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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.