Netflix’s Five Tenets of HR

Silicon Valley is known for its technology, not its management, innovations. But some of its management innovations are worth looking at. Netflix’s HR policies rank right up there when it threw out the standard playbook!

Former Netflix chief talent officer, Patty McCord, describes its key talent management tenets in a recent Harvard Business Review article. While Netflix’s approach may not be suited to other companies or the work of the public sector, they are worth highlighting for no other reason than to spark some reflection and discussion.

McCord and Netflix CEO and founder, Reed Hastings, created a 126-page slide deck describing their approach to talent and culture at Netflix. This deck has been viewed more than 7 million times and has been highly influential (and controversial) in the corporate world. It is comprised of simple and unadorned bullet points for the most part, but McCord’s article highlights the five tenets that Netflix has developed to attract, retain, and reward talent:

1. Hire, reward, and tolerate only fully formed adults. She writes: “Over the years we learned that if we asked people to rely on logic and common sense instead of formal policies, most of the time we would get better results, and at lower costs.” If you hire carefully, 97 percent of your employees will do the right thing, but “Most companies spend endless time and money writing and enforcing HR polices to deal with problems the other 3% might cause.” McCord says” we tried hard to not hire those people, and we let them go if it turned out we’d made a hiring mistake.”

2. Tell the truth about performance. Netflix eliminated formal individual performance reviews and ask managers and employees “to have conversations about performance as an organic part of their work.” They instituted 360-degree reviews under the theory that “people can handle anything as long as they are told the truth.” Netflix does not try to identify the top 10 percent or bottom 30 percent in their company; they look at the entire field of talent – inside or outside their company – and rate them in that context.

3. Managers own the job of creating great teams. McCord notes: “We continually told managers that building a great team was their most important task. We didn’t measure them on whether they were excellent coaches or mentors or got their paperwork done on time. Great teams accomplish great work, and recruiting the right team was the top priority.”

4. Leaders own the job of creating the company culture. McCord says that leaders need to live the values they espouse, or no one else will. She encourages leaders to ask themselves if there is “a mismatch between the values you’re talking up and the behaviors you’re modeling and encouraging?” She also says that leaders have to ensure the employees “understand the levers that drive the business” and provide context and transparency so they do. In addition, she says leaders need to understand the subcultures within an organization that might require different management approaches.

5. Good talent managers think like business people and innovators first, and like HR people last. McCord also offers insights to her peers in the HR profession, noting that “Too many devote time to morale improvement initiatives.” She says: “Instead of cheerleading, people in my profession should think of themselves as businesspeople. What’s good for the company? How do we communicate that to employees? How can we help every worker understand what we mean by high performance.”

With tenets like this in place, Netflix’s operating policies tell salaried employees to “take whatever time they felt was appropriate.” They have no vacation policy; employees and bosses are asked to work it out with each other. Similarly, Nexflix’s expense policy is “Act in Netflix’s best interest” – there is no elaborate travel and expense guidance. The theory: “if you create a clear expectation of responsible behavior, most employees will comply.”

While this approach of “setting clear expectations and trust” may not work well broadly in a public sector context, it clearly provides some foundational ideas for how innovative leaders on the front line of their agencies can frame how they approach their job of leading and encouraging high performance. Most importantly: look at the slide deck!

Graphic credit: U.S. Office of Personnel Management

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Ryan Arba

John – thank you for sharing this article. You mention that Netflix’s approach of “clear expectations and trust” may not work well in the public sector. Why do we hold ourselves to such a low standard? If it is our laws and (hr) policies that get in the way, shouldn’t we go about changing the laws?

Or, is the barrier more buried in our own collective bias toward a “theory x” approach to work? I am always conducting unofficial qualitative surveys (i.e., asking people questions at happy hour). While many people claim to be theory y managers, under pressure, they always show their theory x bias. However, the true theory y managers secretly implement at least part of the Nextflix strategy (clear expectations, trust, and accountability).

I would love to hear your thoughts, especially given your 20+ years of experience in the performance management world.

John Kamensky

Ryan – I think the reason, partly, is that the federal government’s personnel system is used to achieve social purposes that may have a greater priority “hiring the best talent,” like Netflix. For example, I understand that more than half of the new hires in the federal government are veterans, and there is a recent presidential directive to extend some preference to the long-term unemployed. In addition, recent federal cost-cutting actions (pay freezes, elimination of bonuses, furloughs because of the sequester and no budget), and hiring freezes (or no hiring of the “top talent” from the Presidential Fellows Program), all contribute to an atmosphere that is seen as discouraging to many. . . . As to your highlighting the Netflix approach of “clear expectations and trust,” I think that that element could be applied in the federal government by managers. And it is, in high performing organizations where leaders set such expectations, and provide the elements of success to succeed — including trusting employees who know how to deliver on their jobs and are enthused about their mission. The Federal Employees Viewpoint Survey highlights those agencies.