Reed Hastings Explains Netflix Talent to Jim Cramer

Netflix Talent

At Netflix, talent is a huge driver for success. Jim Cramer interviewed Netflix CEO Reed Hastings on his CNBC show yesterday and talent became a major topic. Jim Cramer used his time with Hastings to focus on the personnel that make Netflix successful. Cramer even predicted that Netflix is “going to be at a market cap worth all the [TV] networks at one point”. A bold statement considering he’s a network employee.  Hastings enforced the idea that all tv will be internet in 10-20 years and divulged his hiring philosophy.

Netflix talent CEO

Cramer was quick to mention a “high-Sierra” moment he had with Netflix customer service. He told of a recent call with Sierra, a customer service agent, who helped him when he was trying to add movies to his queue for an upcoming visit with his daughter.  “There were 42 seconds before she picked up and she knew exactly how to put things in my queue. Where do you FIND these people?” he said ecstatically.  Hastings used this as an opportunity to explain how he attracts and retains Netflix talent.

Pay Your Humans

During the interview, Cramer brought up an interesting point about employee pay. He compared Netflix’s customer service to other tech companies like Twitter who skimp on a customer service phone number to save on bottom-line expenses related to hiring and salary. Cramer said “it sounds like you’re willing to pay your humans more than anybody else because you strive for excellence and success.” If you glaze over how much Cramer’s phrase “pay your humans” makes him sound like Lrrr from Omicron Persei 8, he has a great point.

Netflix’s median base salary and median total compensation are each at $180,000, making them the 2nd highest paying company in America. That is notably high considering the BLS (Beaureau of Labor Statistics) says that the average salary among America’s 119 million private-sector workers is around $45,000.

Hastings was quick to agree about the impact of compensation in attracting and retaining great employees. In the interview Hastings said, “our basic philosophy is to have the right people and to pay them really well. And, through that we have tremendous loyalty, low turnover, and high commitment to the customer.” It probably doesn’t hurt to use this great salary as justification to hold employees accountable to Netflix’s values.

Netflix Values

  1. High Performance
  2. Freedom & Responsibility
  3. Context, Not Control
  4. Highly Aligned, Loosely Coupled
  5. Pay Top Market
  6. Promotions & Development

Without going into every one of these (Pay Top Market was already covered above), it was interesting to look at what Netflix meant by “freedom” in their values set. Netflix talent documents say that “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”. Having too much process and not enough freedom can really hurt your chances of retaining talent, according to this slide from Netflix’s culture deck:

Netflix talent

This set of values shows how non-traditional Netflix’s approach to enterprise building is. Most industrial engineering is based heavily on process and procedures to raise the efficiency of the company. Netflix rejects this notion and embraces openness instead.

Cramer then goes on to say “It seems that if you want to do well at Netflix then you have to subscribe to the values. And if you don’t: you’re out.” To which Hastings responds saying, “the reason we publish our culture deck is so people can figure out, before they come to Netflix, if this is the right fit for them.”

Getting Fired From Netflix

When Hastings discusses if someone is the right fit, he’s implicitly talking about the consequences for someone who isn’t. While this can be difficult to do to an employee that’s outlasted their usefulness, it can actually be very good for your best employees.

Netflix’s firing practices are deeply rooted in the aforementioned company values. In an article by HBR (Harvard Business Review) about how Netflix reinvented HR, Hastings discusses the 2001 dot-com bubble burst when Netflix had to lay of a third of their workforce. When Hastings was ready to hire again, one of his engineers told him there’s no rush and that he was happier without the three engineers that worked under him before. Since he didn’t have to fix their mistakes all the time, he realized that he was efficient on his own. Hastings concluded that hiring excellent colleagues was a better perk for retaining employees than anything else, even if Netflix employees do get pretty sweet perks already (i.e. they’re offered a year off with pay when they have a baby).

For employees who were once extremely valuable early on but became less so as the company evolved, Netflix started offering severance packages. It helped to ease the discomfort of having to lay somebody off. Hastings mentions how a severance gives the formerly-invaluable employee a head start on regrouping and finding a new career path. This ensures Netflix talent always builds upon itself – a philosophy that is very similar to how Jeff Bezos raised the talent bar at Amazon.

Conclusion

The CNBC interview was a great glimpse into the Netflix talent culture and the prevailing thought behind it straight from the CEO’s mouth. It touched on other topics too, like how Netflix is to tv networks what Uber is to taxi cab companies, or what Amazon is to Wal-Mart and so on. However, the chance to hear about hiring talent from a guy who’s brought incredible disruptive growth to the market was worth highlighting.

Towards the end of the interview, Cramer asked Hastings why nobody can seem to replicate Netflix’s enormous success. “It’s the execution. It’s the people at Netflix,” said Hastings.

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