You don’t upend legacy media and become the number 1 streaming service worldwide by beating the same old drum!
In this article you will find:
- How Netflix’ unique high-performance culture works
- Rules for Giving and Receiving Feedback
- What is a keeper test and how does it work
- A breakdown of the 360-degree verification process, including anonymity settings
- Their learnings along the way
“Netflix & chill”, have you used this phrase?
No matter what generation you belong to, either the age who uses the phrase for the simplest meaning of watching Netflix & relaxing or the millennial generation who use it as an invitation to casually hook up.
You will agree Netflix has been one of the most popular OTT platforms that adds the daily dose of entertainment worldwide.
And the iconic ‘Ta dum’ sound of the Netflix logo when the screen lights up is as iconic as the Fox Searchlights drumroll and trumpets.
How did the sound originate?
Well, Former filmmaker and head of product at Netflix, Todd Yellin, wanted to create a unique sound for Netflix Originals. A sound that makes you want to discover something on the screen! This is how the iconic ta dum sound became a ubiquitous part of hundreds and thousands of people.
The uniqueness flows in all departments of Netflix, especially the human resource department. It was the most talked about topic when Netflix executives shared a PowerPoint deck about the company’s talent management strategies.
With nearly 10,000 employees on five continents and multiple Emmy-winning shows, it’s no surprise that Netflix takes talent acquisition and development very seriously.
So what lessons can we learn from Netflix’s successful talent management strategy?
Netflix’s take on reinventing HR
“Netflix is the Chris Hems worth of media companies. It has not only captivated the attention of its customers around the world but also continues to grow its reputation as an attractive, sought-after employer.” – Forbes, Incubating Culture: How Netflix Is Winning The War For Talent.
Key tenets Netflix works on:
- Employ, reward and tolerate only fully trained adults. Rather than playing by the books and overly relying on formal company policies, encourage employees to rely on logic and common sense when dealing with communications, time off, or expenses.
- Be honest about employees’ performance. Forget formal reviews in favor of informal conversations. Keep people whose skill matches with your company’s goals and employees whose skills no longer meet your needs, offer them with generous retirements.
- Managers need to build great teams. The most important job of any manager is to build, foster and retain the best team. Don’t judge them for whether they are a good mentor or completing paperwork on time, these tasks are secondary.
- Creating corporate culture is the job of managers. Talent managers should think business people and innovators first and HR people last. Being said that though informal gatherings and socialization activities are important to improve employees morale & enhance employee experience, if they don’t understand the company’s goals and policies everything else is useless.
So, forget throwing parties and giving away company T-shirts, make sure every employee understands what the business needs most and what exactly “high performance” means.
How did Netflix reinvent HR?
Netflix’s main goal was to hire the right people. The company believed that good employees are more motivated to work with equally talented colleagues. Where they preferred peer reviewing to evaluate the performance of employees.
They replaced the rating system with the 4A principle of 360-degree feedback, and the keeper test. All of this promotes the principles of freedom and responsibility.
Additionally, Netflix’s corporate culture pulse believes in hiring high-quality talent to make life easier for its current workforce.
The intense culture of high performance, with star players joining and growing, and poor players being fired, may sound harsh, but it works for them. They believe in offering the people whose talent they no longer require with generous retirements.
Despite these seemingly stringent people management practices, 71% of Netflix employees would encourage their friends to become co-workers.
The latter can be illustrated by how in 2001, Netflix laid off 1/3rd of the company. After the layoff the remaining employees had to work more than before, they were in no rush to hire.
A few senior leaders in the engineering department had a better time doing the work themselves, but they understood the importance of quality over quantity. How having just enough hardworking manpower eased the financial pressure on the company.
These examples summarize how Netflix has its own HR management process, but how their innovations in HR practices have helped rewrite archaic strategies for performance and HR management. Let’s take a closer look at how it helped.
Netflix performance review process
You might be surprised to know that Patty McCord, the former Chief Talent Officer at Netflix, was inspired by the principles followed by Scotty Bowman- regarded as the greatest hockey coach in history.
So what were these principles of good performance management that Patty MacCords found so valuable?
- The ultimate goal is to improve player (staff member) and team performance. All processes you set up should be aligned toward this goal.
- Don’t measure performance to measure, measure performance to learn and act.
- Objectively measure activity and results to support the performance evaluation process
- We need to measure player performance in the context of overall team performance.
- Collect multiple opinions from other players on how well each player helps the team as a whole.
Based on these principles, Patty MacCords developed a unique performance evaluation process making employees responsible and giving them the freedom to contribute to the company’s growth.
360-degree feedback rather than performance reviews
Netflix established a process of reviewing peers. As such, performance reviews are not conducted in the sense of a formal process by which managers retrospectively evaluate employee performance.
Netflix has retired its annual performance review and replaced it with a 360-degree feedback review. In doing so, we adopted a more holistic performance management approach that took into account input from peers, direct reports and managers. I want people to receive feedback not just from their direct managers but from anyone who has feedback to provide.” Reed Hasting, Netflix’s CEO.
Netflix encourages peer reviews which allows the employees to evaluate the performance of their colleagues.
Another reason for Netflix’s decision to end performance reviews is that they are not used to determine salary increases. Instead, salaries are market-based rather than performance-based. More on that later. This is also one of the reasons Netflix doesn’t use a rating scale.
Another reason is to help everyone get better, not to categorise them into boxes.”
As such, 360-degree reviews are conducted on a regular basis and Netflix employees are able to provide feedback to colleagues, managers, and direct reports as appropriate. Rating is a text field that the employee must fill in.
“Most people at Netflix provide feedback to at least 10 colleagues, but 30 or 40 are common. The 2018 report received comments from 71 people.” Reed Hasting.
How does this help?
- Leaving behind yearly or quarterly reviewing makes employees accountable throughout the year, not just closer to the “time” when performance reviews usually occur, just for appraisals.
- Transparency is maintained as employees know who provided feedback, and managers and supervisors can see it too.
This model makes sense because:
- This keeps employees accountable and conscientious.
- Avoid scenarios where projects are not progressing because certain employees are busy meeting their goals.
- The recommended feedback template is the Stop, Start, or Continue framework. This allows each piece of feedback to have directional value for each employee.
It is worth noting that Reed himself stresses the need to encourage developmental feedback over positive actionable feedback:
“Positive actionable feedback (continue to…) is fine, but keep it in check. A good mix is 23% positive and 75% developmental (start doing…and stop doing…). Any non actionable fluff (‘I think you’re a great colleague’ or ‘I love working with you’) should be discouraged and stamped out.”
Why to try out this template?
This template will encourage your employees to do the following:
- Continue doing anything good that adds value to the company, as they get positive real-time feedback for their efforts.
- Stop doing things that don’t serve your team or your company.
- Start a new initiative that can contribute to company growth.
What role does compensation play in performance reviews?
These reviews do not directly affect your review or your current salary. The annual compensation review will take place in October and November which will determine monetary compensation.
“Talking briefly and honestly about performance on a regular basis yields good results. Probably better than a company where he rates everyone out of 5.”- Patty McCord.
However, 360-degree reviews can help Netflix employees understand if they fit well into the Netflix company culture.
Repeated negative reviews can indicate that employees have not learned from their mistakes.
“Offering anonymity, I felt, would provide a safer format and make people more comfortable leaving comments.” Reed Hasting, Netflix’s CEO.
But to management’s surprise, people preferred to sign feedback.
When it first tested its annual 360-made video, Netflix implemented anonymous feedback. This allowed people to leave honest feedback without fear of retaliation.
The “Keeper Test”
How many employees will you retain in the event of a crisis?
Worse, with drastic budget cuts?
The Keeper Test is a brutally honest measure of that feeling.
This approach encourages managers to ask themselves, “Am I going to fight for this employee?”
“If someone on your team were to quit tomorrow, would you try to change their minds? Or would you accept her resignation and perhaps be a little relieved? If the latter, ask her to settle now.” Give and you should start looking for a star to fight for.” Reed Hastings
The Keeper Test is a true litmus test for distinguishing between employees who add value and those who leave. This also ensures that the cultural DNA of the company is high performance.
In his book No Rules, he states: Netflix and the Culture of Reinvention Reed emphasizes that the team at Netflix doesn’t work like clichés and clichés. “family.”
Instead, they act as jazz bands or professional sports dream teams. Each player or musician must be at their best and come together to play a match-winning game or an award-winning symphony.
If it’s not at its best, it doesn’t deserve the place.
It’s hard, but that’s how winning teams work. Like a professional all-star sports team.
4A Principles of feedback
True to its radical nature, Netflix fosters a culture of radical and transparent feedback. This feedback doesn’t just flow up and down, it flows in circles.
Employees are encouraged to receive and provide feedback to anyone. Feedback should be:
- in good faith.
Till today, Netflix has deployed his 4A principles of feedback. This meant that all employees (including managers) had to consider these when sending and receiving feedback.
Reasons behind Netflix’s current performance review system
In line with their cultural DNA
“A great culture focused on freedom and responsibility, trying to avoid the typical Hollywood pitfalls. You work among the best and brightest people.
Source: Netflix’s Culture Deck
Over a decade ago, Patti McCord and Allison Hopkins presented a series of slides to Netflix founder and CEO Reed Hastings.
The Netflix Culture Deck completely redefines HR culture building. Many experts believe this has created the unique culture we see on Netflix today.
In the words of Sheryl Sandberg former COO of Facebook, Culture Deck was “one of the most important documents ever to come out of Silicon Valley.”
Culture (Original 2009) Reed Hastings, this material laid the foundation for Netflix’s employee performance management system. And in the process, I’ve inspired several others to replace outdated HR practices with ones that actually work.
“Freedom and responsibility” are his two core principles underpinning Netflix’s success.
Patty believed that responsible employees deserved the freedom to grow, grow and innovate.
This material provides a great foundation for growing our staff function as Netflix expands across regions, languages, and more. Ideas such as:
- Increase talent density faster than business complexity.
- Eliminate control and introduce context.
- Promote full transparency and radical openness.
- Adopt a code of conduct for ethical behavior.
- Distinguish between ‘good’ and ‘bad’ processes to avoid the pitfalls of market change and rapid growth.
These behavioral traits decides:
- Who is hired
- Who is nurtured.
- Who is let go.
By doing away with ritualistic and infrequent performance reviews, we removed the bureaucracy typically associated with outdated formal performance appraisal systems.
Businesses and sports teams have a lot in common. If a particular team member drops the baton, sooner or later it will affect the team.
This approach to the team is why Patty insisted that all Netflix executives act like sports coaches instead of human resources managers.
Bold decisions are essential to improving the overall productivity of your business.
We should treat every employee as a player and keep asking ourselves:
Are they in form? Do they deserve a spot here?
The “Keeper test” mentioned earlier helps analyze, evaluate and interview employees to determine if they are worthy of their position within the organization.
“Netflix focuses on what employees get done, not how many days they work, leveraging a deep understanding of how to maximize productivity, creativity and motivation.” – Netflix Share what it teaches you about HR.
This may sound harsh for traditional HR, but it keeps employees motivated and always performing at their best.
More Resources = More Commitment
The top three qualities of a great employee are:
- High and complete possession.
- Accountable and very conscientious.
However, these qualities are often constrained by defining strict KPIs.
It’s like giving them the green light to only think about achieving their goals and ignore their long-term vision for short-term results.
At Netflix, leaders allow employees to shape their careers rather than institutionalize them with a structured career plan.
Hiring and Retaining Only “Star” Artists
One of the hedges against complacency and stagnant growth onset is to hire top talent, pay market-leading wages, and give them room to grow and learn from each other.
All of Netflix’s policies are designed to recruit and retain “best” artists who raise the bar year after year for the entire company.
A 360-degree performance review keeps employees accountable throughout the year. Then, in the “Keeper Test”, outsiders and underperforming individuals are released with generous severance pay.
Also, Netflix does not have a centralized “raise pool” (i.e. 10%, 20% rating bars, etc.) or traditional annual reviews.
Instead, managers align employee compensation to market standards and conduct annual compensation reviews to answer three questions for every high performer.
- Are they getting paid the best for their skills?
- Will they be paid as much as the replacement costs?
- Are they getting paid as much as they would if they had a higher offer elsewhere?
This salary adjustment means that Star cast members will be rehired at higher salaries. On the other hand, below-average companies are likely to decline or plateau. A salary is everyone’s number one motivation, and both Patty and Reid agree. And this unique type of financial reward ensures a transparent wage policy for everyone.
Employees are encouraged to discuss salaries not only with their peers, but also with colleagues from other companies.
In addition, highly paid talented people attract others. “Good employees are often frustrated when they have to work with other employees they deem average or underperforming.” – SHRM, Tough Love at Netflix. 100% Transparency
Netflix encourages all employees to be fully transparent.
If you’re underperforming on Netflix, you’ll get immediate good feedback. Netflix believes transparency helps ease tensions and fight dirty internal politics.
Netflix’s layoff rate in 2018 was 8%, below the 6% average for other US companies.
Meanwhile, as reported by The Wall Street Journal, the voluntary churn rate is only 4%, compared to 14% for the average American company.
What makes Netflix a dream company for the top 1% talent?
Netflix employees aren’t just talented. It also gives you space to grow, experiment, and go your own way. By eliminating mandatory KPIs and formal processes, employees can work on truly important projects and work for the common good of everyone in the company.
Netflix has many techniques built into its culture and practices to improve openness within the organization.
Non-anonymous 360 degree peer review process for performance.
4A principle of feedback
All these measures are aimed at creating a culture of radical openness.
Giving an example, Reed himself said:
“Only tell someone what you would say to their face. I mimicked this behavior as best I could. What did the person say when you spoke to them? Directly about it?”
Top class peer group
A bold decision to let go of an underperforming employee can be controversial. However, it works if you just want to build a team of high performers.
Building a high-performance culture is difficult, and traditional HR practices can do more harm than good.
From the beginning, Netflix has taken a bold and transparent approach, keeping the best people close to the best, sharing ideas and growing together.
Best part? They are all A+ players designed to help Netflix win at all costs.