Netflix Settles Shareholder Dispute Over Executive Bonuses

Netflix headquarters
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Netflix headquarters

Netflix shareholders and the streamer's board have reached a settlement in their dispute over executive bonuses. 

In April 2018, the City of Birmingham Relief and Retirement System filed a suit on behalf of Netflix that alleged board members, including Reed Hastings and Ted Sarandos, allegedly structured the company's executive bonuses to illegally circumvent taxes and mislead shareholders into approving those payments.

Last year, the suit was dismissed with leave to amend. While U.S. District Judge Beth Freeman found substance in the allegations, she held that Birmingham failed to show a majority of Netflix's board members had knowledge of the alleged wrongdoing. A discovery dispute arose over requests to un-redact certain documents as Birmingham sought to amend its complaint. During those discovery negotiations, the parties also began exploring a resolution of the larger dispute.

On Thursday, the city informed the court that a settlement has been reached and asked Freeman for approval. 

Under the terms, Netflix has agreed to some corporate governance changes that will be in effect for at least four years. According to the filing, it will "(i) enhance Netflix’s management Disclosure Committee; (ii) enhance bonus-related disclosures about regular and annual bonus compensation; (iii) require Netflix to retain compensation and tax consultants to assist the Compensation Committee in identifying risks associated with bonuses; (iv) require the Board to receive legal advice from Netflix’s General Counsel’s office about regulatory compliance related to compensation; and that (v) augment and strengthen training for directors on compensation-related issues and compliance."

The settlement also includes an $800,000 fee and expense award and a $10,000 incentive award to Birmingham. (Read the full filing below.)

A hearing is currently set for April 23, and other Netflix shareholders will have opportunity to comment on the settlement before it is approved.