Netflix’s expense policy is not what you expect, but it works

Employees at companies like Netflix or Google can be up to 40% more productive than average workers, studies suggest.

A considerable part of that is eliminating “organisational drag”, those internal processes or policies that take up way too much time. You know, like expenses.

So how do they do it?

Netflix’s expense policy is summed up in just five words:

“Act in Netflix’s best interest”.

Inside Netflix’s company culture

More than 10 years ago, the entertainment giant released a presentation on how they run their company. It covered who they hire, who they fire, and how they create their culture.

Netflix Culture: Freedom & Responsibility” has received praise ever since it was unveiled. Bosses there say their approach has pushed productivity to new heights.

The numbers suggest they’re right.

Since the 2009 presentation, the company has grown from 12m monthly subscribers to more than 150 million customers worldwide. It’s one of the fastest-growing and most innovative companies in the world, employing more than 7000 people…

… and it still doesn’t have an expense policy in place.

The Netflix Way: “Treat People Like Adults”

In small or family businesses, people know each other and trust can come naturally.

But things change when companies start to scale. Management put a growing number of policies and procedures in place, often in a very ad hoc way.

While most organisations think this is inevitable, Netflix approached things a bit differently as they grew.

As Netflix CEO Reed Hastings puts it, these processes emerge as an urge to stop the chaos that growth can involve.

Processes emerge as an attempt to “control” chaos in a growing company.

“Time to grow up” becomes a management mantra, as leaders try to justify new rules and regulations.

As a result, policies pop up in different areas, including the one about how much money employees are allowed to spend on business expenses.

But this is where another, often overlooked, problem actually occurs.

That growing number of procedures, rules and policies mean a reduction in employee freedom.

Netflix realised a different type of chaos happens as a result. The increased complexity reduces the productivity of high-performing employees, who may be tempted to leave.

Process problems

On average, a company loses more than 25% of its productive power to organisational drag.

Organisational drag is the bureaucratic processes that waste time and prevent people from getting things done, like expense reporting.

And guess who really doesn’t like tedious, time-consuming processes? Millennials.

In surveys, millennials repeatedly say that autonomy is the most valuable company perk.

Sometimes even more important than the size of their salary. No, really.

How Netflix manages expenses

Netflix is not alone in realising the pain that drag can cause. So they decided to try a different approach with expenses.

In Netflix’s case, it’s quite simple.

Employees are instructed to “expense only what you would otherwise not spend, and is worthwhile for work”.

They don’t have any limits, rules, reporting or tracking set in place to follow that, as it has proved as a waste of time.

“We assume you are not here to rip off the company, and we’re not going to put in place processes that consume human capital, waste time, and zap energy,” said Patty McCord, their former Chief Talent Officer.

How Google manages expenses

Google does things a bit differently:

Most companies today have corporate cards reserved only for senior management. Google decided instead to give one to every employee.

This doesn’t just symbolise the amount of freedom and trust they’re giving workers.

It’s also a rational business decision to automate their expenses.

Employees are not just allowed to spend what they need to to get their job done well. They also get company money to do that.

It’s a massive disruption to the status quo.

How most companies manage expenses

In most companies, the majority of employees have to follow a strict expense policy. Often, they have to pay out of their own pocket for a simple business purchase.

This is where theexpense report” comes in,  a detailed record and description of each company’s purchases. 

It’s left for review by the finance team so that workers can later receive their money back.

This goes against everything the Netflix approach stands for.

Unfortunately, this cumbersome bureaucratic process has become a norm for the majority of businesses nowadays. People have, in many cases, learned to hate it. The fact it often leaves them seriously out of pocket is no doubt tied to that.

At Pleo, we’ve written about why the era of expense reports is coming to an end.

But people have understandable concerns about what freedom with company money could mean.

What it means for company money

“Won’t the employees just spend more?”

Give your employees more freedom with expenses, and they’ll overspend, right?

The answer from Netflix’s example seems to be: not really, no.

They realised that “97 per cent of their employees will always do the right thing… the other 3% were wrong hires in the first place”.

Similarly, Basecamp rolled out a no-red-tape expense policy. They had just one case that was worth digging into, from their 100+ employees.

And guess what? The employee involved in the one case stayed working there afterwards, according to their co-founder Jason Fried.

The new way to do expenses

The trade-off between what employees want and what finance teams need has resulted in a bad compromise for both – the expense report.

Expense reports take a lot of time and effort, are prone to errors and slow the business down.

All of this is a source of stress and time loss for the entire organisation.

Thankfully, the fast developments in business and finance technology are moving things in the right direction for forward-thinking companies everywhere.

Expense and travel tools are becoming smarter by automating the necessary regulatory requirement parts. At the same time, they give employees a much easier and quicker way to just get things done.

What Pleo can do for you

Pleo is a different way to do expenses, one that’s got some things in common with Netflix and Google.

Employees are trusted with our smart company cards, empowered to buy what they need for their job. The finance team gets real-time overview and can set spending limits for each person.

Everyone is compliant, everything is tracked, but there are no more expense reports.

It brings the best of both worlds. Staff stay agile and fast. At the same time, companies get more control over their spending.

And with all the saved time, there must be a boxset you’ve been meaning to catch up on. Or some work to do.

Try Pleo today