Netflix founder Reed Hastings on why startups should offer severance packages

When you cut someone loose and it's a week or two of pay, it really can be difficult for them. But our minimum is four months, and it goes up from there. And that does a couple things. One, it makes the person feel better about it. It's a material amount of money. And two, we get a legal release in exchange for that. And so despite the fact that we've separated from a thousand people, maybe we've never had an employee lawsuit. And then third, and most subtly, managers are really nice people. They don't like doing mean things. And so you can think of the severance payment as like a bribe to the manager to do the right thing, because it makes it eas. And without that, what they do is they put an employee on a performance improvement plan and then the two of them go through this excruciating dance that takes two or three or four months and then they break up. And it's clearly documented. And that's just a lot worse. When did you start with a four month severance package? It was three months from the very beginning. That's unusual for a startup. Yes, it's real money, but it's worth it. It doesn't really cost you any more. Yes. Okay. Because you're going to spend the three months managing the person out, and so you're going to end up with that hit.