netflix culture

8/6/2019 Netflix Culture

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Reference Guide on ourFreedom & Responsibility

Culture

These slides are meant for reading,

rather than presenting

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Freedom & Responsibility

Applies to ourSalaried EmployeesOur hourly employees are important,

but have more structured job roles

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Culture: what gives Netflixthe best chance of continuous success

for many generationsof technology and people?

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Seven Aspects of our Culture

Values are what we ValueHigh Performance

Freedom & ResponsibilityContext, not ControlHighly Aligned, Loosely Coupled

Pay Top of MarketPromotions & Development

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Lots of companies havenice sounding

value statements

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Enron Had A Nice- SoundingValue S tatement with 4 Values

Integrity

Communication

Respect

Excellence

Enron headquarters

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Their 4 values were chiseled inmarble in the main lobby, buthad little to do with the realvalues of the organization


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The real company values,as opposed to the

nice-sounding values,are shown by who getsrewarded, promoted, or let go

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Real company values are thebehaviors and skills

that we particularly valuein fellow employees

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W e Particularly Value

in our Colleaguesthese Nine Behaviors and Skills

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You make wise decisions(people, technical, business, andcreative) despite ambiguity

You identify root causes, and getbeyond treating symptoms

You think strategically, and canarticulate what you are, and arenot , trying to do

You smartly separate what mustbe done well now, and what canbe improved later

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Judgment


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Communication

You listen well, instead of reacting fast, so you can betterunderstand

You are concise and articulate inspeech and writing

You treat people with respectindependent of their status ordisagreement with you

You maintain calm poise instressful situations


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Impact

You accomplish amazingamounts of important work

You demonstrate consistentlystrong performance socolleagues can rely upon you

You focus on great results ratherthan on process

You exhibit bias-to-action, andavoid analysis-paralysis


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Curiosity

You learn rapidly and eagerly

You seek to understand ourstrategy, market, subscribers,and suppliers

You are broadly knowledgeableabout business, technology and

entertainment

You contribute effectivelyoutside of your specialty


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Innovation

You re-conceptualize issues todiscover practical solutions tohard problems

You challenge prevailingassumptions when warranted,

and suggest better approachesYou create new ideas that proveuseful

You keep us nimble byminimizing complexity andfinding time to simplify


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Courage

You say what you think even if itis controversial

You make tough decisionswithout excessive agonizing

You take smart risks

You question actionsinconsistent with our values


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Passion

You inspire others with yourthirst for excellence

You care intensely about Netflix'success

You celebrate wins

You are tenacious


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Honesty

You are known for candor anddirectness

You are non-political when youdisagree with others

You only say things about fellowemployees you will say to their

face

You are quick to admit mistakes


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Selflessness

You seek what is best for Netflix,rather than best for yourself oryour group

You are ego-less when searchingfor the best ideas

You make time to helpcolleagues

You share information openlyand proactively


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JudgmentYou make wise decisions (people, technical,business, and creative) despite ambiguity

You identify root causes, and get beyond treatingsymptoms

You think strategically, and can articulate whatyou are, and are not , trying to do

You smartly separate what must be done wellnow, and what can be improved later

InnovationYou re-conceptualize issues to discover practicalsolutions 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 complexityand finding time to simplify

ImpactYou accomplish amazing amounts of importantwork

You demonstrate consistently strongperformance so colleagues can rely upon you

You focus on great results rather than on process

You exhibit bias-to-action, and avoid analysis-paralysis

CuriosityYou learn rapidly and eagerly

You seek to understand our strategy,market, subscribers, and suppliers

You are broadly knowledgeable about business,technology and entertainment

You contribute effectively outside of yourspecialty

CommunicationYou listen well, instead of reacting fast, so youcan better understand

You are concise and articulate in speech andwriting

You treat people with respect independent of their status or disagreement with you

You maintain calm poise in stressful situations

CourageYou say what you think even if it is controversial

You make tough decisions without excessiveagonizing

You take smart risks

You question actions inconsistent with our values

HonestyYou are known for candor and directness

You are non-political when you disagree withothers

You only say things about fellow employees youwill say to their face

You are quick to admit mistakes

SelflessnessYou seek what is best for Netflix, rather than bestfor yourself or your group

You are ego-less when searching for the bestideas

You make time to help colleagues

You share information openly and proactively

PassionYou inspire others with your thirst for excellence

You care intensely about Netflix' success

You celebrate wins

You are tenacious

We Want to Work with People Who Embody These Nine Values 19


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You question actionsinconsistent with our values

Part of the Courage value

Akin to the honor code pledge:I will not lie, nor cheat, nor steal, nor tolerate those who do

All of us are responsible for value consistency

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Values reinforced in hiring,in 360 reviews, at comp review, in

exits, and in promotions

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Imagine if every person at Netflixis someone you

respect and learn from

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Great W orkplace isStunning Colleagues

Great workplace is not day-care, espresso, health

benefits, sushi lunches, nice offices,or big compensation,and we only do those that are efficient at

attracting stunning colleagues

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Like every company,

we try to hire well

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But, unlike many companies,we practice adequate performancegets a generous severance package.

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W e re a team , not a family

W e re like a pro sports team ,not a kid s recreational team

Coaches job at every level of Netflixto hire, develop and cut smartly ,so we have stars in every position

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The Keeper Test Managers Use:W hich of my people,

if they told methey were leaving in two months

for a similar job at a peer company,would I fight hard to keep at Netflix?

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The Keeper Test Managers Use:W hich of my people,

if they told methey were leaving in two months

for a similar job at a peer company,would I fight hard to keep at Netflix?

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The other people should get a generous severance now,so we can open a slot to try to find a star for that role


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Honesty AlwaysTo avoid surprises, you should periodically

ask your manager: If I told you I wereleaving, how hard would you work to change

my mind to stay at Netflix?

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Isn t Loyalty Good?W hat About Hard W orkers?W hat about Brilliant Jerks?

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Loyalty is Good

Loyalty is good as a stabilizerPeople who have been stars for us, and hit a badpatch, get a near term pass because we thinkthey are likely to become stars for us againW e 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 anineffective employee, is not what we are about

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Hard W ork Not Directly Relevant

It s about effectiveness not effort eventhough effectiveness is harder to assess thaneffortW e don t measure people by how manyevenings or weekends they are in their cubeW e do try to measure people by how much,how quickly and how well they get work done especially under deadline

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Brilliant Jerks

Some companies tolerate themFor us, the cost to teamwork is too high

Diverse styles are fine as long as personembodies the 9 values

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W hy are we so manic on

high performance?In procedural work, the best are 2x

better than the average.

In creative work, the best are 10xbetter than the average, so huge premium on

creating effective teams of the best

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W hy are we so manic on

high performance?Great W orkplace is

Stunning Colleagues

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The Rare Responsible Person

Self motivatingSelf awareSelf disciplinedSelf improvingActs like a leaderDoesn t wait to be told what to doNever feels that s not my jobPicks up the trash lying on the floorBehaves like an owner

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Responsible PeopleThrive on Freedom,

and are Worthy of Freedom

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Our model is to increaseemployee freedom as we grow,

rather than limit it, to continue toattract and nourishinnovative people,

so we have better chance of

long-term continued success

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Most CompaniesCurtail Freedom as they get Bigger

Bigger

Employee Freedom

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Most Companies Curtail FreedomAs They Grow to Avoid Errors

(sounds pretty good to avoid errors)

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Desire for Bigger Positive ImpactCreates Growth

Growth

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Growth Increases Complexity

Complexity

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Growth Shrinks Talent Densityin Most Firms

% High Performance Employees

Complexity

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Chaos Emerges


Chaos and errors spikes here businesshas become too complex to runinformally with this talent level Complexity

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Process Emerges to Stop the Chaos

ProceduresNo one loves process, butfeels good compared to thepain of chaos

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Process-focus Drives More Talent Out


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Strong Near-Term Outcome

A highly-successful process-driven company W ith 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

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Then the Market Shifts

Market shifts due to new technology or newcompetitors or new business modelsCompany is unable to adapt quickly, becausethe employees are extremely good atfollowing the existing processes, and processadherence is the value system

Company generally grinds painfully intoirrelevance, due to inability to respond to themarket shift

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Seems Like Three Bad Options

1. Stay creative by staying small2. Try to avoid rules as you grow, suffer chaos

3. Use process as you grow to drive efficientexecution of current model, but cripplecreativity, innovation, flexibility, and ability tothrive when market inevitably shifts

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A Fourth Option

Avoid Chaos as you grow with Ever More HighPerformance People not with RulesThen you can continue to run informally withself-discipline and avoid chaosThe run informally part is what enables andattracts creativity

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The Key: Increase Talent Density fasterthan Complexity Grows

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Increase Talent Density

Top of market compensationAttract hi-value people throughfreedom to make impact

Be demanding about highperformance culture

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Minimize Complexity Growth

Few big products vs many small onesEliminate distracting complexity (barnacles)

Value simplicity

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W ith the Right People,

Instead of aCulture of Process Adherence,

Culture of Freedom and Responsibility,

Innovation and Self-Discipline

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Is Freedom Absolute?

Are all rules & processes bad?

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Freedom is not absolute.

Like free speech

there are somelimited exceptions to

freedom at work

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Two Types of Necessary Rules

1. Prevent irrevocable disaster E.g. Financials produced are wrong E.g. Hackers steal our customers credit card info

2. Moral, ethical, legal issues E.g. Dishonesty, harassment are intolerable

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Mostly, Though, Rapid Recovery isthe Right Model

Just fix problems quickly High performers make very few errors

W e re in a creative-inventive market, not asafety-critical market like medicine or nuclearpowerYou may have heard preventing error is

cheaper than fixing it Yes, in manufacturing or medicine, but Not so in creative environments

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Good vs Bad Processes

Good processes help talented people get more done W eb site push every two weeks rather than random Spend within budget each quarter so don t have to

coordinate every spending decision across departments Regularly scheduled strategy and context meetingsBad processes try 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

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Rule Creep

Bad processes tend to creep in Preventing errors just sounds so good

W e try to get rid of rules when we can, toreinforce the point

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Example: Netflix Vacation Policy

and TrackingUntil 2004 we had the standard

model of N days per year

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Meanwhile

W e re all working online some nightsand weekends, responding to emails at

odd hours, and taking an afternoon nowand then for personal time.

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An employee pointed out

W e don t track hours worked per dayor per week, so why are we tracking

days of vacation per year?

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W e realized

W e should focus on what people get done,not how many hours or days worked. Just

as we don t have an 9-5 day policy, we don tneed a vacation policy.

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Netflix Vacation Policy

and Trackingthere is no policy or tracking

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Netflix Vacation Policy

and Trackingthere is no policy or tracking

There is also no clothing policy at Netflix, but no one hascome to work naked lately. Patty McCord, 2004

Lesson: you don t need detailed policies for everything.

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Another Example of Freedom

and Responsibility

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Most companies have complex

policies around what you canexpense, how you travel, what giftsyou can accept, etc.

Plus they have whole departmentsto verify compliancewith these policies.

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Netflix Policiesfor Expensing, Entertainment,

Gifts & Travel:

A ct in Netflix s Best Interests

(5 words long)

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Act in Netflix s Best InterestsGenerally Means

1. Expense only what you would otherwise notspend, 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 workphone: inconsequential and inefficient to avoid

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Freedom and Responsibility

Many people say one can t do it at scaleBut since going public in 2002, which istraditionally the beginning of the end forfreedom, we ve increased talent density andemployee freedom substantially.

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Summary of


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Summary of Freedom & Responsibility:

As W e Grow, Minimize Rules.

Inhibit Chaos with Ever MoreHigh Performance People.

Flexibility is More Importantthan Efficiency in the Long Term

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"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 f or the vast and endless sea. "

-Antoine DeSaint-Exupery,Author of The Little Prince

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The best managers figure out how toget great outcomes by setting the

appropriate context, rather than bytrying to control their people

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Context, not Control

ContextStrategy

MetricsAssumptionsObjectivesClearly-defined roles

Knowledge of the stakesTransparency arounddecision-making

ControlTop-down decision-making

Management approvalCommitteesPlanning and process valuedmore than results

Provide the insight and understanding to enable sound decisions

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Exceptions

Control can be important in emergency No time to take long-term capacity-building view

Control can be important when someone isstill learning their area

Takes time to pick up the necessary context

Control can be important when you have thewrong person in a role

Temporarily, no doubt

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Managers: W hen one of your

talented peopledoes something dumb,don t blame them.

Instead,ask yourself what context

you failed to set.

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Managers: W hen you are temptedto control your people, ask

yourself what context you could setinstead

Are you articulate and inspiringenough about goals and strategies?

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Good Context

Link to company/functional goalsRelative 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 stakeholdersKey metrics / definition of success

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W hy Managing Through

Context?High performance people will do

better work if they understand thecontext

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Investing in Context

This is why we do new employeecollege, and why we are so open

internally about strategies and results

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Three Models of Corporate Teamwork

1. Tightly-Coupled Monolith2. Independent Silos3. Highly Aligned, Loosely Coupled

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Tightly-Coupled Monolith

Senior management reviews and approvesnearly all tacticsLots of x-departmental buy-in meetingsKeeping other groups in agreement has equalprecedence with pleasing customersMavericks get exhausted trying to innovateHighly coordinated through centralization, butvery slow, and slowness increases with size

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Independent Silos

Each group executes on their objectives withlittle coordinationW ork that requires coordination suffersAlienation and suspicion betweendepartmentsOnly works well when areas are independent

e.g. GE: aircraft engines and Universal Studios

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The Netflix Choice

1. Tightly-Coupled Monolith2. Independent Silos3. Highly A ligned, Loosely Coupled

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Highly Aligned, Loosely CoupledHighly Aligned

Strategy and goals are clear, specific, broadly understood Team interactions are on strategy and goals rather than tactics Requires large investment in management time to be

transparent and articulate and perceptive and openLoosely Coupled

Minimal cross-functional meetings except to get aligned ongoals and strategy

Trust between groups on tactics without previewing/approvingeach one groups can move fast

Leaders reaching out proactively for ad-hoc coordination andperspective as appropriate Occasional post-mortems on tactics necessary to increase

alignment

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Highly-Aligned Loosely-Coupled

teamwork effectivenessis dependent onhigh performance people

and good context

Goal is to be

Big and Fast and Flexible

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Values are what we ValueHigh PerformanceFreedom & ResponsibilityContext, not ControlHighly Aligned, Loosely Coupled


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Pay Top of Market is Core to

High Performance CultureOne outstanding employee gets more done

and costs less than two adequate employees

W e endeavor to have onlyoutstanding employees

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Three Tests for Top of Market


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Three Tests for Top of Marketfor a Person

1. W hat could person get elsewhere?2. W hat would we pay for replacement?3. W hat would we pay to keep person?

If they had a bigger offer elsewhere

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Takes Great Judgment

Goal is to keep each employee at top of market f or 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

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Titles Not Very Helpful

Lots of people have the title Major LeaguePitcher but they are not all equally effectiveSimilarly, all people with the title SeniorMarketing Manager or Director of Engineering are not equally effectiveSo the art of compensation is answering the

Three Tests for each employee

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Annual Comp Review

Hiring is market-based at many firms, but atNetflix we also make the annual comp reviewmarket-based

Applies same lens as hiring

Essentially, rehiring each employee each year,for purposes of comp

At annual comp review, manager has to answerthe Three Tests for the personal market for eachof their employees

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No Fixed Budgets

There are no centrally administered raisepools each yearInstead, each manager aligns their people tomarket each year the market will bedifferent in different areas

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Annual Comp Review

Some people will move up in comp veryquickly because their value in the marketplaceis moving up quickly, driven by increasing skills

and/or great demand for their areaSome people will move down or stay flatbecause their value in the marketplace hasmoved down or stayed flat

Depends in part on inflation and economy Still top of market, though, for that person

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Compensation Not Dependenton Netflix Success

W hether 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 rateEmployees can choose how much they wantto link their economic destiny to Netflixsuccess or failure by deciding how muchNetflix stock or stock options they want toown

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Bad Ideas

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

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W hen Top of Market Comp


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W hen Top of Market CompDone Right...

Nearly all ex-employees will take a step downin comp for their next jobW e will rarely counter with higher comp whensomeone is voluntarily leaving because wehave already moved comp to our max for thatperson

Employees will feel they are getting paid wellrelative to their other options in the market

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Versus Traditional Model

Traditional model is good prior year earns araise, independent of market

Problem is employees can get materially under- or

over-paid relative to the market, over time W hen materially under-paid, employees switch

firms to take advantage of market-based pay onhiring

W hen materially over-paid, employees aretrapped in current firmConsistent market-based pay is better model

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Employee Success

It s pretty ingrained in our society that the size of one s raise is the indicator of how well one didthe prior year but at Netflix there are otherfactors too namely, the outside market

In our model, employee success is big factor incomp because it influences market value

In particular, how much we would pay to keep theperson

But employee success is not the only factor in comp,so the linkage of prior year performance to raise sizeis weak

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Good For Each Employee to


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Good For Each Employee toUnderstand Their Market Value

It a healthy idea, not a traitorous idea, tounderstand what other firms would pay you,by interviewing and talking to peers at other

companies Talk with your manager about what you find Minor exception: interviewing with groups that

directly compete with Netflix, because theirmotive is in part confidential information

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Efficiency

Big salary is the most efficient form of comp Most motivating for any given expense level No bonuses just include in salary so much simpler No free stock options just big salary Great health plan options, but high employee co-pay No philanthropic match Instead, put all that expense into big salaries Give people big salaries, and the freedom to spend as

they think best

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Optional Options

Employees can request to trade salary for stockoptions, if they wishThe options are fully vested, granted monthly,and cost employees in pre-tax salaryapproximately half of what such an option wouldcost in the open marketOptions ultimately valuable only if Netflix stockclimbs over the next 10 years

Investing in Netflix stock or stock options lets oneparticipate in Netflix success or failure atwhatever level is comfortable for employee

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High PerformanceValues are what we ValueFreedom & ResponsibilityContext, not ControlHighly Aligned, Loosely Coupled


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In some time periods, in somegroups, there will be lots of

opportunity and growth at NetflixSome people, through both luck andtalent, will have extraordinary career

growth

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B b ll A l Mi M j


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Baseball Analogy: Minors to Majors

Very talented people usually get to move up, butonly true for the very talentedSome luck in terms of what positions open upand what the competition isSome people move to other teams to get theopportunity they wantGreat teams keep their best talentSome minor league players keep playing eventhough they don t move up because they love thegame

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N fli D H b f Lif


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Netflix Doesn t Have to be for Life

In some times, in some groups, there may notbe enough growth opportunity for everyoneIn which case we should celebrate someoneleaving for a bigger job that we didn t haveavailable to offer themIf that is what the person prefers

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Timing

If manager would promote employee to keepthem if employee were thinking of leaving,manager should promote now, and not wait

Both tests still have to be passed Job big enough Superstar in current role

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D l t


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Development

W e develop people by giving them theopportunity to develop themselves, bysurrounding 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

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D l t


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Development

Formalized development is rarely effective,and we don t try to do it

E.g. Courses, mentor assignment, rotation around

a firm, multi-year career paths, etc.High performance people are generally self-improving through experience, observation,

introspection, reading and discussion As long as they have stunning colleagues and big

challenges

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Individuals should manage their owncareer paths, and not rely on a

corporation for planning their careersLike retirement planning safer as

individual responsibility

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Individual s economic security isbased upon their

skills and reputationW e try hard to consistently provide

opportunity to grow both

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W hy is culture important?W hat is our culture trying to

support?

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Culture is How a Firm Operates

W hat practices give Netflix the bestchance of continuous success for manygenerations of technology and people?

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Need a culture that supportsrapid innovation and excellent execution

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Need a culture that supportsrapid innovation and excellent execution

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Both are required forcontinuous growth

There is tension between these twogoals; between creativity and discipline


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Need a culture that supportseffective teamwork of

high-performancepeople

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Need a culture that supportseffective teamwork of

high-performancepeople

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High performance people and effective teamworkcan be in tension also stars have strong opinions


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Need a culture that avoids therigidity, politics, mediocrity, andcomplacency that infects most

organizations as they grow

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This slide deck is our current bestthinking about maximizing our

likelihood of continuous success

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Our culture is a work in progress

Every year we try to refine ourculture further as we learn more

netflix culture

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