Netflix | Reference Guide on our Freedom & Responsibility Culture

Posted on September 29, 2010


The following is a presentation from Netflix’ “Why Join Netflix?” I was so impressed, I transcribed the whole thing below the slide presentation. Reed Hastings has been commended for the kind of company Netflix has become. Reading below, I can see why. It’s amazing how much “I’ve been saying this…” at my church…

Why join Netflix?

Reference Guide on our Freedom & Responsibility Culture

Culture: what gives Netflix the best chance of continuous success for many generations of technology and people?


  • Values are what we value
  • High performance
  • Freedom & responsibility
  • Context, not control
  • Highly aligned, loosely coupled
  • Pay top of market
  • Promotions & development

The real company values, as opposed to the nice-sounding values, are shown by who gets rewarded, promoted, or let go.

Real company values are the behaviors and skills that we particularly value in fellow employees.

We Particularly Value in our Colleagues these Nine behaviors and Skills…


  • You make wise decisions (people, technical, business, and creative) despite ambiguity
  • You identify root causes, and get beyond treating symptoms
  • You think strategically, and articulate what you are, and are not, trying to do
  • You smartly separate what must be done well now, and what can be improved later


  • You listen well, instead of reacting fast, so you can better understand
  • You are concise and articulate in speech and writing
  • You treat people with respect independent of their status or disagreement with you
  • You maintain calm poise in stressful situations


  • You accomplish amazing amounts of important work
  • You demonstrate consistently strong performance so colleagues can rely upon you
  • You focus on great results rather than on process
  • You exhibit bias-to-action, and avoid analysis-paralysis


  • You learn rapidly and eagerly
  • You seek to understand our strategy, market, subscribers, and suppliers
  • You are broadly knowledgeable about business, technology and entertainment
  • You contribute effectively outside of your specialty


  • You re-conceptualize issues to discover practical solutions to hard problems
  • You challenge prevailing assumptions when warranted, and suggest better approaches
  • You create new ideas that prove useful
  • You keep us nimble by minimizing complexity and finding time to simplify


  • You say what you think even if it is controversial
  • You make tough decisions without excessive agonizing
  • You take smart risks
  • You question actions inconsistent with our values


  • You inspire others with your thirst for excellence
  • You care intensely about Netflix’s success
  • You celebrate wins
  • You are tenacious


  • You are known for candor and directness
  • You are non-political when you disagree with others
  • You only say things about fellow employees you will say to their face
  • You are quick to admit mistakes


  • You seek what is best for Netflix, rather than best for yourself or your group
  • You are ego-less when searching for the best ideas
  • You make time to help colleagues
  • You share information openly and proactively

We Want to Work with People Who Embody These Nine Values


  • Values are what we value
  • High performance
  • Freedom & responsibility
  • Context, not control
  • Highly aligned, loosely coupled
  • Pay top of market
  • Promotions & development

Imagine if every person at Netflix is someone you respect and learn from…

Like every company, we try to hire well. But, unlike many companies, we practice “adequate performance gets a generous severance package.”

We’re a team, not a family. We’re like a pro sports team, not a kid’s recreational team. Coaches’ job at every level of Netflix to hire, develop and cut smartly, so we have stars in every position.

The Keeper Test Managers Use: “Which of my people, if they told me they were leaving in two months for a similar job at a peer company would I fight hard to keep at Netflix?

Isn’t Loyalty Good? What About Hard Workers? What about Brilliant Jerks?

Loyalty is Good

  • Loyalty is good as a stabilizer
  • People who have been stars for us, and hit a bad patch, get a near term pass because we think they are likely to become stars for us again
  • We want the same: if Netflix hits a temporary bad patch, we want people to stick with us
  • But unlimited loyalty to a shrinking firm, or to an ineffective employee, is not what we are about

Hard Work – Not Directly Relevant

  • It’s about effectiveness – not effort – even though effectiveness is harder to assess than effort
  • We don’t measure people by how many evenings or weekends they are in their cube
  • We do try to measure people by how much, how quickly and how well they get work done – especially under deadline

Brilliant Jerks

  • Some companies tolerate them
  • For us, the cost to teamwork is too high
  • Diverse styles are fine – as long as person embodies the 9 values

Why are we so manic on high performance? In procedural work, the best are 2x better than the average. In creative work, the best are 10x better than average, so huge premium on creating effective teams of the best. Great Workplace is Stunning Colleagues.


  • Values are what we value
  • High performance
  • Freedom & responsibility
  • Context, not control
  • Highly aligned, loosely coupled
  • Pay top of market
  • Promotions & development

The Rare Responsible Person

  • Self motivating
  • Self aware
  • Self disciplined
  • Self improving
  • Acts like a leader
  • Doesn’t wait to be told what to do
  • Never feels “that’s not my job”
  • Pick sup the trash lying on the floor
  • Behaves like an owner

Responsible People Thrive on Freedom, and are Worthy of Freedom

Our model is to increase employee freedom as we grow, rather than limit it, to continue to attract and nourish innovative people, so we have better chance of long-term continued success

Most Companies Curtail Freedom as they get Bigger; As They Grow to Avoid Errors (sounds pretty good to avoid errors). Desire for Bigger Positive Impact Creates Growth. Growth Increases Complexity. Growth Shrinks Talent Density in Most Firms. Chaos Emerges. Process Emerges to Stop the Chaos. Process-focus Drives More Talent Out.

Strong Near-Term Outcome

  • A highly-successful process-driven company
    • With leading share in its market
    • Minimal thinking required
    • Few mistakes made – very efficient
    • Few curious innovator-mavericks remain
    • Very optimized processes for its existing market

Then the Market Shifts…

  • Market shifts due to new technology or new competitors or new business models
  • Company is unable to adapt quickly, because the employees are extremely good at following the existing processes, and process adherence is the value system
  • Company generally grinds painfully into irrelevance, due to inability to respond to the market shift

Seems Like Three Bad Options

  1. Stay creative by staying small
  2. Try to avoid rules as you grow, suffer chaos
  3. Use process as you grow to drive efficient execution of current model, but cripple creativity, innovation, flexibility, and ability to thrive when market inevitably shifts

A Fourth Option

  • Avoid Chaos as you grow with Ever More High Performance People – not with Rules
  • Then you can continue to run informally with self-discipline and avoid chaos
  • The run informally part is what enables and attracts creativity

The Key: Increase Talent Density faster than Complexity Grows

  • Top of market compensation
  • Attract hi-value people through freedom to make impact
  • Be demanding about high performance culture

Minimize Complexity Growth

  • Few big products vs many small ones
  • Eliminate distracting complexity (barnacles)
  • Value simplicity

With the Right People, Instead of a Culture of Process Adherence, Culture of Freedom and Responsibility, Innovation and Self-Discipline

Is Freedom Absolute? Are all rules & Processes bad?

Freedom is not absolute. Like “free speech” there are some limited exceptions to “freedom at work”

Two Types of Necessary Rules

  1. Prevent irrevocable disaster
    – E.g. Financials produced are wrong
    – E.g. Hackers steal our customers’ credit card info
  1. Moral, ethical, legal issues
    – E.g. Dishonesty, harassment are intolerable

Mostly, Through, Rapid Recovery is the Right Model

  • Just fix problems quickly
    High performers make very few errors
  • We’re in a creative-inventive market, not a safety-critical market like medicine or nuclear power
  • You may have heard preventing error is cheaper than fixing it
    – Yes, in manufacturing or medicine, but…
    –  Not so in creative environments

“Good” vs “Bad” Processes

  • “Good” processes help talented people get more done
    – Web site push every two weeks rather than random
    – Spend within budget each quarter so don’t have to coordinate every spending decision across departments
    – Regularly scheduled strategy and context meetings
  • “Bad” processes try to prevent recoverable mistakes
    – Get pre-approvals for $5k spending
    – 3 people to sign off on banner ad creative
    – Permission needed to hang a poster on a wall
    – Multi-level approval processes for projects
    – Get 10 people to interview each candidate

Rule Creep

  • “Bad” processes tend to creep in
    – Preventing errors just sounds so good
  • We try to get rid of rules when we can, to reinforce the point

Example: Netflix Vacation Policy and Tracking. Until 2004 we had the standard model of N days per year. Meanwhile… We’re all working online some nights and weekends, responding to emails at odd hours, and taking an afternoon now and then for personal time. An employee pointed out… We don’t track hours worked per day or per week, so why are we tracking days of vacation per year? We realized… We should focus on what people get done, not how many hours or days worked. Just as we don’t have a 9-5 day policy, we don’t need a vacation policy. Netflix Vacation Policy and Tracking: “there is no policy or tracking” “There is also no clothing policy at Netflix, but no one has come to work naked lately.” – Patty McCord, 2004. Lesson: you don’t need detailed policies for everything.

Another Example of Freedom and Responsibility.. Most companies have complex policies around what you can expense, how you travel, what gifts you can accept, etc. Plus they have whole departments to verify compliance with these policies. Netflix Policies for Expensing, Entertainment, Gifts & Travel: “Act in Netflix’s Best Interests”

“Act in Netflix’s Best Interests” Generally Means…

  1. Expense only what you would otherwise not spend, and is worthwhile for work.
  2. Travel as you would if it were your own money.
  3. Disclose non-trivial vendor gifts.
  4. Take from Netflix only when it is inefficient to not take, and inconsequential.
    – “taking” means, for example, printing personal documents at work or making personal calls on work phone: inconsequential and inefficient to avoid

Freedom and Responsibility

  • Many people say one can’t do it at scale
  • But since going public in 2002, which is traditionally the beginning of the end for freedom, we’ve increased talent density and employee freedom substantially.

Summary of Freedom & Responsibility:

As We Grow, Minimize Rules.
Inhibit Chaos with Ever More High Performance People.
Flexibility is More Important than Efficiency in the Long Term


  • Values are what we value
  • High performance
  • Freedom & responsibility
  • Context, not control
  • Highly aligned, loosely coupled
  • Pay top of market
  • Promotions & development

“If you want to build a ship, don’t drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea.” – Antoine De Saint-Exupery, Author of The Little Prince

The best managers figure out how to get great outcomes by setting the appropriate context, rather than by trying to control their people

Provide the insight and understanding to enable sound decisions


  • Strategy
  • Metrics
  • Assumptions
  • Objectives
  • Clearly-defined roles
  • Knowledge of the stakes
  • Transparency around decision-making

  • Top-down decision-making
  • Management approval
  • Committees
  • Planning and process valued more than results


  • Control can be important in emergency
    – No time to take long-term capacity-building view
  • Control can be important when someone is still learning in their area
    – Takes time to pick up the necessary context
  • Control can be important when you have the wrong person in a role
    – Temporarily, no doubt

Managers: When one of your talented people does something dumb, don’t blame them. Instead, ask yourself what context you failed to set.

Managers: When you are tempted to “control” your people, ask yourself what context you could set instead. Are you articulate and inspiring enough about goals and strategies?

Good Context

  • Link to company/functional goals
  • Relative priority (how important/how time sensitive)
    – Critical (needs to happen now), or…
    – Nice to have (when you can get to it)
  • Level of precision & refinement
    – No errors (credit cards handling, etc…), or…
    – Pretty good/can correct errors (website), or…
    – Rough (experimental)
  • Key stakeholders
  • Key metrics/definition of success

Why Managing Through Context? High performance people will do better work if they understand the context.

Investing in Context: This is why we do new employee college, and why we are so open internally about strategies and results.


  • Values are what we value
  • High performance
  • Freedom & responsibility
  • Context, not control
  • Highly aligned, loosely coupled
  • Pay top of market
  • Promotions & development

Three Models of Corporate Teamwork

  1. Tightly-Coupled Monolith
  2. Independent Silos
  3. Highly Aligned, Loosely Coupled

Tightly-Coupled Monolith

  • Senior management reviews and approves nearly all tactics
  • Lots of x-departmental buy-in meetings
  • Keeping other groups in agreement has equal precedence with pleasing customers
  • Mavericks get exhausted trying to innovate
  • Highly coordinated through centralization, but very slow, and slowness increases with size

Independent Silos

  • Each group executes on their objectives with little coordination
  • Work that requires coordination suffers
  • Alienation and suspicion between departments
  • Only works well when areas are independent

–         e.g. GE: aircraft engines and Universal Studios

The Netflix Choice: 3. Highly Aligned, Loosely Coupled

  • Highly Aligned
    – Strategy and goals are clear, specific, broadly understood
    – Team interactions are on strategy and goals rather than tactics
    – Requires large investment in management time to be transparent and articulate and 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

Highly-Aligned Loosely-Coupled team work effectiveness is dependent on high performance people and good context. Goal is to be Big and Fast and Flexible.


  • Values are what we value
  • High performance
  • Freedom & responsibility
  • Context, not control
  • Highly aligned, loosely coupled
  • Pay top of market
  • Promotions & development

Pay Top of Market is Core to High Performance Culture. One outstanding employee gets more done and costs less than two adequate employees. We endeavor to have only outstanding employees.

Three Tests for Top of Market for a Person

  1. What could person get elsewhere?
  2. What would we pay for replacement?
  3. What would we pay to keep person?
    – If they had a bigger offer elsewhere

Takes Great Judgment

  • Goal is to keep each employee at top of market for that person
    – Pay them more than anyone else likely would
    – Pay them as much as a replacement would cost
    – Pay them as much as we would pay to keep them if they had higher offer from elsewhere

Titles Not Very Helpful

  • Lots of people have the title “Major League Pitcher” but they are not all equally effective
  • Similarly, all people with the title “Senior Marketing Manager” or “Director of Engineering” are not equally effective
  • So the art of compensation is answering the Three Tests for each employee

Annual Comp Review

  • Hiring is market-based at many firms, but at Netflix we also make the annual comp review market-based
    – Applies same lens as hiring
  • Essentially, rehiring each employee each year, for purposes of comp
    – At annual comp review, manager has to answer the Three Tests for the personal market for each of their employees

No Fixed Budgets

  • There are no centrally administered “raise pools” each year
  • Instead, each manager aligns their people to market each year – the market will be different in different areas

Annual Comp Review

  • Some people will move up in comp very quickly because their value in the marketplace is moving up quickly, driven by increasing skills and/or great demand for their area
  • Some people will move down or stay flat because their value in the marketplace has moved down or stayed flat
    – Depends in part on inflation and economy
    – Still top of market, though, for that person

Compensation Not Dependent on Netflix Success

  • Whether Netflix is prospering or floundering, we pay at the top of the market
    – i.e., sports teams with losing records still pay talent the market rate
  • Employees can choose how much they want to link their economic destiny to Netflix success or failure by deciding how much Netflix stock or stock options they want to own

Bad Ideas

  • Manager sets pay at Nth percentile of title-linked compensation data
    – The “major League Pitcher” problem
  • Manager cares about internal parity instead of external market value
    – Fairness in comp is being true to the market
  • Manager gives everyone a 4% raise
    – Very unlikely to reflect the market

When Top of Market Comp Done Right…

  • Nearly all ex-employees will take a step down in comp for their next job
  • We will rarely counter with higher comp when someone is voluntarily leaving because we have already moved comp to our max for that person
  • Employees will feel they are getting paid well relative to their other options in the market

Versus Traditional Model

  • Traditional model is good prior year earns a raise, independent of market
    – Problem is employees can get materially under- or over-paid relative to the market, over time
    – When materially under-paid, employees switch firms to take advantage of market-based pay on hiring
    – When materially over-paid, employees are trapped in current firm
  • Consistent market-based pay is better model

Employee Success

  • It’s pretty ingrained in our society that the size of one’s raise is the indicator of how well one did the prior year – but at Netflix there are other factors too – namely, the outside market
  • In our model, employee success is big factor in comp because it influences market value
    – In particular, how much we would pay to keep the person
    – But employee success is not the only factor in comp, so the linkage of prior year performance to raise size is weak

Good For Each Employee to Understand Their Market Value

  • It is a healthy idea, not a traitorous idea, to understand what other firms would pay you, by interviewing and talking to peers at other companies
    – Talk with your manager about what you find
    – Minor exception: interviewing with groups that directly compete with Netflix, because their motive is in part confidential information


  • Big salary is the most efficient form of comp
    – Most motivating for any given expense level
    – No bonuses – just include in salary – so much simpler
    – No free stock options – just big salary
    – Great health plan options, but high employee co-pay
    – No philanthropic match
    – Instead, put all that expense into big salaries
    – Give people big salaries, and the freedom to spend as they think best

Optional Options

  • Employees can request to trade salary for stock options, if they wish
  • The options are fully vested, granted monthly, and cost employees in pre-tax salary approximately half of what such an option would cost in the open market
  • Options ultimately valuable only if Netflix stock climbs over the next 10 years
  • Investing in Netflix stock or stock options lets one participate in Netflix success or failure at whatever level is comfortable for employee


  • Values are what we value
  • High performance
  • Freedom & responsibility
  • Context, not control
  • Highly aligned, loosely coupled
  • Pay top of market
  • Promotions & development

In some time periods, in some groups, there will be lots of opportunity and growth at Netflix. Some people, through both luck and talent, will have extraordinary career growth.

Baseball Analogy: Minors to Majors

  • Very talented people usually get to move up, but only true for the very talented
  • Some luck in terms of what positions open up and what the competition is
  • Some people move to other teams to get the opportunity they want
  • Great teams keep their best talent
  • Some minor league players keep playing even though they don’t move up because they love the game

Netflix Doesn’t Have to be for Life

  • In some times, in some groups, there may not be enough growth opportunity for everyone
  • In which case we should celebrate someone leaving for a bigger job that we didn’t have available to offer them
  • If that is what the person prefers

Two necessary Conditions for Promotion

  • Job has to be big enough
    – We might have an incredible manager of something, but we don’t need a director of it because job isn’t big enough

    • If the incredible manager left, we would replace with manager, not with director
  • Person has to be a superstar in current role
    – Could get the next level job here if applying from outside and we knew their talents well
    – Could get the next level job at peer firm that knew their talents well


  • If manager would promote employee to keep them if employee were thinking of leaving, manager should promote now, and not wait
  • Both tests still have to be passed
    – Job big enough
    – Superstar in current role


  • We develop people by giving them the opportunity to develop themselves, by surrounding them with stunning colleagues and giving them big challenges to work on
    – Mediocre colleagues or unchallenging work is what kills progress of a person’s skills
  • Formalized development is rarely effective, and we don’t try to do it
    – E.g. Courses, mentor assignment, rotation around a firm, multi-year career paths, etc.
  • High performance people are generally self-improving through experience, observation, introspection, reading and discussion
    – As long as they have stunning colleagues and big challenges

Individuals should manage their own career paths, and not rely on a corporation for planning their careers. Like retirement planning – safer as individual responsibility.

Individual’s economic security is based upon  their skills and reputation. We try hard to consistently provide opportunity to grow both.

Why is culture important?

What is our culture trying to support?

Culture is how a Firm Operates. What practices give Netflix the best chance of continuous success for many generations of technology and people?

Continuous Success = Continuous growth in revenue, profits & reputation

Need a culture that supports rapid innovation and excellent execution. Both are required for continuous growth. There is a tension between these two goals; between creativity and discipline.

Need a culture that supports effective teamwork of high-performance people. High performance people and effective teamwork can be in tension also – stars have strong opinions.

Need a culture that avoids the rigidity, politics, mediocrity, and complacency that infects most organizations as they grow.

The slide deck is our current best thinking about maximizing our likelihood of continuous success.

Our culture is a work in progress. Every year we try to refine our culture further as we learn more.