Business is anything but usual at Netflix, the company founded by Reed Hastings, SUCCESS’s March cover personality. That includes a dramatic departure in the traditional view of employee relations.
Hard work can get you sacked. Vacation time isn’t set in silicon. Loyalty doesn’t factor into job security.
In an essay published last year in the Harvard Business Review, former Netflix Chief Talent Officer Patty McCord discussed the one-of-a-kind Netflix HR manifesto.
McCord told the tale of two employees and the power of positive sacking.
The first story involved an engineer who had to take up the slack when his co-workers were laid off. When he was told that a change in company fortune meant new people could be hired to help him, the engineer said not to worry. He was happier without them because he didn’t have to ride herd on others to get the job done. McCord called this a commentary on the “most basic element of Netflix’s talent philosophy: The best thing you can do for employees—a perk better than foosball or free sushi—is hire only ‘A’ players to work alongside them. Excellent colleagues trump everything else.”
The second story was about an original employee. As McCord wrote, “Despite her work ethic, her track record and the fact we all really liked her, her skills were no longer adequate.” The woman was let go, albeit with a generous severance package.
“This incident helped us create the other vital element of our talent management philosophy: If we wanted only ‘A’ players on our team, we had to be willing to let go of people whose skills no longer fit, no matter how valuable their contributions had once been.”
Netflix recently released a slideshow that allows the public to look through their corporate HR constitution. You can view the entire 128 slideshow, or here are a few of the high points:
1. An adequate performance earns a generous severance package.
2. We’re a team, not a family. Netflix leaders hire, develop and cut smartly. So we have stars in every position.
3. The more talent we have, the more we can accomplish. Internal cutthroat or sink-or-swim behavior is rare and not tolerated.
4. Unlimited loyalty to a shrinking firm or ineffective employee is not what we are about.
5. We don’t measure people by how many hours they work or how often they are in the office. Sustained B-level performance, despite A for effort, generates a generous severance package. With respect. Sustained A-level performance, despite minimal effort, is rewarded with more responsibility and great pay.
6. Our model is to increase employee freedom as we grow rather than limit it.
7. Vacations: There is no policy or tracking. There is also no clothing policy at Netflix, but no one comes to work naked. Lesson: You don’t need policies for everything.
8. Netflix policies for expensing, entertainment, gifts and travel: Act in Netflix’s best interest.
9. One outstanding employee gets more done and costs less than two adequate employees.
10. Whether Netflix is prospering or floundering, we pay top of the market. Sports teams with losing records still pay talent the market rate to get back to winning.
11. No bonuses, no philanthropic match. Put all that expense into big salaries and give people freedom to spend their salaries as they think best. No vested or deferred compensation.
12. No ranking against other employees.
13. Netflix shouldn’t be for life.
14. If a manager would promote to prevent an employee from leaving, the manager should promote now instead of waiting.
15. Mediocre colleagues or unchallenging work is what kills progress of a person’s skills.
Reed Hastings, 2014 SUCCESS Achiever of the Year, led Netflix to acclaim and major revenue gains last year. But he’s also consumed by another mission: improving public education. Read the cover story now.