Netflix’s Major HR Innovation: Treating Humans Like People

NETFLIX’S MAJOR HR INNOVATION: TREATING HUMANS LIKE PEOPLE

WHAT IF INSTEAD OF BUREAUCRACY, A BOOMING COMPANY RELIED ON COMMON SENSE?

BY DRAKE BAER

Back in 1997, before it was streaming a billion hours of Internet television a month, Netflix was a startup. They had a fairly standard vacation policy: 10 vacation days, 10 holidays, and a handful of sick days per person. Rather than formally tracking these days, they opted for an honor system, with employees tracking their own off days and informing their managers when appropriate.

Then, in 2002, Netflix went public.

“(O)ur auditors freaked,” former Netflix chief talent officer Patty McCord writes in HBR. They thought that Sarbanes–Oxley, the accounting reform legislation, required that time off was carefully accounted for.

“MANY HR PEOPLE DISLIKE IT WHEN EMPLOYEES TALK TO RECRUITERS,” MCCORD SAYS, “BUT I ALWAYS TOLD EMPLOYEES TO TAKE THE CALL, ASK HOW MUCH, AND SEND ME THE NUMBER–IT’S VALUABLE INFORMATION.”

Netflix thought about putting an official system into practice–until founder Reed Hastings came up with an intriguing question: “Are companies required to give time off? If not, can’t we just handle it informally and skip the accounting rigmarole?” McCord’s realization: no California law said you had to institute vacation time.

So instead of shifting to a formal system, they went in the opposite direction, McCord says. “Salaried employees were told to take whatever time they felt was appropriate. Bosses and employees were asked to work it out with one another.”

Doing the common sense thing and treating people like adults are at the heart of Netflix’s breakthrough HR policy. McCord believes that most companies fall into a trap of having 97% of their employees doing great work and not needing HR to hold their hands, while 3% of employees absorb HR’s time, money, and energy. Netflix’s approach: they simply don’t hire those people.

While hourly workers have a more structured system, salaried employees are merely guided by HR on how to take time off. For example, accounts are asked not to be out at the beginning or end of the quarter, since those are the busy periods. If employees have to be away for more than 30 days, they would talk it over with HR. And senior staff are encouraged to take vacations since they serve as role models.

Netflix implements similar systems when it comes to their formal travel and expense policies: employees are encouraged to act in Netflix’s best interests. This means they shouldn’t eat at an expensive restaurant with a colleague, but it might make sense in sales. And they don’t need to go through travel agents for flights, so that’s another expense gone.

“(O)verall we found that expense accounts are another area where if you create a clear expectation of responsible behavior, most employees will comply,” McCord says.

Perhaps most radical is their approach toward compensation. For one, Netflix doesn’t distribute performance-based bonuses–they’re unnecessary if you hire the right people. They also emphasize market-based pay. To get an understanding of the rate for their talent, Netflix interviews competitors when given the chance.

“Many HR people dislike it when employees talk to recruiters,” McCord says, “but I always told employees to take the call, ask how much, and send me the number–it’s valuable information.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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