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How Netflix Reinvented HR

Trust people, not policies. Reward candor. And throw away the standard playbook. by Patty McCord

Summary .   

When Netflix executives wrote a PowerPoint deck about the organization’s talent management strategies, the document went viral—it’s been viewed more than 5 million times on the web. Now one of those executives, the company’s longtime chief talent officer, goes beyond the bullet points to paint a detailed picture of how Netflix attracts, retains, and manages stellar employees. The firm draws on five key tenets:

Hire, reward, and tolerate only fully formed adults. Ask workers to rely on logic and common sense instead of formal policies, whether the issue is communication, time off, or expenses.

Tell the truth about performance. Scrap formal reviews in favor of informal conversations. Offer generous severance rather than holding on to workers whose skills no longer fit your needs.

Managers must build great teams. This is their most important task. Don’t rate them on whether they are good mentors or fill out paperwork on time.

Leaders own the job of creating the company culture. You’ve got to actually model and encourage the behavior you talk up.

Talent managers should think like businesspeople and innovators first, and like HR people last. Forget throwing parties and handing out T‑shirts; make sure every employee understands what the company needs most and exactly what’s meant by “high performance.”

Sheryl Sandberg has called it one of the most important documents ever to come out of Silicon Valley. It’s been viewed more than 5 million times on the web. But when Reed Hastings and I (along with some colleagues) wrote a PowerPoint deck explaining how we shaped the culture and motivated performance at Netflix, where Hastings is CEO and I was chief talent officer from 1998 to 2012, we had no idea it would go viral. We realized that some of the talent management ideas we’d pioneered, such as the concept that workers should be allowed to take whatever vacation time they feel is appropriate, had been seen as a little crazy (at least until other companies started adopting them). But we were surprised that an unadorned set of 127 slides—no music, no animation—would become so influential.

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Hamid R Nawaz

Case Study: Breaking Tradition: How Netflix Reinvented HR Practices for the New Era

Ever wonder how Netflix reinvented the HR wheel? A case study on how the streaming giant rewrote the rules of human resource management.

Background: Netflix, the global streaming powerhouse, has emerged as a notable disruptor. Beyond altering the entertainment landscape, the company has brought an unprecedented revolution in its HR management practices. Moving against traditional norms and creating a new HR paradigm, Netflix has set a benchmark in recognizing and managing human capital.

Approach & Execution:

1. Discarding Hierarchies: Netflix’s first significant step was to discard the age-old hierarchical model. The company chose to prioritize competence and performance over job titles. They built a culture where roles are defined by one’s skills and contribution rather than by seniority, thus creating an environment that is more equitable and empowering.

2. Embracing Turnover: A unique aspect of Netflix’s HR approach is acknowledging and embracing turnover. Unlike traditional businesses, Netflix doesn’t view turnover as a risk to be mitigated. Instead, they perceive it as an opportunity for continual enhancement and fresh perspectives, fostering an enduring culture of growth and innovation.

3. Keeper Test: Netflix introduced an unusual yet highly effective ‘Keeper Test’. Managers are encouraged to evaluate their team members critically and ask themselves if they would fight to retain each employee. If the answer is no, the concerned individual is let go with a handsome severance package. The ‘Keeper Test’ ensures the maintenance of an agile, focused, and high-performing workforce.

4. Recognizing People as the Source: Perhaps the most crucial takeaway from Netflix’s HR strategy is its shift in viewing people. Netflix sees its employees not as resources but as the source of all innovation and growth. By instilling a sense of importance and pride, they ensure a motivated, empowered, and innovative workforce.

Impact and Learnings:

Netflix’s HR approach might not fit all organizations. Still, it undoubtedly provides a new perspective and serves as a reference point for those ready to challenge the conventional HR norms. This case study underscores the fact that innovation should not be limited to services or products — it can and should extend to all aspects of a business, including HR.

This unique HR transformation played a key role in Netflix’s success, allowing it to foster a culture that enables employees to contribute their best.

Moving Forward:

Innovation doesn’t stop at the product or service level — it extends to every corner of an organization, including HR. Netflix’s case demonstrates that by rethinking conventional practices and being open to disruption, companies can harness their human capital more effectively.

Written by Hamid R Nawaz

Talks about start up business, branding, Marketing and ecommerce. Likes to read and share stories about women and young entrepreneurship.

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5 Ways Netflix Reinvented HR

“We had no idea it would go viral” said Patty McCord, one of the geniuses behind the 129 slides of 'Netflix Culture Desk' - and former Chief Talent Officer at Netflix.

It’s been over 6 years since the Powerpoint on Netflix's management style was posted online. But the takeaways from its creators - Patty McCord, Reed Readlings and colleagues, are yet to be reinforced in the veins of many organisations. The PowerPoint won over 5 million views on the internet. It had an opening line that got us curious before clicking on this article. “What gives Netflix the best chance of continuous success for generations of technology and people?” Let's find out How Netflix reinvented HR.

It first began in the late 2001 when Netflix only had 120 employees...

When the tech bubble burst, Netflix's need to layoff employees became clear. “It was brutal.” said McCord. But something changed.

The rise of DVD players grew into demand. “By early 2002, our DVD-by mail subscription business was growing like crazy. (And) suddenly we had far more work to do, with 30% fewer employees.” [Note: This marks Netflix’s need to hire new talent .]

The words of an engineer lit the first enigma of Netflix HR reinvention...

There are two incidents, in particular, which were a reason to How Netflix reinvented HR. One of Netflix’s best engineers (at that time) realised something after the layoffs, and cited to McCord, “I’ve learned that I’d rather work by myself than with subpar performers .”

“The best thing you can do for employees, a perk better than foosball or sushi, is hire only “A” players to work alongside them. Excellent colleagues trump everything else," realised McCord.

Netflix's exceptional bookkeeper...

Another incident took place that led to How Netflix reinvented HR was when McCord had no choice but to lay off an an exceptional bookkeeper with a severance package. From this second incident came the second learning; as Patty McCord quotes,

“If we wanted only “A” players on the 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.”

In the light of these two events, the team at Netflix then produced five strategies that gained popularity overnight. So, let's know How Netflix reinvented HR?

5 Ways How Netflix Reinvented HR

1. “hire, reward, and tolerate only fully-formed adults”.

Today, Netflix’s vacation policy is nothing but “take vacation." Whereas, its employee expense policy is no longer than five words: “Act in Netflix’s best interests.”

Netflix initially had a paid-time-off policy of 10 vacation days, 10 holidays, and a few sick days. Right after this policy was publicly announced, the auditors mandated an official attendance and leave tracking system. But instead of shifting to a formal system, Netflix employees did the opposite.

Salaried employees were then told to take time off whenever required. “Bosses and employees were asked to work it out with one another” said Patty.

"If you are careful about hiring people who will put the company’s interests first, who understand and support the desire for a high-performance workplace, 97% of your employees will do the right thing”

2. “Tell the truth about performance”

Netflix, a decade ago, got rid of formal performance reviews . Instead, Netflix adopted an informal 360-degree performance reviews .

“We kept them fairly simply,” said McCord. “People were asked to identify things that co-workers should stop, start, or continue.”

Performance Improvement Plans (PIPs), McCord believes and we agree, are “fundamentally dishonest” and “never accomplish what their name implies.” Netflix also made the use of an HR software system to conduct the 360-degree reviews , and later, also held them face-to-face.

“In my experience, people can handle anything as long as they’re told the truth.”

3. “Leaders own the job of creating the company culture”

McCord stresses on the three issues that occur when leaders try to create a company culture . She shares a personal story of a new organisation she joined after Netflix.

When the CEO was showing her around, McCord asked about the most important value of his company. The CEO replied, “Efficiency.”

McCord continues, “Imagine that I work here, and it’s 2:58pm. I’m playing an intense game of pool, and I’m winning at it. I estimate that I can finish the game in 5 minutes. But we have a meeting at 3:00pm. Should I stay and win the game or cut if short for the meeting?"

“You must finish the game,” insisted the CEO; as many tech start-ups these days try to promote a casual culture, believes McCord. She further adds , “You told me that Efficiency is the important cultural value . It is not efficient to delay a meeting and keep co-workers waiting because of a pool game. Isn’t there a mismatch between the values that you are talking up and behaviours you’re modelling and encouraging ?” This mismatch becomes the first issues according to McCord.

Second issue, is being sure that employees understand the “ levers that drive the business .”

“Even if you have hired people who want to perform well, you need to clearly communicate how the company makes money and what behaviours will drive its success.”

Third issue, is the notion of a “ spilt personality start-up .” See HR for Startups: The Ultimate Guide

“At Netflix, for instance, I sometimes had to remind people that there are big differences between the salaried staff at the headquarters and the hourly workers in the call centres.” she added. “As leaders build a company culture , they need to be aware of subcultures that might require different management.”

Must Read: How Google is using people analytics to completely reinvent HR

4. “Managers own the job of creating teams”

One of the most noticeable part in the ways of How Netflix reinvented HR of managers at Netflix were asked to picture what their team is accomplishing six months from now. Down the line, you would be asking two questions with regards to the vision.

• What specific results do they see?
• How is the work different from what the team is doing today?

"We continually told managers that building a great team was their most important task. We didn’t measure them (managers) on whether they were excellent coaches or mentors or got their paperwork done on time."

5. “Good talent managers think like the innovators first – and like HR people last”

"Too many ( HR specialists ) devote time to morale improvement initiatives ,” says McCord. Even today, we see many instances where the entire team aims to get their company onto the lists of “Best Places to Work.”

McCorth further suggests that “instead of cheerleading”, HRs need to think of themselves as business executives. They should consider what’s good for the company and how can that be communicated to the employees.

A simple test, according to McCord, would be to approach any employee and ask, “Do you know particularly what you should be doing right now to increase your bonus?” And if an employee fails to answer it, the Netflix HR department is not making things as clear as they need to be. This is How Netflix reinvented HR .

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Reinventing HR: The Netflix Case

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In the early days of Netflix, Reed Hastings, Co-Founder and CEO, asked Patty McCord (Chief Talent Officer) to write out the company’s core values, which led to  – quoting Sheryl Sandburg, COO of Facebook –  “one of the most important documents ever to come out of Silicon Valley”.  In this interview series, we will talk with Human Resources leaders about Netflix’s famous innovative HR practices.

Episode 2: A discussion with  Heiko Wieprecht , Managing Director at Singularity HR

1. What do you think about offering employees unlimited paid holiday allowance?

I am actually a fan of giving employees as much flexibility and holidays as possible. As long as the performance is there, as long as the work is done and done right. I am fine with employees taking as many holidays as they want. I know some start-ups in Germany which – although do not have a formal unlimited paid vacation policy – are extremely flexible in regards to employees taking long and spontaneous vacation periods. I believe the whole market is moving in this direction, based on the evolution of my interactions with trade unions. Some companies have even already implemented a 4-day work week, and the results seem to be good (i.e. no decrease on productivity). 

2. Rather than submit reports detailing money spent on mileage, meals, hotel rooms, and office supplies, employees are expected to spend money “acting in Netflix´s best interests”. What’s your take on this no limits travel and expense policy?

I believe it´s in principle good to treat your employees as shareholders of the company and have them acting as if the company´s money was also their money. However, from my experience, I know how difficult it is to make this work in practice. Employees might abuse this rule or/and use it to justify questionable expenses. I remember in one of my past assignments how our employer had a reasonable expense policy and relied on employees acting in the best interest for the firm. It didn´t work out so well, including an incident of company card heavy usage in the Red light district in Hamburg. Consequently, we had to dissolve the employment contract with that individual.

3. Netflix chose to ditch formal performance reviews and rely on informal 360-degree reviews. “We asked people to identify things that colleagues should stop, start, or continue.” They also don´t pay performance-based bonuses. What is your opinion about these measures?

This is quite an interesting topic, as I am aware that a number of firms have adopted the continuous feedback process method. I think this is definitely good for many roles. Why? Because sharing feedback on a regular basis improves the immediate performance. On the other hand, I don’t think it makes sense for certain type of roles, like heavily performance-based positions in sales, where a clear target is set, and there are reliable parameters to judge the employee’s performance effectively. Regarding individual “Performance Improvement Plans”, I reckon it´s positive to separate the underperformer from the others and try to solve the situation. Unlike Netflix, I wouldn´t directly let them go with a generous severance package, although that would be the next course of action if the PIP does not work. 

Thank you  Heiko  for sharing your thoughts. Stay tuned for the next episode! If you have any questions about this series of interviews or you need support hiring, contact  Alberto Villar .  

If you enjoyed reading this interview, please also have a look into  Episode 1  &  Episode 3 . 

References: • Reed Hastings & Erin Meyer – “No rules rules: Netflix and the culture of Reinvention” (2020)• Patty McCord – “How Netflix reinvented HR” – Harvard Business Review, January 2014

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How Netflix reinvented HR  

Various blogs and reviews have quouted the Netflix reinventing HR presentation below. Written by Reed Hastings, CEO of Netflix, and colleagues, the document sets out the techniques used to shape culture and motivate high performance at TV-on-demand company Netflix.

The presentation below is incredibly refreshing due to it’s brutal honesty – they admit their high performance culture isn’t for everyone, they want to attract people who thrive on high performance, candor and change. They are honest about not wanting to attract people who prefer job security and feel fearful. Some corporations may find the below uncomfortable reading however for those interested in a successful culture the presentation is a must read.

The above presentation is not owned by Engage for Success.

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• Corpus ID: 168262925

How netflix reinvented HR

• Published 2014
• Harvard Business Review

48 Citations

A study on the organizational resilience of netflix, employer trustworthiness, worker pride, and camaraderie as a source of competitive advantage, gaining the long view: reforming organization and empowering knowledge workers to improve strategy and intelligence, waiting for the punch(line): the circuit of culture and internal public relations at netflix, managing service employees: literature review, expert opinions, and research directions, recruiting talent ⇤, performance management trends–reflections on the redesigns big companies have been doing lately, recommended for you: the netflix prize and the production of algorithmic culture, teaching human centered management to engineering students: a personal account, employee-based hrm: bereavement policy in a changing work environment, related papers.

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