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Netflix rigged CEO bonus plan for tax avoidance, complaint alleges

Netflix is accused of having “rigged the compensation process” and breaching its fiduciary duties so that top executives at the company could be paid large bonuses that allegedly violated federal tax laws at least as far back as April 2015.

A “verified shareholder derivative complaint” filed by the City of Birmingham Relief and Retirement System pointed out that under those laws, a company could only pay a million dollars or more per year to an employee and deduct such payments for tax purposes if the money is tied to pre-established “performance” goals. 

Following the tax changes that passed in December and eliminated such performance-based deductions, Netflix raised the salaries of certain executives in lieu of such cash bonuses, as part of a restructured compensation plan. 

The suit maintains that “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 goes on to reference the “uncanny accuracy” in a Financial Times article that ran that July, entitled “Netflix Executives Keep Hitting Bonus Bullseyes,” that claims “investors and tax experts had begun questioning whether Netflix’s targets were a fait accompli, as opposed to legitimate performance goals.”

Netflix told USA TODAY via email that, “we intend to respond to these claims at the appropriate time,” without indicating just when that might be.

Netflix CEO Reed Hastings is among the officers of the company named in the complaint.

The plaintiffs are seeking a jury trial, and, among other measures, a return of the cash.

The Hollywood Reporter was the first to report on this legal action.

Email: ebaig@usatoday.com; Follow USA TODAY Personal Tech Columnist @edbaig on Twitter

 

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