Don’t like handcuffs ? Join Netflix !

Reed Hastings is the co-founder and CEO of Netflix, which provides live streaming TV and video shows from the internet on a monthly subscription basis in the USA, Canada, UK and Ireland. A great concept and one that led to the ultimate doom of the local video/DVD rental business (think Blockbusters).

In How to set your employees free, an interview with Bloomberg BusinessWeek, he talked about the culture in his organisation. Of course, he mentioned their “no policy on vacation” approach. Their view is, it should not be how many days you work that matters, but how great your work is – and you should be mature enough to make the right decision.

I guess it depends on the company culture. If you have controlling, “little” line managers who think they show power by refusing your leave, this approach can’t work.

And what about the opposite ? Some companies or governmental organisations in the region have very generous vacationis policies – on paper. Yet they may remain largely un-delivered, as the 50 days off or more are sometimes never granted by management. What kind of message does that deliver to employees ? “We say we care about your work-life balance and put it in writing but don’t actually intend to enforce it. Just take the leave encashment and be happy. We don’t care if you don’t feel that you can trust the company and we do not worry about employee (dis)engagement” ? But I digress.

What grabbed my attention the most was this statement (emphasis is mine) :

“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.”

I find this approach to long-term compensation (or rather, the lack of it) interesting. In a world where more and more companies are trying to tie compensation to long-term results, this philosophy is radically different.

There is maybe more direct cost to the company through higher wages but less deferred cost. It shifts the emphasis from pay as a motivator, to “challenge and excitement” as the main drivers of motivation. Dan Pink would agree !

I am not against long-term compensation, but have always wondered about its motivational impact below the Executive level. In middle management and expertise positions, the payouts are more of the “golden handcuff” nature that Reed Hastings so clearly does not like, rather than a motivation to look at the long-term impact of one’s decisions. These employees probably have more difficulty than top executives in identifying the line of sight of their actions on the results of the organisation a few years down the road.

What do you say ? Do you agree with Reed Hastings’s position or do you think companies should provide long-term compensation to their employees to keep them motivated ? Share your views in the comments section !

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• The Netflix Employee Value Proposition
• High Pay Commission report tackles excessive high compensation
• One lesson from the Zynga stock scandal
• A follow-up on Zynga

Image courtesy of Netflix.com