Netflix’s extraordinary parental leave was part of its culture. That’s over.

It was a promise Netflix couldn’t keep.

The policy was in line with a core company value, “freedom and responsibility," the idea that employees can be trusted to set their own boundaries. But more staffers than expected took full advantage of the benefit, and Netflix ultimately found it unsustainable.

The company has spent the past few years walking back the leave policy, issuing vague and sometimes conflicting guidance internally without explicitly retracting the one-year benefit, according to internal communications reviewed by The Wall Street Journal, as well as interviews with current and former employees. Taking more than six months of leave is now widely understood to be an unwise career move.

The pullback on parental leave points to a central tension now roiling Netflix. The streaming giant credits its culture, and founding principles such as employee freedom, for fueling much of its success. It has long been known for a competitive workplace that embraces radical transparency and blunt feedback, while also letting employees make their own decisions around spending and time off, trusting them to work in the company’s interest. Executives credited this “no rules" atmosphere for attracting the best talent.

But as it grows, Netflix is revisiting those long-held mantras, worrying they’re no longer practical for a company that has some 14,000 employees—a more than 60% jump from before the pandemic. It has also shifted its focus to profitability, under pressure from Wall Street, instead of subscriber growth.

The company’s evolution, which has included clamping down on freewheeling spending and reining in employee criticism of content, has prompted anxiety and confusion in Netflix’s ranks about whether its unique culture is still intact.

Staff have seized on the parental-leave policy as a stark example of how they think Netflix is losing what makes it special. “Netflix always had a different approach than other companies in that they said it’s important for employees to be with their babies," said Clara Guimarães, a former São Paulo, Brazil-based production employee for Netflix. “Now it feels like it’s more about the business needs."

Sergio Ezama, Netflix’s chief talent officer, said the company hadn’t pulled back on its parental-leave policy. A Netflix spokesman said the leave policy “has always been to ‘take care of your child and yourself.’" He added that “employees have the freedom, flexibility and responsibility to determine what is best for them and their family."

The spokesman said that over the past four years, the average parental leave has held steady at 6.3 months for U.S. employees and 7.5 months for those outside of the U.S. The company didn’t provide a breakdown between birth and nonbirth parents.

In June, after an annual review meeting of executives, the company removed the “freedom and responsibility" section of its founding culture memo—a widely cited document that enshrines Netflix’s core values.

Ted Sarandos, co-CEO, said in an October interview at WSJ Tech Live, a Journal event in Laguna Beach, Calif., that Netflix never meant for its culture to be static and that it needs to change as the business evolves.

Sarandos said the original culture memo was created when the company had a few hundred employees, so updating it makes sense. “It was probably a little more emphasis on freedom than responsibility, and we think you need to have both," he said. “But the core values in the new document are all in the old document."

Netflix’s culture should “reflect how we work, not dictate how we work," he said.

Heightened focus on profits

Reassessing the leave policy is part of a wider cultural reset at Netflix. There are no longer internal companywide emails to explain why someone was fired, a ritual that some found off-putting but that was meant as an exercise in transparency, a prized Netflix value, said current and former employees.

Workers are no longer encouraged to share corporate documents on everything from strategy to performance “broadly and systematically," as the culture memo once instructed. In the past, the idea was that the flow of information would invite candid feedback and debate; these days, the company limits what documents are available to most employees.

The company has long said it values internal debate, but that once a decision is made it expects staff to sign on. Netflix added language to its culture memo in 2022 saying this includes decisions about Netflix programming that employees find offensive. The additions came after an employee walkout over a Dave Chappelle comedy special that some said insulted transgender people.

Since then, several former employees told the Journal they felt uncomfortable speaking out on their concerns about diversity or racism and were wary of attending meetings of minority-employee resource groups.

Amy Reinhard, Netflix’s then-head of production, acknowledged this issue, specifically for Black employees, in an internal memo last year. She said such experiences are “unacceptable" and outlined steps she was taking, including holding quarterly roundtables between herself and Black employees in the U.S. and Canada.

While Netflix’s expense policy remains simply “Act in Netflix’s best interests," the company’s heightened focus on profits—compared with the early days, when adding millions of customers was enough to wow Wall Street—has led to new cost controls.

Netflix used to give managers broad discretion to set salaries well above market to recruit and retain talent. In the past few months, managers have been asked to keep salaries within the range of 50% to 95% of employees’ peer groups, according to emails reviewed by the Journal, bringing Netflix more in line with industrywide compensation.

The company has even put limits on how much Netflix swag, including coffee mugs, sweatshirts and baby onesies, an employee can order after the perk seemed to be overused, according to people familiar with the situation. After years of unlimited orders, employees are now limited to $300 worth of merchandise a year.

At the annual review meeting this spring, when hundreds of Netflix executives convened at the J.W. Marriott in downtown Los Angeles, they hashed out in small-group discussions the proposed changes to the culture memo, according to attendees. A common question arose: If we take freedom out of our culture, what are we?

Some acknowledged that the change was necessary. Internally, some executives had started to joke that the pillar of “freedom and responsibility" should be called “freedom and responsibility without the responsibility."

In the end, the company made the change.

Netflix’s new mindset of cost-consciousness, which controlled what had been ballooning spending on operations and people, has aided the company’s recovery from a sluggish period a few years ago that rattled investors. In the first half of 2022, Netflix lost more than one million subscribers, its first decline in more than a decade. The streaming giant’s stock dropped more than 50% that year.

Company shares are now trading at all-time highs, and subscriber growth and income have recovered strongly. New challenges could arise as the growth boost the company got from a crackdown on user password sharing wears off.

The long-term risk for Netflix is that the characteristics that made its workplace distinct will erode, making it harder to attract and retain talent, said Harry Kraemer, a management professor at Northwestern University’s Kellogg School of Management.

The company relies on its tech, product and content executives to maintain its lead over traditional entertainment companies.

“Culture impacts employee trust, engagement and people’s ability to feel part of a company," Kraemer said. “If you start fooling around with culture and trust, you risk losing those people."

Netflix said it didn’t have a problem attracting or retaining talent, saying its acceptance rate for job offers is 93% and voluntary attrition rate is just 3%.

Recruiting advantage

Netflix has revised its official guidance on parental leave for employees several times, most recently in October when it removed language from workplace culture documents on its website that stated “new parents generally take 4-8 months." The new language in that document doesn’t refer to a number of months and instead encourages employees to talk to their managers about what’s best for them and the company.

Netflix’s internal benefits page, a separate document, states salaried employees can take parental leave within the first year of their child’s life or adoption, without specifying a length of time.

Federal law requires companies of Netflix’s size to provide 12 weeks of unpaid parental leave, and states have varying requirements, some requiring a number of weeks of paid leave. Laws governing Netflix’s international offices also vary.

Netflix’s competitors in both the tech and entertainment industries generally offer a range of eight to 24 weeks of paid parental leave.

Initially, the idea behind Netflix’s policy of offering unlimited parental leave in the first year was to be more generous than rivals and gain a competitive advantage in recruiting, according to people familiar with the discussions.

“We want employees to have the flexibility and confidence to balance the needs of their growing families without worrying about work or finances," the company’s chief talent officer at the time, Tawni Cranz, wrote in 2015 on Netflix’s blog.

Cranz told other executives that she didn’t anticipate that many people would take a full year of leave. But such requests started coming in within 24 hours of the policy being announced. Some employees who had just returned from parental leave began asking managers if they could get an extension.

By 2018, Netflix was taking action to rein in how people used the policy, proposing new language to clarify that most employees take four to eight months off, as some managers struggled to fill in for multiple employees on leave.

“We did not plan for employees to use 1-year as the starting point for evaluating how much time away they needed for bonding and care, nor did we assume that employees would view this as a 1-year-leave," a human-resources official wrote to managers.

There was an immediate backlash from employees and managers. “While not intended, this note very much feels/reads like we are limiting an existing benefit without saying outright that’s what we’re doing, which seems highly incongruous with our values," wrote one manager.

The company responded to them that it was simply trying to provide more guidance to employees.

Despite the pushback, human resources implemented the changes and wrote up guidance for managers about how to handle the conversation with employees. Among the instructions, Netflix advised managers to “First, Say Congratulations," according to two people familiar with the guidance.

Postpandemic cuts

Employees’ concerns about leave policies intensified in 2022 after Netflix’s pandemic boom subsided. The company began focusing on cost cutting, which has included thousands of layoffs.

At the same time, Netflix was trying to manage increasing requests for leave. Co-founder and then-co-CEO Reed Hastings instructed top lieutenants that senior leaders had changed the culture memo to state that most employees follow local norms when taking parental leave.

“Good to clean up these old oversimplifications," Hastings wrote in a November 2022 email about the changes.

“We are facing growing parental leave and paid time off pressure for mental breaks," the chief communications officer at the time, Rachel Whetstone, wrote in response. “Hard issues to navigate."

Some executives expressed concerns in leadership meetings that it seemed like a lot of employees who were on parental leave or who had just returned from parental leave were being let go, according to people involved in the discussions. The concern was that it could look like Netflix was targeting people on leave.

Netflix said employees weren’t targeted for layoffs because they were on parental leave. A spokesman said the company did an analysis and found that only a very small percentage of those impacted by the layoffs were on parental leave.

In many cases, Netflix agreed to pay these types of laid off workers for the remainder of their leave, plus severance, according to people familiar with the matter.

Guimarães, the Brazil-based production employee, was laid off in a reorganization last year just days before she was set to return from a seven-month maternity leave. The ambiguity around how much time employees are actually allowed to take for parental leave “can impact how long people feel comfortable taking," she said.

Several employees said human-resources staffers and managers told them over the past couple of years that six months is the actual allotment for leave, and that beyond that, managers would have to approve extended time.

“At Netflix we generally honor six months of maternity leave," a human-resources manager told one employee earlier this year, according to a recording reviewed by the Journal. “Anything of that or above that…is really based on the discretion of the leader in the business. But generally it’s six months of maternity leave."

A Netflix spokesman said that isn’t accurate and the leave policy isn’t a set time of six months, and he referred the Journal to the company’s description of its parental leave policy in its initial statement.

When one employee told his manager that his partner was expecting, the manager said, “You’re not taking a year are you?" according to a person familiar with the situation. The employee’s job was eliminated in a reorganization this year shortly before he returned from a six-month paternity leave.

One former executive who had suffered a stillbirth told people close to her that she cut her planned six-month leave short by a month in 2022 because she was concerned about losing her job due to the company’s restructuring initiatives, people familiar with the situation said. About a year later, the executive’s job was eliminated as part of a reorganization.

Vanessa Hughes, who was a marketing manager for Netflix based in Sydney, Australia, sued the streamer earlier this year for allegedly illegally making her role redundant while on parental leave, according to court filings. The company denies the charges, according to filings. Hughes’s lawyer declined to comment.

Earlier this year, Becca Leckie, who had been with the company for more than five years, was laid off the day before she was to return from a six-month maternity leave, according to her post on LinkedIn, which has since been taken down. Leckie said she joined Netflix in large part because of its generous parental-leave policy, according to the post.

Write to Jessica Toonkel at jessica.toonkel@wsj.com