sarandos

     8,802        319.50      8/1/2029  

Ted Sarandos

     9,723        289.29      9/3/2029  

Ted Sarandos

     10,433        269.58      10/1/2029  

Ted Sarandos

     9,806        286.81      11/1/2029  

Ted Sarandos

     9,073        309.99      12/2/2029  

Greg Peters

     5,047        112.56      8/3/2025  

Greg Peters

     5,366        105.79      9/1/2025  

Greg Peters

     5,357        105.98      10/1/2025  

Greg Peters

     5,274        107.64      11/2/2025  

Greg Peters

     4,528        125.37      12/1/2025  

Greg Peters

     5,163        109.96      1/4/2026  

Greg Peters

     7,251        94.09      2/1/2026  

Greg Peters

     6,941        98.30      3/1/2026  

Greg Peters

     6,455        105.70      4/1/2026  

Greg Peters

     7,329        93.11      5/2/2026  

Greg Peters

     6,721        101.51      6/1/2026  

Greg Peters

     7,058        96.67      7/1/2026  

Greg Peters

     7,230        94.37      8/1/2026  

Greg Peters

     7,007        97.38      9/1/2026  

Greg Peters

     6,648        102.63      10/3/2026  

Greg Peters

     5,533        123.30      11/1/2026  

Greg Peters

     5,821        117.22      12/1/2026  

Greg Peters

     5,352        127.49      1/3/2027  

Greg Peters

     4,846        140.78      2/1/2027  

Greg Peters

     4,783        142.65      3/1/2027  

Greg Peters

     4,644        146.92      4/3/2027  

 

60    NETFLIX


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

Greg Peters

     4,392        155.35      5/1/2027  

Greg Peters

     4,186        162.99      6/1/2027  

Greg Peters

     4,668        146.17      7/3/2027  

Greg Peters

     3,891        182.03      8/1/2027  

Greg Peters

     4,054        174.74      9/1/2027  

Greg Peters

     4,001        177.01      10/2/2027  

Greg Peters

     3,578        198.00      11/1/2027  

Greg Peters

     3,791        186.82      12/1/2027  

Greg Peters

     3,523        201.07      1/2/2028  

Greg Peters

     5,187        265.07      2/1/2028  

Greg Peters

     4,735        290.39      3/1/2028  

Greg Peters

     4,906        280.29      4/2/2028  

Greg Peters

     4,389        313.30      5/1/2028  

Greg Peters

     3,820        359.93      6/1/2028  

Greg Peters

     3,453        398.18      7/2/2028  

Greg Peters

     4,063        338.38      8/1/2028  

Greg Peters

     3,782        363.60      9/4/2028  

Greg Peters

     3,605        381.43      10/1/2028  

Greg Peters

     4,332        317.38      11/1/2028  

Greg Peters

     4,737        290.30      12/3/2028  

Greg Peters

     5,137        267.66      1/2/2029  

Greg Peters

     4,168        339.85      2/1/2029  

Greg Peters

     3,965        357.32      3/1/2029  

Greg Peters

     3,861        366.96      4/1/2029  

Greg Peters

     3,739        378.81      5/1/2029  

Greg Peters

     4,209        336.63      6/3/2029  

Greg Peters

     3,782        374.60      7/1/2029  

Greg Peters

     4,434        319.50      8/1/2029  

 

2020 PROXY STATEMENT    61


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

Greg Peters

     4,897        289.29      9/3/2029  

Greg Peters

     5,255        269.58      10/1/2029  

Greg Peters

     4,939        286.81      11/1/2029  

Greg Peters

     4,570        309.99      12/2/2029  

David Hyman

     5,145      60.77      8/1/2024  

David Hyman

     4,592      68.09      9/2/2024  

David Hyman

     4,984      62.69      10/1/2024  

David Hyman

     5,635      55.49      11/3/2024  

David Hyman

     6,398      48.83      12/1/2024  

David Hyman

     6,272      49.85      1/2/2025  

David Hyman

     3,962      63.01      2/2/2025  

David Hyman

     3,647      68.61      3/2/2025  

David Hyman

     4,235      59.02      4/1/2025  

David Hyman

     3,143      79.58      5/1/2025  

David Hyman

     2,807      89.00      6/1/2025  

David Hyman

     2,667      93.64      7/1/2025  

David Hyman

     2,221      112.56      8/3/2025  

David Hyman

     2,363      105.79      9/1/2025  

David Hyman

     2,359      105.98      10/1/2025  

David Hyman

     2,322      107.64      11/2/2025  

David Hyman

     1,994      125.37      12/1/2025  

David Hyman

     2,274      109.96      1/4/2026  

David Hyman

     4,439      94.09      2/1/2026  

David Hyman

     4,249      98.30      3/1/2026  

David Hyman

     3,952      105.70      4/1/2026  

David Hyman

     4,487      93.11      5/2/2026  

David Hyman

     4,115      101.51      6/1/2026  

David Hyman

     4,321      96.67      7/1/2026  

 

62    NETFLIX


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

David Hyman

     4,426      94.37      8/1/2026  

David Hyman

     4,290      97.38      9/1/2026  

David Hyman

     4,070      102.63      10/3/2026  

David Hyman

     3,387      123.30      11/1/2026  

David Hyman

     3,564      117.22      12/1/2026  

David Hyman

     3,276      127.49      1/3/2027  

David Hyman

     1,798      140.78      2/1/2027  

David Hyman

     1,775      142.65      3/1/2027  

David Hyman

     1,722      146.92      4/3/2027  

David Hyman

     1,630      155.35      5/1/2027  

David Hyman

     1,553      162.99      6/1/2027  

David Hyman

     1,732      146.17      7/3/2027  

David Hyman

     1,390      182.03      8/1/2027  

David Hyman

     1,449      174.74      9/1/2027  

David Hyman

     1,430      177.01      10/02/2027  

David Hyman

     1,278      198.00      11/01/2027  

David Hyman

     1,355      186.82      12/01/2027  

David Hyman

     1,259      201.07      01/02/2028  

David Hyman

     2,574      265.07      02/01/2028  

David Hyman

     2,349      290.39      03/01/2028  

David Hyman

     2,435      280.29      04/02/2028  

David Hyman

     2,177      313.30      05/01/2028  

David Hyman

     1,896      359.93      06/01/2028  

David Hyman

     1,713      398.18      07/02/2028  

David Hyman

     2,017      338.38      08/01/2028  

David Hyman

     1,876      363.60      09/04/2028  

David Hyman

     1,789      381.43      10/01/2028  

David Hyman

     2,150      317.38      11/01/2028  

 

2020 PROXY STATEMENT    63


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

David Hyman

     2,350      290.30      12/03/2028  

David Hyman

     2,549      267.66      01/02/2029  

David Hyman

     2,360      339.85      02/01/2029  

David Hyman

     2,245      357.32      03/01/2029  

David Hyman

     2,186      366.96      04/01/2029  

David Hyman

     2,117      378.81      05/01/2029  

David Hyman

     2,383      336.63      06/03/2029  

David Hyman

     2,141      374.60      07/01/2029  

David Hyman

     2,511      319.50      08/01/2029  

David Hyman

     2,772      289.29      09/03/2029  

David Hyman

     2,976      269.58      10/01/2029  

David Hyman

     2,796      286.81      11/01/2029  

David Hyman

     2,587      309.99      12/02/2029  

Kelly Bennett

     644        68.61      3/2/2025  

Kelly Bennett

     1,470        79.58      5/1/2025  

Kelly Bennett

     1,309        89.00      6/1/2025  

Kelly Bennett

     1,246        93.64      7/1/2025  

Kelly Bennett

     1,040        112.56      8/3/2025  

Kelly Bennett

     1,181        105.79      9/1/2025  

Kelly Bennett

     1,180        105.98      10/1/2025  

Kelly Bennett

     1,161        107.64      11/2/2025  

Kelly Bennett

     997        125.37      12/1/2025  

Kelly Bennett

     1,137        109.96      1/4/2026  

Kelly Bennett

     1,771        94.09      2/1/2026  

Kelly Bennett

     1,695        98.30      3/1/2026  

Kelly Bennett

     1,577        105.70      4/1/2026  

Kelly Bennett

     1,790        93.11      5/2/2026  

Kelly Bennett

     1,642        101.51      6/1/2026  

 

64    NETFLIX


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

Kelly Bennett

     1,724        96.67      7/1/2026  

Kelly Bennett

     1,766        94.37      8/1/2026  

Kelly Bennett

     1,712        97.38      9/1/2026  

Kelly Bennett

     1,624        102.63      10/3/2026  

Kelly Bennett

     1,351        123.30      11/1/2026  

Kelly Bennett

     1,422        117.22      12/1/2026  

Kelly Bennett

     1,308        127.49      1/3/2027  

Kelly Bennett

     1,272        140.78      2/1/2027  

Kelly Bennett

     1,256        142.65      3/1/2027  

Kelly Bennett

     1,220        146.92      4/3/2027  

Kelly Bennett

     1,153        155.35      5/1/2027  

Kelly Bennett

     1,099        162.99      6/1/2027  

Kelly Bennett

     1,226        146.17      7/3/2027  

Kelly Bennett

     984        182.03      8/1/2027  

Kelly Bennett

     1,026        174.74      9/1/2027  

Kelly Bennett

     1,012        177.01      10/2/2027  

Kelly Bennett

     905        198.00      11/1/2027  

Kelly Bennett

     959        186.82      12/1/2027  

Kelly Bennett

     891        201.07      1/2/2028  

Kelly Bennett

     668        265.07      2/1/2028  

Kelly Bennett

     609        290.39      3/1/2028  

Kelly Bennett

     632        280.29      4/2/2028  

Kelly Bennett

     565        313.30      5/1/2028  

Kelly Bennett

     492        359.93      6/1/2028  

Kelly Bennett

     445        398.18      7/2/2028  

Kelly Bennett

     585        338.38      8/1/2028  

Kelly Bennett

     544        363.60      9/4/2028  

Kelly Bennett

     519        381.43      10/1/2028  

 

2020 PROXY STATEMENT    65


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

Kelly Bennett

     624        317.38      11/1/2028  

Kelly Bennett

     682        290.30      12/3/2028  

Kelly Bennett

     739        267.66      1/2/2029  

Kelly Bennett

     705        339.85      2/1/2029  

Kelly Bennett

     670        357.32      3/1/2029  

Kelly Bennett

     653        366.96      4/1/2029  

Kelly Bennett

     633        378.81      5/1/2029  

Kelly Bennett

     711        336.63      6/3/2029  

David Wells

     3,367        68.09      9/2/2024  

David Wells

     3,654        62.69      10/1/2024  

David Wells

     4,130        55.49      11/3/2024  

David Wells

     4,690        48.83      12/1/2024  

David Wells

     4,599        49.85      1/2/2025  

David Wells

     5,537        63.01      2/2/2025  

David Wells

     5,082        68.61      3/2/2025  

David Wells

     5,915        59.02      4/1/2025  

David Wells

     4,382        79.58      5/1/2025  

David Wells

     3,920        89.00      6/1/2025  

David Wells

     3,731        93.64      7/1/2025  

David Wells

     3,101        112.56      8/3/2025  

David Wells

     3,298        105.79      9/1/2025  

David Wells

     3,293        105.98      10/1/2025  

David Wells

     3,241        107.64      11/2/2025  

David Wells

     2,784        125.37      12/1/2025  

David Wells

     3,173        109.96      1/4/2026  

David Wells

     3,986        94.09      2/1/2026  

David Wells

     3,814        98.30      3/1/2026  

David Wells

     3,548        105.70      4/1/2026  

 

66    NETFLIX


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

David Wells

     4,028        93.11      5/2/2026  

David Wells

     3,694        101.51      6/1/2026  

David Wells

     3,880        96.67      7/1/2026  

David Wells

     3,973        94.37      8/1/2026  

David Wells

     3,851        97.38      9/1/2026  

David Wells

     3,654        102.63      10/3/2026  

David Wells

     3,041        123.30      11/1/2026  

David Wells

     3,199        117.22      12/1/2026  

David Wells

     2,942        127.49      1/3/2027  

David Wells

     2,826        140.78      2/1/2027  

David Wells

     2,790        142.65      3/1/2027  

David Wells

     2,708        146.92      4/3/2027  

David Wells

     2,562        155.35      5/1/2027  

David Wells

     2,441        162.99      6/1/2027  

David Wells

     2,722        146.17      7/3/2027  

David Wells

     2,186        182.03      8/1/2027  

David Wells

     2,277        174.74      9/1/2027  

David Wells

     2,248        177.01      10/2/2027  

David Wells

     2,010        198.00      11/1/2027  

David Wells

     2,130        186.82      12/1/2027  

David Wells

     1,979        201.07      1/2/2028  

David Wells

     1,925        265.07      2/1/2028  

David Wells

     1,758        290.39      3/1/2028  

David Wells

     1,821        280.29      4/2/2028  

David Wells

     1,629        313.30      5/1/2028  

David Wells

     1,418        359.93      6/1/2028  

David Wells

     1,282        398.18      7/2/2028  

David Wells

     1,508        338.38      8/1/2028  

 

2020 PROXY STATEMENT    67


Table of Contents

LOGO

 

   
     Option Awards  

Name

   Number of
Securities Underlying
Unexercised Options:
Exercisable (#)
     Option
Exercise Price
($)
     Option
Expiration Date
 

David Wells

     1,404        363.60      9/4/2028  

David Wells

     1,338        381.43      10/1/2028  

David Wells

     1,609        317.38      11/1/2028  

David Wells

     1,758        290.30      12/3/2028  

David Wells

     1,907        267.66      1/2/2029  

Option Exercises

 

 

The following table sets forth information concerning each exercise of stock options during 2019 for each of the Named Executive Officers on an aggregated basis.

 

LOGO

 

   
     Option Awards  

Name

   Number of Shares
Acquired on Exercise
(#)
    

Value Realized

on Exercise

($)1

 

Reed Hastings

     682,199      221,477,910

Spencer Neumann

           

Ted Sarandos

           

Greg Peters

           

David Hyman

           

David Wells

     35,917      9,899,689

Kelly Bennett

           
1.   Dollar value realized on exercise equals the difference between the closing price on the date of exercise less the exercise price of the option and does not necessarily reflect the sales price of the shares or if a sale was made.

 

68    NETFLIX


Table of Contents

LOGO

 

Potential Payments upon Termination or Change-in-Control

 

 

The Named Executive Officers are beneficiaries of the Company’s Amended and Restated Executive Severance and Retention Incentive Plan, as described in more detail above in “Compensation Discussion and Analysis.” The information below reflects the estimated value of the compensation to be paid by the Company to each of the Named Executive Officers in the event of termination or a change in control under the terms of the Amended and Restated Executive Severance and Retention Incentive Plan. The amounts shown below assume that termination or change in control was effective as of December 31, 2019 and is based on 2020 allocatable compensation, which went into effect prior to the end of the 2019 fiscal year. The actual amounts that would be paid can only be determined at the time of the actual triggering event.

 

LOGO

 

     

Name

  

Severance

Benefit1
($)

    

Change in

Control Benefit2
($)

 

Reed Hastings

     24,750,000      33,000,000

Spencer Neumann

     11,916,667      11,000,000  

Ted Sarandos

     24,750,000      33,000,000  

Greg Peters

     13,500,000      18,000,000  

David Hyman

     6,750,000      9,000,000
1.   The amounts in this column correspond to lump sum payments in cash that are equal to nine months of allocatable compensation, except with respect to Mr. Neumann, for whom the lump sum payment would equal thirteen months of his allocatable compensation as of December 31, 2019. As described above, allocatable compensation excludes the annual stock option allowance of 5% of allocatable compensation. The amounts in this column would be payable upon a termination of employment (other than for cause, death, or permanent disability), so long as the Named Executive Officer signs a waiver and release of claims and an agreement not to disparage the Company, its directors or its officers in a form reasonably satisfactory to the Company. The right to receive a severance benefit terminates upon a change in control transaction, so that the Named Executive Officers are not entitled to both a change in control benefit and a severance benefit.
2.   The amounts in this column correspond to lump sum payments in cash that are equal to twelve months of allocatable compensation for the Named Executive Officer as of December 31, 2019, which excludes the annual stock option allowance of 5% of allocatable compensation. These are single-trigger payments that would be made upon a change in control, provided that the Named Executive Officer had not previously received severance under the Severance Plan.

In connection with their mutually agreed departures from Netflix in January 2019 and June 2019, respectively, Mr. Wells and Mr. Bennett entered into Netflix’s standard form of release agreement which included customary confidentiality and release provisions and each received a lump sum cash payment calculated in accordance with the Severance Plan of $4,500,000 and $5,250,000 respectively.

 

2020 PROXY STATEMENT    69


Table of Contents

LOGO

 

Pay Ratio Disclosure

 

 

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Hastings, our CEO. The pay ratio included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.

As disclosed in the Summary Executive Compensation table, the 2019 annual total compensation as determined under Item 402 of Regulation S-K for our CEO was $38,577,129. The 2019 annual total compensation as determined under Item 402 of Regulation S-K for our median employee was $202,931. Based on the foregoing, our estimate of the ratio of our CEO’s annual total compensation to our median employee’s annual total compensation for fiscal year 2019 is 190 to 1. Given the different methodologies that various public companies will use to determine an estimate of their pay ratios, the estimated ratio reported above should not be used as a basis for comparison between companies.

To identify the median of the annual total compensation of all our employees, as well as to

determine the annual total compensation of the “median employee,” the methodology and the material assumptions, adjustments, and estimates that we used were as follows:

We determined that, as of December 31, 2019, our global employee population consisted of 8,628 employees, which excludes workers employed through unaffiliated third parties for which we do not set compensation. We annualized the compensation of all full-time and part-time employees who were not employed by us for all of 2019.

We selected December 31, 2019, which is within the last three months of 2019, as the date upon which we would identify the “median employee”. We also used December 31 as our measuring date in 2018.

Consistent with the Summary Executive Compensation table, we examined total annual compensation for all employees, which included: base salary, incentive compensation plan payments, option awards consisting of stock options, and other compensation such as 401(k) matching contributions.

For employees outside the United States, we converted their compensation to U.S. dollars using the applicable average exchange rate for 2019.

 

 

70    NETFLIX


Table of Contents

 

Proposal 4

 

 

Approval of the

Netflix, Inc. 2020

Stock Plan

 

 

 

LOGO

  

 

The Board unanimously recommends that the

stockholders vote “FOR” approval of the

2020 Plan.

 

 

LOGO


Table of Contents

LOGO

 

Reason for the Proposal

We are asking stockholders to approve the Netflix, Inc. 2020 Stock Plan (the “2020 Plan”), which was adopted, subject to stockholder approval, by the Board on March 4, 2020 (the “Board Approval Date”).

The Company currently maintains the Netflix, Inc. 2011 Stock Plan (the “2011 Plan”). As of April 8, 2020, a total of 18,796,456 shares of Netflix common stock (“Shares”) were then subject to outstanding awards granted under the 2011 Plan, and an additional 5,343,099 Shares were then available for new grants under the 2011 Plan. The Board and management believe that the 2011 Plan should be updated to align with current compensation and benefits best practices. Moreover, it is difficult to precisely estimate when the shares under the 2011 Plan will be exhausted, since the number of shares granted under our program is dependent on our stock price, employee population and the participation of employees in allocating compensation to stock options.

The purpose of the 2020 Plan is to help the Company attract and retain the best available employees, consultants and directors and to incentivize such individuals to promote the Company’s success. The Board and management believe that being able to offer equity awards as one element of our total compensation serves as an effective vehicle for aligning stockholder interest with employees’ interests. Our three-year average dilution rate of just 0.55%—extremely low compared to S&P 500 Media and Entertainment companies—has ensured that our equity offering has had limited impact on our existing shareholders. As such, the Board and management believe that the approval of the 2020 Plan is in the best interest of stockholders and important to the future success of the Company.

If stockholders approve the 2020 Plan, no new awards will be granted under the 2011 Plan after the

Annual Meeting. In that case, (1) 17,500,000 new Shares will become available for award grants under the 2020 Plan; (2) the number of Shares that remained available for award grants under the 2011 Plan as of 12:01 a.m. Pacific Time on the Board Approval Date (such time, the “Effective Time”) will become available

for award grants under the 2020 Plan, and (3) any Shares subject to awards under the 2011 Plan that are outstanding as of the Effective Time that, after the Effective Time, expire, become unexercisable, or are forfeited or repurchased by the Company without having become vested will also become available for grant under the 2020 Plan (such Shares in this prong (3), the “Returning Shares”). In sum, if stockholders approve the 2020 Plan, the 2020 Plan will be the successor to the 2011 Plan, provided that the termination of our grant authority under the 2011 Plan will not affect awards then outstanding thereunder.

If stockholders do not approve the 2020 Plan, the Company will continue to have the authority to grant awards under the 2011 Plan.

Based solely on the closing price of the Company’s common stock, as reported on the Nasdaq Stock Market on April 8, 2020, which was $371.12 per Share, the maximum aggregate market value of the 17,500,000 new Shares that could be issued under the 2020 Plan is $6,494,600,000.

Key Features of the 2020 Plan

The 2020 Plan, as approved by the Board, has several key differences from the 2011 Plan, which are intended to reflect current compensation and governance best practices, including:

 

   

Limitations on Shares Available for Awards. No more than 41,724,628 Shares may be issued under the 2020 Plan, which is the sum of 17,500,000 new Shares, plus the number of Shares available under the 2011 Plan for additional award grant purposes as of the Effective Time, plus the aggregate number of Shares subject to outstanding awards under the 2011 Plan as of the Effective Time to account for the maximum potential amount of Returning Shares. Shares granted under the 2020 Plan may be either authorized but unissued Shares or treasury Shares. The 2020 Plan also contains limitations on the number of Shares that may be issued to a participant during any fiscal year by award type. The Board expects that the number of Shares available, if approved by the stockholders,

 

 

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    will satisfy equity compensation needs for approximately four to six years based on historical grants. Additional information about how the Board and management set the number of Shares authorized under the 2020 Plan is available in the “Additional Information Regarding Share Increase” section below.

 

    No Dividend, Dividend Equivalents, or Similar Distributions Paid on Unvested Awards. The 2020 Plan prohibits the payment of dividends, dividend equivalents, and other distributions on awards until those awards are earned and vested. In addition, the 2020 Plan prohibits the granting of dividend equivalents with respect to stock options and stock appreciation rights.

 

    No Automatic Accelerated Vesting Upon a Change in Control if Outstanding Awards are Assumed or Substituted. A Change in Control of the Company does not, by itself, trigger vesting of awards under the 2020 Plan. Any awards that are assumed or substituted in accordance with the 2020 Plan will continue to vest pursuant to their original vesting terms. However, if outstanding awards are not assumed or substituted in accordance with the 2020 Plan, effective immediately prior to the Change in Control and conditioned upon the completion of such Change in Control, all outstanding awards shall become fully vested, exercisable and/or have their restrictions lapse, as applicable, as described in greater detail below; provided that such acceleration and associated payments may be reduced under certain circumstances to minimize taxes under Section 4999 (“Section 4999”) of the of the Internal Revenue Code of 1986, as amended (the “Code”).

 

    No Liberal Change in Control Definition. The 2020 Plan features a Change in Control definition that makes clear that a consummated merger is a Change in Control under the 2020 Plan. The announcement or stockholder approval of (rather than a consummation of) a change in control transaction is not a Change in Control under the 2020 Plan. The Change in Control definition in the 2020 Plan also tracks more closely to the Change
   

in Control definition in the Company’s Executive Severance and Retentive Incentive Plan.

 

    Performance-Based Awards are Subject to a Clawback. Performance-based awards under the 2020 Plan are subject to forfeiture and a clawback if a participant engaged in certain Misconduct (as defined in the 2020 Plan), as further described below.

 

    Fungible Ratio. The maximum number of Shares reserved for issuance under the 2020 Plan will be reduced by 2.39 Shares for every one restricted stock unit or share of restricted stock granted thereunder.

 

    Governing Law. The 2020 Plan specifies that it shall be administered, construed and governed in accordance with the Code and the laws of the State of Delaware, but without regard to its conflict of law rules.

The 2020 Plan also retains the 2011 Plan’s disciplined equity compensation practices, such as:

 

    No Evergreen Provision. There is no evergreen feature under which the Shares authorized for issuance under the 2020 Plan can be automatically replenished.

 

    No Discounted Awards. Awards that have an exercise price or base value cannot be granted with an exercise price or base value less than the fair market value on the grant date, except for any options that the Committee grants in substitution for options held by employees of companies that the Company acquires (in which case the exercise price preserves the economic value of the employee’s cancelled option from his or her former employer).

 

    No Repricing or Exchange of Stock Options or Stock Appreciation Rights. The 2020 Plan does not permit repricing of options or stock appreciation rights or the exchange of underwater options or stock appreciation rights for cash or other awards without stockholder approval, except in connection with certain adjustments to the Company’s corporate structure or a Change in Control.

 

 

 

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    No Liberal Share Recycling. The 2020 Plan contains responsible share recycling provisions. Any shares surrendered or withheld to satisfy tax withholding on awards or to pay the exercise price or purchase price of any award will not become available for future grant or sale under the 2020 Plan. The 2020 Plan also provides that the gross number of stock appreciation rights exercised or settled in Shares will not become available for future issuance under the 2020 Plan.

Additional Information Regarding Share Increase

Compared with the 2011 Plan, the 2020 Plan would increase the number of Shares reserved for issuance by 17,500,000 new Shares, which would help ensure that a sufficient reserve of Shares remains available for issuance to allow the Company to use equity incentives to attract, retain and motivate key employees, consultants and directors, who are essential to the Company’s long-term growth and financial success. The Company relies on equity incentives in the form of stock options, and the Board, the Committee and management believe that these equity incentives are necessary for the Company to maintain a competitive equity compensation program. The 2011 Plan was designed to be effective for a maximum term of 10 years, with the intent of having the equity incentive share reserve replenished thereafter. It is difficult to precisely estimate when the shares under the 2011 Plan will be exhausted, since the number of shares granted under our program is dependent on our stock price, employee population and the participation of employees in allocating compensation to stock options. Given the importance of offering competitive equity compensation to our employees, directors and other service providers, the Company proposes that no more than 41,724,628 Shares may be issued under the 2020 Plan, which is the sum of the 17,500,000 new Shares, plus the number of Shares available under the 2011 Plan for additional award grant purposes as of the Effective Time, plus the aggregate number of Shares subject to outstanding awards under the 2011 Plan as of the Effective Time to account for the maximum potential amount of Returning Shares.

 

In determining the number of Shares to reserve under the 2020 Plan, management and the Committee, in consultation with an independent compensation consultant, evaluated share usage, dilution, overhang, burn rate, and the existing terms of outstanding equity awards, as discussed further in the “Share Usage, Dilution, Burn Rate, and Overhang” section below. The Board, the Committee and management believe the increased dilution resulting from the approval of the 2020 Plan remains consistent with stockholder interests, in particular since our three-year average dilution rate of 0.55% is extremely low as compared to S&P 500 Media and Entertainment companies.

Incentive Equity Awards in Fiscal 2019

The Company grants stock options to more than 82% of all our employees annually. In fiscal 2019, we granted stock options covering 2,588,380 Shares under the 2011 Plan, of which awards for 466,961 Shares, or 18%, were granted to our named executive officers; awards for 23,431 Shares, or 1%, were granted to our non-employee directors; and awards for 2,097,998 Shares, or 81%, were granted to our broad-based employee population. We did not grant any other form of equity awards or equity-based awards.

As of December 31, 2019, the total number of Shares underlying outstanding options under the 2011 Plan was 18,658,946. The outstanding options have exercise prices ranging from $7.79 to $398.18, and the aggregate intrinsic value of these options that were in the money on December 31, 2019 was $3,562,686,526. The outstanding options generally are vested on the date of grant, pursuant to the Company’s monthly option grant program. Vested stock options can be exercised up to ten years following grant regardless of employment status. The 2020 Plan was adopted on the Board Approval Date and no awards were granted thereunder prior to the Annual Meeting.

Equity Grants in Fiscal 2020

Pursuant to past practice, on the first trading date of each month in fiscal 2020, the Company granted vested options to our named executive officers. For such options, the weighted average exercise price

 

 

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was $357.85 and the weighted average remaining contractual life was 9.86 years. Immediately following the April 2020 grant, 5,343,099 Shares remained available for issuance as incentive awards under the 2011 Plan and our overhang was 5.91%. We calculated overhang based on the number of shares subject to equity awards outstanding but not exercised, plus number of shares available to be granted, divided by total common shares outstanding as of April 1, 2020. Overhang is also described in greater detail below.

Share Usage, Dilution, Burn Rate, and Overhang

Upon adoption by stockholders at the Annual Meeting, the 2020 Plan will authorize no more than 41,724,628 Shares for issuance under the 2020 Plan, which is the sum of the 17,500,000 new Shares, plus the number of

Shares available under the 2011 Plan for additional award grant purposes as of the Effective Time, plus the aggregate number of Shares subject to outstanding awards under the 2011 Plan as of the Effective Time to account for the maximum potential amount of Returning Shares. Incentive awards under the 2020 Plan may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, or dividend equivalents. The number of Shares available for awards under the 2020 Plan will be increased in an amount equal to awards that are forfeited, repurchased or terminated without issuance of Shares. Adjustments will be made in the aggregate number of Shares that may be issued under the 2020 Plan in the event of a change affecting Shares, such as a stock dividend or split, recapitalization, reorganization, or merger.

 

 

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Equity Plan Share Reservation Summary Table1

 

     

A

 

Total Shares authorized under 2011 Plan2

    39,900,000

B

  Total Shares awarded from 2011 Plan through the Effective Time     34,369,894

C

  Shares added back to share reserve from 2011 Plan through the Effective Time due to cancellations and forfeitures of awards     0  

D

  Shares available to be granted under the 2011 Plan as of the Effective Time (A-B+C)     5,530,106

E

  Shares subject to outstanding awards under the 2011 Plan as of the Effective Time3     18,694,522

F

  New Shares available for grant under the 2020 Plan     17,500,000

G

  Maximum Share Limit under the 2020 Plan (D+E+F)     41,724,628

H

  Common Shares outstanding as of December 31, 2019     438,806,649
1.   This table does not include the annual equity awards granted in Fiscal 2020 after the Effective Time, as described in “Equity Grants in Fiscal 2020” above.
2.   Total Shares authorized under 2011 Plan reflects the seven-for-one stock split in July 2015. Pre-split Total Shares authorized was 5,700,000.
3.   Only the portion of such Shares that are Returning Shares will become available for issuance under the 2020 Plan.

 

In determining the number of shares to reserve under the 2020 Plan, management and the Committee evaluated the 2011 Plan’s historic dilution rate, burn rate, and overhang. This helps the Company ensure that it is continuing to take a disciplined approach to equity compensation.

The 17,500,000 new Shares represents 3.99% of our total common shares outstanding as of December 31, 2019. There were 438,806,649 Shares outstanding as of December 31, 2019. Dilution is the total number

of shares subject to equity awards granted (less cancellations) divided by the total common shares outstanding at the end of the year. The average annual dilution over the last three fiscal years was 0.55%. Several factors contribute to our low dilution rate. In particular, our high market capitalization relative to our number of employees allows for competitive compensation to be delivered to employees at a relatively low cost to shareholders.

 

 

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Additionally, our employees generally make an election regarding how their compensation is allocated between cash and equity compensation, which generally leads to higher salaries and lower equity compensation spending, relative to our peers.

Burn rate is another measure of dilution that shows how rapidly a company is depleting its shares reserved for equity compensation plans, and differs from annual dilution because it does not take into account cancellations. Our annual burn rate over the last three fiscal years has averaged 0.55%, which falls below the ISS 2020 3-year gross burn rate guideline for S&P 500 Media & Entertainment companies, which is 3.50%. Our method for calculating burn rate is generally aligned with ISS’s method and any differences for Netflix are negligible. Our burn rate is nearly identical to our dilution rate because the Company has so few cancellations, due to our

practice of granting fully vested options and our strong share price performance.

An additional metric that we use to measure the cumulative impact of the 2011 Plan is overhang (number of shares subject to equity awards outstanding but not exercised, plus number of shares available to be granted, divided by total common shares outstanding at the end of the year). For each of the last three fiscal years, our overhang has averaged 6.77%. If the 2020 Plan is approved with 17,500,000 new Shares, our overhang would increase to 10.13%.

We calculate dilution, burn rate and overhang based upon total common shares outstanding at the end of the fiscal year. Taking into account the Company’s equity grant practices and the foregoing information, the Company believes that the additional share authorization requested is appropriate.

 

 

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Equity Compensation Plan Key Metrics Summary Table

 

         
      Fiscal 2019
(%)
     Fiscal 2018
(%)
     Fiscal 2017
(%)
     Three Year Average
(Fiscal 2017-2019)
(%)
 

Percentage of Equity-Based Awards Granted
to Named Executive Officers

     18        20        24        21  

Dilution

     0.59        0.47        0.59        0.55  

Burn Rate

     0.59        0.47        0.59        0.55  

Overhang

     6.15        6.68        7.47        6.77  

 

New Plan Benefits and Plan Participation

Our executive officers and non-employee directors have an interest in this proposal because they are eligible to receive discretionary awards under the 2020 Plan.

All benefits or amounts that will be awarded or paid under the 2020 Plan cannot currently be determined. Awards granted under the 2020 Plan are within the discretion of the Committee, and the Committee has not determined all future awards or who might receive them. The 2020 Plan does not have set benefits or amounts, and no grants or awards have been made by the Board or the Committee to date under the 2020 Plan subject to stockholder approval.

Under our current monthly option grant program, we generally permit salaried employees to elect to receive monthly grants of fully vested stock options instead of cash compensation. The Company expects to continue to make grants under the Company’s monthly option grant program, under which certain employees receive, on the first trading day of the month, fully vested options granted at fair market value as reflected by the closing price on the day of the option grant. The actual number of options granted to employees each month in 2019 was determined based on the following formula: (the amount of an employee’s total annual stock option allocation/12) / (the closing trading price of a share of our stock on the grant date x 0.40). The total annual

 

 

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stock option allocation is comprised of a minimum of stock option allowance (generally based on upon 5% of a salaried employee’s allocatable compensation), and certain employees are permitted to make a supplemental allocation to their total annual stock option allocation from their cash compensation.

Awards granted in fiscal year 2019 under the 2011 Plan would not have changed if the 2020 Plan had

been in effect instead of the 2011 Plan, provided that the Board or a Committee may adjust, eliminate or otherwise modify the Company’s option granting

practices and option allowances, including, without limitation, the monthly option formula that underlies our monthly option grant program. The following table sets forth information with respect to the grant of options and other awards under our 2011 Plan to the executive officers named in this proxy statement’s Summary Executive Compensation table who are current executive officers, to all current executive officers as a group, to all non-employee directors as a group, to several other classes of individuals, and to all other employees as a group during the Company’s last fiscal year:

 

 

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Name and Position

  

Number of Units

Underlying Options1

    

Weighted Average
Exercise Price Per

Share ($)

 

Reed Hastings

Chief Executive Officer, President, Chairman of the Board

     238,931      320.44

Spencer Neumann

Chief Financial Officer

     33,406        325.14

Ted Sarandos

Chief Content Officer

     106,027        319.79

Greg Peters

Chief Product Officer

     52,956        320.23

David Hyman

Chief Legal Officer

     29,623        320.87

David Wells

Former Chief Financial Officer

     1,907        267.66

Kelly Bennett

Former Chief Marketing Officer

     4,111        339.47

All current executive officers as a group

     468,038        320.66

All non-employee directors as a group

     23,431        320.08

Each nominee for election as a director

     243,617        320.43

Each associate of any such directors, executive officers or nominees

             

Each other person who received or is to receive 5 percent of such
options, warrants or other rights

             

All employees, other than executive officers, as a group

     2,096,911        320.67
1.   This column includes the number of Shares underlying options granted under the 2011 Plan during fiscal 2019. Given that the number of shares underlying options that are granted each month pursuant to our monthly option grant program is dependent on our stock price at the time such options are granted, we cannot determine future grants under the 2020 Plan with specificity. Other variable factors also contribute to uncertainty regarding future grants, such as changes in employees’ base compensation rates and the acquisition of new employees. Therefore, future awards under the 2020 Plan are not determinable.

 

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Equity Compensation Plan Information

The following table summarizes the Company’s equity compensation plans as of December 31, 2019. There were no equity compensation plans or arrangements not approved by security holders.

 

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Plan Category

  

Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants,
and Rights

(a)

   

Weighted-Average
Exercise Price of
Outstanding
Options, Warrants,
and Rights

(b) ($)

    

Number of Securities
Remaining
Available for Future
Issuance Under Equity
Compensation Plan
(Excluding Securities

Reflected in Column (a))
(c)

 

Equity compensation plans or arrangements approved
by security holders:

       

2011 Plan

     18,658,946       136.55        6,111,561  

2002 Plan1

     2,200,380       20.29         

Equity compensation plans not approved by security holders

                   

Total

     20,859,326 2      124.28        6,111,561  
1.   The Company’s Amended and Restated 2002 Stock Plan (the “2002 Plan”) terminated in 2012, and no new awards may be issued thereunder. The outstanding options under the 2002 Plan are described in this row.