Equity on Demand: The Netflix Approach to Compensation

Posted: 5 Mar 2010

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Brian Tayan

Stanford University - Graduate School of Business

Allan L. McCall

Stanford University - Graduate School of Business

Date Written: 2010

Abstract

Netflix was among a small group of Silicon Valley companies to emerge from the technology bubble of the late 1990s a clear winner in terms of growth, market share, and profitability. That Netflix was able not only to prevail over this competition but also to thrive was largely attributable to the culture of freedom and responsibility inculcated by founder Reed Hastings. To foster this culture, the company adopted a series of unique employment practices that were meant to attract, retain, and motivate the type of employee that Netflix valued. Among these practices was a compensation system with several unconventional features. Whereas most companies provided compensation packages with a predetermined mix of cash and equity-based awards, Netflix turned the model on its head and allowed employees to request their own mix. Management was interested in finding out whether this practice supported or detracted from the company’s main objectives for its employees.

Keywords: compensation, Corporate Culture, Corporate Governance, Human Resources Management, employee stock ownership

JEL Classification: G3, G30

Suggested Citation

Larcker, David F. and Tayan, Brian and McCall, Allan L., Equity on Demand: The Netflix Approach to Compensation (2010). Rock Center for Corporate Governance at Stanford University Teaching Case No. CG -19. Available at SSRN: https://ssrn.com/abstract=1564239

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Allan L. McCall

Stanford University - Graduate School of Business ( email )

Stanford, CA 94305
United States

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