Netflix Culture — The importance of Talent Density (Episode 1)
I have just finished reading No Rules Rules : Netflix and the Culture of Reinvention by Erin Meyer (Professor @ INSEAD business school) and Reed Hastings (co-founder and CEO @ Netflix) and I am sure of one thing : this is one of the best corporate books I have read! I enjoyed it so much that I would like to share with you what I learned about Netflix Culture.
There are so many interesting things that I decided to divide them into three different articles :
- The notion of Talent Density (this one)
- Candor and organizational transparency are key (next one)
- No controls needed! (next one of the next one)
Netflix has built a real and impressive culture of Freedom and Responsibility. If you want to build such a culture within your company, here are the different steps to develop a culture of Freedom and Responsibility :
Rather than focusing on these different steps in the right order, I preferred focusing on the different important notions and on how they are reinforced during the process toward a Culture of Freedom and Responsibility.
Let’s start with Talent Density!
This notion is very important and central in Netflix Culture. I don’t know if there is a universal definition of this term, but simply put, it refers to a workplace composed of exceptional Talent. The more exceptional talent you have (compared to the number of “adequate talent”), the higher the Talent Density.
👉 I really like two things behind this notion :
- At Netflix, they prefer hiring one stunning talent who will do the work of 3 (or more) rather than hiring 3 “adequate” talent. Quality over the volume, it sounds great and as a recruiter, I love it!
- High density environment fosters efficiency and creativity. Working with great talent is motivating and you want to do your best… Good performance is contagious but so is bad performance (toxic, lazy or pessimistic people weaken the company performance).
This point about the importance of talent density was made in 2001 when Netflix had to lay off staff during a crisis. The company kept its Rockstars and laid off the rest (even those whose work was quite good — but not outstanding). Despite these layoffs, performance increased!
Continue Hiring the best and keep your talent!
Having a high Talent Density is great but you need to keep working to reinforce it (keeping the most talented with you) and increase it (keep hiring the best). One of the levers to do so is compensation : Netflix has decided to pay its employees above market wages!
Pay your employees above the market! 💸
Netflix divides its employees into two categories :
- Operational roles: For them, they pay in the market average
- Creative roles (the most numerous at Netflix): For them, they pay above the market because the value they bring can be increased tenfold
This notion of Talent Density allows to pay your employees well and above the market. Let’s remember : Netflix prefers hiring 1 Rockstar than hiring 4 adequate talent. You use for 1 the budget you could have used for 4!
💡 Did you know?
About the compensation structure: Netflix employees don’t get a target bonus! Instead of being paid 75k€ with a 20k€ bonus, they are paid 95k€ directly. The reason ? 👉 A variable part is not good for flexibility: an objective that is valid in January may no longer be valid a few months later and as you absolutely want your bonus, you will not adapt to market constraints because you want to meet the initial target at all costs.
👉 In this book, we have the example of the Head of Marketing. She had the objective of increasing the number of subscribers, except that a few months later the objective was no longer this, but mainly retention. If she had a bonus on objectives set a few months earlier, she would have focused more on the initial target to get the bonus, without focusing on the problem that had arisen: retention rather than new subscribers.
Give them the raise they deserve!
You have great and motivated talent in your company because you pay them above the market but that is not sufficient to keep them. They will continue to give their best, develop new skills and wait for the raise that rewards their work.
Once again, Netflix is very different from other companies : no increase envelope, no salary scale. 👉 None of these conditions take into account individual value, which fluctuates rapidly and can reach new heights. If everyone in your team is a top performer and the best on the market, how can you ensure they get the raise they deserve if you have to meet a budget or follow a scale?
Netflix uses market-based raises to ensure that it always pays its employees above market value. This is a solution that helps you to keep the best (even if it is not the only one). The company even advises its employees to accept all interview requests from recruiters to find out their market value. If other companies are willing to offer more than they earn here, employees should inform their manager and Netflix will consider the request.
The Keeper Test to be sure you are still working with the best
You hire the best and you try to retain them, but how do you ensure that Talent Density doesn’t decrease as you hire a lot ? Netflix has put in place the Keeper Test
Reed Hasting sees company with high Talent Density as a professional sports team (and not a family, I do agree with him!). Behind this notion of Team are the notions of commitment, camaraderie, cohesion but with difficult choices to make : always trying to get the best players and positioning them in the best place. To ensure to get the best in our 5-star team, The Keeper test can be used.
If someone in your team announced they were leaving the company, would you fight to keep them, or would it be a relief to see them go, so that you could find a better person? 👉 This is the keeper test. Netflix pushes managers to ask themselves this question regularly to ensure they have the best talent.
This method may seem brutal, but it is the starting deal, it is shared in full transparency during the hiring process : Netflix hires the best, they give them good compensations (above market) and a lot of perks and when performance is no longer exceptional, we part ways intelligently, with a generous severance package. Generous severance package because Netflix does so instead of putting PAP — Performance Action Plan in the US — in place which is time consuming and really expansive!
Besides seeming brutal, this method can worry employees who feel that they are on the spot at all times. To reassure them (or to confirm their fears) Netflix uses the reverse keeper test (employees ask the question directly to their manager). There are also “post-departure questions” that allow employees to find out why one of their colleagues was fired.
👉 Two things as a conclusion :
- Netflix Culture is very demanding and not for everyone.
- Culture can’t rely on Talent Density only. It needs candor, strong transparency and as less control as possible : you don’t hire the best to control their every move. This is what we will see in the next articles!
