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Reed Hastings: Why Netflix's Minimum Severance Is Four Months — Even After Two Weeks

By Reed Hastings · Leadership · 1 min read

Even if two weeks in we realize there's a mistake — they get a four-month severance package. It does three things: the person feels better, we get a legal release, and managers actually do the right thing instead of torturing everyone with a performance improvement plan.

Key Points

Netflix's minimum severance is four months, even for someone who's been there two weeks
The severance is a bribe to the manager to do the right thing — without it, they drag out PIPs
Despite separating from a thousand people, Netflix has never had an employee lawsuit

The severance payment is like a bribe to the manager to do the right thing. Without it, they put someone on a performance improvement plan and go through this excruciating dance.

Four Months Minimum

Hastings: One part of compassion is a severance package. When you cut someone loose and it's a week or two of pay, it can be really difficult. Our minimum is four months, and goes up from there.

Even if two weeks in we realize there's a mistake — as long as the person hasn't lied to us — they get a four-month severance package.

Four months minimum. Even after two weeks. As long as the person hasn't lied to us.

Three Things It Does

Hastings: It does a couple of things. One — it makes the person feel better because it's a material amount of money. Two — we get a legal release in exchange. Despite separating from maybe a thousand people, we've never had an employee lawsuit.

And third — most subtly — managers are really nice people. They're human beings. They don't like doing mean things. So the severance payment is like a bribe to the manager to do the right thing. It makes it easier.

The severance is a bribe to the manager to do the right thing. It makes it easier.

The Alternative Is Worse

Hastings: Without the severance, what managers do is put an employee on a performance improvement plan. Then the two of them go through this excruciating dance for two or three or four months. Then they break up. But it's clearly documented.

That's just a lot worse. So we essentially buy out. The person takes a month or two off, then gets snapped up somewhere. It doesn't really cost you any more — because you're going to spend those three months managing the person out anyway.

Without severance, they go through an excruciating PIP dance for months. That costs you anyway.