This is a follow-up article to some recent blog posts about HR practices in high tech, fast-growing corporations. And this one specifically focuses on some HR brilliance from Netflix ($NFLX).
One can slice-and-dice their dazzling growth based on so many different performance metrics, but the company performance message remains consistent… the people at Netflix obviously know how to attract and retain talented people, leading to stellar growth.
Take a closer look at the small collage above. The graphs all reflect a rapidly-growing company. A pretty picture. Happy long investors. Profitable. Except... maybe, for the image bottom right. The header is "Bandwith Hog." A by-product of their rapid growth, perhaps less desirable? Not perfect then?
(1) Regardless, let’s explore some messaging from Reed Hastings and his people leaders:
“Titles are not very helpful”
Lots of people have a title like “Major League Pitcher” but they are not equally effective. This is no different to groups of people who are Directors, Vice Presidents, etc.
“Compensation is not dependent on Netflix success”
Whether Netflix is prospering or floundering, they pay at the top of the market. This is similar to a professional sports team, where a team with a losing record still pays the market rate. In the latter example – if they were to cut payroll – the team will likely end up doing worse! Most important on this topic is that employees (not managers) decide how many Netflix stock options they want to hold.
“When top of the market comp is done right…”
Netflix never has to counter with higher comp, because they lead by paying at the top of the market for the skills they want to retain.
(2) For tech companies that issue stock options to employees as a part of their pay, here’s # 2, this time related to deferred compensation:
Employees receive a top of the market salary, and can then request to trade salary for stock options. Some people take all in cash, and some request as much as 50% of their compensation in stock options. Either choice is okay. Hastings classes this as “consistent with freedom and responsibility.” It also allows employees to determine their risk/reward tolerance.
Netflix stock options (a summary of the program, and purpose):
- All stock options are fully vested and offer 10 years to exercise, regardless of tenure (or how long one stays at Netflix)
- Fully vested options are granted monthly at the (then) current stock price, so that employees can benefit from price-averaging
- Options are paid for with pre-tax income, meaning the stock option cost may be half of the typical cost in the open market – a great deal! Options become valuable only if the stock price goes up.
- Managers don’t “own people,” which is why all compensation is fully vested. Employees are obviously free to leave anytime, without penalty, but nearly everyone stays.
- Employees stay because they are passionate about their work, well paid… and not because of some deferred compensation system
Where does your company fit in the HR paradigm that includes attracting, recruiting, and retaining talented employees, and everything related to these three business requirements?
Is your corporation losing talent and retaining process-driven bureaucrats? Maybe it’s time to consider Netflix-style, wholesale change?
Disclosure: No position $NFLX