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Netflix Employee Motivation
–A Different Take on Engaging Employees: The Case of Netflix
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When the local video rental store fined Reed Hastings $40 for the late return of the movie Apollo 13, they probably could not have guessed that this would initiate the chain reaction resulting in the demise of video rentals as we knew it. Netflix began its life as a mail-based subscription video rental company in 1997, which later added the streaming of movies to its offerings. As of 2014, the company has over 2,000 employees.
Many entrepreneurial companies start out as exciting, challenging, and engaging organizations, and then, as they grow, they become bureaucratic. This could have happened at Netflix, except it already happened to Mr. Hastings at his first company Pure Software. His past experiences and reflections about what went wrong put Netflix on a unique path, as he was determined not to repeat his mistakes at Netflix. Starting from its early days, Netflix had a different take on how to attract and retain top talent. As a case in point, consistent with motivation principles, Netflix believes in vacations. Yet, the company does not have a formal vacation policy. Instead, salaried employees can take as many days of vacation as they like (if employees want to take more than 30 days in a row, it requires a prior conversation with HR). Instead of tracking the number of hours or days employees are working, the company focuses on what matters, which is whether the job gets done. Employees have the power to make choices in areas where choice would be unthinkable in many other companies. For example, employees get to decide how much of their pay will be cash versus stock. Travel and entertainment expenses are left to the employee’s discretion. Instead of creating detailed procedures, their policy consists of telling employees to act in the company’s best interests.
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Netflix Employee Motivation
Netflix aims to treat its employees like adults. To make such a system work, a company needs employees with a very strong work ethic who can self-manage. As a result, Netflix puts a lot of emphasis on how they recruit and select their employees. The company is proud to pay top-of-the-market salaries to top-notch talent. They offer stock with no vesting period so that employees do not have to work a certain period of time to fully own their stocks, which allows them to leave at any time without suffering a financial penalty. The idea is that employees should be able to leave if they want to. If they choose to stay, this should be because they are challenged and engaged, and not because they feel like they have to. The company is incredibly selective in who is hired, and people who are not drawn to the entertainment industry are not a great fit.
After they are hired, Netflix expects consistently very high performance from its employees. This is not a culture for slackers, and it is not a culture for those who expect external incentives for specific actions. While the company pays high salaries, there are no bonuses or other incentives. Many of the perks that are the default in Silicon Valley companies, such as free food or computer games, are missing at Netflix offices. In fact, former chief talent officer of Netflix, Patty McCord noted that “satisfaction comes from work, not from the cookies.” While high performance is expected and employees are held accountable for their performance, the company eliminated performance appraisal systems, feeling that they were too infrequent to be useful. Instead, managers are expected to have informal conversations about performance as part of their regular workflow. They also have an informal 360 system in which colleagues identify and communicate things their coworkers should stop, start, and continue to do.
Netflix Employee Motivation
Case Discussion Questions
- How does Netflix motivate employees? Which approaches discussed in this chapter (job design, incentives, and performance appraisals) are being utilized to motivate Netflix employees?
- What do you think about the absence of policies such as vacations, travel, or expense reimbursement? What are the downsides of not having such policies? What is Netflix gaining as a result of not having them?
- Why does Netflix avoid using financial incentives other than stocks? Would instituting bonuses and other incentives increase motivation? Why or why not?
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