I was taken aback. I spoke to the group about the difference between penguins and elephants. Penguins abandon those in the group that are weak or struggling, while elephants rally around them and nurture them back to health. “Are you telling me we are going to choose to be penguins?” I asked.
Reed, are you not concerned about Netflix being the callous penguins in Neil’s story? Losing your job is a big deal. That job loss will impact that person’s financial situation, reputation, family dynamics, and career. Some people are on immigration status and, without a job, might be deported. You, of course, are very wealthy, so losing your salary would be no skin off your back. But that’s not the case for most of your employees.
Is it even ethical to let go of people who are doing their best but failing to deliver amazing results?
Answer 1
We pay our employees top of their personal market, so they are all paid very well. Part of that agreement is that they will play on the team as long as they are the best player for the spot. They understand that the needs of our company change quickly and that we expect outstanding performance. So, each employee who chooses to join the Netflix team opts in to our high-talent-density approach. We are transparent about our tactics and many employees are delighted to be surrounded by such high-quality colleagues and happy to put up with some job risk in return. Other people may prefer long-term job security and they choose not to join Netflix. So yes, I believe our approach is ethical. It is also highly popular with most of our employees.
That said, since our performance bar is so high, it seems only fair that, if we take away people’s jobs, we should give them enough money to get started on their next projects. We give everyone we dismiss a big severance—enough to take care of themselves and their families until they move on to another job. Each time we let go of someone, we offer several months’ salary (from four months for an individual contributor to nine months for a vice president). That’s why we say:
ADEQUATE PERFORMANCE GETS A GENEROUS SEVERANCE
To some people, this will sound prohibitively expensive. And it probably would be, if it weren’t for our efforts to eliminate unnecessary control processes.
In many companies in the US, when a manager decides to let go of someone, he is required to put in place a process called a performance improvement plan (PIP). This means that the manager documents weekly discussions with the employee over a period of months, demonstrating in writing that the employee has not managed to succeed despite feedback. PIPs rarely help employees improve and they delay the firing by many weeks.
PIPs were invented for two reasons. The first is to protect employees from losing their job without getting constructive feedback and the opportunity to improve. But with our culture of candor at Netflix, people get loads of feedback every day. Before any employee is let go, he should have heard clearly and regularly what he needs to do in order to improve.
The second is to protect the company from a lawsuit. We ask exiting employees, in order to receive the generous severance we are offering, to sign an agreement that they won’t sue us. Almost all accept the offer. They get a big chunk of money and can focus on the next step of their careers.
PIPs are of course expensive. If you put someone on a four-month PIP, that’s four months you have to pay an underperformer and countless hours spent by the line manager and HR enforcing and documenting the process. Instead of pouring that capital into a prolonged PIP, give it to the employee in a nice, big, up-front severance package, tell him you’re sorry it didn’t work out, and wish him well in his next adventure.
Question 2
There is a scene in the movie The Hunger Games in which the teenage protagonist Katniss, played by Jennifer Lawrence, stands on a small platform dressed in camouflage gear and surveys her competition. Twenty-four young people between the ages of twelve and eighteen have been drafted for a televised event pitting youth against each other. Only one of the players will win and all the others will die. If you want to live, you have to kill the competition.
When I began interviews at Netflix I expected that it would feel a lot like The Hunger Games around the office. Every professional team-sports player knows that for someone to win others have to lose: you have to compete for your seat.
I’d also read about similar-sounding practices used in the past by companies like Microsoft that are now generally considered to have incited harmful internal competition. For example, until 2012, Microsoft managers were asked to rank their employees on a scale from top to bottom performers and encouraged to let go of those at the bottom.
In a Vanity Fair article titled, “Microsoft’s Lost Decade,” journalist Kurt Eichenwald quoted a former employee:
If you were on a team of ten people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review. It leads to employees focusing on competing with each other rather than competing with other companies.
One Microsoft engineer reportedly said:
People will openly sabotage other people’s efforts. One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to ensure they didn’t get ahead of me in the rankings.
Why should the team-not-a-family at Netflix be any different? I expected to find Netflix employees scratching and backstabbing to keep their spots too. In truth, I didn’t find this during my interviews.
Reed, given how tough it is to get and maintain a spot on the Netflix team, how do you manage to stave off internal competitiveness?
Answer 2
Accidentally inciting internal competition is a real concern for organizations like ours that seek to increase their talent density. Many have implemented processes and rules to encourage their managers to get rid of mediocre employees and have fallen into systems that accidentally stoke internal competition. The worst is so-called stack ranking, also known as the “vitality curve” or, more colloquially, as “rank-and-yank.”
The Vanity Fair article Erin quotes above outlines one version of stack ranking. GE and Goldman Sachs have also tried stack-ranking systems to increase talent density. Jack Welch, perhaps the first CEO to use the method, famously encouraged managers at GE to rank their employees every year and to let go of the bottom 10 percent in order to keep performance levels high.
In 2015, The New York Times reported that GE had, like Microsoft in 2012, dropped the evaluation method. As one might expect, stack ranking sabotages collaboration and destroys the joy of high-performing teamwork.
We encourage our managers to apply the Keeper Test regularly. But we are very careful to not have any firing quotas or ranking system. Rank-and-yank or “you must let go of X percent of your people” is just the type of rule-based process that we try to avoid. More important, these methods get managers to let go of mediocre employees, but they kill teamwork at the same time. I want our high-performing employees to compete against Netflix’s competitors, not one another. With rank-and-yank what you gain in talent density you lose in reduced collaboration.
Fortunately, there is no reason to choose between high talent density and strong collaboration. With the Keeper Test we can achieve both. That’s because there is one critical way we are not like a professional sports team. On the Netflix team there is no fixed number of slots. Our sport isn’t being played to a rule book and we don’t have limits on how many people we play with. One employee doesn’t have to lose for the other to win. On the contrary, the more excellence we have on the team, the more we accomplish. The more we accomplish, the more we grow. The more we grow, the more positions we add to our roster. The more positions we add, the more space there is for high-performing talent.
Question 3
A November 2018 issue of The Week magazine ran an article titled, “Netflix’s Culture of Fea
r.” It quotes Rhett Jones of the tech website Gizmodo, who calls out Netflix for “brutal honesty, insider lingo, and constant fear.” Less than a month earlier, Shalini Ramachandran and Joe Flint wrote in a Wall Street Journal article based on interviews with Netflix employees: “At a meeting in late spring of Netflix public-relations executives, one said every day he comes to work he fears he is going to get fired.”
I too found in my interviews that some Netflix employees spoke openly of an ongoing fear that they will lose their jobs. One was Marta Munk de Alba, a recruiter in the Amsterdam office. She is a licensed psychologist who moved from Spain to the Netherlands in 2016 to join the Netflix Human Resources team. Here is her story:
My first months on the job, I was filled with terror that my colleagues would discover I was not worthy of their dream team and I would lose my job. I saw firsthand the quality of my colleagues. I would think, “Do I really belong here? How long will it take for them to figure out I’m a fake?” Every morning, I would get into the elevator at eight a.m., and as I hit the elevator button, it was like a trigger. The air would catch in my chest. I was sure that when the doors slid open my boss would be standing on the other side waiting to fire me.
I felt that if I lost my job, I would be losing the most important opportunity of my life. I worked like crazy—deep into the night—and pushed myself harder than I had ever done before. But the fear continued.
Derek, now a director at Netflix, provided another example:
During my first year at Netflix, I thought every day about whether I would be let go. For nine months I didn’t unpack my boxes, because I was sure the day I unpacked would be the day I lost my job. It wasn’t just me. My coworkers talked constantly about the Keeper Test. When we were in a cab or having lunch, the number one topic of conversation was always losing our jobs—those who had recently been let go, those who we thought would be let go, whether WE might be let go. It was only when my boss promoted me to director that I saw how misplaced my fears had been.
It’s clear that the Keeper Test increases talent density, but it also creates worry. Employees report feelings ranging from “mildly concerned” to “occasionally terrified” that they will be cut from the team.
Reed, what are you doing to mitigate a culture of fear at Netflix?
Answer 3
In white-water kayaking they teach you to look at the clear, safe water next to the dangerous hole you want to avoid. Experts have found that if you stare at what you are desperate to avoid, you are actually more likely to paddle into it. Similarly, at Netflix, we tell all employees it is best to focus on learning, teamwork, and accomplishment. If a person gets obsessed by their risk of being let go (or an athlete becomes obsessed with the risk of being injured) they can’t play light and confident, and this can bring about the very troubles they were trying to prevent.
THE KEEPER TEST PROMPT
There are two steps we take at Netflix to minimize fear around the office.
The first step is that any employee who is feeling the type of anxiety that Marta and Derek discussed is encouraged to use what we call the “Keeper Test Prompt” as soon as possible. That almost always improves the situation.
During your next one-to-one with your boss ask the following question:
“IF I WERE THINKING OF LEAVING, HOW HARD WOULD YOU WORK TO CHANGE MY MIND?”
When you get the answer, you’ll know exactly where you stand. Chris Carey is a senior tools engineer at the Netflix Silicon Valley office and one of many who ask the question on a regular basis:
When you ask your boss the Keeper Test Prompt question, there are three possible outcomes. One, your boss might say he would fight hard to keep you. In that case any fear you’ve had about your performance will immediately go away. That’s good.
Two, your boss might give you an uncertain response with clear feedback about how to improve. That’s good too because you hear what you need to do to excel in your role.
Three, if your boss feels he would not fight hard to keep you, you may have caused him to notice something negative about your performance that wasn’t previously in the forefront of his mind. This makes asking the question a little scary. But it is still good because it sparks a clear discussion about whether this job is the right fit for your skill set and ensures you won’t be blindsided to hear one morning that you’ve lost your job.
When Chris started at Netflix, he vowed to use the Keeper Test Prompt each year in November, so he’d never be taken by surprise.
I’m a software coder. I’m happiest spending 95 percent of my time head down in code. A year into my tenure at Netflix, I was pleasantly coding my life away. I asked my boss: “Paul, would you fight to keep me if I told you I was leaving?” His answer was a loud yes. That felt great.
Later I inherited a project that was also coding, but we had employees at Netflix who were using the tool I was developing. Paul suggested on several occasions that I set up focus group interviews with internal users. But I have some social anxiety, so instead of holding meetings, I chose to use my own intuition about how to improve the product.
November rolled around. I asked Paul the Keeper Test Prompt question again. This time his answer was less positive: “At this moment, I don’t know if I would fight to keep you. You can go back to your previous job, where you were excelling. But this role requires that you interact more with our users. If you want to keep this job, you’ll have to lead focus groups and give presentations. It will take you out of your comfort zone and I don’t know if you will succeed.”
I decided to take the risk. I worked hard. I took a presentation class online and practiced in front of my neighbors. The day of my first Netflix presentation I got up at six a.m., unicycled for four hours, took a shower, and walked directly into the meeting room for my eleven a.m. presentation. My goal was to work out all my anxiety and not give myself time to get too nervous. For the focus group meetings I tried other methods like pre-discussion videos to minimize the amount of time I’d have to speak in front of the group.
It was only May, but I put the Keeper Test on the agenda again. I needed to understand if I was at risk of losing my job. “Would you fight to keep me?” I asked Paul.
Paul looked right in my eyes and said: “You are outstanding at ninety percent of this job. You are innovative, meticulous, and hardworking. For the other ten percent you’ve been able to incorporate feedback and you are now doing fine. You can continue to push yourself to interact more with our internal users. But you are doing high-level work. If you told me you were leaving, I would fight really hard to keep you.”
All three times Chris asked the question, he got important information. The first answer felt good, but it didn’t add much value. The second was the most stressful but provided him with a straightforward plan of action. The third reassured Chris his efforts were paying off.
The second technique that we use to abate the fear of job loss is the “post-exit Q and A.”
POST-EXIT Q & A
There is nothing more ominous than people on your team disappearing from the roster with no word about how the decision was made or how much warning that person received. The biggest worry people have when they learn a colleague has been let go is whether that person had feedback or whether the termination came out of the blue.
Yoka, a content specialist in our Tokyo office, tells this story. Her anecdote is particularly potent because Japanese companies traditionally offer employment for life. Even today, firing a worker is rare in Japan. Many of our employees there have no previous experience of a colleague losing his job:
My closest colleague, Aika, worked for a man named Haru, who was really not a good boss. Aika and her entire team were suffering under Haru’s management. I was hoping something would happen, but when Haru lost his job my own reaction surprised me.
One morning I came to the office a little later than usual.
It was January and there was snow on the road. Aika raced to my desk, her face flushed. “Did you hear what happened?” Haru’s boss Jim had flown from California and met with Haru early in the morning, before anyone else arrived at work. By the time Aika arrived Haru had been let go and was already packing his boxes and preparing to say goodbye. Now Haru was gone and we wouldn’t see him again. I burst into tears. I didn’t feel close to him, but I couldn’t help thinking, “What if I came into work and someone was waiting to fire me?” The one thing I needed to know was did Haru get feedback? If so, what had he been told? Did he see this might be coming?
The best response after something difficult happens is to shine a bright light on the situation so everyone can work through it in the open. When you choose to sunshine exactly what happened, your clarity and openness will wash away the fears of the group. Let’s pick up Yoka’s story again:
I learned that there would be a meeting at 10:00 a.m. for Haru’s team and for anyone else who had worked with Haru or had questions. About twenty people came together around a big oval table. The group was really quiet. Jim detailed Haru’s strengths and struggles and explained why he felt he was no longer the best choice for his position. We sat silently for a while. Jim asked if there were questions. I raised my hand and asked how much feedback Haru had received and whether he had been surprised. Jim outlined the discussions he and Haru had had in the previous weeks. He said Haru was very upset and, despite all the feedback, did seem a little surprised.
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