<aside> <img src="/icons/arrow-right_orange.svg" alt="/icons/arrow-right_orange.svg" width="40px" /> From the Pay Your Top People

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No bonuses (salary+equity+high standards)

One of my favorite books on company culture is No Rules Rules, Netflix and the Culture of Reinvention by Reed Hastings and Erin Meyer.

Netflix takes the following approach to compensation:

1. Pay top of the market on salaries.
2. Offer equity for long-term incentives.
3. Use the “Keeper Test” to quickly exit underperformance.

Netflix eliminated performance bonuses (short-term incentives) as they found the business was so dynamic that the goals associated with a bonus would often be the wrong ones as the business evolved.

According to co-author Erin Meyer, certain research confirms that contingent bonuses work well for routine tasks but can actually decrease performance for creative work.

She cites Duke Professor Dan Ariely who studies incentives:

Netflix co-founder Reed Hastings:

“People are most creative when they have a big enough salary to remove some of the stress from home. But people are less creative when they don’t know whether or not they’ll get paid extra. Big salaries, not merit bonuses, are good for innovation.”