NETFLIX CASH SALARIES: Did you know that Netflix doesn’t offer
traditional health insurance to their employees?
Instead, Netflix offers a $15,000 yearly allowance.
If you want, you can use this with one of Netflix’s Kaiser or Collective Health plans,
but you can also use the allowance with any provider you want.
And if you end up spending less than $15,000 on health insurance, you can even get up to
$5,000 back.
And it’s not just you’re health insurance benefit that you can get in cash either, you
can actually get all of your benefits in the form of cash even including your stock compensation.
This approach has resulted in Netflix paying the highest cash salaries in the world period.
Basically imagine Google tier compensation but all in the form of cash, that’s Netflix.
Combine this with the fact that Netflix tries to provide each employee with 100th percentile
salaries, and this gets crazy real fast.
Take software engineers for example.
The highest paid software engineer at Netflix who has submitted their salary to levels is
a back end engineer located in Chicago earning $1.5 million per year.
If you take a closer look, you’ll see that the salary consists of $1.5 million in cash,
0 in stock, and 0 in bonus.
Google has similarly paid engineers as well.
The highest paid engineer at Google comes in at $1.27 million per year, but if you take
a closer look, you’ll see that “only” $340,000 of that is in cash. $794,000 is in
the form of stock, and $139,000 is in the form of a bonus.
And this is not just the case for software engineers either.
Whether you’re a technical program manager, a product manager, or even the CEO, you’re
compensation can be taken entirely in the form of cash.
Last year, Netflix’ co CEO Ted Sarandos, for example, received $20 million in cash.
This makes Netflix the highest cash payer in the world period.
There may be some exceptions here and there that make more than what Netflix offers, but
as an organization, no one pays higher cash salaries than Netflix.
This doesn’t mean that you’re forced to take cash though.
If you want to take stock, you can let HR know, and they can convert your entire compensation
to stock.
The founder of Netflix, Reed Hastings, for example, chose to take his $40 million package
mostly in stock.
Most employees, however, generally choose fully cash compensations.
So, here’s how Netflix ended up becoming the cash king and the pros and cons of this
practice.
NETFLIX PHILOSOPHY: These crazy high numbers are no doubt unorthodox,
but that’s just one of the many practices at Netflix that are unorthodox.
Reed Hastings has an extremely unique leadership style that’s centered around freedom, responsibility,
and transparency.
He likes to be brutally honest and isn’t afraid to say things how they are.
For example, you often hear CEOs refer to their employees as being a family, but Reed
knows that that’s not true.
There’s only one reason you’re there: for money.
Hopefully, you somewhat like the work and what the company is trying to accomplish,
but those are just pluses.
The bottom line is that you’re there for money and the company has you there so that
they can make more money.
Thats it.
Reed is super candid about this and is straightforward in saying that Netflix is a team, not a family.
And all of his company’s policies are based around this reality.
Not forcing stock compensation or health insurance onto employees is part of this approach.
As CEO, it’s natural to think that you’re stock is the best, but Reed understands that
not all of his employees would agree, so he doesn’t force it.
Similarly, he doesn’t pay employees based on how hard they work or how much time they
spend in the office.
In fact, Netflix has no 9 to 5 policy or vacation policy.
Instead, employees are given a task, expectations, and a deadline.
If you’re able to perform to these standards while working 10 hours a week, good for you.
On the other hand, even if you’re working 100 hours per week, but you don’t even get
close to what’s expected, they’re gonna look for someone else, it’s that simple.
Given this philosophy, it makes sense why Netflix gives their employees so much control
over their compensations.
But, having this philosophy isn’t enough to utilize this strategy.
The second thing to note is that Netflix is actually in a position where they can afford
it.
Just because you’re a big company doesn’t mean that you can afford it.
Amazon, for example, has extraordinarily low profit margins, so Amazon couldn’t even
dream of paying these cash salaries.
But, thanks to Netflix’s extremely lucrative subscription model, Netflix can actually afford
it.
There’s also a bit of strategy to this as well.
One of the reasons that companies hand out stock compensation is because they’re hoping
that employees will hang onto it and that it’ll motivate them.
But, the reality is that a substantial number of employees liquidate their stock as soon
as they receive it.
Even Tim Cook did this despite literally being CEO.
Reed approached this from a practical perspective and figured: why dilute my company and hand
it out to people that don’t even want it especially when I can just afford to pay them
in cash?
Really, this line of reasoning makes a lot of sense and it’s surprising that other
cash rich companies don’t do the same.
CASH IS KING: Alright, so that’s why Netflix offers their
compensations in cash, but is there actually any real benefit to this?
Well, absolutely.
For one, employees don’t have to deal with stock fluctuations.
Here’s the thing, the stock compensation figures that you see on salary websites aren’t
constant figures.
Let’s take a Facebook director, for example.
According to levels, a Facebook director earns $881,000 per year in stock.
However, this compensation figure only comes to fruition if the stock price stays constant
throughout the job.
In other words, Facebook will not provide you with more shares of stock just because
the share price falls.
Instead, a set number of shares are determined when you get hired.
Usually, these stock plans are setup to last 4 years from the day you get hired.
So, if you get hired as a facebook director, you wouldn’t be offered $881,000 per year.
Rather, you’d be offered $3.5 million for the next 4 years at current share prices.
From there, you’ll get access to a portion of this stock every year.
This might not sound like a big difference, but it definitely can be.
For example, imagine that you were hired at Facebook in September of 2021.
Since then, Facebook stock has plummeted 70% which would mean that your $881,000 worth
of stock is only worth $264,000 by the time you get it.
Now of course, this still adds up to a total compensation of $700,000, but that’s almost
half of $1.3 million despite the fact that you’re doing the same job.
Now, imagine that this same scenario took place at Netflix.
Netflix stock has also crashed as much as 75% since their peak last year, but if you
were a Netflix director earning $1.3 million last year, you’d still be earning the full
$1.3 million as long as you didn’t get laid off of course.
A similar argument could be made for the health insurance credit as well.
Usually, a substantial number of employees don’t even use the company provided health
insurance because they’re covered by their spouse’s company or their parent’s company
or whatever the case may be.
This is awesome for companies given that they can boast about having great insurance plans
while not even having to pay for a bunch of their employees.
On the flipside, this sucks for employees given that health insurance is technically
a part of their total compensation, but their not actually receiving it.
Netflix’s health insurance credit, however, would ensure that employees aren’t fully
left out.
While employees won’t be able to leverage the full $15,000 without getting a health
insurance plan, they can atleast get $5000 in cash.
So, in the end, Netflix’s cash compensation not only ensures that employees get a stable
income, but also that they’re able to make the most of all their perks.
CASH IS TRASH: While fully cash compensations have a lot
of perks, like anything, they also come with a fair number of cons as well.
For example, while cash salaries may seem nice during recessionary periods, during bull
markets, it’s the exact opposite.
Let’s go back to the Facebook director.
Instead of assuming that you joined in 2021, what if we assumed that you joined in 2017.
Between 2017 and 2021, Facebook stock grew by over 100%.
This means that if you joined Facebook in 2017, your stock compensation would have grown
to over $1.7 million in 2021 despite the fact that you’re doing the same job.
This would increase your total compensation from $1.3 million to $2.2 million.
Meanwhile, the Netflix director who joined in 2017 would still be making $1.3 million.
Now, Netflix is pretty good at increasing salaries according to market conditions, but
they definitely wouldn’t be able to match a rise to $2.2 million because the market
rate didn’t actually increase that much.
Facebook actually “only” paid $1.3 million.
You simply ended up earning $2.2 million because the stock prices worked in your favor.
Best case scenario, the market rate may have increased to $1.4 or $1.5 million and that’s
what Netflix would be able to match.
So, by taking your entire salary in cash, you give up the opportunity for exponential
growth to work in your favor.
Granted, you also eliminate the risk of it working against you.
But, when we’re talking about a company like Netflix, we’re talking about giving
up market leading returns.
One way to workaround this would be to simply invest your salary yourself or request for
a portion of your salary to be given in stock.
But you wouldn’t be able to buy nearly as much stock as Facebook or Google would’ve
offered you due to the second shortfall of cash salaries which is high taxes.
When you’re earning 7 figures in cash, you can bet that the government is going to tax
the hell out of you.
If you’re in California, it’s probably going to be over 50%.
Meanwhile, if you had a lot of stock compensation, you’d still be paying a massive tax bill,
but maybe you could reduce the percentage to something closer to 40%.
And when we’re talking about 7 figure salaries, that’s an extra six figures that you get
to keep.
Something else to note is that the unlimited vacation time is also not as good as it may
seem at first glance.
You see, employees generally feel bad when they take time off in an unlimited PTO environment.
And on average, they actually end up taking 2 fewer days off per year.
So, Netflix ends up coming off as the nice employer that offers unlimited time off even
though that doesn’t actually translate to more time being taken off.
Also, most companies have a policy of paying out accrued PTO when you leave the company
under good terms.
For companies with unlimited PTO though, there is no accrued PTO, so they can avoid paying
that.
So, while such policies do have their perks, they’re by no means perfect either.
THE NETFLIX WAY: In the end, Netflix has taken an approach
to compensation that’s extremely uncommon.
Not only do they pay fat tech salaries but they pay it all in cash.
This is largely due to their philosophy and extraordinary profitability.
While there are advantages and disadvantages to this compensation structure, I very much
think that’s its a step in the right direction.
Giving employees more control of how they get paid is never a bad thing.
Now of course, without structured health insurance plans or retirement plans, there’s gonna
be some bozo who spends all the cash and has no money left when they have a health emergency
or are approaching retirement.
But, for the rest of us who are relatively sensible and take ownership of our financial
situation, I think this is awesome and I would be a fan of this system being implemented
much more frequently, but that’s just what I think.
Would you prefer an all cash compensation?
Comment that down below.
Also, drop a like if you finally understand where all of your netflix subscription payments
are going.
And of course, consider checking out our discord community to suggest future video ideas and
consider subscribing to see more questions logically answered.