Having information helped me calm down and also think about how to manage my own emotions. I called my own boss in California and told her that, if it ever crosses her mind that she might need to let me go, I wanted her to tell me plainly. I made her promise that if she ever has to let me go, I won’t be surprised at all.
Meetings like the one organized by Jim help those who worked directly with a parting employee to process what happened and get their questions answered.
THE FINAL COUNT
Most companies do what they can to minimize employee turnover. It costs money to find and train new people, so the traditional wisdom goes that it’s cheaper to hold on to your current team members than to find new ones. But Reed doesn’t pay much attention to turnover rate, believing that replacement costs are not as important as ensuring the right person is in every position.
So, given all the focus on Keeper Tests, just how many employees DOES Netflix let go of annually?
According to the Society for Human Resource Management’s “Human Capital Benchmarking Report,” the average annual turnover rate for American companies the past few years has been around 12 percent voluntary turnover (people choosing to leave the company of their own accord) and 6 percent involuntary (people who were fired), which adds up to a total average annual turnover of 18 percent. For technology companies, the total average annual turnover is more like 13 percent, and in the media/entertainment business it’s 11 percent.
Over the same period, voluntary turnover at Netflix has remained steady at 3–4 percent (considerably below the 12 percent average—meaning not many choose to leave) and 8 percent involuntary (meaning 2 percent more people get fired at Netflix than the 6 percent average), equaling a grand total of 11–12 percent annual turnover . . . or just around the average for the sector. It seems there aren’t actually that many people Netflix managers wouldn’t fight to keep.
THE SEVENTH DOT
The Keeper Test has helped to elevate the talent density at Netflix to a level rarely seen in other organizations. If each manager considers carefully, on a regular basis, whether every employee on the team is indeed the best choice for that position and replaces anyone who isn’t, performance across the organization soars to new heights.
▶ TAKEAWAYS FROM CHAPTER 7
In order to encourage your managers to be tough on performance, teach them to use the Keeper Test: “Which of my people, if they told me they were leaving for a similar job at another company, would I fight hard to keep?”
Avoid stack-ranking systems, as they create internal competition and discourage collaboration.
For a high-performance culture, a professional sports team is a better metaphor than a family. Coach your managers to create strong feelings of commitment, cohesion, and camaraderie on the team, while continually making tough decisions to ensure the best player is manning each post.
When you realize you need to let someone go, instead of putting him on some type of PIP, which is humiliating and organizationally costly, take all that money and give it to the employee in the form of a generous severance payment.
The downside to a high-performance culture is the fear employees may feel that their jobs are on the line. To reduce fear, encourage employees to use the Keeper Test Prompt with their managers: “How hard would you work to change my mind if I were thinking of leaving?”
When an employee is let go, speak openly about what happened with your staff and answer their questions candidly. This will diminish their fear of being next and increase their trust in the company and its managers.
Toward a Culture of Freedom and Responsibility
You’ve implemented the Keeper Test. Congratulations! You now have a full-fledged high-performing workforce, which is the envy of your competitors. With such high talent density, your company is bound to grow, and when new people join the team you’ll need to help them adjust to your way of working. As we’ve grown at Netflix, we’ve found it has been especially difficult to maintain the high level of candor that is one of the key foundations to our success. Candor is like going to the dentist: a lot of people will avoid it if they can. In the next chapter, we’ll look at a couple of simple tactics to help keep candor levels at your company continually high.
MAX UP CANDOR . . .
8
A CIRCLE OF FEEDBACK
There is one Netflix guideline that, if practiced religiously, would force everyone to be either radically candid or radically quiet: “Only say about someone what you will say to their face.” The less we talk about people behind their backs, the more we eliminate the gossip that creates inefficiency and bad feelings—and the more we can wash our hands of the unpleasantness generally referred to as “office politics.” While at Netflix, I tried to play within the rules of the culture. This particular rule was harder than it sounded.
I was conducting interviews in Silicon Valley. Briefed by PR manager Bart, most interviewees were bursting with stories and viewpoints. Heidi was the exception. She was standing in front of her desk talking to two colleagues when I arrived and looked away, as if she wasn’t expecting me, forcing me to try and get her attention. Her demeanor went beyond aloof, edging toward hostile. She answered my questions with one-syllable answers. I ended the interview early.
While waiting with Bart for the elevator, we debriefed. “That was useless. She clearly wasn’t prepared and didn’t want to talk to me,” I complained. Midsentence, I saw, in my peripheral vision, Heidi pass through an adjoining corridor not five feet from us. I don’t know if she heard what I’d said, but that didn’t stop the neon words that flashed across my brain: “ONLY SAY ABOUT SOMEONE WHAT YOU WILL SAY TO THEIR FACE.” This Netflix culture thing was proving complicated. Most people do spend large parts of their day talking behind someone else’s back. Myself included, apparently.
I asked Bart what the correct “Netflix” reaction would have been. I could hardly have ended the meeting by saying to Heidi, “Thank you for the eight minutes you gave me, but you clearly hadn’t prepared and seemed as if you couldn’t be bothered.”
Bart looked at me like I was a goose pretending to be a duck: “You don’t work for Netflix, plus you’re conducting only one interview with Heidi, so your feedback wouldn’t help the project. If you worked for Netflix and you were meeting with her again, you would aim to give her the input before the next interview, probably by putting a feedback meeting on her calendar.” Then Bart showed who the real duck was: “I’ll need her to interview with other writers in the future. I’ll give her the feedback.”
But not everyone at Netflix is as comfortable as Bart in initiating feedback.
GOING TO THE DENTIST
Saying that the company values candor is one thing. Maintaining it while the organization grows, new people join, and relationships become more numerous is more challenging. The problem became obvious to me during a one-on-one meeting with a director who had been at Netflix for almost a year. He said, “When I was hired, everyone said I would receive loads of feedback. But I’ve been at Netflix a while now, and I haven’t received any.”
I was worrying about that when I made a routine visit to my dentist. She poked me sharply on one of my molars. “You need to come in for more regular checkups, Reed. There are some spots in the back you’re not getting when you brush.”
Candor is like going to the dentist. Even if you encourage everyone to brush daily, some won’t do it. Those who do may still miss the uncomfortable spots. I can’t ensure the candor we encourage is happening every day. But I can ensure that we have regular mechanisms in place so that the most critical feedback gets out. In 2005, we became focused on finding tools that employees could rely on to get and receive candid feedback that didn’t come out naturally in the course of day-to-day business.
The obvious choice would have been annual performance reviews. These days it’s become trendy to ditch
them, but in 2005 just about every company used performance reviews. With this system, the boss puts in writing the employee’s strengths and weaknesses, along with an overall performance rating, and holds a one-on-one meeting to go over the assessment.
We’ve been against performance reviews from the beginning. The first problem is that the feedback goes only one way—downward. The second difficulty is that with a performance review you get feedback from only one person—your boss. This is in direct opposition to our “don’t seek to please your boss” vibe. I want people to receive feedback not just from their direct managers but from anyone who has feedback to provide. The third issue is that companies usually base performance reviews on annual goals. But employees and their managers don’t set annual goals or KPIs (Key Performance Indicators) at Netflix. Likewise, many companies use performance reviews to determine pay raises, but at Netflix we base salaries on the market, not performance.
We searched for a mechanism that would encourage everyone to give feedback to any colleague they wished, that reflected the level of candor and transparency we were trying to cultivate, and that was consistent with our Freedom and Responsibility culture. After a great deal of experimenting, we now have two processes we use regularly.
1: STATE YOUR NAME: A DIFFERENT KIND OF WRITTEN 360
When we first tested annual written 360s, we ran them like everyone else. Each employee selected a handful of people she wanted to receive feedback from, and those people filled out the report anonymously, rating the employee on a scale of 1 to 5 across a series of categories and leaving comments. We used a “Start, Stop, Continue” format for the comments to ensure that people didn’t just pat each other on the back but gave concrete, actionable feedback.
Some on the management team felt that, given our culture of candor, we didn’t need to offer anonymity, but I believed it was important. Amid all the candor in the office, if someone opted not to give a colleague open feedback during the year, there must be a reason. Perhaps people were concerned there would be retribution. Offering anonymity, I felt, would provide a safer format and make people more comfortable leaving comments.
But the first time we ran the 360s, something funny happened. Our culture took over. A bunch of people, including Leslie Kilgore, felt too uncomfortable to leave comments without putting their names. “It just seemed backward to tell our employees all year long to give feedback directly to one another and then at 360 time to pretend the comments were coming from a secret source,” Leslie explained. “Everything I was writing I had told them anyhow. I just did what felt natural given our climate. I put the feedback in writing and signed my name.”
When I logged on to leave my own feedback for others, I also felt uncomfortable, knowing that I could say whatever I wanted and no one would see that the feedback was coming from me. It all had an air of dishonesty and secretiveness that was contrary to the culture I was trying to cultivate.
After we received our completed 360 reports that year and I started reading the comments our employees had left for me, my discomfort with the anonymity magnified. People were perhaps worried that if they left feedback that was too specific or concrete I would recognize the author, so they masked their observations in obliqueness. Some comments were so vague I barely understood them:
“Stop: sending mixed messages on certain issues.”
“Stop: coming across as insensitive when turning down an idea that doesn’t resonate.”
I had no idea what these people were referring to. The feedback certainly wasn’t actionable. How could this possibly help me? Since I didn’t know who the comments were from, I couldn’t follow up and ask for clarification. In addition, the anonymity encouraged a few people to vent in nasty and sarcastic ways that weren’t helpful for anyone. One manager showed me a comment she’d received: “You have less enthusiasm than Eeyore.” Eeyore is the ever-depressed donkey from the children’s book The House at Pooh Corner. How is that remark useful?
* * *
• • •
Leslie’s approach caught on. The second time Netflix ran the 360, a majority of employees, on their own initiative, chose to add their names. This meant that the minority who elected to remain anonymous were easy to recognize. “If you asked seven people to give you feedback and five of them left their names, it was pretty easy to guess who from the remaining two had said what,” Leslie recalled.
By the third round, everyone was choosing to leave their names. “It just felt better,” Leslie claimed. “People would walk right over to the desk of the feedback provider and start a conversation. These discussions ended up being much more valuable than anything that was written on the actual 360 report.”
Leslie, Reed, and the management team saw no apparent loss of frankness when feedback ceased to be anonymous. Leslie feels that’s “because Netflix had already invested so much time in building a culture of candor.” Many claim the quality of the feedback was higher, as people knew the comments would be recognized as their work.
Here is a 360 comment Reed received from a recent round. It’s essentially the same complaint he received in 2005, but this time the person provides examples and leaves his name, which makes his observations concrete and actionable:
You can be overly confident—even aggressive—in advocating for a position, and dismissive of differing perspectives. I felt this was the case when you were advocating for relocating to Japan our Singapore-based folks working on Korea. It is hugely valuable that you ask the question and are open to making radical shifts, but throughout the due diligence process, it seems you are predetermined to get to a certain outcome and dismissive of counterarguments.—Ove
* * *
• • •
I can remember exactly the conversations that Ove is referring to, which means I can adapt favorably in future situations. Most important, knowing who left the feedback, I was able to follow up with Ove and get further information.
We now do the 360 written feedback every year, asking each person to sign their comments. We no longer have employees rate each other on a scale of 1 to 5, since we don’t link the process to raises, promotions, or firings. The goal is to help everyone get better, not to categorize them into boxes. The other big improvement is that each person can now give feedback to as many colleagues as they choose at any level in the organization—not just direct reports, line managers, or a few teammates who have invited input. Most people at Netflix provide feedback for at least ten colleagues, but thirty or forty is common. I received comments from seventy-one people on my 2018 report.
Most important, the open 360 feedback instigates valuable discussion. I systematically share the comments I receive with my direct reports, and my reports share their feedback with their teams, all the way down the line. This not only strengthens the sense of transparency but also creates “reverse accountability” whereby the team feels encouraged to call the boss out for recurrent bad behavior.
Ted Sarandos likes to tell this story about bungee jumping to demonstrate the value:
Back in 1997, when I worked in Phoenix before Netflix, I went to a work event, the kind where you have some meetings but there are also activities encouraging the group to bond and have fun. Behind the restaurant in the parking lot, there was a bungee jumping station. For fifteen bucks you could jump off of a crane in full sight of everyone. No one was doing it, but I decided to try. Afterward the guy running the station said to me, “Why not go again? I’ll give you a second jump for free?” That made me curious. “Why would you do that?” I asked. He responded, “Because I want all your colleagues gawking at you from the restaurant to see that you’re happy to do it again. If they see it’s not so scary, they’ll be ready to try it also.”
That’s exactly why you as the leader need to share your 360 evaluations with your teams, especially the really candid stuff about all the things you do poorly. It shows everyone that giving and receiving clear,
actionable feedback isn’t so scary.
* * *
• • •
This is a regular practice for Netflix managers today. Larry Tanz, VP of content (he went to interview with Facebook after Ted told his team to take recruiters’ calls), has another story about a surprising meeting with Ted during his first few weeks at Netflix in 2014:
For the past five years I’d been working for ex-Disney CEO Michael Eisner. Let’s just say those of us on Michael’s staff weren’t giving him a lot of direct negative feedback. Where I came from the boss might be candid with you but any feedback in the reverse direction was pretty much unheard of.
In my second T-staff (Ted’s staff) meeting, Ted began by reminding the twelve of us that the written 360 was coming up in a few months, and that we all needed to be in the habit of giving frank feedback to one another. “Even if you don’t work together,” he said, “you need to be close enough to give candid criticism on an ongoing basis. We just finished a round of 360s with R-staff (Reed’s staff). I’ll just read to you the feedback I received.”
I was confused. What was Ted doing? In my entire life I’d never had a boss tell me what his peers and superiors were saying about him. My immediate thought was that he would cherry-pick what he told us and we’d hear a sanitized version. Then he proceeded line by line to read through the feedback from Reed, David Wells, Neil Hunt, Jonathan Friedland, and all those folks. He didn’t read many positive comments, although there must have been some. Instead he detailed all of his developmental comments including the following:
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