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If it's just lowering equity payout, then it's not Netflix's structure. Netflix really tries to make its pay structure fair to its employees by implementing the

If it's just lowering equity payout, then it's not Netflix's structure. Netflix really tries to make its pay structure fair to its employees by implementing the following policies: 1. They give cash that is generally 20% higher than average market price. 2. If you convert your cash into options, you don't pay the income tax for the forfeited cash. It's your choice on how much cash you'd like to convert. And of course, if you joined company by 2015 or so, and consistently converts, say 40% (or whatever percentage other FAANG companies use) of your cash, you should be have enough money to to retire and focus on angel investing. 3. They give you a discount of the options. It used to be 5X. That is, if you forfeit $1 of income and the strike price of options is $1, you get to have 5 options instead of 1. That is, if the stock price increases by 25% compared to the strike price, you'll make even, roughly speaking. 4. They options expire in 10 years! I mean, 10 years! 5. Options vest every month. The strike price is the the price of stock of that month (not sure if it's average of the month or at the time of vest). Combining this and #4, employees will make money as long as Netflix stock has volatility. The only scenarios that employees will lose money is that the stock price keeps going down for 10 years or there is not enough volatility. 6. They don't give bonus. If you perform really well, you will become more important to the company, and you get a hefty raise. The raise stays. If this is not fair, I don't know what is.

hintymad 5y ago
Mind you, though, Netflix's pay and scope are competitive for up to entry-level staff engineer with very few exceptions (Brendan Gregg is one such exception). That means every engineer writes code, is responsible for one or more services, and uses their services to assert their influence. Very few engineers get more than $800K or whatever comparable packages offered to Sr Staff/Principal engineers in other companies. I personally view this as a strength of Netflix. They have such a wonderful culture that empowers its engineers to focus on building and being autonomous. They don't need people to drive company wide initiatives most of the time.
yogenpro 5y ago
> 3. ... if you forfeit $1 of income and the strike price of options is $1, ... Does this example need another prerequisite "and the current price of NFLX is $1"? Because if the example runs with NFLX at, say $10, then each option already have an intrinsic value of $9. And combined with #5, those options look like at-the-money call options that expire in 10 years. But in this case it won't make any sense to set the option price (the amount of income to forfeit for each option) according to either strike price or stock price -- shouldn't it be set according to the difference between the two?
- jedberg 5y ago
  > and combined with #5, those options look like at-the-money call options that expire in 10 years. Correct. > But in this case it won't make any sense to set the option price (the amount of income to forfeit for each option) according to either strike price or stock price -- shouldn't it be set according to the difference between the two? The difference is always $0. The option strike is the same as the current price. The option price is 40% of the current stock price/strike price. Let's say you make $180K. You opt to put 50% into stock. So each month you will buy $7500 worth of options. On month one, the stock price is $750. The option discount is 60%, so you get your options at $300 each. You buy 25 options at a $750 strike. So now you're down $7500. But if the stock goes up 40% to $1050, you've broken even. If you exercise your option you buy the shares at $750, sell it at $1050, and make $300 a share. But the real advantage comes if the stock goes up say 50%. Now you can make a profit of $375 a share, so you just made a 25% gain on your initial investment. It takes a while to break even, but once you do, you have extreme leverage. People who went stock heavy usually made more from the options than salary, at least in the 2010s.
jedberg 5y ago
> The strike price is the the price of stock of that month (not sure if it's average of the month or at the time of vest). It was on the day of vesting (1st business day of the month) at the close that day. So we used to root for a huge single day drop on the first trading day of the month (mostly jokingly).

hintymad 5y ago

Mind you, though, Netflix's pay and scope are competitive for up to entry-level staff engineer with very few exceptions (Brendan Gregg is one such exception). That means every engineer writes code, is responsible for one or more services, and uses their services to assert their influence. Very few engineers get more than $800K or whatever comparable packages offered to Sr Staff/Principal engineers in other companies. I personally view this as a strength of Netflix. They have such a wonderful culture that empowers its engineers to focus on building and being autonomous. They don't need people to drive company wide initiatives most of the time.

yogenpro 5y ago

> 3. ... if you forfeit $1 of income and the strike price of options is $1, ... Does this example need another prerequisite "and the current price of NFLX is $1"? Because if the example runs with NFLX at, say $10, then each option already have an intrinsic value of $9. And combined with #5, those options look like at-the-money call options that expire in 10 years. But in this case it won't make any sense to set the option price (the amount of income to forfeit for each option) according to either strike price or stock price -- shouldn't it be set according to the difference between the two?

jedberg 5y ago
> and combined with #5, those options look like at-the-money call options that expire in 10 years. Correct. > But in this case it won't make any sense to set the option price (the amount of income to forfeit for each option) according to either strike price or stock price -- shouldn't it be set according to the difference between the two? The difference is always $0. The option strike is the same as the current price. The option price is 40% of the current stock price/strike price. Let's say you make $180K. You opt to put 50% into stock. So each month you will buy $7500 worth of options. On month one, the stock price is $750. The option discount is 60%, so you get your options at $300 each. You buy 25 options at a $750 strike. So now you're down $7500. But if the stock goes up 40% to $1050, you've broken even. If you exercise your option you buy the shares at $750, sell it at $1050, and make $300 a share. But the real advantage comes if the stock goes up say 50%. Now you can make a profit of $375 a share, so you just made a 25% gain on your initial investment. It takes a while to break even, but once you do, you have extreme leverage. People who went stock heavy usually made more from the options than salary, at least in the 2010s.

jedberg 5y ago

> The strike price is the the price of stock of that month (not sure if it's average of the month or at the time of vest). It was on the day of vesting (1st business day of the month) at the close that day. So we used to root for a huge single day drop on the first trading day of the month (mostly jokingly).