Netflix: How I Voted – Proxy Score 20%

Netflix (NFLX) ($NFLX) is one of the stocks in my portfolio. Their annual meeting is coming up on 6/1/2012. Voting ends 5/31 on Moxy Vote’s proxy voting platform, which had 7 recommendations “from good causes,” including 3 consolidations, when I checked and voted on 5/24. had 4 funds voting. Perhaps there will be more by the time this post goes live on 5/29.  I voted with management 20% of the time.

I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions where something obviously warrants different treatment. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay, Oxford Review of Economic Policy, Vol. 21, Issue 2, pp. 283-303, 2005), aggregate compensation by public companies to NEO increased from 5 percent in 1993-1995 to about 10 percent in 2001-2003.

Few firms want to admit to having average executives. They survey executive compensation at corporations and then set compensation packages that are above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average and their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third-world.

NFLX’s SummaryCompensation Table (p. 28) shows Reed Hastings, CEO/Chair, was the highest paid named executive officer (NEO) at about $9.3M in 2011. I’m using Yahoo! Finance to determine market cap and  Wikipedia’s rule of thumb regarding classification. According to those sources, at about $4B WMT is a mid-cap company. According to the United States Proxy Exchange (USPX) guidelines (pages 9&10), using data from Equilar, the median CEO compensation at mid-cap corporations was $4.3 million in 2010, so NFLX’s pay is well above that median.

On that basis, I voted against the pay plan and would have voted against the compensation committee members:  Battle, Haley and Hoag. Unfortunately, with a classified board, I was denied that opportunity but withheld my vote from the only director running, Barton.

With regard to shareowner proposals, I voted in favor of both. The proposal to declassify the board from Dale Johnson, Los Angeles County Employees Retirement Association, is a good governance measure. Three of our 7 directors owned no stock or only 256 shares. Timothy Haley attracted 39% negative votes the last time he was elected.  He need not worry because he needs only one-vote out of 50 million shares to be reelected, since we have plurality voting. According to, only about 20% of the S&P 500 have classified boards. Most mid-cap companies have also moved away from classified boards. It is time we pushed such measures at mid-caps.

The proposal by John Chevedden to allow shareowners representing 10% of the voting power of the company to call a special meeting is another important good governance measure that could be critically important in an emergency.

Mark your calendars; here’s the deadline for proposals by shareowners for next year (p. 2):

Proposals of stockholders that are intended to be presented at our 2013 Annual Meeting of Stockholders in the proxy materials for such meeting must comply with the requirements of SEC Rule 14a-8 and must be received by our Secretary no later than December 21, 2012 in order to be included in the Proxy Statement and proxy materials relating to our 2013 Annual Meeting of Stockholders.

 Looking at the Netflix at, here are some areas where governance could be improved:

  • As mentioned above only 20% of S&P 500 and less than half of mid-caps have classified boards.
  • 80% of S&P 500 and almost 60% of mid-cap companies have majority vote requirements for directors. Netflix doesn’t.
  • The Board is authorized to increase or decrease the size of the board without shareholder approval.
  • Directors may only be removed for cause and only by the vote of 66.67% of the shares entitled to vote.

Here’s how I actually voted on Moxy Vote’s proxy voting platform but showing‘s display, which is a little tighter.

#Proxy MeasureMgtMcRitchie
1.1Elect Director Richard N. BartonForWithhold
2Ratify AuditorsForFor
3Advisory Vote to Ratify Named Executive Officers’ CompensationForAgainst
4Declassify the Board of DirectorsAgainstFor
5Amend Articles/Bylaws/Charter — Call Special MeetingsAgainstFor

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