Netflix’s HR Policies
Case
Author: Christopher P. Neck, Jeffery D. Houghton & Emma L. Murray
Online Pub Date: January 04, 2017 | Original Pub. Date: 2016
Subject: Recruitment & Retention, Strategic Human Resource Management, Wellbeing, Health & Stress
at Work
Level: Basic | Type: Indirect case | Length: 1514 words
Copyright: © SAGE Publications, Inc. 2017
Organization: Netflix | Organization size: Large
Region: Northern America | State:
Industry: Programming and broadcasting activities
Originally Published in:
Neck, C. P. , Houghton, J. D. , & Murray, E. L. (2016). Netflix. Organizational behavior: A critical-thinking
approach (pp. 159-160). Thousand Oaks, CA: SAGE Publications, Inc. Print. ISBN: 9781506314402.
Publisher: SAGE Publications, Inc.
DOI: http://dx.doi.org/10.4135/9781506378862 | Online ISBN: 9781506378862
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© SAGE Publications, Inc. 2017
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http://dx.doi.org/10.4135/9781506378862
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Abstract
The case discusses how Netflix revolutionized its employee practices by simply treating employ-
ees like grownups, and holding them accountable for using their freedom wisely. By focusing
on results rather than processes, Netflix gives employees the independence to produce rather
than stifling them with processes and procedures. Through the overhauling of its HR practices,
Netflix has enjoyed tremendous fiscal results as well as a motivated, driven workforce that is
unencumbered by the traditional stressors that employees face.
Case
Netflix’s new employee practices have grabbed attention, to put it mildly. In 2012, a simple internal PowerPoint
explaining them went viral and was viewed more than 5 million times on the Web. Sheryl Sandberg, chief
operating officer of Facebook, said it “may well be the most important document ever to come out of [Sili-
con] Valley.” Dozens of bloggers and journalists scrambled to analyze its contents. And Netflix is surely doing
something right: In 2013, the company’s stock value tripled. It reached a record 29 million subscribers and
won three Emmy Awards for its original show House of Cards.
What was revealed in that game-changing PowerPoint? It was simply a “commonsense” approach, according
to Patty McCord, then Netflix’s chief talent officer and one of the presentation’s authors. Netflix treats the peo-
ple it hires as grownups. It grants them a great deal of freedom, and it expects them to use it wisely.
Game Changers
Conventional human resources (HR) is full of structure and documentation. Directors spend hours drafting
standard operating procedures about time off, performance appraisals, training, and more. Netflix has simpli-
fied the process by doing away with many of these policies and focusing on results rather than processes.
McCord realized that motivating employees to produce outstanding results had a lot to do with trusting them
with greater independence. That didn’t mean installing an arcade or skateboard park, as other tech compa-
nies have done. Instead, Netflix started doing away with formal procedures. Among the first to go was the
leave procedure. Gone were the standard 10 days of vacation, 10 holidays, and handful of sick days. The
new policy? Take what you need when you need it.
Giving employees the leeway to take as much vacation time as they’d like might strike many HR professionals
as reckless. Wouldn’t people abuse such a liberal leave plan? McCord, however, had shifted to a different
philosophy. Written policies, she reasoned, were mainly designed to eliminate problems created by a very
small percentage of employees. The vast majority of people, and particularly the type of person Netflix tries
to recruit, could be counted on to use common sense in their decision making.
This approach was extended to other areas. Travel and expense accounts are generally kept under a watchful
eye, policed by HR or accounting to ensure that money is being spent in an acceptable manner, with plenty of
documentation and accountability. Netflix turned tradition on its head, creating what may be the shortest ex-
pense policy any company has ever set: “Act in Netflix’s best interests.” Employees are also allowed to book
their own travel online rather than going through a designated travel agent, allowing them to choose the best
price.
Netflix compensates its employees very well, but there’s freedom there, too. People can choose what portion
of their pay they would like to receive in direct compensation and what portion in stock options. This allows
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them to consider what sort of risk level they’re comfortable with (the value of any company’s stock will fluctu-
ate over time) and what is best for them and their families. Netflix also eliminated performance-based bonus-
es, preferring to pay people fairly and trust them to do good work. There are no “golden handcuffs”—a form of
retention plan that does not allow employees to receive stock options or other incentives until they’ve reached
a certain number of years of service. Employees are also encouraged to research and interview with competi-
tor companies and then have frank discussions with HR. This helps both the department and the employee
know what good salaries are for various positions.
The company also decided to forego conventional performance reviews. It eliminated the performance met-
rics typical of many companies’ evaluations, like grading an employee on a five-point scale in a variety of
different tasks and expectations. Instead, a “360-degree review” is performed, which is an open conversation
between employees and their managers about feedback from people inside (and occasionally outside) the
company who have any contact with the employee. The evaluation is largely centered on one question for the
manager, known as the “keeper test”: “Which of my people, if they told me they were leaving in two months
for a similar job at a peer company, would I fight hard to keep at Netflix?” If someone’s skills and abilities are
no longer a match for the company, the person is given a generous severance package upon exit. As CEO
Reed Hastings told the Harvard Business Review, paraphrasing a section of the now-famous PowerPoint:
“‘Adequate performance gets a generous severance package.’ It’s a pretty blunt statement of our hunger for
excellence.”
The document is “our version of Letters to a Young Poet for budding entrepreneurs,” Reed continued. “It’s
what we wish we had understood when we started.” He goes on to argue that a relatively new industry—on-
line, on-demand entertainment—demands new paradigms. “As a society, we’ve had hundreds of years to
work on managing industrial firms, so a lot of accepted HR practices are centered in that experience. We’re
just beginning to learn how to run creative firms, which is quite different. Industrial firms thrive on reducing
variation (manufacturing errors); creative firms thrive on increasing variation (innovation).”
The Payoffs
Netflix’s overhaul of its HR policies has yielded positive results. Despite the lack of carefully outlined proce-
dures, the expectations are still clear: you have the freedom to make decisions, but keep in mind what is best
for the company. The HR department at Netflix has realized that it isn’t necessary to beat its people over the
head with exactly how to make good decisions.
Freedom equals reduced stress, arguably. The level of flexibility and self-management that Netflix also offers
creates more efficiency. Employees don’t have to worry about whether they’ve racked up enough days off to
take a trip or whether they’ve worked long enough hours to impress the boss. They aren’t fretting over how
the big annual review will go, or whether they’ll get the score that will earn the bonus they’ve been counting
on. Eliminating these typical workplace stressors motivates employees to stay focused on creating ideas and
solutions for the business.
At Netflix, clear and honest communication thrives. Employees don’t fear retribution for looking into openings
with other companies; they can go to HR and openly discuss other possibilities. Managers no longer have to
spend time “in the weeds” developing improvement plans and riding mediocre workers for results. Likewise,
employees are less likely to have to pick up slack for colleagues who are not performing. While Netflix lets
people go whose knowledge and skills are no longer relevant, it’s candid about why. As McCord puts it, “Peo-
ple can handle anything as long as they’re told the truth.”
Being straightforward has costs, but having direct conversations with and offering a generous severance
package to employees who are no longer a good fit has resulted in zero lawsuits over termination to date. HR
is also empowered to find someone who fits the bill rather than continuing to invest in someone who cannot
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do what’s needed while risking the morale and motivation of fellow coworkers.
By allowing its employees plenty of liberty to make decisions for themselves, Netflix has reaped great rewards
in employee motivation, efficiency, and productivity. While the premise may have seemed risky, it proved to
be a commonsense solution for issues most HR departments face. Considering the way it revolutionized and
streamlined the movie rental process for changing times, it is hardly surprising that Netflix seems to have
done the same for employee motivation.
Case Questions
1. How does Netflix use intrinsic motivation to support its HR practices?
2. Why would a creative firm choose to use intrinsic motivation where an industrial firm
would probably choose to use extrinsic rewards?
3. Explain the appeal of nontraditional work schedules and how Netflix has chosen to imple-
ment them.
Sources
Baer, Drake . “Netflix’s Major HR Innovation: Treating humans like people.” Fast Company. March 13, 2014.
www.fastcompany.com/3027124/lessons-learned/netflixs-major-hr-innovation-treating-humans-like-people
Fenzi, Francesca . “3 big ideas to steal from Netflix.” Inc. February 5, 2013. www.inc.com/francesca-fenzi/
management-ideas-to-steal-from-netflix.html
Grossman, Robert J. “Tough Love at Netflix.” HR. April 1, 2010. www.shrm.org/Publications/hrmagazine/Edi-
torialContent/2010/0410/Pages/0410grossman3.aspx.
Kamensky, John. “Netflix’s 5 Tenets of HR.” Government Executive. February 14, 2014. www.govexec.com/
excellence/promising-practices/2014/02/netflixs-5-tenets-hr/78827/.
McCord, Patty . “How Netflix Reinvented HR.” Harvard Business Review (January–February 2014).
http://hbr.org/2014/01/how-netflix-reinvented-hr.
Nisen, Max . “Legendary Ex-HR Director from Netflix shares 6 important lessons.” Business Insider. Decem-
ber 30, 2013. www.businessinsider.com/netflix-corporate-culture-hr-policy-2013-12.
No Author. “Netflix wins three Emmys.” Huffington Post. September 23, 2013. www.huffingtonpost.com/2013/
09/22/netflix-emmys-house-of-cards-wins_n_3973794.html.
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