Hiring Leadership Team

As a general rule, maintain high talent density. Here is Netflix’s formula.

Hire smart people

• High performers thrive in environments where the overall talent density is high.
• Performance is contagious. Below par employees will:
  • sap managers’ energy, so they have less time for the top performers
  • reduce the quality of group discussions, lowering the team’s overall IQ
  • force others to develop ways to work around them, reducing efficiency
  • drive staff who seek excellence to quit
  • show the team you accept mediocrity, thus multiplying the problem.

Hire fewer people

• A great software developer is worth ten thousand times the price of an average software developer. Applicable to all knowledge workers.
• This will exponentially increase the speed of innovation and output.
• Managing mediocre-performing employees is harder and more time consuming. By keeping organization small and teams lean, each manager has fewer people to manage and can therefore do a better job at it.

Pay them top salary

• When it comes to review time, instead of looking at what that employee is worth on the market, most companies use “raise pools” and “salary bands” to determine raises.
• Typically, you’ll get more money if you change companies than if you stay put. In such companies, staying in the same job is bad for your pocketbook.
• The raise pools and salary bands used at most companies worked well when employment was often for life and an individual’s market value wasn’t likely to skyrocket in a matter of months. They are not applicable anymore.
• It costs a lot more to lose people and to recruit replacements than to overpay a little in the first place. Think of the hiring cost, management time, loss of focus, loss of momentum, training costs and time for a new person to become productive at the same level.
• Hire amazing people at the top of whatever range they are worth on the market. Adjust their salary at least annually in order to continue to offer them more than competitors would.
• If you can’t afford to pay your best employees top of market, then let go of some of the less fabulous people in order to do so. That way, the talent will become even denser.
• It takes tremendous courage and vision to give raise to people, especially when they have not asked for it.

Salary all fixed, no variable

• The entire bonus system is based on the premise that you can reliably predict the future, and that you can set a bonus objective at any given moment that will continue to be important down the road.
• This idea is flawed that if you dangle cash in front of your high-performing employees, they try harder. High performers naturally want to succeed and will devote all resources toward doing so whether they have a bonus hanging in front of their nose or not.
• Contingent pay works for routine tasks but actually decreases performance for creative work. Creative work requires that your mind feel a level of freedom. If part of what you focus on is whether or not your performance will get you that big check, you are not in that open cognitive space where the best ideas and most innovative possibilities reside. You do worse.

Use “Keeper Test”

• At work, you are a team, not a family.
• For it to be a championship team, you want the best performer possible in every position.
• Keeper Test: If a person on your team were to quit tomorrow, would you try to change their mind? Or would you accept their resignation, perhaps with a little relief? If the latter, you should give them a severance package now, and look for a star, someone you would fight to keep.
• When you realize you need to let someone go, instead of putting him on some type of PIP (Performance Improvement Plan), which is humiliating and organizationally costly, take all that money and give it to the employee in the form of a generous severance payment.

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