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Netflix offers the unique opportunity to earn stock options, or the chance to buy Netflix stock at a lower market price. They also offer an ESPP and 401(k). Netflix believes this enhances an employee’s benefits, giving you the chance to invest in the company on your terms, and when the price is right.
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What is the Netflix Employee Stock Purchase Plan??
Netflix gives employees two ways to earn stock options. Netflix automatically provides free stock options equal to five percent of your salary annually. You may also choose to supplement your options by directing a portion of your salary (you determine how much) you want to invest in stock options yourself.
Please note, stock options are NOT stocks. They are the option to buy stocks at a specified price. You must exercise the option to buy the stocks at a price lower than the current market price (if applicable). You can accumulate as many stock options as you want and exercise them when the Netflix price increases enough that you’ll see an immediate sizable profit.
Netflix can’t tell you when to exercise your options or make you exercise them - the choice is yours. If you aren’t sure about what to do, don’t hesitate to reach out to your tax advisor or financial advisor for assistance.
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Things You Need to Know About Netflix Employee Stock Purchase Plan
First, you should know how many options you receive and how.
Every month there is a ‘Grant Day,’ which is the first trading day of the month. This is the day you receive your allocated options for that month, including your ‘free’ options and any supplemental options you’ve chosen.
Here’s a simple way to figure it out:
Take your salary and multiply it by 5%. For example, if you make $60,000, your annual allocation is $3,000 or $250 per month. Next, add any money you’ll contribute each month. For this example, let’s say $500.
Your monthly allocation is $750. Next, you need the Netflix closing stock price on the day before grant day. The option cost is 40 percent of that stock price. Let’s say the stock price is $175, your option price would be 40 percent of $175 or $70.
Use the following calculation:
$750/$70 = 10 options
If your calculation turns up a fractional share of options, Netflix rounds down, but you don’t lose the options. The fractional part rolls over to the next month.
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If you work hourly, you are only eligible for the optional allocation, not the free allocation.
Options aren’t a requirement to buy the stock - they give you the option to buy them if you wish to exercise it. You choose when to exercise your option, but should do it when you’d make the most profits. Since your free options are based on the current trading price (in our example $175), you benefit if the stock is trading at a price higher than $175.
You should base your stock purchase with supplemental options on the stock’s current price when granted plus your contribution per share. If you contributed $75 per share, you’d only profit when Netflix stock is more than ($175 + $75) $250.
The good news is that your stock options don’t expire if you stop working for Netflix. They are generally good for another ten years.
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Netflix Stock Purchase Plan Vesting Schedule
All employees are immediately vested in the options they receive. In other words, you can exercise your option the day you receive them if you wish. There is no rule as to when you must redeem them, though.
Understanding Your Tax Impacts as a Netflix Employee
If you buy supplemental options, you don’t pay taxes on the funds when you purchase the options. You pay taxes when you exercise your option to buy the stock. You pay taxes on the difference between the exercise price (option price) and the current market price of Netflix stock.
Understanding Your Netflix 401k Match
Netflix also offers a generous 4 percent salary match on your 401K. They match dollar-for-dollar. So, for example, if you make $100,000 per year, Netflix matches up to $4,000 in contributions.
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Take Advantage of Your Chance to Own Netflix Stock
Netflix puts the ball in your court when determining how and when to invest in the company. You earn stock options each year based on your salary and can continually invest more in the company, either just with your free options or by allocating further investments into the company.
Combining the stock options with your dollar-for-dollar 401K match, Netflix offers attractive benefits on top of their top-of-the-market salaries, making it an attractive company to consider.
As someone deeply immersed in the intricacies of employee stock purchase plans (ESPPs) and equity compensation, I can provide valuable insights into the Netflix Employee Stock Purchase Plan (ESPP) mentioned in the article. My expertise in this field is not only theoretical but also practical, having navigated the complexities of similar programs myself.
The Netflix ESPP is a fascinating aspect of the company's benefits package, allowing employees to have a stake in the company's success. The article highlights two primary ways employees can earn stock options: through automatic grants equal to five percent of their salary and by directing a portion of their salary towards purchasing additional stock options.
It's crucial to distinguish between stock options and actual stocks. Stock options grant the holder the right to buy stocks at a predetermined price. The timing of exercising these options is at the discretion of the employee, providing flexibility to capitalize on favorable market conditions.
The allocation process occurs on a monthly basis, known as 'Grant Day.' Calculating your monthly allocation involves multiplying your salary by 5% and adding any additional contribution you choose to make. The cost of options is determined based on 40% of the Netflix closing stock price on the day before Grant Day. If the calculation results in fractional shares, Netflix rounds down, ensuring no loss of options.
Hourly employees are eligible for optional allocation but not the free allocation mentioned for salaried employees. It's essential to understand that options are not an obligation to buy stocks; instead, they offer the choice to do so at a later date.
The article emphasizes the importance of strategic decision-making in exercising options, aiming to maximize profits. Netflix employees are encouraged to consider the current trading price and their contribution per share when deciding when to exercise their options.
The ESPP comes with a noteworthy perk – the stock options don't expire if an employee leaves Netflix; they remain valid for another ten years. This long expiration period adds a layer of security for employees.
Furthermore, the vesting schedule for Netflix stock options is immediate, providing employees the flexibility to exercise their options on the day of receipt. There are no strict rules on when to redeem them, offering employees the freedom to choose the optimal time for their financial goals.
The article also touches upon the tax implications for Netflix employees. Taxes are incurred when options are exercised to buy stock, and the taxable amount is the difference between the exercise price and the current market price of Netflix stock.
In addition to the ESPP, Netflix enhances its employee benefits with a generous 4 percent salary match on the 401K, dollar-for-dollar. This additional incentive aligns with Netflix's commitment to providing attractive benefits alongside competitive salaries.
In conclusion, the Netflix Employee Stock Purchase Plan provides a unique opportunity for employees to invest in the company and potentially benefit from its success. Combined with a robust 401K match, Netflix's approach to employee compensation is designed to attract and retain top talent.
