How to Set Your Employees Free: Reed Hastings

Photograph by Charlie Engman for Bloomberg Businessweek; Stylist and Grooming: Marco Testa

We call Netflix’s corporate culture the “freedom and responsibility culture.” We want responsible people who are self-motivating and self-disciplined, and we reward them with freedom. The best example is our vacation policy. It’s simple and understandable: We don’t have one. We focus on what people get done, not on how many days they worked. Prior to 2004 we had the standard vacation model, until we realized no one was tracking how many hours in a day they worked. Why were we tracking whether someone takes two weeks or four weeks of vacation? It was an industrial era habit. I make sure to take lots of vacation to set a good example, and I do some of my creative thinking on vacation.

My first company, Pure Software, was exciting and innovative in the first few years and bureaucratic and painful in the last few before it got acquired. The problem was we tried to systemize everything and set up perfect procedures. We thought that was a good thing, but it killed freedom and responsibility. After the company was acquired, I reflected on what went wrong.

In 2009 we posted my thoughts on Netflix culture and it resonated widely. It was a letter to myself 20 years ago about everything I wished I had known in 1991. I was 30 then, and there are many 30-year-old entrepreneurs who are trying to figure out these same issues I was struggling with, so it’s a little bit of a contribution to the community.

At Netflix, we think you have to build a sense of responsibility where people care about the enterprise. Hard work, like long hours at the office, doesn’t matter as much to us. We care about great work. This requires thoughtful, mature high-performance employees. One way we attract top talent is with top-of-the-market compensation. We do no stock vesting or delayed compensation. Many firms give a bonus or stock grants that vest over a number of years. That’s sometimes called “golden handcuffs.” I’ve always been put off by the handcuffs part of that. It’s the wrong imagery. We want people who want to work here because they are well paid, challenged, and excited. Employees can leave here at any time without losing compensation.

During the trying time for Netflix last year, our culture helped us hold everything together. When we moved too quickly for our customers and the backlash hit, there was a lot of strength and resilience on the management team.

We’ve gotten through it, and we are back to growing and doing great again. Now we’re thinking about how to evolve our business in a way that doesn’t alienate current customers who don’t like rapid change, but in a way that attracts future customers who might benefit. We need to do both. That is where we missed. — As told to Brad Stone 

    Before it's here, it's on the Bloomberg Terminal.