How to Run Employee Performance Reviews Like Netflix (Breakdown + Step-by-Step Guide)

With around 13,000 employees across five continents and multiple Emmy award-winning shows, it is no surprise that Netflix takes attracting and nurturing talent very seriously. So, what lessons can we learn from Netflix’s stellar people management strategies?

This article will showcase:

• How Netflix’s Unique high-performance culture works
• Their rules for giving & receiving feedback
• What the “Keeper Test” is and how it works
• Breakdown of their 360 review process, including anonymity settings
• Their learnings along the way

Netflix’s take on reinventing HR

Netflix has completely bid adieu to the old-school yearly performance review, which caused much consternation and awkwardness. Instead, they’ve replaced the rating system with 360-degree feedback, the “Keeper Test,” and the 4A Principles of feedback. All of these foster the tenets of freedom and responsibility. Additionally, Netflix believes in recruiting quality talent to make the lives of current employees easier.

These elements shape an intense culture of high performance, where star players join and grow within the company, and the poor players are let go. While it may sound harsh, this combination works for them—80% of Netflix employees would encourage their friends to become co-workers.

While these examples summarize Netflix's unique people management process, let’s explore in detail how Netflix's innovation in HR practices has helped rewrite the archaic performance and people management playbook.

How does Netflix run performance reviews?

You may find the link between sports and corporate leadership quite banal. However, this correlation hits the bull’s eye when discussing Netflix’s performance management style. In fact, Patty McCord, the former Chief Talent Officer at Netflix, was inspired by the principles followed by Scotty Bowman, who is regarded as the greatest hockey coach in history.

So, what principles of good performance management did Patty McCord find so valuable?

1. Your ultimate goal is to help the player (the employee) and the team to perform better. Any process you set up should be oriented toward that goal
2. You don’t measure performance for measurement’s sake but to learn and take action
3. Aid the performance assessment process with an objective measurement of activities and results
4. You should measure the player’s performance in the context of the entire team’s performance
5. Collect multiple viewpoints of other players on how helpful the individual player is to the whole team

Implementing these principles, Patty McCord developed a unique performance management process that will make employees responsible and give them the freedom to contribute to the company’s growth. All of these without being restricted by the short-sightedness of individual KPIs and targets.

Patty personally met Bowman, and a lot of the latter’s philosophy of coaching a series-winning hockey team has been brought to Netflix. By adopting this approach, Netflix can ax a system that promotes self-interest over collective interest and ensures that each employee is truly “taking one for the team.”

360-degree feedback rather than performance reviews

Netflix does not do performance reviews per se in the sense of a formal process where a manager retrospectively evaluates an employee’s work performance. Netflix ditched the annual performance reviews and replaced them with 360 feedback reviews. In doing so, they adopted a more holistic approach to performance management that considers input from an employee’s peers, direct reports, and managers.

Another reason behind Netflix’s choice to drop performance reviews is that they don’t use performance reviews to determine pay raises. Instead, salaries are based on the market, not performance. More on this later. This is also one of the reasons why Netflix does not use rating scales. The goal of 360 written feedback is to help everyone get better, not to categorize them into boxes.

So, written 360-reviews are administered regularly, enabling Netflix employees to give feedback to colleagues, managers, and, if applicable, direct reports. Reviews are one text box that employees have to fill.

How does this help? Employees are held accountable all year round, not just closer to “that time of the year” when performance reviews usually occur. Employees know who gave them the feedback, and their managers and people higher up will also be able to see it.

This model makes sense because:

• It makes employees accountable and conscientious
• Teams can avoid scenarios of a project not moving forward because a specific employee is busy meeting their targets
• The recommended feedback template is the ‘Stop, start, or continue’ framework, enabling all feedback to have directional value for each employee

Hastings himself stressed the need to encourage developmental feedback over positive, actionable feedback:

This template encourages workers to:‍

• ‍🟠 Continue doing anything good that adds value to the company, as they get positive real-time feedback for their efforts
• 🟢 Start a new initiative that can contribute to company growth
• 🔴 Stop something that is not helping the team or the company

How does compensation play into performance reviews?

These reviews don’t directly impact appraisals and current pay. The annual compensation review takes place in October and November and is the main determining factor for monetary compensation.

However, the 360 reviews help Netflix’s employees understand if they are a good fit or not in Netflix’s corporate culture. A recurring negative review may indicate that employees aren’t learning from their mistakes.

Anonymity

When they first tested annual written 360s, Netflix implemented anonymous feedback. It was a way to ensure that people could leave honest feedback without fearing retribution.

Yet, to higher management’s surprise, people preferred signing their feedback.

The “Keeper Test”

How many of your employees would you retain during a crisis? Or worse, in massive budget-cut layoffs? The “Keeper Test” is a brutally honest measure of this sentiment. The approach encourages managers to ask, ‘Will I fight for this employee?’ Depending on the answers of managers, it’s decided whether to keep or let go of an employee.

Does this sound harsh? Not if you are trying to build a high-performance management process like the one at Netflix.

The “Keeper Test” is a true litmus test to differentiate the high-value contributing employees from those that drain. This also ensures that your company’s cultural DNA is that of High-Performance.

In his book, No Rules: Netflix and the Culture of Reinvention, Reed emphasizes that teams at Netflix do not function as the clichéd and over-used term: “family.” Instead, they operate as a jazz band or a professional sports dream team. Each player or musician needs to be in top form and then come together to play a match-winning game or an award-winning symphony. Anyone not in their top form doesn’t deserve a spot.

Harsh, but that’s how winning teams operate. Like an all-star professional sports team.

4A Principles of feedback

True to its radical nature, Netflix encourages a culture of radical, transparent feedback that doesn’t just flow downward or upwards but also in a circle. Employees are encouraged to receive and give feedback to anyone and everyone. While the open, non-anonymous 360-degree blunt feedback instigates valuable discussion, it was clear to the Netflix executive team. that the feedback had to be:

• Clear
• Actionable
• In good faith

To this end, Netflix came out with the 4A Principles of Feedback, which meant all employees’ (managers included) had to keep these in mind while giving and receiving feedback.

Key reasons behind Netflix’s current performance review system

In line with their cultural DNA

Over a decade ago, Patty McCord and Allison Hopkins presented a deck of slides to Reed Hastings, Netflix Founder and CEO. The “Netflix Culture Deck” completely redefined Culture Building among Human Resource professionals. Many experts see it as the genesis of the unique culture we see at Netflix today.

In the words of Sheryl Sandberg, ex-COO at Facebook, the Culture Deck was “one of the most important documents ever to come out of Silicon Valley.”

The deck laid the foundation of Netflix’s employee performance management system. And in doing so, it inspired several others to ditch archaic HR practices for ones that actually work.

“Freedom and responsibility” are the two broad tenets upon which Netflix’s laurels are built. Patty McCord believed responsible employees thrive and deserve the freedom to grow and innovate.

The deck is a great primer for Netflix to grow its people function as it scales across geographies, languages, and more.

Ideas such as:

• Increasing talent density faster than business complexity
• Eliminating control and introducing context
• Promoting complete transparency and radical candor
• Adopting a code of conduct for ethical behavior
• Differentiating between “Good” and “Bad” processes to circumvent the pitfalls of market shifts and rapid growth.

All are visible in Netflix’s 130-slide deck. Unlike generic values listed by most companies’ “culture” doc, the core values upheld at Netflix are as clear as crystal.

These are the behavioral traits that decide:

• Who is hired
• Who is nurtured
• Who is let go

Performance management processes at Netflix stem from this deeply entrenched, thoughtfully articulated culture code.

By doing away with ritualistic and irregular performance reviews, they eliminated the bureaucracy usually associated with obsolete formal performance review systems. Instead, 360-degree feedback allows employees to identify which projects and behaviors they are to “Stop, Continue and Start.” Thus, ensuring that each one aligns with the best of Netflix’s interests.

Maximize productivity

Businesses and sports teams have a lot in common. If a specific team member drops the baton, it affects the larger team sooner or later. This approach to teams is why Patty McCord insisted that each leader at Netflix act like a sports coach, not an HR manager.

Bold decisions are essential to improve a company’s overall productivity all year round. You need to look at every employee as a player and ask yourself repeatedly: Are they in form? Do they deserve a spot here?

The Keeper Test discussed earlier helps you analyze, assess, and question your staff to determine if they still deserve a place in your company. While this may sound harsh, it keeps employees motivated and manic about high performance at all times.

Empowered resources = Increased engagement

The top three qualities of a great employee are:

• High and complete ownership
• Accountability and highly conscientious
• Innovative

However, these qualities are often suppressed by defining strict KPIs. When strict performance indicators bind an employee, they become a frog in a well. It’s almost like giving them a green signal to only think about meeting their targets, ignoring long-term vision for short-term outcomes. At Netflix, leaders allow their people to shape their careers instead of institutionalizing them with structured career plans.

Hire and retain “Star” performers only

A hedge against a scenario where complacency kicks in and growth stagnates is to hire great people, pay them top-of-market, and give them the room to grow and learn from each other.

All of Netflix’s policies are aligned to hire and retain “Star” performers, which raise the bar for the entire company, year after year. With 360-degree performance reviews, people are kept accountable throughout the year. Then, with The “Keeper Test,” the misfits and poor performers are let go with a severance package.

Moreover, Netflix has no centrally administered “raise pools” (i.e., bars of 10%, 20% appraisals, etc.) or traditional annual reviews. Instead, they follow an Annual Comp Review, where managers align their employees’ compensation based on market standards, answering three questions for all the star performers:

• Are they being paid top of the market for their skill set?
• Are they being paid as much as a replacement would cost?
• Are they being paid as much as they’d get paid to be retained if they had a higher offer elsewhere?

This unique way of rewarding monetarily ensures a transparent pay policy for all. Employees are encouraged to speak openly about their pay, not just with colleagues but also by talking to peers at other companies. Moreover, talented people who are handsomely rewarded attract others.

100% transparency

Netflix encourages complete transparency among all employees.

• If you are underperforming at Netflix, you will immediately receive the relevant feedback
• If your team is not meeting the targets, you will know it
• Managers are not mired by maintaining internal parity and are instead encouraged to call a spade a spade.

The 360-degree feedback also encourages transparency, as the reviewers are never anonymous. Every employee gets a clear picture of how they are perceived and areas of improvement. Netflix believes transparency helps reduce tension and counteract dirty internal politics.

The key to Netflix’s performance review success

The unique cultural code and the resulting performance review system at Netflix have been largely successful. As Wall Street Journal reported, the voluntary churn rate stood at a mere 4%, a stark contrast to the 14% at average American companies. So, what makes Netflix a dream company for the top 1% of talent?

Complete freedom

Netflix’s workforce isn’t just competent. They also get the space to grow, experiment, and chart their paths. By doing away with binding KPIs and formal processes, employees can work on projects that truly matter and work in the collective interest of everyone at the company.

Radical candor

Netflix has a bunch of techniques embedded in its culture and way of doing things to enhance openness in the organization:

• The 360-degree non-anonymous performance peer review process
• The Keeper Test
• The 4A Principles of feedback

All of these policies aim at creating a culture of radical candor. Leading by example, Hastings himself states:

A star-studded peer group

Bold decisions like letting go of underperforming employees may be controversial. Still, it works when you want to create a team of high-performers only.

Building a high-performance culture is hard, and traditional HR practices can do more harm than good. Netflix has a bold and transparent approach from the get-go, ensuring that the top talent is around the best peers to bounce ideas off of and grow with. The best part is that they’re all A+ players, aligned to make Netflix win at all costs.

How can you run a performance review process similar to that of Netflix?

With Deel Engage, you can run a performance review process like the one pioneered by Netflix. Our platform allows you to get 360-degree feedback from multiple directions with little admin hassle. Here is how you create a new feedback cycle:

1) Name your cycle and briefly describe it

Choose a clear name so all your stakeholders understand its purpose, e.g., annual 360 performance review.

2) Select the appropriate feedback types

You can choose:

• Self-review
• Downward feedback
• Upward feedback
• Peer feedback

When configuring the peer feedback survey, define how many peers can participate per employee and the rules for peer selection. Additionally, consider whether the reviewee or their manager should nominate the peers.

3) Create questions for each feedback type

You can create all questions yourself or choose some from the examples the Engage L&D consultants provide.

Additionally, you can implement the “Keeper Test” by using hidden questions. Make sure you enable the “Hide from reviewee” function. The reviewees will never be able to see the answers. Managers can answer questions relating to promotions, increasing compensation, etc.

4) Add instructions for your reviewers

You can add instructions on how to give feedback. If you decide to add a rating scale, you can add further instructions explaining the scale.

Follow these steps to replicate Netflix’s model:

1. Reaffirm the 4As of Feedback. Instruct reviewers to give feedback that is clear and actionable, aims to assist, and is given in good faith
2. Incorporate the “Start, Stop, Continue” framework for questions and answers
3. Only create comment questions to gather qualitative data. No need for rating scales

5) Define your anonymity settings

Who should see what feedback? If you want to replicate Netflix’s model, remember that it is all about transparency and openness, so do not enable the “Share anonymously” feature. As a result, every reviewee will see where the feedback is coming from.

6) Design the reviewer experience

What would you like your reviewers to see while writing and submitting feedback?

• Will your employees be able to see who will see their responses?
• Should they see whether their answers are anonymous?

7) Select the participants for your review cycle

Who will be under review? You could select specific departments, teams, or specific employees. You could also choose everyone in the company with a single click. Simply select “All employees.”

You also have the option to automatically add employees to 360 feedback cycles, depending on their job start date, or when they join specific groups (e.g., departments, locations, etc.)

8) Define the timeline of your review cycle

Set the deadlines for all the steps of the feedback cycle you configured. Here are some examples of deadlines to consider for a 360 cycle:

1. For employees submitting their self-reviews
2. For employees nominating their peers
3. For managers approving the peer nominations
4. For managers submitting downward feedback
5. For reviewing and calibrating the preliminary results
6. For sharing and discussions: When will the employees access feedback from peers and managers?

9) Your feedback is ready to go live. Launch your cycle

Double-check all the details and activate the cycle. Your reviewers will automatically receive notifications for the tasks they need to perform (e.g., nominating or reviewing peers).

Once the deadlines are approaching, you can trigger notifications so nobody misses their key tasks.

Features that make Deel Engage truly stand out from your run-off-the-mill HRMS

• With a highly customizable 360° feedback builder, it is intuitive for you to set up and build the feedback system of your dreams
• With the advanced anonymity settings, you can decide which feedback should be anonymous and which should not
• If a lot of your teammates are working remotely, you can use the feedback tool to measure remote engagement as well as job satisfaction
• Moreover, feedback is directly linked with other features, like career frameworks, goal management, and development plans, to make it a more holistic and actionable experience for your employees. Your employees can create a new focus area for their growth plans directly from their feedback view.

Deel Engage combines technology with world-renowned HR practices. In doing so, we built a system that enhances the quality of the people management function at your organization. We support People Ops teams to create positive employee experiences and a culture that measures and rewards performance fairly.

Book a free 30-minute demo to see how to craft the best performance review system that enhances your organization’s productivity.