Netflix Accused of ‘Rigging’ Executive Bonuses

A Netflix shareholder has filed a federal lawsuit accusing the streaming giant of rigging executive bonuses.

According to The Hollywood Reporter, the suit, brought by the City of Birmingham Relief and Retirement System, a company shareholder, alleges that the streaming giant violated tax law by giving “multi-million dollar windfalls” to executives based on performance targets the company knew it would meet. The bonuses, it is alleged, were designed so that Netflix could receive tax deductions.

“Through their conduct, Defendants rigged the compensation process, guaranteeing Netflix officers huge cash payments while misleading investors into believing that these payments were justified by attainment of real performance goals,” the suit alleges.

Public companies are allowed to deduct salaries for top executives up to $1 million. Above that threshold, compensation may only be deducted based on performance goals that are “substantially uncertain” at the time they are set. According to the complaint, the company’s performance goals were based on streaming revenues, which were highly predictable given that they were nearly always met.

“By July 2017, Netflix’s top officers had hit their target squarely in seven out of eight quarters, missing by just one percentage point in the other quarter. This artificial precision resulted in the Company paying these officers approximately $18.73 million out of a target pool of $18.75 million,” the complaint states.

Netflix has not yet commented on the accusations.

Meanwhile, the streaming company has plenty of other good news to focus on, including a recent CNBC All-American Economic Survey, which found that the Los Gatos, California-based company tallies 51 percent of American streamers, a number pummels both that of Amazon and Hulu, who encompass 33 percent and 14 percent of streamers.

Netflix has undoubtedly found major success, with the streaming service reaching 117 million subscribers worldwide during its fourth quarter in 2017. During that time, Netflix picked up 8.33 million new members, with nearly 2 million of those new subscribers being in the U.S. alone. The other 6.36 million were in international markets across the globe, further showcasing the platforms broad reach.

Netflix’s revenue also grew to a reported $3.29 billion, representing 33 percent growth in the fourth fiscal quarter. This translates to an added 41 cents per share in value, or a 25 percent rise in membership year over year.

The company, which isn’t yet showing any signs of slowing, says that it expects to gain another 6.35 million subscribers worldwide. To keep the momentum going, it’s prepared to spend $7.5 billion on new content in 2018, and will reportedly produce and release an estimated 700 TV shows and movies.