Reed Hastings explains why startups should offer severance packages

Severance packages are unusual for startups, but in the clip below, Netflix founder Reed Hastings explains why the company has offered 4+ month severance packages since inception:

“It’s real money, but it’s worth it… You’re going to spend three months managing the person out anyways.”

The legal release you get in exchange for the severance package helps avoid employee lawsuits. And as Reed puts it:

“You can think of the severance payment as a bribe to your managers. It makes it easier for them to do the right thing for the company. Without [generous severance packages], managers put the employee on a performance improvement plan and then the two of them go through this excruciating dance that takes 2-4 months, and it’s just a lot worse.”

Generous severance packages are aligned with Netflix’s focus on increasing talent density over time and what they call “The Keeper Test”:

“If someone in your team announced they were leaving the company, would you fight to keep them, or would it be a relief to see them go, so that you could find a better person?”

Netflix pushes managers to ask themselves this question regularly to ensure they have the best talent.

This method may seem brutal, but it’s shared in full transparency during the hiring process. And generous severance packages make the transition easier for both parties.

Full video: Greylock “Blitzscaling 16: Reed Hastings on Building a Streaming Empire” (Nov 2015)