Reference no: EM132890170

CASE: Performance Management at Netflix

Netflix has a unique approach to the performance of its employees. It employs a culture with few rules and no tolerance for average or poor performers. Workers can earn top-of-the-market pay but no bonuses, development, training, or career planning. Vacation is at the discretion of the employee. The focus is on what people get done, not how many hours or days they worked. Netflix officials maintain that when employee discretion rules, employees can be trusted to do the right things. Reed Hastings, the CEO, says "We are more focused on the absence of procedure-managing through talented people rather than a rule book."

There is no policy on vacation time. Workers decide, for example, how much vacation and sick leave to take. The only rules are being out sick for more than five days requires a doctor's excuse, and time-off beyond 30 days per year requires HR approval. The HR Director interviewed an applicant who expressed surprise at the vacation time approach. He said, "I am a workaholic and never take time off. I need someone to make sure I take my time or I won't use it." He was told, "We hire adults and if you do not know how to manage your vacations you won't fit in."

If someone does something wrong, they are told it was wrong. After that they either "get it" or they are gone. The CEO says, "We try to be fair, but the length of an employee's Netflix career is not our primary concern. If someone is not extraordinary we let them go." If a person is rated as average or mediocre during the performance review process, he or she is dismissed. The HR officer notes that really good workers get frustrated at working with average performers. They feel it is important to get rid of those who do not perform even though other companies often do not.

Annual 360-degree reviews provide "direct and honest feedback." Another HR official notes, "In many companies when I want you to leave, my job is to prove you're incompetent. Here I write a check. We exchange severance for a release." The company does not "coddle" employees and does not ask how someone "feels." When they are dismissed people usually find new jobs quickly and to date no one has sued.

The culture is designed to initiate and maintain creativity. If efficiency was the goal, more structure and rules would be needed, the CEO notes. As the company gets bigger, it may be more difficult to allow the same amount of freedom. As one observer noted, 'Good people can do things and can be relied on to police themselves." The lack of rules coupled with a serious performance culture makes Netflix an interesting place to work.51

1. Would you find working at Netflix exciting or frightening? Why?

2. Can everyone in a company be above average? If so, how can you tell if someone is truly above average?