A Reference Guide for our Culture of Freedom & Responsibility This Guide is for our salaried employees, as hourly

workers have more structured jobs. Q: What gives Netflix the best chance of continuous success for many generations of technology and people? A: Culture. Culture is how a firm operates. Culture gives Netflix the best chance of continuous success for many generations of technology and people For Netflix, continuous success = continuous growth in revenue, profits, and reputation. Netflix needs a culture that supports rapid innovation and excellent execution, which are both required for our continuous growth. There is often tension between rapid innovation and excellent execution, similar to the tension between creativity and discipline. The culture must support effective teamwork of high-performance people, which can also provide tension, as high-performance people are very passionate. The culture must avoid the rigidity, politics, mediocrity, and complacency that infects most organizations as they grow. 7 aspects of Netflixs culture (a work in progress as we continue to refine it) 1. 2. 3. 4. 5. 6. 7. Emphasis on Values High-performance (Employees) Freedom & Responsibility Context, not Control Highly aligned, Loosely Coupled model of organization Top of the market Salaries Promotion & Development

VALUES Nine behaviors and skills we value in fellow employees. Judgement:

Making wise decisions despite ambiguity Identifying root causes Thinking strategically and articulating what you are and are NOT trying to do. Knowing what must be done well now Knowing what can be improved later

Communication

Listening to better understand, and not immediately reacting Being concise and articulate in speech and writing Treating people with respect regardless of status or agreement. Showing poise in stressful situations

Impact

Accomplishing amazing amounts of important work Performing in a consistently strong manner so that others can rely on you Focusing on results (rather than process) Showing bias-to-action (rather than over-analyzing)

Curiosity

Learning eagerly and rapidly Understanding our strategy, market, subscribers and suppliers Being broadly knowledgeable about business, technology and entertainment Contributing effectively outside of your specialty

Innovation

Re-conceptualizing issues to discover practical solutions to difficult problems Challenging the prevailing assumptions when warranted and suggesting better approaches Creating new ideas that prove useful Keeping us nimble by minimizing complexity and finding time to simplify.

Courage

Saying what you think even when it is controversial Making tough decisions without excessive agonizing Taking smart risks Questioning actions inconsistent with our values.

Passion

Inspiring others with your thirst for excellence Caring intently about our success Celebrating wins Being tenacious

Honesty

Being known for candor and directness Not being political when you disagree with others Only saying things about others that you would say to their faces Being quick to admit mistakes.

Selflessness

Seeking what is best for the company, rather than yourself or the group Putting your ego aside when searching for the best ideas Making time to help colleagues Sharing information openly and proactively

Judgement. Communication. Impact. Curiosity. Innovation. Courage. Passion. Honesty. Selflessness. We want every employee to embody these nine values. A characteristic of Courage: Questioning actions inconsistent with our values. This one is especially important. Akin to the honor code pledge, I will not lie, nor cheat, nor steal, nor tolerate those who do. We are all responsible for consistency in our values. Values are reinforced in our rewards, promotions and even how we fire. HIGH PERFORMANCE Imagine if every person you work with was someone you respect and learn from Imagine if all of your colleagues were stunning. This is how we define a Great Workplace. We do not define a Great Workplace by having benefits such as day-care, espresso, health care, sushi lunches, nice offices, or big compensation. We only do what efficiently attracts and keeps stunning colleagues. We practice the art of hiring well. We also have another practice: (Merely) Adequate performance results in a generous severance package. We are like a professional sports team (not a family). Like a Professional Sports coach, managers must recruit, hire, develop and cut smartly to have excellent players in every position. Who makes the cut? This is the Keeper Test: Which of my people, if they told me they were leaving in two months for a competitor, would I fight to keep? Any people who you would not fight hard to keep need to be offered a generous severance package to make room for an excellent colleague.

You are responsible for your job security. Ask your manager from time to time, If I told you I were leaving, how hard would you work to change my mind? Q: Isnt Loyalty good? A: Loyalty is good; it is a stabilizer. As individuals and as a company, we will all hit rough patches. Star employees will be given an opportunity to prove themselves again. Loyalty however must have its limits. Q: What about Hard Workers? A: Hard work is about effectiveness, not effort. It is not about working long hours. Measurements can be based on how much, how quickly, and how well work is done, especially under a deadline. Q: How do we handle brilliant jerks? A: Some companies tolerate them; not us. The cost to teamwork is too high. Everyone must embody all nine values, and being a brilliant jerk contradicts many of them. Q: Why do we place such a premium on high performance? A1: For procedural work, the best perform at 2x average. For creative work (knowledge work) the best perform at 10x average. Q: Why do we place such a premium on high performance? A2: We define a Great Workplace as having stunning colleagues. FREEDOM AND RESPONSIBILITY Characteristics of the rare responsible person:

Self-motivated Self-aware Self-disciplined Self-improving Behaves like a leader Proactive Considers everything his job

Picks up trash Behaves like an owner

Responsible people thrive on freedom and are therefore worthy of freedom. Our model is to increase employee freedom, rather than limit it, to continue to attract and nourish innovative people, to have a better chance of continued long-term success. (Most companies restrict freedom as they grow.) The relationship between growth, chaos, and restrictions: Growth increases complexity and shrinks talent density, which leads to errors and chaos. Often rules and procedures (process) are created to avoid chaos. Procedures drive the talent away. Process inhibits innovation. A better option.

Ever-increasing performance, rather than rules, to fight chaos. Ever-increasing performance, which outpaces complexity. Running informally, utilizing self-discipline to fight chaos. Minimizing complexity. Valuing simplicity. Enabling and attracting creative talent by running informally, high compensation, and offering the freedom to make a difference.

Two types of necessary Rules; Those that prevent disaster

e.g. Incorrect financials e.g. Hackers steal CC data

Those that spell out immoral, unethical, and illegal behavior

In a safety-critical or manufacturing industry, preventing errors through procedures is mission-critical (or at the very least the most cost-effective) In knowledge work/creative environments, rapid recovery is the best model. Besides, high-performers make fewer mistakes. If mistakes happen, high-performers fix them quickly! Is a Process Good or Bad? Good processes help talented people get more done.

Updating a web site at regular intervals instead of randomly Keeping spending within budget Having regularly scheduled strategy meetings

Bad processes try to prevent mistakes which are easily recoverable.

Pre-approvals for spending Multiple required sign-offs, projects Permission needed to hang a poster

Bad processes tend to creep in because preventing errors is so attractive. (They often result from knee-jerk reactions to embarrassing mistakes) Rules and procedures should be questioned and eliminated whenever possible. Our culture is Results-Oriented

No 9-5 work days. No vacation policy.

Netflixs Expensing, Entertainment, Gift & Travel Policy is five words long. Act in Netflixs Best Interests This generally means:

Expense only what you would otherwise not spend, and is worthwhile for work. Travel as you would if it were your money. Disclose non-trivial vendor gifts. Take from Netflix only when it is inefficient and inconsequential to not take. To avoid using the company phone for personal reasons may be an inefficient use of time. To avoid using the company printer for personal reasons may be an inefficient use of time.

Summary:

Minimize Rules while growing. Fight chaos with ever more high-performance people. Stress flexibility more than efficiency for long-tern success.

CONTEXT. NOT CONTROL High-performance people will do better work when they understand the context. The best managers set the context, rather than resorting to control. Control-driven means:

Top-down decision-making Management approval Committees Planning and process are valued instead of results (Do it because I say so.)

Context-driven means:

Strategy Metrics Assumptions Objectives Clearly-defined roles Communication of what is at stake Transparent decision-making (Do this because it aligns with company objectives)

Control can be important under the following circumstances:

In an emergency (procedures and commands must be followed.) When someone is in training (they need to learn context) When a colleague is temporarily in a position that is ill-suited.

If a talented employee does something dumb, a good manger will question the context (conditions) he set. Instead of giving into the temptation to control, a good manger will put the desired results in context. Managers must articulate goals and strategies. Managers must inspire people to meet goals and follow strategies. Proper context involves: - Linking to functional and company goals - Articulating importance and time-sensitivity - Describing the desired level of precision and completeness

No errors are permissible Errors can be corrected later Draft quality

- Pointing out the key stakeholders - Explaining the metrics - Defining a successful outcome Investing in context is exemplified in:

Training Openness to better strategies Focus on results

HIGHLY ALIGNED, LOOSELY COUPLED MODEL OF CORPORATE TEAMWORK This is contrasted with the following models: 1) Tightly-coupled, Monolithic Model, where

Sr. Mgt reviews and approves most tactics There are lots of cross-departmental buy-in meetings Keeping groups in agreement becomes as important as pleasing customers (which is dangerous and inefficient) Mavericks burn out Centralization allows for high degrees of coordination at the expense of agility

2) Independent Silo Model, where

Each group executes its objectives with little central coordination Work requiring coordination suffers Alienation and suspicion between departments takes root Success occurs only when a conglomerate has companies in disparate markets

The Highly Aligned, Loosely Coupled Model Goal: to be big, yet fast and flexible. Teamwork effectiveness is dependent upon 1) high-performance people and 2) proper (good) context Highly Aligned

Strategy and goals are clear, specific, and broadly understood Team interactions are about strategy and goals rather than tactics. A large investment in management time is required to be transparent, articulate, perceptive and open

Loosely coupled

Minimal cross-functional meetings except to get aligned on goals and strategy Trust between groups on tactics without previewing/approving each one groups can move fast Leaders reaching out proactively for ad-hoc coordination and perspective as appropriate. Occasional post-mortems on tactics necessary to increase alignment

TOP-MARKET COMPENSATION A core value of a high-performance culture. Financial incentive from an Accounting perspective: One outstanding employee gets more done and costs less than two adequate employees. Instead of only making the hiring process market-based, Netflix also applies the same principles to its Annual Compensation Review (essentially re-hiring each high-performance employee for another year for the purposes of compensation.)

Top-Market Compensation Goals: 1) Every employee is an outstanding employee. 2) Every employee is paid his or her top-market rate. (By the way, titles are not helpful when determining compensation. Not every Major League Pitcher is equally effective or equally compensated.) Three-part Compensation Test for an outstanding employee 1) How much would this employee be paid elsewhere? 2) How much would we have to pay to replace this person? 3) How much would we pay to keep this person if another company was head-hunting? Three Corollaries: 1) Pay him more than anyone else likely would 2) Pay him (at least) as much as a replacement would cost 3) Pay him as much as we would pay if another company was head-hunting Corporate Guidelines:

There are no centrally-administered budgets. Each manager must use the above guidelines to align each team members compensation to top-market for his market and for his area each year Compensation is based on market value, not Netflixs Success Managers should not use fairness or formulas such as percentiles or across the board raises

Therefore:

Some team members compensation could rise dramatically based on their value in the marketplace (Also driven by their skills) Some team members compensation could remain flat or even decrease, while still remaining top-market

If managers use the three-part Compensation Test accurately, the following will be true: 1) Any employee leaving Netflix for another company will not be compensated as well 2) We will rarely need to counter an offer from another company for one of our highperformance employees 3) Employees will know they are being paid well relative to other options. This compensation model is better than the traditional model, where employees automatically receive a raise each year based on good performance, for the following reasons: 1) Employees can become grossly over- or under-paid over time 2) Under-paid otherwise satisfied employees will seek employment elsewhere 3) Overpaid, unsatisfied employees become trapped. (These conditions also contribute to low morale and poisonous employees) In our model, employee success is a major factor in compensation because it influences an employees market value.

(This also motivates an employee to improve his skill set and grow personally in ways that increase his value) By the way, Netflix considers it to be a healthy idea, and not a traitorous one, for an employee to understand his value in the marketplace, by talking to peers at other companies and even interviewing with them. (An important exception is interviewing with direct competitors who may be trying to gather information that is confidential.) Additional information about our compensation model: Netflix focuses its compensation on the highest possible salary in the following ways:

No free stock options No bonuses Great Health Plan options with intentionally higher Co-Pays (to keep the premiums lower) No company matching of specific benefits

This compensation model is most efficient the following reasons:

Salary offers the highest motivation of any other form of compensation It simplified by not offering bonuses (saving the company labor) Paying for stock options (with pre-tax salary) is another form of motivating an employee to participate in the companys future success.

In addition, the employee has more freedom to spend his salary as he sees fit.

The mix of stock (or Stock options) is the employees choice Since there is no company matching of specific benefits, the employee is not pressured into a means of compensation he does not want or need. Since there is no company matching of specific benefits, the employee does not feel that others who want or need those benefits are better compensated

(On the other hand, the employees may want benefits that are not offered. Pre-tax medical accounts and pre-tax retirement accounts, for example, offer financial advantages that an employee could not otherwise obtain on his own, negating a top-market salary. In this case, his peers at another company would have a financial advantage.) (It might also be that the health and financial stability of employees, conditions that improve physical and mental well-being, are possibly not being encouraged by offering benefits. A lack of physical and mental well-being will adversely affect a persons work and the company. It is in the companys interest to promote physical and mental health.) Employees choose the degree to which they want to link their financial future to Netflixs success or failure by choosing for themselves the amount of Netflix stock (or stock options) they would like as a component of their compensation. PROMOTIONS AND DEVELOPMENT

Promotions At times, and within certain groups,there will be opportunities and growth. Some people, due to timing and talent, will have the opportunity for extraordinary career growth. Baseball Analogy: Minor & Major Leagues

Only the very talented play in The Show. (The Majors.) Even the most talented are subject to timing and opportunities Some players move to other teams when opportunities arise. Some Minor League players keep playing because they love the game.

There may not be enough growth opportunities for everyone who deserves a promotion, in which case we should celebrate when someone leaves the company for a bigger opportunity elsewhere. Two conditions necessary for promotion: 1) The job has to be big enough 2) The person has to be a superstar in the current role and talented enough for the new position If a talented employee meeting the above criteria needs to be promoted to keep them from leaving, the manager should look for opportunities to promote him now, rather than wait. Development We develop people by giving them the opportunity to develop themselves, by surrounding them with stunning colleagues and giving them the opportunity to work on big challenges. Mediocre colleagues and unchallenging work kills the progress of a persons skills (as well as his morale) Because formalized development is rarely effective, we do not pursue it. No courses, mentors, working in multiple depts. (Sorry. Im not going along with this! Any broadening of skills, better understanding of others roles, personal development is completely helpful, enriching all of a persons life, not just his career! Take a look at Pixar University, as an example.) High-performance people are generally self-improving through experience, observation, introspection, reading and discussion, as long as they have stunning colleagues. (OK, but give them some opportunities to do this at work, too!) Individuals should manage their own career paths, and not rely on a corporation for planning their careers. Similar to retirement planning largely a matter of individual responsibility. (Still, both should be encouraged) (Yet many people would benefit greatly from career planning, mentoring, financial planning, marital counseling, first baby counseling, all of which would make for better employees and many of which would reduce health care costs and absenteeism. Read Brain Rules by John Medina)

An Individuals economic security is based upon his skills and reputation. We try hard to consistently provide opportunities to grow both. (Maybe these opportunities should be listed. The above statements seem to contradict this.)
Source: http://www.creative-reaction.org/business-philosophy/the-netflix-hrreference-guide-mostly-transcribed