We removed our vacation policy in 2003. In January 2004, a director in the accounting department came into my office and complained. “Thanks to your brilliant idea to remove the vacation policy, we’re going to close the books late this year.” A member of this director’s team, tired of always having to work the first two weeks of January—the annual crunch period for accountants—had claimed her right to take those two weeks off, throwing the department into chaos.
Another day, I ran into a manager at the fruit bowl in the kitchen. Her eyes were puffy and her cheeks splotchy, like she’d been crying. “Reed, this vacation freedom is killing me!” Her team of four had a massive deadline looming. One employee was starting his paternal leave the following week. Now another had informed her that in two weeks’ time she would be taking a monthlong Caribbean cruise. The manager didn’t feel she could tell either of them no. “This is the price of the freedom we offer,” she moaned.
This brings us to the second step critical for successfully removing your vacation policy. When you remove a policy, employees don’t know how to operate with the absence. Some will be paralyzed until the boss tells them explicitly what actions are okay. If you don’t tell them, “Take some time off,” they won’t. Others will imagine they have complete freedom to behave in wildly inappropriate ways like going on vacation at a time that causes pain to everyone else. This not only sabotages team effectiveness, but could ultimately lead the manager to throw up his hands and fire the employee, which is not good for anyone.
In the absence of written policy, every manager must spend time speaking to the team about what behaviors fall within the realm of the acceptable and appropriate. The accounting director should have sat down with the team and explained which months were okay to take vacation—and that January was off limits for all accountants. The puffy-eyed manager at the fruit bowl should have worked with the team to set vacation parameters, such as, “only one team member can be out at a time” and “make sure you’re not causing the rest of the group undue grief before booking your vacation.” The clearer the manager is when setting context, the better. That accounting director might say, “Please give at least three months’ advance warning for a month out of the office, but a month’s notice is usually fine for a five-day vacation.”
As a company grows, the variety in how leaders set context and model behavior increases. Due to Netflix’s rapid growth and change, it’s easy to feel overwhelmed and under pressure. Any manager who isn’t thoughtful and vigilant can quickly find a fleet of Donnas on the team. Kyle’s mistake wasn’t just that he didn’t model big vacation-taking, but that he also didn’t set context about the time off he expected his own team to take to maintain a healthy work-life balance. I’ve dealt with this type of scenario by trying to do a better job setting context myself as to demonstrate the context I expect our leaders to set with their own teams. One of the main occasions I use to set this example is our quarterly meeting, which brings together all directors and vice presidents in the company (top 10–15 percent of all employees) four times a year. Whenever I hear stories floating around about people not taking time off, it’s time to put vacations on the agenda of a QBR meeting. This gives me an opportunity to talk about the type of environment we aspire to have and gives our leaders a chance to discuss, in small groups, techniques they use in order to achieve a healthy work-life balance for our workforce.
FREEDOM FROM VACATION POLICY ADDS VALUE—EVEN IF NO ONE USES IT
After Netflix removed vacation tracking, other companies began doing the same, including Glassdoor, LinkedIn, Songkick, HubSpot, and Eventbrite from the tech sector, as well as law firm Fisher Phillips, PR firm Golin, and marketing agency Visualsoft, to name just a few.
In 2014, the famous British entrepreneur Richard Branson adopted the nonpolicy for Virgin Management. He wrote an article about his decision, explaining it like this:
I first learned of what Netflix was up to when my daughter Holly read the Daily Telegraph and immediately forwarded the piece to me with a clearly excited email saying, “Dad, check this out.” It’s something I have been talking about for a while and I believe it would be a very Virgin thing to do to not track people’s holidays. She then went on to say, “I have a friend whose company has done the same thing and they’ve apparently experienced a marked upward spike in everything—morale, creativity, and productivity have all gone through the roof.” Needless to say I was instantly intrigued and wanted to learn more.
It is always interesting to note how often the adjectives “smart” and “simple” describe the cleverest of innovations—well, this is surely one of the simplest and smartest initiatives I have heard of in a long time and I’m delighted to say that we have introduced this same (non) policy at our parent company in both the UK and the US, where vacation policies can be particularly draconian.
Trenton Moss, the CEO of Webcredible, also got rid of his company’s vacation policy, explaining how this attracts good candidates and increases employee satisfaction:
The Netflix ethos is that one superstar is better than two average people. We very much follow their lead. There is currently a huge demand for good user-experience practitioners, so holding on to staff is a big challenge (lifting vacation policy helps). Members of our team are always being tapped on LinkedIn, and many professionals in our business are millennials who are fleet of foot and like to keep moving. Unlimited holiday is easy to implement—you just have to create an environment of trust, and ours is built through three company rules: (1) always act in the best interests of the company, (2) never do anything that makes it harder for others to achieve their goals, (3) do whatever you can to achieve your own goals. Other than that, when it comes to setting holiday time, staff can do whatever they want.
Another company, Mammoth, learned something interesting when it decided to adopt the Netflix policy as a test and measure the response. CEO Nathan Christensen wrote the following:
We’re a small business, and we liked the idea of a policy that conveys trust in our employees and reduces red tape. We agreed to try it for one year and then re-evaluate. During the year, the policy became one of our employees’ most-valued benefits. In a survey we conducted just before we hit the one-year mark, our employees ranked unlimited vacation third-highest among the benefits we offer, just behind health insurance and our retirement plan. It beat out vision insurance, dental insurance, and even professional development, all of which still ranked highly.
Christensen’s employees appreciated the benefit a lot, yet didn’t take advantage of it: “They took roughly the same number of vacation days under our unlimited policy as they did the year before (about fourteen days, with most of our employees taking between twelve and nineteen days off).”
Netflix doesn’t track vacation days, so there is no data on how much vacation employees are taking, on average, but one person did try to look into it. In 2007, a San Jose Mercury News journalist, Ryan Blitstein, conducted research on the subject. He arrived at the office one morning, excited to get the scoop. This was going to be a front-page Bay Area story: “Netflix’s crazy time-off policy!” He asked Patty, “Do people take months off exploring exotic places? Do you still manage to get any work done?” Rather than answering, Patty sent an email to employees saying, “Feel free to chat with the journalist who’ll be hanging around the office.” He sat in the cafeteria asking Netflix staff a lot of questions.
At the end of the day, Blitstein was defeated. “There’s no story here! No one is doing anything unusual. You know what your employees told me? They told me they love the vacation policy, but they vacation the way they’ve always vacationed. No more and no less. It’s no scoop at all!”
GIVE FREEDOM TO GET RESPONSIBILITY
I thought the sky might fall after we stopped tracking vacations, but nothing much changed except that folks seemed to be more satisfied and our more maverick employees, like the one who wanted to work eighty ho
urs three weeks in a row and then go visit the Yanomami tribe in the Brazilian Amazon, were particularly appreciative of the freedom. We’d found a way to give our high performers a little more control over their lives, and that control made everybody feel a little freer. Because of our high-talent density, our employees were already conscientious and responsible. Because of our culture of candor, if anyone abused the system or took advantage of the freedom allotted, others would call them out directly and explain the undesirable impact of their actions.
About the same time, something else happened that provided a critical lesson. Patty and I both noticed people seemed to be taking more ownership around the office. Just little things, like someone started throwing out the milk in the refrigerator when it got sour.
Giving employees more freedom led them to take more ownership and behave more responsibly. That’s when Patty and I coined the term “Freedom and Responsibility.” It’s not just that you need to have them both; it’s that one leads to the other. It began to dawn on me. Freedom is not the opposite of accountability, as I’d previously considered. Instead, it is a path toward it.
With that in mind, I looked for other rules we could get rid of. The travel and expense policy was next.
CONTINUE REMOVING CONTROLS . . .
3b
REMOVE TRAVEL AND EXPENSE APPROVALS
In 1995, before Netflix, one of the sales directors at Pure Software, Grant, stormed into my office, ears flaming red, and slammed the door. Our employee handbook stated, While visiting a client you can rent a car or take a taxi, but not both. “I rented a car! The client’s office is two hours away! A taxi would have cost a fortune. That was the right thing to do,” Grant explained. “There was an evening event with a bunch of clients fifteen minutes from my hotel. I knew everyone would be drinking so I took a taxi. Now Finance won’t reimburse my fifteen-dollar taxi because I had a rental car.” Grant was angry on principle. “Would you have preferred I drink and drive?” Patty McCord and I spent an hour figuring out how to help and rewrite the handbook for future emergencies.
Months later Grant resigned. “When I saw how senior management spends their time, I lost confidence in the company,” he stated in his exit interview.
Grant was right. At Netflix, I didn’t want anyone wasting time on this type of discussion. More so, I didn’t want our talented employees to feel that dumb rules were preventing them from using their brains to do what was best. This was a clear way to kill the creative vibes that make for an innovative workplace.
In the early Netflix days, we were like any start-up. There weren’t any written rules outlining who could spend what or which hotels to stay in when you traveled. The company was so small that each important purchase got noticed. Employees were free to buy what they needed, and if they went overboard someone would spot it and correct the behavior.
By 2004, however, we had been a public company for two years. That’s about the time when most businesses begin to put a bunch of policies in place. Our CFO, Barry McCarthy, sent me a document outlining a proposal for a new expense and travel policy, which would reflect the types of rules most midsize to big companies were using. It had all sorts of details: which level of managers could fly business class, how much each employee could spend on office supplies without approval, the signatures needed if you wanted to buy something expensive like a new computer.
We’d recently removed the vacation policy, and, in the aftermath, I was dead set against putting any new control processes in place. We had proved that with the right employees, clear modeling from management, and enough context setting, we could get along perfectly fine without a bunch of rules. Barry agreed, but reminded me that we’d need to set crystal-clear context to help employees understand how to spend company money wisely.
I called a meeting in Half Moon Bay. On the agenda was how to articulate spending guidelines to employees in the absence of a policy. We looked at a series of cases. Some were clear-cut. If an employee sends a Christmas package to a family member by FedEx, that should not be billed to Netflix. But we soon found many situations were ambiguous. If Ted attends a party in Hollywood for work purposes and buys a box of chocolates for the host, can he charge that to Netflix? If Leslie works from home every Wednesday, is paper for her printer a valid business expense? What if her daughter uses this same paper for her school book report?
The only situation we could agree on was that if an employee steals from the company he should lose his job. But then a director named Chloe piped in: “I stole from the company on Monday. I had to work until eleven p.m. to finish a project. I didn’t have anything to give my kids for breakfast the next morning, so I took four mini boxes of Cheerios from the kitchen.” Well, that seemed reasonable. It only served to underline why setting rules and policies can never work well. Real life is so much more nuanced than any policy could ever address.
I suggested we just ask people to spend money frugally. Employees should think carefully before they buy anything, just like they would with their own money. We wrote our first expense guideline:
SPEND COMPANY MONEY AS IF IT WERE YOUR OWN
I felt great about that. I was frugal with my own money and frugal with company money and assumed others would be like me. But as it turned out, not everyone was as tightfisted, and the dramatically diverging styles of spending one’s own money created problems. There was an example from David Wells, who joined our group as a VP of finance just as we were having those discussions in 2004. He later went on to be our CFO from 2010 to 2019.
I was raised on a farm in Virginia. We lived a mile down a dirt road, way off of the beaten track. My dog Starr and I spent our days chasing bugs and swinging sticks over the two hundred acres of open woods that surrounded my house.
I wasn’t born with a silver spoon in my mouth and I don’t require luxury. When Reed said to travel like I would with my own money, for me that meant flying economy and staying in modest hotels. I’m a finance guy and that just seemed fiscally responsible.
A while into the new policy we had a leadership meeting in Mexico. I boarded the flight and was walking back to my seat in economy. That’s when I saw the entire Netflix content team sitting in first class, kicking back in cozy airline slippers. Those are expensive seats and the flight from L.A. to Mexico City is only a few hours. I went to say hello and a couple of them seemed embarrassed. But here’s the clincher. They weren’t embarrassed to be sitting in first class. They were embarrassed for me—that a key executive at the company would be sitting back in economy!
We saw quickly that spend company money as if it were your own was not actually how we wanted our employees to behave. One of the VPs, a guy named Lars who was making a substantial salary, used to joke that because of his love for luxury he lived paycheck to paycheck. The spending that accompanied this type of lifestyle is not what we were going for.
So we changed the spending and travel guideline to something even simpler. Today the entirety of the travel and expense policy still consists of these five simple words:
ACT IN NETFLIX’S BEST INTEREST
That works better. It is not in Netflix’s best interest that the entire content team fly business from L.A. to Mexico. But if you have to take the red-eye from L.A. to New York and give a presentation the next morning it would likely be in Netflix’s best interest that you fly business, so you don’t have bags under your eyes and slurred speech when the big moment arises.
* * *
• • •
What could be more intriguing than the possibility of spending money that is not your own to buy things that benefit you and your job, any way you see fit?
Think of the possibilities. You take a trip to Thailand to visit your colleagues and have a few meetings. The weather in Bangkok will do you good and the massages are amazing. You could replace that suitcase whose wheel broke on your last business trip—those Tumi suitcases are expensive! Of course, compa
nies don’t usually pay for luggage, but clearly it’s because of business travel that the suitcase broke, so it can be justified.
On the other hand, if you’re the owner of the company, the same five-word guideline may cause you to break out in an unexpected rash. Let your employees run around spending the company’s money any way they choose, no approvals required? This is going to be expensive—it may even send the whole business into bankruptcy. Of course, some people are honest and frugal, but the vast majority are looking for a way to maximize personal gain.
This is not just a pessimistic hunch. Studies show that well over half the population will readily cheat the system to get more for themselves if they think they won’t be caught.
Gerald Pruckner, a researcher at the University of Linz, and Rupert Sausgruber from the Vienna University of Economics, set up a study to find out how people would respond in just this type of scenario. They sold newspapers out of a box with no monitoring. The price was posted and passersby were supposed to put their payment into a slot if they took a copy. There was a message reminding people to be honest. About two thirds of people who took the paper didn’t pay for it. That’s a lot of dishonest people. It would be naive to believe only the honest third work for you.
Tantalizing and terrifying as this all sounds, the Netflix world of spending is very different from the newspaper experiment. It’s neither as much fun nor as scary as you might think. That’s because of the context set on the front end and the checks made at the back end. Employees have a lot of freedom to decide for themselves how to spend company money, but it’s clearly not a free-for-all.
No Rules Rules Page 7