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Netflix Culture:
Freedom & Responsibility
1
We Seek Excellence
Our culture focuses on helping us
achieve excellence
2
Seven Aspects of our Culture
• Values are what we Value
• High Performance
• Freedom & Responsibility
• Context, not Control
• Highly Aligned, Loosely Coupled
• Pay Top of Market
• Promotions & Development
3
Many companies have nice sounding
value statements displayed in the
lobby, such as:
4
Integrity
Communication
Respect
Excellence
Enron, whose leaders went to jail,
and which went bankrupt from fraud,
had these values displayed in their lobby:
Integrity
Communication
Respect
Excellence
5
(These values were not, however, what was really valued at Enron)
The actual company values,
as opposed to the
nice-sounding values,
are shown by who gets
rewarded, promoted, or let go
6
Actual company values are the
behaviors and skills
that are valued
in fellow employees
7
At Netflix, we particularly value the
following nine behaviors and skills
in our colleagues…
…meaning we hire and promote
people who demonstrate these nine
8
You make wise decisions
(people, technical, business, and
creative) despite ambiguity
You identify root causes, and get
beyond treating symptoms
You think strategically, and can
articulate what you are, and are
not, trying to do
You smartly separate what must
be done well now, and what can
be improved later
9
Judgment
10
Communication
You listen well, instead of
reacting fast, so you can better
understand
You are concise and articulate in
speech and writing
You treat people with respect
independent of their status or
disagreement with you
You maintain calm poise in
stressful situations
11
Impact
You accomplish amazing
amounts of important work
You demonstrate consistently
strong performance so
colleagues can rely upon you
You focus on great results rather
than on process
You exhibit bias-to-action, and
avoid analysis-paralysis
12
Curiosity
You learn rapidly and eagerly
You seek to understand our
strategy, market, customers, and
suppliers
You are broadly knowledgeable
about business, technology and
entertainment
You contribute effectively
outside of your specialty
13
Innovation
You re-conceptualize issues to
discover practical solutions to
hard problems
You challenge prevailing
assumptions when warranted,
and suggest better approaches
You create new ideas that prove
useful
You keep us nimble by
minimizing complexity and
finding time to simplify
14
Courage
You say what you think even if it
is controversial
You make tough decisions
without agonizing
You take smart risks
You question actions
inconsistent with our values
15
Passion
You inspire others with your
thirst for excellence
You care intensely about
Netflix‘s success
You celebrate wins
You are tenacious
16
Honesty
You are known for candor and
directness
You are non-political when you
disagree with others
You only say things about fellow
employees you will say to their
face
You are quick to admit mistakes
17
Selflessness
You seek what is best for Netflix,
rather than best for yourself or
your group
You are ego-less when searching
for the best ideas
You make time to help
colleagues
You share information openly
and proactively
Seven Aspects of our Culture
• Values are what we Value
• High Performance
• Freedom & Responsibility
• Context, not Control
• Highly Aligned, Loosely Coupled
• Pay Top of Market
• Promotions & Development
18
Imagine if every person at Netflix
is someone you
respect and learn from…
19
Great Workplace is
Stunning Colleagues
Great workplace is not espresso, lush benefits,
sushi lunches, grand parties, or nice offices
We do some of these things, but only if they are
efficient at attracting and retaining
stunning colleagues
20
Like every company,
we try to hire well
21
Unlike many companies,
we practice:
adequate performance gets a
generous severance package
22
We’re a team, not a family
We’re like a pro sports team,
not a kid’s recreational team
Netflix leaders
hire, develop and cut smartly,
so we have stars in every position
23
The Keeper Test Managers Use:
Which of my people,
if they told me they were leaving,
for a similar job at a peer company,
would I fight hard to keep at Netflix?
24
The Keeper Test Managers Use:
Which of my people,
if they told me they were leaving,
for a similar job at a peer company,
would I fight hard to keep at Netflix?
25
The other people should get a generous severance now,
so we can open a slot to try to find a star for that role
Honesty Always
As a leader, no one in your group
should be materially surprised of
your views
26
Honesty Always
Candor is not just a leader’s responsibility,
and you should periodically ask your
manager: “If I told you I were leaving, how
hard would you work to change my mind?”
27
All of Us are Responsible
for Ensuring We Live our Values
“You question actions inconsistent with our
values” is part of the Courage value
Akin to the honor code pledge:
“I will not lie, nor cheat, nor steal,
nor tolerate those who do”
28
Pro Sports Team Metaphor is
Good, but Imperfect
Athletic teams have a fixed number of
positions, so team members are always
competing with each other for one of
the precious slots
29
Corporate Team
The more talent we have,
the more we can accomplish,
so our people assist each other all the time
Internal “cutthroat” or “sink or swim”
behavior is rare and not tolerated
30
We Help Each Other
To Be Great
31
Isn’t Loyalty Good?
What about Hard Workers?
What about Brilliant Jerks?
32
Loyalty is Good
• Loyalty is good as a stabilizer
• People who have been stars for us, and hit a bad
patch, get a near term pass because we think
they are likely to become stars for us again
• We want the same: if Netflix hits a temporary
bad patch, we want people to stick with us
• But unlimited loyalty to a shrinking firm, or to an
ineffective employee, is not what we are about
33
Hard Work – Not Relevant
• We don’t measure people by how many hours
they work or how much they are in the office
• We do care about accomplishing great work
• 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
34
Brilliant Jerks
• Some companies tolerate them
• For us, cost to effective teamwork is too high
• Diverse styles are fine – as long as person
embodies the 9 values
35
Why are we so insistent on
high performance?
In procedural work, the best are 2x
better than the average.
In creative/inventive work, the best are 10x
better than the average, so huge premium on
creating effective teams of the best
36
Why are we so insistent on
high performance?
Great Workplace is
Stunning Colleagues
37
Our High Performance Culture
Not Right for Everyone
• Many people love our culture, and stay a long time
– They thrive on excellence and candor and change
– They would be disappointed if given a severance package,
but lots of mutual warmth and respect
• Some people, however, value job security and stability
over performance, and don’t like our culture
– They feel fearful at Netflix
– They are sometimes bitter if let go, and feel that we are
political place to work
• We’re getting better at attracting only the former, and
helping the latter realize we are not right for them
38
Seven Aspects of our Culture
• Values are what we Value
• High Performance
• Freedom & Responsibility
• Context, not Control
• Highly Aligned, Loosely Coupled
• Pay Top of Market
• Promotions & Development
39
The Rare Responsible Person
• Self motivating
• Self aware
• Self disciplined
• Self improving
• Acts like a leader
• Doesn’t wait to be told what to do
• Picks up the trash lying on the floor
40
Responsible People
Thrive on Freedom,
and are Worthy of Freedom
41
Our model is to increase
employee freedom as we grow,
rather than limit it,
to continue to attract and nourish
innovative people,
so we have better chance of
sustained success
42
Most Companies
Curtail Freedom as they get Bigger
Bigger
Employee Freedom
43
Why Do Most Companies
Curtail Freedom
and Become Bureaucratic
as they Grow?
44
Desire for Bigger Positive Impact
Creates Growth
Growth
45
Growth Increases Complexity
Complexity
46
Growth Also Often Shrinks Talent Density
% High Performance Employees
Complexity
47
Chaos Emerges
% High Performance Employees
Chaos and errors spike here – business
has become too complex to run
informally with this talent level Complexity
48
Process Emerges to Stop the Chaos
Procedures
No one loves process, but
feels good compared to the
pain of chaos
“Time to grow up” becomes
the professional management’s
mantra
49
Process-focus Drives More Talent Out
% High Performance Employees
50
Process Brings Seductively Strong
Near-Term Outcome
• A highly-successful process-driven company
– With leading share in its market
– Minimal thinking required
– Few mistakes made – very efficient
– Few curious innovator-mavericks remain
– Very optimized processes for its existing market
– Efficiency has trumped flexibility
51
Then the Market Shifts…
• Market shifts due to new technology or
competitors or business models
• Company is unable to adapt quickly
– because the employees are extremely good at
following the existing processes, and process
adherence is the value system
• Company generally grinds painfully into
irrelevance
52
Seems Like Three Bad Options
1. Stay creative by staying small, but therefore
have less impact
2. Avoid rules as you grow, and suffer chaos
3. Use process as you grow to drive efficient
execution of current model, but cripple
creativity, flexibility, and ability to thrive
when your market eventually changes
53
A Fourth Option
• Avoid Chaos as you grow with Ever More High
Performance People – not with Rules
– Then you can continue to mostly run informally
with self-discipline, and avoid chaos
– The run informally part is what enables and
attracts creativity
54
The Key: Increase Talent Density faster
than Complexity Grows
55
Increase Talent Density
• Top of market compensation
• Attract high-value people through
freedom to make big impact
• Be demanding about high
performance culture
56
Minimize Complexity Growth
• Few big products vs many small ones
• Eliminate distracting complexity (barnacles)
• Be wary of efficiency optimizations that
increase complexity and rigidity
57
Note: sometimes long-term simplicity is
achieved only through bursts of complexity to
rework current systems
With the Right People,
Instead of a
Culture of Process Adherence,
We have a Culture of
Creativity and Self-Discipline,
Freedom and Responsibility
58
Is Freedom Absolute?
Are all rules & processes bad?
59
Freedom is not absolute
Like “free speech”
there are some
limited exceptions to
“freedom at work”
60
Two Types of Necessary Rules
1. Prevent irrevocable disaster
– Financials produced are wrong
– Hackers steal our customers’ credit card info
2. Moral, ethical, legal issues
– Dishonesty, harassment are intolerable
61
Mostly, though, Rapid Recovery is
the Right Model
• Just fix problems quickly
– High performers make very few errors
• We’re in a creative-inventive market, not a
safety-critical market like medicine or nuclear
power
• You may have heard preventing error is
cheaper than fixing it
– Yes, in manufacturing or medicine, but…
– Not so in creative environments
62
“Good” versus “Bad” Process
• “Good” process helps talented people get more done
– Letting others know when you are updating code
– Spend within budget each quarter so don’t have to
coordinate every spending decision across departments
– Regularly scheduled strategy and context meetings
• “Bad” process tries to prevent recoverable mistakes
– Get pre-approvals for $5k spending
– 3 people to sign off on banner ad creative
– Permission needed to hang a poster on a wall
– Multi-level approval process for projects
– Get 10 people to interview each candidate
63
Rule Creep
• “Bad” processes tend to creep in
– Preventing errors just sounds so good
• We try to get rid of rules when we can, to
reinforce the point
64
Example: Netflix Vacation Policy
and Tracking
Until 2004 we had the standard
model of N days per year
65
Meanwhile…
We’re all working online some nights and
weekends, responding to emails at odd
hours, spending some afternoons on
personal time, and taking good vacations
66
An employee pointed out…
We don’t track hours worked per day
or per week, so why are we tracking
days of vacation per year?
67
We realized…
We should focus on what people get done,
not on how many days worked
Just as we don’t have an 9am-5pm workday
policy, we don’t need a vacation policy
68
Netflix Vacation Policy
and Tracking
“there is no policy or tracking”
69
Netflix Vacation Policy
and Tracking
“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
70
No Vacation Policy Doesn’t Mean
No Vacation
Netflix leaders set good examples by
taking big vacations – and coming
back inspired to find big ideas
71
Another Example of Freedom
and Responsibility…
72
Most companies have complex
policies around what you can
expense, how you travel, what gifts
you can accept, etc.
Plus they have whole departments
to verify compliance
with these policies
73
Netflix Policies
for Expensing, Entertainment,
Gifts & Travel:
“Act in Netflix’s Best Interest”
(5 words long)
74
“Act in Netflix’s Best Interest”
Generally Means…
1. Expense only what you would otherwise not
spend, and is worthwhile for work
2. Travel as you would if it were your own money
3. Disclose non-trivial vendor gifts
4. Take from Netflix only when it is inefficient to
not take, and inconsequential
– “taking” means, for example, printing personal
documents at work or making personal calls on work
phone: inconsequential and inefficient to avoid
75
Freedom and Responsibility
• Many people say one can’t do it at scale
• But since going public in 2002, which is
traditionally the end of freedom, we’ve
substantially increased talent density and
employee freedom
76
Summary of
Freedom & Responsibility:
As We Grow, Minimize Rules
Inhibit Chaos with Ever More
High Performance People
Flexibility is More Important
than Efficiency in the Long Term
77
Seven Aspects of our Culture
• Values are what we Value
• High Performance
• Freedom & Responsibility
• Context, not Control
• Highly Aligned, Loosely Coupled
• Pay Top of Market
• Promotions & Development
78
If you want to build a ship,
don't drum up the people
to gather wood, divide the
work, and give orders.
Instead, teach them to yearn
for the vast and endless sea.
-Antoine De Saint-Exupery,
Author of The Little Prince
79
The best managers figure out how to
get great outcomes by setting the
appropriate context, rather than by
trying to control their people
80
Context, not Control
Context (embrace)
• Strategy
• Metrics
• Assumptions
• Objectives
• Clearly-defined roles
• Knowledge of the stakes
• Transparency around
decision-making
Control (avoid)
• Top-down decision-making
• Management approval
• Committees
• Planning and process valued
more than results
Provide the insight and understanding to enable sound decisions
81
Good Context
• Link to company/functional goals
• Relative priority (how important/how time sensitive)
– Critical (needs to happen now), or…
– Nice to have (when you can get to it)
• Level of precision & refinement
– No errors (credit cards handling, etc…), or…
– Pretty good / can correct errors (website), or…
– Rough (experimental)
• Key stakeholders
• Key metrics / definition of success
82
Managers: When one of your
talented people
does something dumb,
don’t blame them
Instead,
ask yourself what context
you failed to set
83
Managers: When you are tempted
to “control” your people, ask
yourself what context you could set
instead
Are you articulate and inspiring
enough about goals and strategies?
84
Why Managing Through
Context?
High performance people will do
better work if they understand the
context
85
Investing in Context
This is why we do new employee
college, frequent department meetings,
and why we are so open internally
about strategies and results
86
Exceptions to “Context, not Control”
• Control can be important in emergency
– No time to take long-term capacity-building view
• Control can be important when someone is
still learning their area
– Takes time to pick up the necessary context
• Control can be important when you have the
wrong person in a role
– Temporarily, no doubt
87
Seven Aspects of our Culture
• Values are what we Value
• High Performance
• Freedom & Responsibility
• Context, not Control
• Highly Aligned, Loosely Coupled
• Pay Top of Market
• Promotions & Development
88
Three Models of Corporate Teamwork
1. Tightly Coupled Monolith
2. Independent Silos
3. Highly Aligned, Loosely Coupled
89
Tightly Coupled Monolith
• Senior management reviews nearly all tactics
– e.g., CEO reviews all job offers or advertising
• Lots of x-departmental buy-in meetings
• Keeping other internal groups happy has equal
precedence with pleasing customers
• Mavericks get exhausted trying to innovate
• Highly coordinated through centralization, but
very slow, and slowness increases with size
90
Independent Silos
• Each group executes on their objectives with
little coordination
– Everyone does their own thing
• Work that requires coordination suffers
• Alienation and suspicion between
departments
• Only works well when areas are independent
– e.g., aircraft engines and blenders for GE
91
#3 is the Netflix Choice
1. Tightly Coupled Monolith
2. Independent Silos
3. Highly Aligned, Loosely Coupled
92
Highly Aligned, Loosely Coupled
• Highly Aligned
– Strategy and goals are clear, specific, broadly understood
– Team interactions focused on strategy and goals, rather than tactics
– Requires large investment in management time to be transparent and
articulate and perceptive
• Loosely Coupled
– Minimal cross-functional meetings except to get aligned on goals and
strategy
– Trust between groups on tactics without previewing/approving each
one – so groups can move fast
– Leaders reaching out proactively for ad-hoc coordination and
perspective as appropriate
– Occasional post-mortems on tactics necessary to increase alignment
93
Highly Aligned, Loosely Coupled
teamwork effectiveness
depends on
high performance people
and good context
Goal is to be
Big and Fast and Flexible
94
Seven Aspects of our Culture
• Values are what we Value
• High Performance
• Freedom & Responsibility
• Context, not Control
• Highly Aligned, Loosely Coupled
• Pay Top of Market
• Promotions & Development
95
Pay Top of Market
is Core to
High Performance Culture
One outstanding employee gets more done
and costs less than two adequate employees
We endeavor to have only
outstanding employees
96
Three Tests for Top of Market
for a Person
1. What could person get elsewhere?
2. What would we pay for replacement?
3. What would we pay to keep that person?
– If they had a bigger offer elsewhere
97Confidential
Takes Great Judgment
• Goal is to keep each employee at top of
market for that person
– Pay them more than anyone else likely would
– Pay them as much as a replacement would cost
– Pay them as much as we would pay to keep them
if they had higher offer from elsewhere
98
Titles Not Very Helpful
• Lots of people have the title “Major League
Pitcher” but they are not all equally effective
• Similarly, all people with the title “Senior
Marketing Manager” or “Director of
Engineering” are not equally effective
• So the art of compensation is answering the
Three Tests for each employee
99
Annual Comp Review
• At many firms, when employees are hired,
market compensation applies
• But at comp review time, it no longer applies!
• At Netflix, market comp always applies:
– Essentially, top of market comp is re-established
each year for high performing employees
– At annual comp review, manager has to answer
the Three Tests for the personal market for each
of their employees
100Confidential
No Fixed Budgets
• There are no centrally administered “raise
pools” each year
• Instead, each manager aligns their people to
top of market each year – the market will be
different in different areas
101
Compensation Over Time
• Some people will move up in comp very
quickly because their value in the marketplace
is moving up quickly, driven by increasing skills
and/or great demand for their area
• Some people will stay flat because their value
in the marketplace has done that
– Depends in part on inflation and economy
– Always top of market, though, for that person
102
Compensation Not Dependent
on Netflix Success
• Whether Netflix is prospering or floundering,
we pay at the top of the market
– i.e., sports teams with losing records still pay
talent the market rate
• Employees can choose how much they want
to link their economic destiny to Netflix by
deciding how many Netflix stock options they
want to hold
103
Bad Comp Practices
• Manager sets pay at Nth percentile of title-
linked compensation data
– The “Major League Pitcher” problem
• Manager cares about internal parity instead of
external market value
– Fairness in comp is being true to the market
• Manager gives everyone a 4% raise
– Very unlikely to reflect the market
104
When Top of Market Comp
Done Right...
• We will rarely counter with higher comp when
someone is voluntarily leaving because we
have already moved comp to our max for that
person
• Employees will feel they are getting paid well
relative to their other options in the market
105
Versus Traditional Model
• Traditional model is good prior year earns a
raise, independent of market
– Problem is employees can get materially under- or
over-paid relative to the market, over time
– When materially under-paid, employees switch
firms to take advantage of market-based pay on
hiring
– When materially over-paid, employees are
trapped in current firm
• Consistent market-based pay is better model
106
Employee Success
• It’s pretty ingrained in our society that the size
of one’s raise is the indicator of how well one
did the prior year
– but for us the other factor is the outside market
• Employee success is still a big factor in comp
because it influences market value
– In particular, how much we would pay to keep the
person
107
Good For Each Employee to
Understand Their Market Value
• It’s a healthy idea, not a traitorous one, to
understand what other firms would pay you,
by interviewing and talking to peers at other
companies
– Talk with your manager about what you find in
terms of comp
– Stay mindful of company confidential information
108
Efficiency
• Big salary is the most efficient form of comp
– Most motivating for any given expense level
– No bonuses, no free stock options, no
philanthropic match
– Instead, put all that expense into big salaries, and
give people freedom to spend their salaries as
they think best
109
Optional Options
• Employees get top of market salary, and then
can request to trade salary for stock options
• Some people take all cash, some people
request half their comp in options
– Both are OK
• This is consistent with freedom and
responsibility, and lets employees decide how
much risk/reward is comfortable for them
110
Details on Stock Options
• The options are fully vested and are 10-years-to-
exercise options, independent of how long one stays at
Netflix
• These fully vested options are granted monthly at the
then current stock price, so employees get price
averaging on their exercise price
• These options cost employees less than half of what
such options would cost in the open market, and are
from pre-tax salary, so are a great deal
• Employees can change their option request annually
• Options become valuable only if Netflix stock climbs
111
No Vesting or Deferred Comp
• We don’t want managers to “own” their people
with vesting – all comp is fully vested
• We want managers to be responsible for creating
a great place to work, and paying at the top of
market
• Employees are free to leave us anytime, without
penalty, but nearly everyone stays
• Employees stay because they are passionate
about their work, and well paid, not because of a
deferred compensation system
112
No Ranking Against Other Employees
• We avoid “top 30%” and “bottom 10%”
rankings amongst employees
• We don’t want employees to feel competitive
with each other
• We want all of our employees to be “top 10%”
relative to the pool of global candidates
• We want employees to help each other, and
they do
113
Seven Aspects of our Culture
• High Performance
• Values are what we Value
• Freedom & Responsibility
• Context, not Control
• Highly Aligned, Loosely Coupled
• Pay Top of Market
• Promotions & Development
114
In some time periods, in some
groups, there will be lots of
opportunity and growth at Netflix
Some people, through both luck and
talent, will have extraordinary career
growth
115
Baseball Analogy: Minors to Majors
• Very talented people usually get to move up, but
only true for the very talented
• Some luck in terms of what positions open up
and what the competition is
• Some people move to other teams to get the
opportunity they want
• Great teams keep their best talent
• Some minor league players keep playing even
though they don’t move up because they love the
game
116
Netflix Doesn’t Have to Be for Life
• In some times, in some groups, there may not
be enough growth opportunity for everyone
• In which case we should celebrate someone
leaving Netflix for a bigger job that we didn’t
have available to offer them
– If that is what the person prefers
117
Three Necessary Conditions
for Promotion
1. Job has to be big enough
– We might have an incredible manager of something, but we
don’t need a director of it because job isn’t big enough
• If the incredible manager left, we would replace with a manager,
not with a director
2. Person has to be a superstar in current role
– Could get the next level job here if applying from outside and we knew
their talents well
– Could get the next level job at peer firm that knew their talents well
3. Person is an extraordinary role model of our
culture and values
118
Timing
• If a manager would promote to prevent an
employee from leaving, the manager should
promote now instead of waiting
• Three tests still have to be passed
1. Job big enough
2. Superstar in current role
3. Person is an extraordinary role model of our
culture and values
119
Development
• We develop people by giving them the
opportunity to develop themselves, by
surrounding them with stunning colleagues
and giving them big challenges to work on
– Mediocre colleagues or unchallenging work is
what kills progress of a person’s skills
120
Career “Planning” Not for Us
• Formalized development is rarely effective,
and we don’t try to do it
– e.g., Mentor assignment, rotation around a firm,
multi-year career paths, etc.
121
We Support Self-Improvement
• High performance people are generally self-
improving through experience, observation,
introspection, reading, and discussion
– As long as they have stunning colleagues and big
challenges to work on
– We all try to help each other grow
– We are very honest with each other
122
We want people to manage
their own career growth,
and not rely on a corporation
for “planning” their careers
123
Your Economic Security is based
on your Skills and Reputation
We try hard to consistently provide
opportunity to grow both by
surrounding you with great talent
124
Seven Aspects of our Culture
• Values are what we Value
• High Performance
• Freedom & Responsibility
• Context, not Control
• Highly Aligned, Loosely Coupled
• Pay Top of Market
• Promotions & Development
125
We keep improving
our culture as we grow
We try to get better
at seeking excellence
126

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The Netflix Culture

  • 1. Netflix Culture: Freedom & Responsibility 1
  • 2. We Seek Excellence Our culture focuses on helping us achieve excellence 2
  • 3. Seven Aspects of our Culture • Values are what we Value • High Performance • Freedom & Responsibility • Context, not Control • Highly Aligned, Loosely Coupled • Pay Top of Market • Promotions & Development 3
  • 4. Many companies have nice sounding value statements displayed in the lobby, such as: 4 Integrity Communication Respect Excellence
  • 5. Enron, whose leaders went to jail, and which went bankrupt from fraud, had these values displayed in their lobby: Integrity Communication Respect Excellence 5 (These values were not, however, what was really valued at Enron)
  • 6. The actual company values, as opposed to the nice-sounding values, are shown by who gets rewarded, promoted, or let go 6
  • 7. Actual company values are the behaviors and skills that are valued in fellow employees 7
  • 8. At Netflix, we particularly value the following nine behaviors and skills in our colleagues… …meaning we hire and promote people who demonstrate these nine 8
  • 9. You make wise decisions (people, technical, business, and creative) despite ambiguity You identify root causes, and get beyond treating symptoms You think strategically, and can articulate what you are, and are not, trying to do You smartly separate what must be done well now, and what can be improved later 9 Judgment
  • 10. 10 Communication You listen well, instead of reacting fast, so you can better understand You are concise and articulate in speech and writing You treat people with respect independent of their status or disagreement with you You maintain calm poise in stressful situations
  • 11. 11 Impact You accomplish amazing amounts of important work You demonstrate consistently strong performance so colleagues can rely upon you You focus on great results rather than on process You exhibit bias-to-action, and avoid analysis-paralysis
  • 12. 12 Curiosity You learn rapidly and eagerly You seek to understand our strategy, market, customers, and suppliers You are broadly knowledgeable about business, technology and entertainment You contribute effectively outside of your specialty
  • 13. 13 Innovation You re-conceptualize issues to discover practical solutions to hard problems You challenge prevailing assumptions when warranted, and suggest better approaches You create new ideas that prove useful You keep us nimble by minimizing complexity and finding time to simplify
  • 14. 14 Courage You say what you think even if it is controversial You make tough decisions without agonizing You take smart risks You question actions inconsistent with our values
  • 15. 15 Passion You inspire others with your thirst for excellence You care intensely about Netflix‘s success You celebrate wins You are tenacious
  • 16. 16 Honesty You are known for candor and directness You are non-political when you disagree with others You only say things about fellow employees you will say to their face You are quick to admit mistakes
  • 17. 17 Selflessness You seek what is best for Netflix, rather than best for yourself or your group You are ego-less when searching for the best ideas You make time to help colleagues You share information openly and proactively
  • 18. Seven Aspects of our Culture • Values are what we Value • High Performance • Freedom & Responsibility • Context, not Control • Highly Aligned, Loosely Coupled • Pay Top of Market • Promotions & Development 18
  • 19. Imagine if every person at Netflix is someone you respect and learn from… 19
  • 20. Great Workplace is Stunning Colleagues Great workplace is not espresso, lush benefits, sushi lunches, grand parties, or nice offices We do some of these things, but only if they are efficient at attracting and retaining stunning colleagues 20
  • 21. Like every company, we try to hire well 21
  • 22. Unlike many companies, we practice: adequate performance gets a generous severance package 22
  • 23. We’re a team, not a family We’re like a pro sports team, not a kid’s recreational team Netflix leaders hire, develop and cut smartly, so we have stars in every position 23
  • 24. The Keeper Test Managers Use: Which of my people, if they told me they were leaving, for a similar job at a peer company, would I fight hard to keep at Netflix? 24
  • 25. The Keeper Test Managers Use: Which of my people, if they told me they were leaving, for a similar job at a peer company, would I fight hard to keep at Netflix? 25 The other people should get a generous severance now, so we can open a slot to try to find a star for that role
  • 26. Honesty Always As a leader, no one in your group should be materially surprised of your views 26
  • 27. Honesty Always Candor is not just a leader’s responsibility, and you should periodically ask your manager: “If I told you I were leaving, how hard would you work to change my mind?” 27
  • 28. All of Us are Responsible for Ensuring We Live our Values “You question actions inconsistent with our values” is part of the Courage value Akin to the honor code pledge: “I will not lie, nor cheat, nor steal, nor tolerate those who do” 28
  • 29. Pro Sports Team Metaphor is Good, but Imperfect Athletic teams have a fixed number of positions, so team members are always competing with each other for one of the precious slots 29
  • 30. Corporate Team The more talent we have, the more we can accomplish, so our people assist each other all the time Internal “cutthroat” or “sink or swim” behavior is rare and not tolerated 30
  • 31. We Help Each Other To Be Great 31
  • 32. Isn’t Loyalty Good? What about Hard Workers? What about Brilliant Jerks? 32
  • 33. Loyalty is Good • Loyalty is good as a stabilizer • People who have been stars for us, and hit a bad patch, get a near term pass because we think they are likely to become stars for us again • We want the same: if Netflix hits a temporary bad patch, we want people to stick with us • But unlimited loyalty to a shrinking firm, or to an ineffective employee, is not what we are about 33
  • 34. Hard Work – Not Relevant • We don’t measure people by how many hours they work or how much they are in the office • We do care about accomplishing great work • 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 34
  • 35. Brilliant Jerks • Some companies tolerate them • For us, cost to effective teamwork is too high • Diverse styles are fine – as long as person embodies the 9 values 35
  • 36. Why are we so insistent on high performance? In procedural work, the best are 2x better than the average. In creative/inventive work, the best are 10x better than the average, so huge premium on creating effective teams of the best 36
  • 37. Why are we so insistent on high performance? Great Workplace is Stunning Colleagues 37
  • 38. Our High Performance Culture Not Right for Everyone • Many people love our culture, and stay a long time – They thrive on excellence and candor and change – They would be disappointed if given a severance package, but lots of mutual warmth and respect • Some people, however, value job security and stability over performance, and don’t like our culture – They feel fearful at Netflix – They are sometimes bitter if let go, and feel that we are political place to work • We’re getting better at attracting only the former, and helping the latter realize we are not right for them 38
  • 39. Seven Aspects of our Culture • Values are what we Value • High Performance • Freedom & Responsibility • Context, not Control • Highly Aligned, Loosely Coupled • Pay Top of Market • Promotions & Development 39
  • 40. The Rare Responsible Person • Self motivating • Self aware • Self disciplined • Self improving • Acts like a leader • Doesn’t wait to be told what to do • Picks up the trash lying on the floor 40
  • 41. Responsible People Thrive on Freedom, and are Worthy of Freedom 41
  • 42. Our model is to increase employee freedom as we grow, rather than limit it, to continue to attract and nourish innovative people, so we have better chance of sustained success 42
  • 43. Most Companies Curtail Freedom as they get Bigger Bigger Employee Freedom 43
  • 44. Why Do Most Companies Curtail Freedom and Become Bureaucratic as they Grow? 44
  • 45. Desire for Bigger Positive Impact Creates Growth Growth 45
  • 47. Growth Also Often Shrinks Talent Density % High Performance Employees Complexity 47
  • 48. Chaos Emerges % High Performance Employees Chaos and errors spike here – business has become too complex to run informally with this talent level Complexity 48
  • 49. Process Emerges to Stop the Chaos Procedures No one loves process, but feels good compared to the pain of chaos “Time to grow up” becomes the professional management’s mantra 49
  • 50. Process-focus Drives More Talent Out % High Performance Employees 50
  • 51. Process Brings Seductively Strong Near-Term Outcome • A highly-successful process-driven company – With leading share in its market – Minimal thinking required – Few mistakes made – very efficient – Few curious innovator-mavericks remain – Very optimized processes for its existing market – Efficiency has trumped flexibility 51
  • 52. Then the Market Shifts… • Market shifts due to new technology or competitors or business models • Company is unable to adapt quickly – because the employees are extremely good at following the existing processes, and process adherence is the value system • Company generally grinds painfully into irrelevance 52
  • 53. Seems Like Three Bad Options 1. Stay creative by staying small, but therefore have less impact 2. Avoid rules as you grow, and suffer chaos 3. Use process as you grow to drive efficient execution of current model, but cripple creativity, flexibility, and ability to thrive when your market eventually changes 53
  • 54. A Fourth Option • Avoid Chaos as you grow with Ever More High Performance People – not with Rules – Then you can continue to mostly run informally with self-discipline, and avoid chaos – The run informally part is what enables and attracts creativity 54
  • 55. The Key: Increase Talent Density faster than Complexity Grows 55
  • 56. Increase Talent Density • Top of market compensation • Attract high-value people through freedom to make big impact • Be demanding about high performance culture 56
  • 57. Minimize Complexity Growth • Few big products vs many small ones • Eliminate distracting complexity (barnacles) • Be wary of efficiency optimizations that increase complexity and rigidity 57 Note: sometimes long-term simplicity is achieved only through bursts of complexity to rework current systems
  • 58. With the Right People, Instead of a Culture of Process Adherence, We have a Culture of Creativity and Self-Discipline, Freedom and Responsibility 58
  • 59. Is Freedom Absolute? Are all rules & processes bad? 59
  • 60. Freedom is not absolute Like “free speech” there are some limited exceptions to “freedom at work” 60
  • 61. Two Types of Necessary Rules 1. Prevent irrevocable disaster – Financials produced are wrong – Hackers steal our customers’ credit card info 2. Moral, ethical, legal issues – Dishonesty, harassment are intolerable 61
  • 62. Mostly, though, Rapid Recovery is the Right Model • Just fix problems quickly – High performers make very few errors • We’re in a creative-inventive market, not a safety-critical market like medicine or nuclear power • You may have heard preventing error is cheaper than fixing it – Yes, in manufacturing or medicine, but… – Not so in creative environments 62
  • 63. “Good” versus “Bad” Process • “Good” process helps talented people get more done – Letting others know when you are updating code – Spend within budget each quarter so don’t have to coordinate every spending decision across departments – Regularly scheduled strategy and context meetings • “Bad” process tries to prevent recoverable mistakes – Get pre-approvals for $5k spending – 3 people to sign off on banner ad creative – Permission needed to hang a poster on a wall – Multi-level approval process for projects – Get 10 people to interview each candidate 63
  • 64. Rule Creep • “Bad” processes tend to creep in – Preventing errors just sounds so good • We try to get rid of rules when we can, to reinforce the point 64
  • 65. Example: Netflix Vacation Policy and Tracking Until 2004 we had the standard model of N days per year 65
  • 66. Meanwhile… We’re all working online some nights and weekends, responding to emails at odd hours, spending some afternoons on personal time, and taking good vacations 66
  • 67. An employee pointed out… We don’t track hours worked per day or per week, so why are we tracking days of vacation per year? 67
  • 68. We realized… We should focus on what people get done, not on how many days worked Just as we don’t have an 9am-5pm workday policy, we don’t need a vacation policy 68
  • 69. Netflix Vacation Policy and Tracking “there is no policy or tracking” 69
  • 70. Netflix Vacation Policy and Tracking “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 70
  • 71. No Vacation Policy Doesn’t Mean No Vacation Netflix leaders set good examples by taking big vacations – and coming back inspired to find big ideas 71
  • 72. Another Example of Freedom and Responsibility… 72
  • 73. Most companies have complex policies around what you can expense, how you travel, what gifts you can accept, etc. Plus they have whole departments to verify compliance with these policies 73
  • 74. Netflix Policies for Expensing, Entertainment, Gifts & Travel: “Act in Netflix’s Best Interest” (5 words long) 74
  • 75. “Act in Netflix’s Best Interest” Generally Means… 1. Expense only what you would otherwise not spend, and is worthwhile for work 2. Travel as you would if it were your own money 3. Disclose non-trivial vendor gifts 4. Take from Netflix only when it is inefficient to not take, and inconsequential – “taking” means, for example, printing personal documents at work or making personal calls on work phone: inconsequential and inefficient to avoid 75
  • 76. Freedom and Responsibility • Many people say one can’t do it at scale • But since going public in 2002, which is traditionally the end of freedom, we’ve substantially increased talent density and employee freedom 76
  • 77. Summary of Freedom & Responsibility: As We Grow, Minimize Rules Inhibit Chaos with Ever More High Performance People Flexibility is More Important than Efficiency in the Long Term 77
  • 78. Seven Aspects of our Culture • Values are what we Value • High Performance • Freedom & Responsibility • Context, not Control • Highly Aligned, Loosely Coupled • Pay Top of Market • Promotions & Development 78
  • 79. If you want to build a ship, don't drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea. -Antoine De Saint-Exupery, Author of The Little Prince 79
  • 80. The best managers figure out how to get great outcomes by setting the appropriate context, rather than by trying to control their people 80
  • 81. Context, not Control Context (embrace) • Strategy • Metrics • Assumptions • Objectives • Clearly-defined roles • Knowledge of the stakes • Transparency around decision-making Control (avoid) • Top-down decision-making • Management approval • Committees • Planning and process valued more than results Provide the insight and understanding to enable sound decisions 81
  • 82. Good Context • Link to company/functional goals • Relative priority (how important/how time sensitive) – Critical (needs to happen now), or… – Nice to have (when you can get to it) • Level of precision & refinement – No errors (credit cards handling, etc…), or… – Pretty good / can correct errors (website), or… – Rough (experimental) • Key stakeholders • Key metrics / definition of success 82
  • 83. Managers: When one of your talented people does something dumb, don’t blame them Instead, ask yourself what context you failed to set 83
  • 84. Managers: When you are tempted to “control” your people, ask yourself what context you could set instead Are you articulate and inspiring enough about goals and strategies? 84
  • 85. Why Managing Through Context? High performance people will do better work if they understand the context 85
  • 86. Investing in Context This is why we do new employee college, frequent department meetings, and why we are so open internally about strategies and results 86
  • 87. Exceptions to “Context, not Control” • Control can be important in emergency – No time to take long-term capacity-building view • Control can be important when someone is still learning their area – Takes time to pick up the necessary context • Control can be important when you have the wrong person in a role – Temporarily, no doubt 87
  • 88. Seven Aspects of our Culture • Values are what we Value • High Performance • Freedom & Responsibility • Context, not Control • Highly Aligned, Loosely Coupled • Pay Top of Market • Promotions & Development 88
  • 89. Three Models of Corporate Teamwork 1. Tightly Coupled Monolith 2. Independent Silos 3. Highly Aligned, Loosely Coupled 89
  • 90. Tightly Coupled Monolith • Senior management reviews nearly all tactics – e.g., CEO reviews all job offers or advertising • Lots of x-departmental buy-in meetings • Keeping other internal groups happy has equal precedence with pleasing customers • Mavericks get exhausted trying to innovate • Highly coordinated through centralization, but very slow, and slowness increases with size 90
  • 91. Independent Silos • Each group executes on their objectives with little coordination – Everyone does their own thing • Work that requires coordination suffers • Alienation and suspicion between departments • Only works well when areas are independent – e.g., aircraft engines and blenders for GE 91
  • 92. #3 is the Netflix Choice 1. Tightly Coupled Monolith 2. Independent Silos 3. Highly Aligned, Loosely Coupled 92
  • 93. Highly Aligned, Loosely Coupled • Highly Aligned – Strategy and goals are clear, specific, broadly understood – Team interactions focused on strategy and goals, rather than tactics – Requires large investment in management time to be transparent and articulate and perceptive • Loosely Coupled – Minimal cross-functional meetings except to get aligned on goals and strategy – Trust between groups on tactics without previewing/approving each one – so groups can move fast – Leaders reaching out proactively for ad-hoc coordination and perspective as appropriate – Occasional post-mortems on tactics necessary to increase alignment 93
  • 94. Highly Aligned, Loosely Coupled teamwork effectiveness depends on high performance people and good context Goal is to be Big and Fast and Flexible 94
  • 95. Seven Aspects of our Culture • Values are what we Value • High Performance • Freedom & Responsibility • Context, not Control • Highly Aligned, Loosely Coupled • Pay Top of Market • Promotions & Development 95
  • 96. Pay Top of Market is Core to High Performance Culture One outstanding employee gets more done and costs less than two adequate employees We endeavor to have only outstanding employees 96
  • 97. Three Tests for Top of Market for a Person 1. What could person get elsewhere? 2. What would we pay for replacement? 3. What would we pay to keep that person? – If they had a bigger offer elsewhere 97Confidential
  • 98. Takes Great Judgment • Goal is to keep each employee at top of market for that person – Pay them more than anyone else likely would – Pay them as much as a replacement would cost – Pay them as much as we would pay to keep them if they had higher offer from elsewhere 98
  • 99. Titles Not Very Helpful • Lots of people have the title “Major League Pitcher” but they are not all equally effective • Similarly, all people with the title “Senior Marketing Manager” or “Director of Engineering” are not equally effective • So the art of compensation is answering the Three Tests for each employee 99
  • 100. Annual Comp Review • At many firms, when employees are hired, market compensation applies • But at comp review time, it no longer applies! • At Netflix, market comp always applies: – Essentially, top of market comp is re-established each year for high performing employees – At annual comp review, manager has to answer the Three Tests for the personal market for each of their employees 100Confidential
  • 101. No Fixed Budgets • There are no centrally administered “raise pools” each year • Instead, each manager aligns their people to top of market each year – the market will be different in different areas 101
  • 102. Compensation Over Time • Some people will move up in comp very quickly because their value in the marketplace is moving up quickly, driven by increasing skills and/or great demand for their area • Some people will stay flat because their value in the marketplace has done that – Depends in part on inflation and economy – Always top of market, though, for that person 102
  • 103. Compensation Not Dependent on Netflix Success • Whether Netflix is prospering or floundering, we pay at the top of the market – i.e., sports teams with losing records still pay talent the market rate • Employees can choose how much they want to link their economic destiny to Netflix by deciding how many Netflix stock options they want to hold 103
  • 104. Bad Comp Practices • Manager sets pay at Nth percentile of title- linked compensation data – The “Major League Pitcher” problem • Manager cares about internal parity instead of external market value – Fairness in comp is being true to the market • Manager gives everyone a 4% raise – Very unlikely to reflect the market 104
  • 105. When Top of Market Comp Done Right... • We will rarely counter with higher comp when someone is voluntarily leaving because we have already moved comp to our max for that person • Employees will feel they are getting paid well relative to their other options in the market 105
  • 106. Versus Traditional Model • Traditional model is good prior year earns a raise, independent of market – Problem is employees can get materially under- or over-paid relative to the market, over time – When materially under-paid, employees switch firms to take advantage of market-based pay on hiring – When materially over-paid, employees are trapped in current firm • Consistent market-based pay is better model 106
  • 107. Employee Success • It’s pretty ingrained in our society that the size of one’s raise is the indicator of how well one did the prior year – but for us the other factor is the outside market • Employee success is still a big factor in comp because it influences market value – In particular, how much we would pay to keep the person 107
  • 108. Good For Each Employee to Understand Their Market Value • It’s a healthy idea, not a traitorous one, to understand what other firms would pay you, by interviewing and talking to peers at other companies – Talk with your manager about what you find in terms of comp – Stay mindful of company confidential information 108
  • 109. Efficiency • Big salary is the most efficient form of comp – Most motivating for any given expense level – No bonuses, no free stock options, no philanthropic match – Instead, put all that expense into big salaries, and give people freedom to spend their salaries as they think best 109
  • 110. Optional Options • Employees get top of market salary, and then can request to trade salary for stock options • Some people take all cash, some people request half their comp in options – Both are OK • This is consistent with freedom and responsibility, and lets employees decide how much risk/reward is comfortable for them 110
  • 111. Details on Stock Options • The options are fully vested and are 10-years-to- exercise options, independent of how long one stays at Netflix • These fully vested options are granted monthly at the then current stock price, so employees get price averaging on their exercise price • These options cost employees less than half of what such options would cost in the open market, and are from pre-tax salary, so are a great deal • Employees can change their option request annually • Options become valuable only if Netflix stock climbs 111
  • 112. No Vesting or Deferred Comp • We don’t want managers to “own” their people with vesting – all comp is fully vested • We want managers to be responsible for creating a great place to work, and paying at the top of market • Employees are free to leave us anytime, without penalty, but nearly everyone stays • Employees stay because they are passionate about their work, and well paid, not because of a deferred compensation system 112
  • 113. No Ranking Against Other Employees • We avoid “top 30%” and “bottom 10%” rankings amongst employees • We don’t want employees to feel competitive with each other • We want all of our employees to be “top 10%” relative to the pool of global candidates • We want employees to help each other, and they do 113
  • 114. Seven Aspects of our Culture • High Performance • Values are what we Value • Freedom & Responsibility • Context, not Control • Highly Aligned, Loosely Coupled • Pay Top of Market • Promotions & Development 114
  • 115. In some time periods, in some groups, there will be lots of opportunity and growth at Netflix Some people, through both luck and talent, will have extraordinary career growth 115
  • 116. Baseball Analogy: Minors to Majors • Very talented people usually get to move up, but only true for the very talented • Some luck in terms of what positions open up and what the competition is • Some people move to other teams to get the opportunity they want • Great teams keep their best talent • Some minor league players keep playing even though they don’t move up because they love the game 116
  • 117. Netflix Doesn’t Have to Be for Life • In some times, in some groups, there may not be enough growth opportunity for everyone • In which case we should celebrate someone leaving Netflix for a bigger job that we didn’t have available to offer them – If that is what the person prefers 117
  • 118. Three Necessary Conditions for Promotion 1. Job has to be big enough – We might have an incredible manager of something, but we don’t need a director of it because job isn’t big enough • If the incredible manager left, we would replace with a manager, not with a director 2. Person has to be a superstar in current role – Could get the next level job here if applying from outside and we knew their talents well – Could get the next level job at peer firm that knew their talents well 3. Person is an extraordinary role model of our culture and values 118
  • 119. Timing • If a manager would promote to prevent an employee from leaving, the manager should promote now instead of waiting • Three tests still have to be passed 1. Job big enough 2. Superstar in current role 3. Person is an extraordinary role model of our culture and values 119
  • 120. Development • We develop people by giving them the opportunity to develop themselves, by surrounding them with stunning colleagues and giving them big challenges to work on – Mediocre colleagues or unchallenging work is what kills progress of a person’s skills 120
  • 121. Career “Planning” Not for Us • Formalized development is rarely effective, and we don’t try to do it – e.g., Mentor assignment, rotation around a firm, multi-year career paths, etc. 121
  • 122. We Support Self-Improvement • High performance people are generally self- improving through experience, observation, introspection, reading, and discussion – As long as they have stunning colleagues and big challenges to work on – We all try to help each other grow – We are very honest with each other 122
  • 123. We want people to manage their own career growth, and not rely on a corporation for “planning” their careers 123
  • 124. Your Economic Security is based on your Skills and Reputation We try hard to consistently provide opportunity to grow both by surrounding you with great talent 124
  • 125. Seven Aspects of our Culture • Values are what we Value • High Performance • Freedom & Responsibility • Context, not Control • Highly Aligned, Loosely Coupled • Pay Top of Market • Promotions & Development 125
  • 126. We keep improving our culture as we grow We try to get better at seeking excellence 126