The world video-streaming giant has been slapped with a shareholder lawsuit claiming that it “rigged” top executives’ bonuses to pay them millions of dollars — no matter how well the company gained.
The lawsuit which is filed by the City of Birmingham Relief and Retirement System claims the bonus targets Netflix set for its executives weren’t designed with “real performance goals” that were actually challenging to meet.
Instead, Netflix allegedly rigged its performance targets to deliver the bonuses while simultaneously claiming tax deductions on them.
“This artificial precision resulted in the company paying these officers approximately $18.73 million out of a target pool of $18.75 million,” according to the suit, filed under seal this month in San Francisco federal court.
Netflix used “streaming revenue” as its target to determine bonuses. In the eight quarters covered by the complaint, the company’s actual performance hit the target seven times. It fell short by a single percentage point the eighth time.
By other measures, Netflix’s predictive powers haven’t been nearly as accurate.
A forecast it released on Oct. 16 called for fourth-quarter membership additions of 6.3 million — 32 percent shy of the actual number reported on Jan. 22.
The suit demands that its 14 defendants — including CEO Reed Hastings, Chief Content Officer Ted Sarandos and CFO David Wells – return not just bonuses but all compensation received during the alleged breach.
Still, shareholders won’t have to worry about Netflix’s pulling the same stunt again.
Last year’s tax reform ended deductions on performance-based bonuses to managers making more than $1 million, causing Netflix to scale back bonuses in favor of higher salaries and stock options.
The shareholder suit was first reported by the Hollywood Reporter. Netflix declined to comment, saying the company would weigh in “at the appropriate time.”