Lorelei is Zavvy's Content Marketing Manager. She is always on the hunt for the latest HR trends, fresh statistics, and academic and real-life best practices to spread the word about creating better employee experiences.
You don't upend legacy media and become the number 1 streaming service worldwide by beating the same old drum!
"Ta dum"…Does this sound ring a bell?
If you love to consume video content, you've probably heard this sound many times.
Yes, it is the reverberating sound of the Netflix logo lighting up your screen.
'Ta dum' today is as iconic as the Fox Searchlights drumroll and trumpets, and the Metro Goldwyn Mayer lion's roar.
Todd Yellin, the Head of Product at Netflix, wanted to create a unique sound for Netflix originals. A sound that would ignite the desire to discover something out of the box on screen!
This corporate culture of standing out and doing something unique is not limited to the product. It's prevalent across all departments at Netflix.
Especially in Human Resources.
With around 10,000 employees across five continents and multiple Emmy award-winning shows, it is no surprise that Netflix takes attracting and nurturing talent very seriously.
So, what lessons can we learn from Netflix's stellar people management strategies?
"Netflix 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.
Netflix completely bid adieu to the old-school yearly performance review, which caused lots of consternation and awkwardness.
They've instead replaced the rating system with 360-degree feedback, The Keeper Test, and the 4A Principles of feedback. All of these foster the tenets of freedom and responsibility.
Additionally, the pulse of Netflix's company culture believes in recruiting quality talents to make the lives of the current employees easier.
An intense culture of high performance, where star players join and grow within the company, and the poor players are let go of, may sound harsh, but, for them, it works.
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 after the 9/11 attacks (back when Netflix was only a DVD-by-mail subscription business), they laid off 1/3rd of the employees.
At that time, they were a team of only 120 employees. After the layoff, they were in no rush to hire. A few senior leaders in the engineering department had a better time doing the work themselves instead of delegating to incompetent resources!
While these examples summarize how Netflix has a unique people management process, let's explore in detail how their innovation in HR practices has helped rewrite the archaic performance and people management playbook.
A playbook that legacy corporate giants like Accenture & General Electric are also adopting.
You may find the link between sports and corporate leadership quite banal.
However, this correlation hits the bull's eye with respect to Netflix's performance management style.
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 McCord found so valuable?
Implementing these principles, Patty McCord developed a unique performance management process that will make employees responsible and give them the freedom to contribute to the company's growth.
All of these without being restricted by the short-sightedness of individual KPIs and targets.
Patty personally met Bowman, and a lot of the latter's philosophy of coaching a series-winning hockey team has been brought to Netflix.
By adopting this approach, Netflix can ax a system that promotes self-interest over collective interest and ensures that each employee is truly "taking one for the team."
Netflix does not do performance reviews per se in the sense of a formal process where a manager retrospectively evaluates an employee's work performance.
Netflix ditched the annual performance reviews and replaced them with 360 feedback reviews. In doing so, they adopted a more holistic approach to performance management that considers input from an employee's peers, direct reports, and managers.
"We've been against performance reviews from the beginning. The first problem is that the feedback goes only one way-downward. The second difficulty is that with a performance review you get feedback from only one person-your boss. This is in direct opposition to our 'don't seek to please your boss' vibe.
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.
Another reason behind Netflix's choice to drop performance reviews is that they don't use performance reviews to determine pay raises. Instead, salaries are based on the market, not performance. More on this later. This is also one of the reasons why Netflix does not use rating scales.
Another reason is that "The goal [of 360 written feedback] is to help everyone get better, not to categorize them into boxes."
So, written 360-reviews are administered regularly, enabling Netflix employees to give feedback to colleagues, managers, and, if applicable, direct reports. Reviews are one text box that employees have to fill.
"[...] each person can now give feedback to as many colleagues as they choose at any level in the organization - not just direct reports, line managers, or a few teammates who have invited input.
Most people at Netflix provide feedback for at least ten colleagues, but thirty or forty is common. I received comments from seventy-one people on my 2018 report." Reed Hasting.
Employees are held accountable all year round, not just closer to "that time of the year" when performance reviews usually occur.
Employees know who gave them the feedback, and their managers and people higher up will also be able to see it.
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."
This template will encourage your employees to:
These reviews don't directly impact appraisals and current pay. The annual compensation review takes place in October and November and is the main determining factor for monetary compensation.
However, the 360 reviews help Netflix's employees understand if they are a good fit or not in Netflix's corporate culture.
A recurring negative review may indicate that employees aren't learning from their mistakes.
"If you talk simply and honestly about performance regularly, you can get good results—probably better ones than a company that grades everyone on a five-point scale." Patty McCord.
When they first tested annual written 360s, Netflix implemented anonymous feedback. It was a way to ensure that people could leave honest feedback without fearing retribution.
"Offering anonymity, I felt, would provide a safer format and make people more comfortable leaving comments." Reed Hasting, Netflix's CEO.
Yet, to management's surprise, people preferred signing their feedback.
"It just seemed backward to tell our employees all year long to give feedback directly to one another and then at 360 time to pretend that comments were coming from a secret source. Everything I was writing I had told them anyhow.
I just did what felt natural given our climate. I put the feedback in writing and signed my name." Leslie Kilgore, Board Member and former Chief Marketing Officer of Netflix.
How many of your employees would you retain during a crisis?
Or worse, in massive budget-cut layoffs?
The "Keeper Test" is a brutally honest measure of this sentiment.
The approach encourages managers to ask, 'Will I fight for this employee?' Depending on the answer of managers, it's decided whether to keep or let go of an employee.
Well, not if you are trying to build a high-performance management process like the one at Netflix.
The philosophy is both radical and simple at the same time.
In Reed Hasting's own words:
"If a person on your team were to quit tomorrow, would you try to change their mind? Or would you accept their resignation, perhaps with a little relief? If the latter, you should give them a severance package now, and look for a star, someone you would fight to keep."
The Keeper Test is a true litmus test to differentiate the high-value contributing employees from those that drain. This also ensures that your company's cultural DNA is that of High-Performance.
In his book, No Rules: Netflix and the Culture of Reinvention, Reed emphasizes that teams at Netflix do not function as the clichéd and over-used term: "family."
Instead, they operate as a jazz band or a professional sports dream team. Each player or musician needs to be in top form and then come together to play a match-winning game or an award-winning symphony.
Anyone not in their top form doesn't deserve a spot.
Harsh, but that's how winning teams operate. Like an all-star professional sports team. 💪
True to its radical nature, Netflix encourages a culture of radical, transparent feedback that doesn't just flow downward or upwards but also in a circle.
Employees are encouraged to receive and give feedback to anyone and everyone.
While the open, non-anonymous 360-degree blunt feedback instigates valuable discussion, it was clear to Reed and co. that the feedback had to be:
To this end, Netflix came out with the 4A Principles of Feedback, which meant all employees' (managers included) had to keep these in mind while giving and receiving feedback.
When giving feedback
When receiving feedback
"A great culture that focuses on freedom & responsibility and tries to avoid the pitfalls of typical Hollywood. You work among the best and brightest.
You're treated like an adult in terms of how & when to do your work– as long as it gets done and is done well." – Current Netflix employee, on What It's Really Like to Work at Netflix (Glassdoor review)
Over a decade ago, Patty McCord and Allison Hopkins presented a deck of slides to Reed Hastings, Netflix Founder and CEO.
The "Netflix Culture Deck" completely redefined Culture Building among Human Resource professionals. Many experts see it as the genesis of the unique culture we see at Netflix today.
In the words of Sheryl Sandberg, ex-COO at Facebook, the Culture Deck was "one of the most important documents ever to come out of Silicon Valley."
The deck laid the foundation of Netflix's employee performance management system. And in doing so, it inspired several others to ditch archaic HR practices for ones that actually work.
"Freedom and Responsibility" are the two broad tenets upon which Netflix's laurels are built.
Patty McCord believed responsible employees thrive and deserve the freedom to grow and innovate.
The deck is a great primer for Netflix to grow its people function as it scales across geographies, languages, and more.
Ideas such as:
All are visible in Netflix's 130-slide deck.
Unlike generic values listed by most companies' "culture" doc, the core values upheld at Netflix are as clear as crystal.
These are the behavioral traits that decide:
Performance management processes at Netflix stem from this deeply entrenched, thoughtfully articulated culture code.
By doing away with ritualistic and irregular performance reviews, they eliminated the bureaucracy usually associated with obsolete formal performance review systems.
Instead, 360-degree feedback allows employees to identify which projects and behaviors they are to "Stop, Continue and Start."
Thus, ensuring that each one aligns with the best of Netflix's interests.
Businesses and sports teams have a lot in common. If a specific team member drops the baton, it affects the larger team sooner or later.
This approach to teams is why Patty McCord insisted that each leader at Netflix act like a sports coach, not an HR manager.
Bold decisions are essential to improve your company's overall productivity: all year round.
You need to look at every employee as a player and ask yourself repeatedly: Are they in form? Do they deserve a spot here?
The "Keeper Test" discussed earlier helps you analyze, assess, and question your staff to determine if they still deserve a place in your company.
"Netflix focuses on what people get done, not how many days they have worked, tapping into a deep understanding of how to maximize productivity, creativity, and motivation." Involve, What Netflix Can Teach Us About HR.
While this may sound harsh to traditional HR, it keeps employees motivated and manic about high performance at all times.
The top 3 qualities of a great employee are:
However, these qualities are often suppressed by defining strict KPIs.
When strict performance indicators bind an employee, they become a frog in a well.
It's almost like giving them a green signal to only think about meeting their targets, ignoring long-term vision for short-term outcomes.
At Netflix, leaders allow their people to shape their careers instead of institutionalizing them with structured career plans.
"The way you develop yourself is to be surrounded by stunning colleagues. We surround people and let them develop themselves." Reed Hastings, SHRM, Tough Love at Netflix.
A hedge against a scenario where complacency kicks in and growth stagnates is to hire great people, pay them top-of-market, and give them the room to grow and learn from each other.
All of Netflix's policies are aligned to hire and retain "Star" performers, which raise the bar for the entire company, year after year.
With 360-degree performance reviews, people are kept accountable throughout the year. Then, with The "Keeper Test," the misfits and poor performers are let go with a generous severance package.
Moreover, Netflix has no centrally administered "raise pools" (i.e., bars of 10%, 20% appraisals, etc.) or traditional annual reviews.
Instead, they follow an Annual Comp Review, where managers align their employees' compensation based on market standards, answering three questions for all the star performers:
This yearly realignment in salaries means star performers get rehired at a higher salary, much more than a typical raise pool would warrant. Meanwhile, median and poor performers may move down or stay flat.
Salary is the #1 motivator for all, Patty and Reed agreed. And this unique way of rewarding monetarily ensures a transparent pay policy for all.
Employees are encouraged to speak openly about their pay, not just with colleagues but also by talking to peers at other companies.
Moreover, talented people, who are handsomely rewarded, attract others.
"Too often, excellent workers are frustrated at having to work with others they perceive as average or worse performers." – SHRM, Tough Love at Netflix.
Netflix encourages complete transparency among all employees.
Managers are not mired by having to maintain internal parity and are instead encouraged to call a spade a spade.
The 360-degree feedback also encourages transparency, as the reviewers are never anonymous.
Every employee gets a clear picture of how they are perceived and areas of improvement.
Netflix believes transparency helps reduce tension and counteract dirty internal politics.
The unique cultural code and the resulting performance review system at Netflix have been largely successful.
In 2018, the firing rate at Netflix stood at 8%, lower than the average 6% in other US companies.
On the other hand, as Wall Street Journal reported, the voluntary churn rate stood at a mere 4%, a stark contrast to the 14% at average American companies.
So, what makes Netflix a dream company for the top 1% of talent?
Netflix's workforce isn't just competent. They also get the space to grow, experiment and chart their paths. By doing away with binding KPIs and formal processes, employees can work on projects that truly matter and work in the collective interest of everyone at the company.
Netflix has a bunch of techniques embedded in its culture and way of doing things to enhance openness in the organization:
All of these policies aim at creating a culture of radical candor.
Leading by example, Reed himself states:
"Only say about someone what you will say to their face. I modeled this behavior as best I could, and whenever someone came to me to complain about another employee, I would ask, 'What did that person say when you spoke to him about this directly?'"
Bold decisions like letting go of underperforming employees may be controversial. Still, it works when you want to create a team of high-performers only.
Building a high-performance culture is hard, and traditional HR practices can do more harm than good.
Netflix has a bold and transparent approach from the get-go, ensuring that the top talent is around the best peers to bounce ideas off of and grow with.
Best part? They're all A+ players, aligned to make Netflix win at all costs.
With Zavvy, you can run a performance review process like the one pioneered by Netflix.
Here are a few ways to leverage Zavvy to run a similar performance review process:
Zavvy allows you to get 360-degree feedback from multiple directions with little admin hassle. Here is how you create a new feedback cycle:
Chose a clear name so all your stakeholders understand its purpose, e.g., annual 360 performance review.
You can choose:
When configuring the peer feedback collection, define how many peers can participate per employee and the rules for peer selection.
Should the employee do it? Or should the manager?
"Most people at Netflix provide feedback for at least ten colleagues, but 30 to 40 is more common. I received comments from seventy-one people on my 2018 report" (Netflix CEO Reid Hastings)
You can create all questions yourself or choose some from the available templates.
There is an option to insert questions that are only visible to the managers. The reviewees will never be able to see the answers. Managers can answer questions relating to promotions, increasing compensation etc.
Add instructions for your reviewers. You can add instructions on how to give feedback. In case of using rating scales, you can explain the scale.
To replicate Netflix's model:
1. Reaffirm the 4As of Feedback. Instruct reviewers to give feedback that is clear and actionable, aims to assist, and is given in good faith.
2. Incorporate the "Start, Stop, Continue" framework for questions and answers.
3. Only create comment questions to gather qualitative data. No need for rating scales.
4. Implement the "Keeper Test" by using hidden questions. Make sure you enable the "Hide from reviewee" function.
Who should see what feedback?
Netflix is all about transparency and openness, so do not enable the "Share anonymously" feature.
What would you like your reviewers to see while writing and submitting feedback?
Who will be under review? You could select specific departments, teams, or specific employees.
You could also choose everyone in the company with a single click.
Set the deadlines for all the steps of the feedback cycle you configured.
Here are some examples of deadlines to consider for a 360 cycle:
Double-check all the details and activate the cycle.
Zavvy combines its proprietary technology with world-renowned HR practices. In doing so, we built a system that enhances the quality of the people management function at your organization.
We support People Ops teams to create positive employee experiences and a culture that measures and rewards performance fairly.
Book a free 30-minute demo to see how to craft the best performance review system that enhances your organization's productivity.