The way Valve hires and fires its staff is collectively decided by staff, a "community of partners," and requires near-constant communication between all participating employees during the processes, according to Valve's economist-in-residence Yanis Varoufakis.
Speaking with EconTalk, Varoufakis said that whenever someone decides an additional staff member is needed on a project, they send an email to the rest of the company inviting them to assist in filling the position. From there staff will "spontaneously" form a search committee, with everyone who wants to participate contributing, and begin interviewing candidates first via Skype and then in person.
"And then during that day — it's usually a day-long event — emails are fired all over the place with views whether this person should be hired or not until some consensus is reached where there's effectively no one is vetoing the hire of that particular person," he explained.
Firing staff requires similar steps, with employees keeping tabs on an underperforming staff member and discussing the situation among themselves. When it becomes clear staff cannot agree to keep the person on board, Valve makes them "some attractive offer" before letting them go.
Varoufakis noted that the company is made up of "hand-picked" individuals that were likely "on top of their game" at previous employers before joining Valve.
"It is important to understand that such spontaneous order-based enterprises rely to a large extent on individuals that believe in the social norms that govern their existence," he added. "So by the very nature of the beast, you don't have people there who try to hide and who try to somehow create a smokescreen around the fact that they're not very good at what they do."
Valve's hierarchy-free corporate structure has been well documented, and was a major subject during Gabe Newell's recent talk at the University of Texas campus.