Increased Employee Freedom Helps Retain Top Talent

“Adequate performance gets a generous severance package.” That line is from a PowerPoint Deck with 127 slides written by Netflix CEO Reed Hastings and the former Chief Talent Officer Patty McCord that explains the company’s philosophy of talent management.

The deck has been viewed more than five million times, as reported in an article by Patty in the Harvard Business Review, “How Netflix Reinvented HR,” where you can also review this fascinating deck for yourself.

Maybe it’s been viewed so often because companies are looking to emulate the success of Netflix. After all, it is the world’s leading Internet TV network and has 44 million members. Last year its stock more than tripled.

Or maybe people are curious to learn about a company that has an unlimited vacation policy. As one of the slides in the deck reads: “There is no policy or tracking of vacation. There is also no clothing policy at Netflix, but no one comes to work naked. Lesson: you don’t need policies for everything.”

But that is exactly what happens as companies begin to grow. With each problem they encounter, they institute a new policy. More and more policies mean less freedom for their employees. Netflix found that as the most talented employees felt their freedom decreasing, they would leave.

Netflix began developing a philosophy of fewer policies in an effort to keep top employees. Since going public in 2002, traditionally a time when a company would put even more policies into place, it took the opposite approach: Netflix increased the level of talent at the company and increased employee freedom.

As two of the slides read, “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 a better chance of sustained success.”

So unlike many companies that have strict vacation policies with complicated accrual formulas, Netflix has none whatsoever. Top management is encouraged to take several vacations each year, to refresh them and to serve as an example to their staff.

In an article in Businessweek in 2012, “How to Set Your Employees Free: Reed Hastings,” he wrote about Netflix’s “freedom and responsibility culture” and said they focus on what people get done, not how many hours they work. “We want responsible people who are self-motivating and self-disciplined, and we reward them with freedom.”

Patty McCord said in an article on www.fastcompany.com, “Netflix’s Major HR Innovation: Treating Humans Like People,” that she believes in most large companies 97 percent of the employees do great work on their own and don’t need much help from the human resources department. It’s the other 3 percent that takes most of HR’s energy, costing the company money. Netflix’s approach is to not hire those people in the first place.

I’ve seen something similar so many times in my career as the Turnaround Authority. A small percentage of people can sap the majority or resources of HR. It’s good advice for any company to work hard to find the other 97 percent who can thrive in an atmosphere of freedom and responsibility. And if you do hire people who don’t perform as they should, well, perhaps you can use Netflix’s philosophy on that as well. Reward mediocrity with a generous severance check.

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