Daniel H. Pink, the chronicler of “free agent nation,” has written an article for The Daily Telegraph on Netflix’s unusual and very appealing vacation policy:
Back in the old days – 2004 – Netflix treated holidays the old-fashioned way: it allotted everyone N days a year. You either used them up – or you duked it out with accounting to try to get paid for the time you didn’t consume.
But eventually some employees recognised that this arrangement was at odds with how they really did their jobs. After all, they were responding to emails on weekends, they were solving problems online at home at night. And every so often, they would take off an afternoon to ferry a child to the paediatrician or to check in on an ageing parent.
Since Netflix wasn’t tracking how many hours people were logging each work day, these employees wondered, why should it track how many holidays people were taking each work year?
Fair point, said management. As the company explains in its “Reference Guide on our Freedom & Responsibility Culture”, a 128-slide PowerPoint presentation that has spread like samizdat literature on the internet: “We should focus on what people get done, not how many hours or days worked. Just as we don’t have a nine to five day policy, we don’t need a vacation policy.”
In a similar vein, Netflix’s policy on reimbursement for entertainment, travel, or gifts is a simple recommendation to act in the company’s best interests.
To be sure, Netflix is an elite company, one that James Ledbetter of Slate has recently described in deservedly glowing terms, that places a heavy emphasis on hiring and retaining only the most effective performers. It is a paradigmatic example of a digital organization, as described in Erik Brynjolffson and Adam Saunders’s Wired for Innovation. As I wrote a few weeks back,
The authors observe a sharp divergence between firms that successfully transformed themselves into effective digital organizations and those that did not. Very bluntly, digital organizations flourish while others wither and die. Brynjolffson and Wharton economist Lorin Hitt identified the defining characteristics of digital organizations, and the most striking were those centered on valuing the strongest performers within an organization: In digital organizations, employees are empowered to make decisions and they are subject to performance-based incentives. Recruiting and investing in top performers is a high if not the highest priority.
The logical implication is that the transition to digital organizations is a recipe for even more inequality. In “Performance Pay and Wage Inequality,” economists Thomas Lemieux, W. Bentley MacLeod, and Daniel Parent maintain that the increasing use of performance pay can account for “nearly all of the top-end growth in wage dispersion.” Assuming this pattern holds, there is no reason to believe that we will see any decrease in wage dispersion. Quite the opposite: The most skilled workers will cluster in digital organizations, and wages at the top will continue to expand at a healthy clip.
That is, the Netflix model is not likely to work at the low end of the labor force. But regulations that mandate policy on paid vacation will limit the Netflix’s ability to identify performance-enhancing personnel policies. Given that investment in organizational capital is an increasingly important driver of growth, this strikes me as a bad idea. If our goal is to help the disadvantaged, let’s pursue that goal by actually helping the disadvantaged — not by hampering innovation.