{"id":25468,"date":"2021-01-22T20:52:00","date_gmt":"2021-01-23T00:52:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=25468"},"modified":"2021-01-30T19:35:51","modified_gmt":"2021-01-30T23:35:51","slug":"talent-density","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/talent-density\/","title":{"rendered":"Talent Density: What It Is and How to Increase It"},"content":{"rendered":"\n

What is talent density and why is it important<\/a>? How did Reed Hastings focus on increasing the concentration of talent at Netflix?<\/p>\n\n\n\n

Talent density is a measure for the ratio of talent per employee. If you have people that are at the tops of their respective fields, your concentration of talent is much higher.<\/p>\n\n\n\n

Read more about talent density and how it was cultivated at Netflix.<\/p>\n\n\n\n\n\n\n\n

Talent Density at Netflix<\/h2>\n\n\n\n

The 2001 dot-com crash<\/a> came just a few years after Hastings launched Netflix in 1998. When the dot-com bubble<\/a> burst, venture capital<\/a> funds dried up and Hastings was forced to lay off a third of his 120 employees. Some of the layoffs were clear-cut decisions, but many other laid-off employees had adequate performances, worked hard, and produced high-quality work despite pessimistic attitudes. Eventually, Hastings whittled his staff down to the 80 most talented and collaborative employees. <\/p>\n\n\n\n

Although Hastings feared that the layoffs would decimate morale, he discovered that his staff was buzzing with energy and producing high-quality work\u2014despite the fact that the company was still slogging through the budget cuts and the remaining employees had to carry the workloads of their former coworkers. Hastings soon realized that by eliminating less-than-stellar workers, he\u2019d raised the talent density, meaning that there was a higher level of talent per employee, and that created an environment in which top performers thrived.<\/strong><\/p>\n\n\n\n

Pay Top Dollar for Top Talent<\/strong><\/h3>\n\n\n\n

In Part 1, we saw how Hastings established high talent density, candid feedback, and limited controls to create a culture of Freedom and Responsibility<\/a> in his young company. In Part 2, we explore how he employed new strategies to maintain those principles as Netflix\u2019s growth and success altered the working dynamics. His staff had already proven the value of having a high talent density\u2014but Netflix employees were so talented that other companies threatened to poach them. Hastings realized he would have to pay top dollar to maintain the company\u2019s high talent density.<\/strong><\/p>\n\n\n\n

Pay Top-of-Market Salaries<\/strong><\/h3>\n\n\n\n

When it comes to how much<\/em> to pay employees, the answer is simple: More than anyone else. Hastings knew that Netflix had to pay enough not just to attract the highest-performing employees, but also to prevent them from being poached. <\/strong>Since the rock-star principle and his focus on a high talent density left him with a lean staff, Hastings made it a priority to pay his employees more than any other company would offer them\u2014even if it was more than the employee asked for. <\/p>\n\n\n\n

By contrast, most companies count on job candidates to undervalue themselves, which allows them to pay people below their value. However, as employees\u2019 skills grow and they become more valuable, it\u2019s often inevitable that they\u2019ll get job offers with higher salaries. Even if workers love their jobs, research shows that most people will change jobs for more money. As a result, this model ultimately decreases talent density by creating an environment that encourages employees to leave for better-paying jobs. <\/p>\n\n\n\n

Paying Top-of-Market Is Difficult, but It\u2019s Worth the Investment <\/strong><\/h4>\n\n\n\n

It takes a lot of time and money to pay top-of-market, but the long-term benefits are worth the short-term costs. <\/p>\n\n\n\n

Problem #1<\/strong>: In order to pay top-of-market salaries, managers must constantly know their employees\u2019 market values. This is a difficult task\u2014especially in a rapidly changing market\u2014and it requires managers to spend a lot of time researching and asking people how much they pay employees or earn themselves, which few people are willing to divulge. <\/p>\n\n\n\n

Answer #1<\/strong>: Although researching employees\u2019 market values is time-consuming, it takes less time than finding and training a replacement for an employee who\u2019s been poached by a higher-paying company. Additionally, Netflix relies on employees to know their own value and to share that information with their bosses. Netflix urges employees to tell their supervisors if they find another company offering more money for the same position so that Netflix can raise the employee\u2019s pay accordingly. <\/p>\n\n\n\n

One of the best ways for employees to know their value is by talking to recruiters. Whereas other companies consider it an act of disloyalty to interview for another job, Hastings and the rest of the executive staff encourage their workers to take headhunters\u2019 calls and even interview for jobs in order to find out what their skills are worth. Employees are then instructed to share that information with their managers. Additionally, Netflix urges managers to be proactive<\/a> by giving raises before<\/em> employees come to them with other offers. <\/p>\n\n\n\n

Although it sounds risky to encourage employees to talk to recruiters and interview for other jobs, fostering transparency gives Netflix an opportunity to keep its workers. If managers discourage employees from talking with recruiters, it doesn\u2019t necessarily prevent them from doing so\u2014they simply feel that they have to sneak around. Then, if an employee receives an enticing offer, she\u2019s more likely to accept it before telling her manager that she\u2019s leaving. By contrast, in an open environment like Netflix, the employee can feel comfortable coming to her manager with another job offer, which gives the manager an opportunity to raise the employee\u2019s salary and fight to keep her. <\/strong><\/p>\n\n\n\n

Problem #2<\/strong>: Giving raises that keep employees\u2019 salaries top-of-market is expensive. <\/p>\n\n\n\n

Answer #2<\/strong>: Although it\u2019s expensive to pay top dollar, it\u2019s worth the investment to attract and keep the best talent. Ultimately, it costs more to lose employees to higher-paying jobs, recruit candidates, and train new hires. However, if the company\u2019s budget gets squeezed and managers are forced to trim payroll expenses, in order to keep the talent density high, Netflix opts to cut employees rather than reducing salaries. <\/p>\n","protected":false},"excerpt":{"rendered":"

What is talent density and why is it important? How did Reed Hastings focus on increasing the concentration of talent at Netflix? Talent density is a measure for the ratio of talent per employee. If you have people that are at the tops of their respective fields, your concentration of talent is much higher. Read more about talent density and how it was cultivated at Netflix.<\/p>\n","protected":false},"author":6,"featured_media":19003,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,29,14],"tags":[200],"class_list":["post-25468","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-career","category-management","tag-no-rules-rules","","tg-column-two"],"yoast_head":"\nTalent Density: What It Is and How to Increase It - Shortform Books<\/title>\n<meta name=\"description\" content=\"What sets the Netflix workforce apart? Talent density. 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