Case Netflix's new employee practices have grabbed attention, to put it mildly. In 2012, a simple internal PowerPoint explaining them went viral and was viewed more than 5 million times on the Web. Sheryl Sandberg, chief operating officer of Facebook, said it "may well be the most important document ever to come out of [Silicon] Valley." Dozens of bloggers and journalists scrambled to analyze its contents. And Netflix is surely doing something right: In 2013, the company's stock value tripled. It reached a record 29 million subscribers and won three Emmy Awards for its original show House of Cards. What was revealed in that game-changing PowerPoint? It was simply a "commonsense" approach, according to Patty McCord, then Netflix's chief talent officer and one of the presentation's authors. Netflix treats the people it hires as grownups. It grants them a great deal of freedom, and it expects them to use it wisely. Game Changers Conventional human resources (HR) is full of structure and documentation. Directors spend hours drafting standard operating procedures about time off, performance appraisals, training, and more. Netflix has simplified the process by doing away with many of these policies and focusing on results rather than processes. McCord realized that motivating employees to produce outstanding results had a lot to do with trusting them with greater independence. That didn't mean installing an arcade or skateboard park, as other tech companies have done. Instead, Netflix started doing away with formal procedures. Among the first to go was the leave procedure. Gone were the standard 10 days of vacation, 10 holidays, and a handful of sick days. The new policy? Take what you need when you need it. Giving employees the leeway to take as much vacation time as they'd like might strike many HR professionals as reckless. Wouldn't people abuse such a liberal leave plan? McCord, however, had shifted to a different philosophy. Written policies, she reasoned, were mainly designed to eliminate problems created by a very small percentage of employees. The vast majority of people, and particularly the type of person Netflix tries to recruit, could be counted on to use common sense in their decision making. This approach was extended to other areas. Travel and expense accounts are generally kept under a watchful eye, policed by HR or accounting to ensure that money is being spent acceptably, with plenty of documentation and accountability. Netflix turned tradition on its head, creating what may be the shortest expense policy any company has ever set: "Act in Netflix's best interests." Employees are also allowed to book their own travel online rather than going through a designated travel agent, allowing them to choose the best price. Netflix compensates its employees very well, but there's freedom there, too. People can choose what portion of their pay they would like to receive indirect compensation and what portion in stock options. This allows them to consider what sort of risk level they're comfortable with (the value of any company's stock will fluctuate over time) and what is best for them and their families. Netflix also eliminated performance-based SAGE SAGE Publications, Inc. 2017 SAGE Business Cases Page 3 of 5 Netflix's HR Policiesbonuses, preferring to pay people fairly and trust them to do good work. There are no "golden handcuffs"a form of retention plan that does not allow employees to receive stock options or other incentives until they've reached a certain number of years of service. Employees are also encouraged to research and interview with competitor companies and then have frank discussions with HR. This helps both the department and the employee know what good salaries are for various positions. The company also decided to forego conventional performance reviews. It eliminated the performance metrics typical of many companies' evaluations, like grading an employee on a five-point scale in a variety of different tasks and expectations. Instead, a "360-degree review" is performed, which is an open conversation between employees and their managers about feedback from people inside (and occasionally outside) the company who have any contact with the employee. The evaluation is largely centred on one question for the manager, known as the "keeper test": "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?" If someone's skills and abilities are no longer a match for the company, the person is given a generous severance package upon exit. As CEO Reed Hastings told the Harvard Business Review, paraphrasing a section of the now-famous PowerPoint: "'Adequate performance gets a generous severance package.' It's a pretty blunt statement of our hunger for excellence." The document is "our version of Letters to a Young Poet for budding entrepreneurs," Reed continued. "It's what we wish we had understood when we started." He goes on to argue that a relatively new industryonline, on-demand entertainmentdemands new paradigms. "As a society, we've had hundreds of years to work on managing industrial firms, so a lot of accepted HR practices are centred in that experience. We're just beginning to learn how to run creative firms, which is quite different. Industrial firms thrive on reducing variation (manufacturing errors); creative firms thrive on increasing variation (innovation)." The Payoffs Netflix's overhaul of its HR policies has yielded positive results. Despite the lack of carefully outlined procedures, the expectations are still clear: you have the freedom to make decisions, but keep in mind what is best for the company. The HR department at Netflix has realized that it isn't necessary to beat its people over the head with exactly how to make good decisions. Freedom equals reduced stress, arguably. The level of flexibility and self-management that Netflix also offers creates more efficiency. Employees don't have to worry about whether they've racked up enough days off to take a trip or whether they've worked long enough hours to impress the boss. They aren't fretting over how the big annual review will go, or whether they'll get the score that will earn the bonus they've been counting on. Eliminating these typical workplace stressors motivates employees to stay focused on creating ideas and solutions for the business. At Netflix, clear and honest communication thrives. Employees don't fear retribution for looking into openings with other companies; they can go to HR and openly discuss other possibilities. Managers no longer have to spend time "in the weeds" developing improvement plans and riding mediocre workers for results. Likewise, employees are less likely to have to pick up the slack for colleagues who are not performing. While Netflix lets people go whose knowledge and skills are no longer relevant, it's candid about why. As McCord puts it, "People can handle anything as long as they're told the truth." Being straightforward has costs, but having direct conversations with and offering a generous severance package to employees who are no longer a good fit has resulted in zero lawsuits over termination to date. HR is also empowered to find someone who fits the bill rather than continuing to invest in someone who cannot do what's needed while risking the morale and motivation of coworkers. By allowing its employees plenty of liberty to make decisions for themselves, Netflix has reaped great rewards in employee motivation, efficiency, and productivity. While the premise may have seemed risky, it proved to be a commonsense solution for issues most HR departments face. Considering the way it revolutionized and streamlined the movie rental process for changing times, it is hardly surprising that Netflix seems to have done the same for employee motivation.

1. Discuss the pros and cons of Netflix's approach to vacation. What considerations should an organization examine before implementing a similar vacation approach?

2. How would you explain Netflix's "positive results" from its HR Policy overhaul?