How Netflix Stock Prices Affected Employee Compensation in 2022?

published on 02 May 2022

Netflix is one of the FAANG companies that many jobseekers dream of working for. Working at Netflix has been considered a coveted job in the big tech industry for the longest time. Job seekers aspire to join Netflix for its spectacular work culture and fancy compensation packages, buoyed by high salaries and lucrative stock options. Over the last two years, FAANGPath has helped several job seekers land their dream jobs at Netflix through our resume reviews. But something has changed for Netflix employees over the past few weeks. 

Ever since Netflix stock prices have dropped, several events have unfolded for the streaming giant’s employees.
Ever since Netflix stock prices have dropped, several events have unfolded for the streaming giant’s employees.

Note: This blog post is an opinion piece and no information in this blog is meant to be taken as financial advice.

Netflix's stocks plummeted steeply by 35% recently after it announced its loss of subscribers due to increased subscription prices and password sharing being its loophole. Adding it up with the company's poor financial results, several Netflix employees are losing confidence in the future of the company, which has significantly affected employee morale.

In response to the decline, several employees requested leadership to grant flexibility in their stock-based compensation. If you did not already know, Netflix has a unique start-up-like stock option program that allows employees to choose how they receive their compensation. It can either be all cash, all options, or a combination that suits the amount of risk they're willing to take. 

Don't know what an Employee Stock Option Program means? We have got you covered in this blog. Read below 📋

What is an Employee Stock Option Program?

Employee Stock Option Programs grant employees an equity compensation where instead of granting the shares of stock directly, employees are granted options giving them the right to buy the company's stock at a specific price within a specific period of time.

This means that employees can only benefit from a stock option when its price rises above the exercise price. These are generally offered to employees as rewards or incentives to encourage them to contribute to growing the value of the company's share.

Employee stock options are considered to be vested when the options are exercised, and employees purchase the company's stock. They typically vest in parts over a period on predetermined dates set out in the vesting schedule.

How Does Employee Stock Option Plan Work at Netflix?

While several companies allow employees to buy company stock (RSUs or Restricted Stock Units), Netflix has an unusual plan that allows employees to buy higher-risk/higher rewards stock options. Out of the money you've set aside from your paycheck each month, you can purchase options at 40% of the current stock price, allowing you to buy 2.5 times more than shares. What sets these options apart from RSUs is that your stock will have some value even if the prices go down. But, in the case of options, they lose 100% of their value when the price drops below the exercise price, which means employees lose all their investment. Netflix also has an unusual agreement that grants options each month that employees can vest immediately. 

The NFLX stocks performed well for almost a decade, benefiting many employees from the arrangement. But, the recent plummet in stock prices has raised concerns among employees whose options' value has come down to nothing. Not only has the NFLX stock decline erased the value of their options, but employees are also worried about the possible layoffs that could result from the company's cost-cutting efforts. 

If you're a job seeker or new hire wondering how to navigate through decisions regarding Employee Stock Option Programs in your company, here are a few questions you should ask yourself or points you must consider before making any decisions:

  • "How much of your salary are you willing to risk with stock options?" If options lose all of their value in the worst-case scenario when the prices go down, how much are you willing to lose? 
  • "What are the tax implications of your choice?" You may have access to different tax advantages depending on your stock options, i.e., Non-qualified Stock Options (NQSOs) or Incentive Stock Options (ISQOs). Check with a professional to understand the tax arrangements better before making a choice.
  • "What are the rights and restrictions applicable in your company for the plan?" The employee's different rights and restrictions will drastically impact your choice and decision.
  • Last, if you have no idea how to handle stock options, it is best to seek professional advice to navigate through complexities.

Do These Events Indicate Netflix Layoffs?

According to Bloomberg, the company is already in the cost-cutting mode. A company that had a reasonably flat structure for the longest time has started restructuring its engineering teams to create levels to reduce cost, keep less room for mistakes, and have specific employees of a certain level performing tasks instead of them all being on the same level. Netflix layoffs were initiated by its editorial arm, Tudum on 29 April 2022, as part of its reorganization efforts in marketing teams. 

Also Read: Coping with a Layoff

In the process of recovering from all events that have taken place in the past few weeks, the streaming giant is one of the FAANG companies that might end up losing its star employees. If you're a professional looking for advice to navigate your career, feel free to connect with our industry mentors for any career guidance

FAANGPath is with you for anything you need ❤️

Note: This blog post is an opinion piece and no information in this blog is meant to be taken as financial advice. Please seek professional advice for any finance-related queries.

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