The Reinvention of HR: The Netflix Case

January 25, 2021

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 3: A discussion with Klaus-Peter Bastgen – former CHRO of Ströer who recently joined Deutsche Giganetz GmbH as Senior. Vice President Human Resources – about some of Netflix´s best practices:

Netflix prides themselves on hiring the best talent available in the market, offering top dollar payment.

Hire the best, absolutely. I have worked in many companies with different approaches on hiring and I can confirm attracting the best will save costs in the long term, aside from the obvious benefits of having a talented, high-performing workforce that will boost the performance of the firm.

Netflix has something called the “keeper test,” which is a measure for management to fire or retain staff. It’s very simple; a manager is supposed to ask: “If one of the members of the team was thinking of leaving for another firm, would I try hard to keep them from leaving?” If the answer is “no”, that team member is out.

I am definitely against this test. In my view, this creates a “fear culture” in the firm which might turn out to be counterproductive.

Netflix decided not to pay performance bonuses and put that money in their base salary to retain talent.

I really like that. I believe people perform best when they are engaged, motivated and feel fairly compensated. A donkey will not run faster if you put 3 carrots on the stick instead of one. Especially in a company where you have such high performing employees, you expect them to try their best without additional incentives. I do like company shares/stock options as part of the compensation package though.

What do you think about the unlimited vacation policy?

Dangerous. Unlimited vacation in a competitive environment like that will inevitably turn into employees taking less holiday than they would if there was an official, fixed policy. You risk employees potentially having burn-outs. Those high performing cultures and employees have to be taken care of to be able to keep this momentum in the long run. I have unfortunately been a witness of this in the past; it leads to exploitation while it needs to be long term farming. It must be ok in a company to take time off.

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 think there needs to be a budget control. I am sure this might work for specific projects, however it is too risky to implement company-wide. I do not see this policy working out in many scenarios.

What is your take on Netflix’ approach on transparency and the “open the books” policy for the employees?

I like this a lot. Sharing financial and strategic information with everyone in the firm will contribute to creating an atmosphere of trust and engagement. Not only that, but it will also help the workforce to understand negative decisions such as budget cuts or lay-offs.

One of Netflix’ takes is to get rid of Performance Improvement Plans (PIPs). Take that money you were going to invest on the PIP and instead give it to the employee in the form of a generous severance package. What do you think about this approach?

I think this is not always the best way. Are you sure that employee which is having performance problems is a lost case? Will be less costly for the company to hire another one which might face similar or different challenges? This also contributes to the previously mentioned “Fear-culture” and thinking that you can get fired so easily.  Often an underperforming employee is a manager´s fault for not having been able to develop them correctly.

If you enjoyed reading this interview, please also have a look into Episode 1 & Episode 2