Unlimited Vacation Time: Could Your Company Make It Work?

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If work-life balance is as big a conundrum as ever, giving workers more control over vacation is often seen as a big part of the solution. What would happen, for instance, if companies gave workers all the time off they wanted? One imagines offices emptying, teams with critical voices missing and productivity collapsing. And yet, some employers are beginning to grant unlimited vacation and sick time, and the results are surprising.

Netflix attracted attention a few years ago when it announced an all-you-can-take paid vacation policy. Companies including General Electric, LinkedIn and Virgin Group have also adopted similar policies. There are strong potential incentives for both the company and employees: Management can spend less time tracking and coordinating vacation time, and workers can take leave to fit the contours of the workload instead of committing to a vacation blocked out months ahead of time.

But unlimited paid vacation time is only a better system for some sectors, and works best when managed in specific ways. It’s not always clear that this emergent benefit is being handled wisely or initiated for the best of reasons. “I’m sure there is a lot of me-too-ism,” says Wharton management professor Matthew Bidwell. “I think it fits with this culture in principle of low bureaucracy and more freedom. Netflix had this nice PowerPoint in 2009 about their culture, how big companies get slow and bureaucratic and how they want to avoid all that and want to trust people to be responsible.”

With work-life balance often landing among the top three or four employer characteristics that employees cite as important, many companies tout unlimited paid vacation as an attraction and retention tool. “I suspect it is bubbling up now in part because the labor market is getting tight for experienced tech employees,” says Wharton management professor Peter Cappelli, director of the Wharton Center for Human Resources. “The other reason is that the founders and leaders of these companies often initiate plans that make sense to them but that haven’t really been vetted by experienced human resource people, like the employee benefit that allowed women to freeze their eggs.” (That benefit, introduced by some tech companies a couple of years ago, was interpreted by some employees as a message that they should put off having children if they wanted to get ahead at work.)

Cappelli says that the principle of unlimited vacation sounds good, but the reality is sometimes quite different. “I think these programs might better be thought of as no-mandated-vacation time. The motivation for the change I suspect is usually a good one, thinking that people have needs that aren’t predictable and we should trust them to do what’s right,” he notes. “It is a bit naive, though, because it ignores social pressures in the workplace that make it difficult to take vacation. When it’s up to you when and how much to take and everyone is working all-out on a project, and you take time off, it looks like you’re not a team player. If you have the right to take two weeks’ vacation, there is less pressure to suck it up.”

While the percentage of companies offering the benefit is still low, unlimited paid vacation time looks like more than a passing perk, and it will take some time for companies to figure out the right way to integrate it, says Wharton management professor Iwan Barankay. “When people start thinking about it, there is a somewhat bigger question, because it really is something that has an impact on the whole company,” he says. “Nevertheless, it seems companies are learning how to roll this out more and more and it’s not something that will go away. Of those who have done this, none of them have reported that vacation time exploded — this prediction that everyone would just stay at home. If anything, we see they take less vacation, which is why some companies have discontinued it.”

“If you have the right to take two weeks’ vacation, there is less pressure to suck it up.”–Peter Cappelli

Bureaucracy Can Be Your Friend

Why would anyone choose to take less vacation? One reason is that bureaucracy cuts both ways, Bidwell says. As Michel Crozier pointed out in his 1964 classic The Bureaucratic Phenomenon, bureaucracy constrains people and what they can do, but it also protects them. “If the rules tell you you have to do things in a certain way, that can cause problems, but they also mean that if someone else comes along and tells you to do something different or make changes, then you can tell them that you are not allowed to. In that way, bureaucracy protects people from interference,” notes Bidwell. “So without any rules, you might say, ‘If you want to take the afternoon off and play golf, why not?’ But in a place where people are nervous, by taking away the vacation rules you are also removing the protection that it gives people. If there is no maximum of vacation time, there is not a clear statement about what you are entitled to. It’s no longer in the contract, and now that means it’s in a sense open to interpretation to both sides. And so then the discussion about how much you should be taking gets more fraught.”

Companies like Netflix, Workdate, Riot Games and Grubhub adopted unlimited vacation policies for a variety of reasons. There is a direct-impact financial reason since vacation time sometimes shows up as a liability on the balance sheets of companies where employees receive cash for unused vacation time if they are terminated before taking that vacation. The cultural reason is to encourage a better work-life balance. It can help avoid certain legal problems that arise from cases in which some workers are allowed to carry over vacation from one year to the next while others are not. And it can help avoid situations in which deferred vacation creates gaping holes in staffing at the end of the year.

Allowing workers themselves to set time off allows them to better coordinate work and home life, says Barankay. “If it’s the beginning of the year and you don’t feel all that great or if your children aren’t well, you might consider not going to work but don’t want to sacrifice a vacation day, so you are going to work anyway, and it’s not good for productivity because you are not feeling 100%,” he says. “The other is at end of the year: If you have a lot of work to do, you still take vacation because you are going to lose it if you don’t, and that is inefficient. These two types of inefficiencies are dealt with in the unlimited vacation policy.”

Why would anyone choose to take less vacation? One reason is that bureaucracy cuts both ways.

At the moment, employers still seem to be struggling with what constitutes best practices. “There is huge heterogeneity in terms of the implementation details in how it is rolled out,” says Jiayi Bao, a Wharton doctoral student who is working on a paper on the subject with Barankay. “Some firms have developed a policy without thinking too much about it, and in those cases we have seen some instances where they had this policy and then rescinded it.”

One such firm was Tribune Publishing. “A performance-driven culture rewards results,” the company explained in a memo as it instituted a new policy of unlimited paid time off for some employees starting in 2015 for vacation, travel and non-extended illness or injury. But the new policy put time off at the discretion of supervisors — a message the company sent to employees quite strongly, along with warnings like this one: “As always, future career opportunities are assessed based on your performance and potential.” A little more than a week later, then-CEO Jack Griffin said in another memo that the policy was being reversed because it “created confusion and concern within the company.”

The percentage of companies offering unlimited paid vacation time has been flat for several years — just 1%-2%, according to a Society for Human Resource Management (SHRM) survey. But there is some anecdotal evidence that it may be catching on. Virgin Group extended the policy to a small group of employees in 2014, and in 2015 GE granted a “permissive approach” — no limits on vacation, sick and personal days — to 30,000 employees, or about 40% of its salaried U.S. workers, a number that has since grown.

“We are hearing more and more, particularly with tech, professional and financial-sector companies, that this is being used as a way to appeal to their employee base, whether in terms of retention or recruitment,” says Evren Esen, SHRM’s director of workforce analytics, though she adds that she is “not sure if we’ll see the adoption of this particular benefit by the broader employer community” — for hourly and service-industry workers, for instance.

“We are hearing more and more … that this is being used as a way to appeal to their employee base, whether in terms of retention or recruitment.”–Evren Esen

There may be, however, lessons for all employers to ponder. One study found a correlation between the introduction of an unlimited vacation policy and job satisfaction. A Lund University School of Economics and Management study of U.S. tech firms found that due to the introduction of unlimited vacation, interviewees felt more trusted by their companies. “Under the right conditions, such as company culture and employee engagement, an unlimited vacation policy directly leads to an increase of work-life balance,” concluded “Unlimited Vacation Policies: Their Influence on Employees” by Luis M. Arevalo and Caimin de Jong. “The rise in the levels of work-life balance, in turn, has a positive and noticeable effect on job satisfaction.”

Setting Parameters, Establishing Norms

Unlimited time off, especially when it hinges on the approval of supervisors, can trigger legal concerns, says Wharton legal studies and business ethics professor Janice Bellace. “If you have a company of 47 people with six supervisors, do you find that certain work teams are treated better than others, because some of the supervisors are more relaxed about time off? Then if you look more closely do you see that some supervisors appear to be tougher on one group than another? We know that for many reasons this could get you into some Title VII [of the 1964 Civil Rights Act] situations.”

She offers an example: “Consider what the supervisor’s response might be if a white woman has to take time off because she has to take her father to the cardiologist, but a black young man wants to leave because a friend has a trial and he wants to give him moral support. Lawyers get very worried about situations like this, where no one is monitoring this to see if there appears to be differential treatment. It’s obvious that someone whose request for time off is denied might bring a discrimination claim.”

Bellace — who prefers the term “coordinated self-managed time off within certain parameters” to “unlimited time off” — says that in a small office, time off can usually be handled in an informal way, with the workers themselves ensuring that they are covering workload when there is an absence. She notes that norms evolve, and the workers will make sure that no one is taking undue advantage of the lack of a firm rule. She adds, however, that “once you get up to a 50-person firm, it becomes much more difficult to establish norms and have a group self-monitor.”

She questions companies’ reluctance to set policy. “Companies must have a view of how much time off they are willing to pay for. Why not state what the expectation is and then have some written policy of what that is? And then, make sure someone is monitoring how the policy is applied.”

Establishing cultural norms is important, says Bidwell — “to send a very strong message about how we believe everybody would benefit from taking at least this much vacation, and for the senior leaders to model it. In an ideal world, the CEO is saying, ‘I take two weeks every summer and I cut the cord completely.’ I think that you would want to see very strong norms — not only is it OK to take time off, but I am going to be slightly worried if you’re not taking time off.”

“It’s obvious that someone whose request for time off is denied might bring a discrimination claim.”–Janice Bellace

Some companies have used incentives to make sure employees are not skimping on time off. When Evernote introduced unlimited vacation, Bao notes, the company “was worried people might take less, so they explicitly rewarded people for taking a week by giving them $1,000.”

Says SHRM’s Esen: “It’s good to have some parameters outlined related to this. Some employees may feel uncomfortable taking any leave, or sometimes take less leave, because they are not clear on how the benefit works, so some employers put a minimum — you have to take at least two weeks — and there should also probably be some language about if you take more than two weeks, you need to notify your supervisor ahead of time so that plans can be made for your absence.”

Barankay says the introduction of unlimited vacation into the worksphere may bring the side benefit of changing perceptions of what constitutes a healthy work-life balance, or at least an acceptable one within the confines of a particular workplace culture.

“More conceptually, what this unlimited policy does to a company … is to introduce a change in norms,” he says. “People are reluctant to take holidays. Maybe it’s a macho thing, maybe they are worried that if they are leaving they are going to be left out of important teams and projects. But it could also mean they worry that people will realize they are quite dispensable, that the firm can continue even if they are not there. If this unlimited policy can change the culture of always working to believing it is OK to be away, that may be the key to success here. But how to bring about a change in the norms — that is always the big challenge to a company.”

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