It was not obvious at the time, even to me, but we had one thing that Blockbuster did not: a culture that valued people over process, emphasized innovation over efficiency, and had very few controls. Our culture, which focused on achieving top performance with talent density and leading employees with context not control, has allowed us to continually grow and change as the world, and our members’ needs, have likewise morphed around us. Netflix is different. We have a culture where No Rules Rules.

For operational roles, you can pay an average salary and your company will do very well. At Netflix, we don’t have a lot of jobs like that. Most of our posts rely on the employee’s ability to innovate and execute creatively. In all creative roles, the best is easily ten times better than average.

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.

In order to fortify the talent density in your workforce, for all creative roles hire one exceptional employee instead of ten or more average ones. Hire this amazing person at the top of whatever range they are worth on the market. Adjust their salary at least annually in order to continue to offer them more than competitors would. If you can’t afford to pay your best employees top of market, then let go of some of the less fabulous people in order to do so. That way, the talent will become even denser.

The difference is the decision-making freedom we provide. If your employees are excellent and you give them freedom to implement the bright ideas they believe in, innovation will happen. Netflix does not operate in a safety-critical market, like medicine or nuclear power. In some industries, preventing error is essential. We are in a creative market. Our big threat in the long run is not making a mistake, it’s lack of innovation. Our risk is failing to come up with creative ideas for how to entertain our customers, and therefore becoming irrelevant.