As Netflix Reworks Executive Pay, More Changes Could Be Ahead for Hollywood

Apple kicked off 2023 by unveiling that CEO Tim Cook had requested a pay cut following a drop in shareholder support for his compensation package. Then, on Dec. 8, Netflix disclosed changes to the streaming giant’s executive pay structure. The overhaul was seen as a reaction to a June vote — during the Writers Guild of America strike — when its shareholders symbolically rejected compensation packages for top execs.

Are other publicly-traded Hollywood giants up next to update their compensation policies in 2024?

Apple and Netflix could simply be seen as special cases, but critics on Wall Street and beyond have in the past urged companies to focus on shareholder friendliness. In November, AMC Theatres shareholders voted against the compensation packages proposed for its executive officers, including CEO Adam Aron, who was paid $23.7 million in 2022.

The parade of Hollywood CEO pay disclosures in regulatory filings in 2023 will be remembered for bad timing (those disclosures were made public right during the ramp up to the strikes) and ugly optics (huge paydays for executives during a labor standoff). On May 30, WGA leadership sent letters to both Netflix and Comcast to vote “no” on the companies “Say on Pay” proposal. “Shareholders should send a message to Comcast that if the company could afford to spend $130 million on executive compensation last year, it can afford to pay the estimated $34 million per year that writers are asking for in contract improvements,” WGA West president Meredith Stiehm wrote.

Those pay packages also were made after major layoffs in various parts of the sector from Disney, Paramount, Warner Bros. Discovery and many other media companies, leading to criticism from people in Hollywood and shareholders alike.

Disney traditionally unveils its latest executive pay towards the end of a year or start of the next, with Apple usually following in January, because their fiscal years end in the fall, but executive compensation season for most companies kicks into full swing in March and April.

That is when Netflix usually details its pay packages for the previous year, but it also usually previews its annual compensation targets late in the year. Its shareholders rejected the company’s 2022 pay packages by a 3-to-1 margin the non-binding “Say on Pay” vote. Netflix reacted in October by promising “substantial changes” to its CEO and executive pay packages. “We recognize we don’t have wide support for our executive compensation model of the last 20 years,” the company acknowledged, vowing to switch to a “more conventional model.”

While it touted its “pay for performance” focus, Netflix has in the past allowed execs to choose how much of their pay they receive in cash and how much in stock options. For top execs, institutional investors generally prefer a relatively low salary though, plus performance-based bonuses and stock options. That is known as ensuring that executives have real “skin in the game.”

So on Dec. 8, Netflix disclosed 2024 target compensation packages worth $40 million for co-CEOs Ted Sarandos and Greg Peters. But “to address shareholder concerns,” the cash salaries for both will amount to $3 million, with performance-based cash bonuses with a target of $6 million and restricted stock units and performance stock units worth $15.5 million each.

Meanwhile, Apple said in early in 2023 that Cook would see a more than 40 percent cut to his total compensation from $99.4 million to $49.0 million after an advisory “say on pay” vote only showed approval from 64 percent of voting shareholders, down from 95 percent for Apple’s fiscal year 2020.

The tech giant reduced the number of restricted stock units Cook would receive if he retires before 2026 and said that 75 percent of his vesting shares would be tied to Apple’s stock performance in 2023, up from 50 percent, strengthening the “pay for performance” proposition.

While Hollywood powerhouses don’t typically give top execs a choice between cash and options, the Netflix move and other pay trends across corporate America could well get analyzed across town as companies assess if any major or symbolic updates to compensation policies may be needed amid some low shareholder support for their exec pay.

“Companies that engage with their shareholders and address concerns are more likely to receive greater shareholder support for say-on-pay, while those who don’t will probably continue to get lower support,” corporate governance and compensation advisory firm ISS Corporate Solutions highlighted in a 2022 report. It calls less than 70 percent shareholder support in “say on pay” votes as “low support.”

Recent votes show such low support among shareholders of some Hollywood and tech giants. Warner Bros. Discovery, led by CEO David Zaslav, disclosed that just 51 percent of the shareholder votes cast in its non-binding 2023 “say on pay” vote approved its compensation packages, with Amazon reaching 68 percent. In comparison, Paramount Global and Fox received 96 percent approval in 2023, Comcast 92 percent, Disney 86 percent, and Alphabet 76 percent, per a Proxy Monitor tally.

One expert notes though that corporate America has moved towards more performance-based pay in recent years across sectors, including media and entertainment. “Over the last several years, the prevalence of performance-based equity has continually risen, while the opposite is occurring with time-based options,” says Courtney Yu, director of research at corporate leadership data firm Equilar. “Our research shows that 90.2 percent of the 500 largest U.S. public companies awarded performance-based equity to their CEOs in 2022, up from 82.1 percent in 2018. Meanwhile, 37.6 percent of companies granted time-based options in 2022, down from 50.4 percent in 2018.”

Increased performance-based compensation also means that the potential pay figures listed for top executives are often much different from their actually realized pay. For example, Zaslav im 2022 actually took home $27.2 million, compared with a potential $39.3 million disclosed by WBD. Similarly, in 2021, his actually realized compensation of $69.6 million compared with a disclosed potential $246.6 million.

Yu adds, “Since 2011, when Say on Pay was first introduced, we’ve seen companies review and update their executive compensation plans in order to satisfy shareholders. While Say on Pay is advisory, and some companies have failed multiple times over the years, we’ve seen most companies move towards best practices, such as granting more in performance-based equity, which is what Netflix is planning to do.”