This month, my company extended unlimited paid vacation to our employees, a growing trend among both corporate giants like GE and Virgin and innovation-driven companies like Netflix. Why did we do it? I genuinely want my team to be rested and balanced. But, at root, this was a move on my part to strengthen the company and boost our bottom line by putting faith in people -- not processes.
Because so many questions and doubts hang around unlimited vacation policies, I wanted to offer a look at the logic that underpinned our decision. I’m not saying this approach will work for everyone (for reference, BuildDirect is a technology company with several hundred employees that has built an online marketplace for home improvement products). But I’d like to share our reasoning in the hope that it’s helpful to other entrepreneurs in a similar position.
1. Winning the talent wars
A recent White House report estimates there are 500,000 unfilled tech jobs in the U.S. By 2020, it’s forecast that there will only be enough qualified grads to fill 30 percent of tech positions. Industry analysts Gartner, in fact, cite this talent gap as the single biggest challenge facing the U.S. tech economy. In other words, it’s a great time to be an engineer or developer -- but a very challenging time if you’re a growing company looking to build your team.
When even giants like Facebook and Adobe are struggling to adequately source engineering talent, the rest of us have to get very creative. In this war for talent, vacations can be an outsize differentiator and huge incentivizer, tipping the balance in the pursuit of elite candidates. In fact, a recent Monster.com survey identifies vacation time as the most important benefit sought by job seekers after healthcare.
Together with other progressive options--- from remote working to flexible schedules -- unlimited vacation forms part of an attractive package for many, many employees and allows smaller tech companies to compete with the big boys. But that was only part of our rationale.
2. Building a culture of self-accountability
The logic of unlimited paid vacation also operates on a much deeper level. Extending extra freedom to employees, in this instance, is a way to improve responsibility and accountability company-wide.
Traditional workplace policy is prescriptive and prohibitive -- and often designed around keeping the worst employees and lowest performers in check. This approach is not only paternalistic and patronizing but also profoundly de-incentivizing, the kind of micromanagement that contributes to plunging employee morale. In a nutshell, when you set baselines and minimum requirements, people have a tendency to perform down to them.
Taking the opposite approach can yield better results, especially in businesses filled with career-minded players. By building liberal, open systems, you cultivate a company of leaders, not followers -- people who can manage their own time, delegate responsibilities and zero in not on hours logged but on the metric that truly matters: results. To this end, unlimited vacation is about about putting power and authority back in employees’ hands and encouraging them to rise to the occasion.
Netflix has been a pioneer in this. After they went public, they didn’t just scrap their vacation policy. They also cut out their expenses policies, let their people book their own business travel and got rid of their annual review process. Basically, they decided to treat their employees like adults whom they could trust to do their jobs -- and with profits and shareholder value up way above Wall Street forecasts, it seems to be working.
3. Anticipating and handling abuses
But even in the best companies, some employees are bound to misuse or misinterpret unlimited vacation policies. So how do you deal with abuses or, better still, head them off in advance?
I don’t have all the answers here, and I’m sure we’ll learn as we go. Hours worked is, essentially, a proxy that companies have always used to measure progress (and a flawed one, at that). In the absence of that crutch, both managers and employees need to be able to set and monitor advancement toward discrete goals. Having clear key performance indicators (KPIs) and the ability to track them is more critical than ever. Plus, with clearer insight into what’s working and what isn’t, improvement can happen all of the time and not wait for yearly performance reviews.
Ironically, however, it’s not employees working too little but rather too much that often plagues unlimited vacation programs. Having no limits can leave employees unsure about how much time they can take off, so many err on the side of actually working more. Critics have pointed out that employers can even manipulate this to squeeze more out of their workforce. Internally, we’re addressing this issue by imposing minimum amounts of vacation that employees absolutely must take.
In the end, trusting employees enough to use, not abuse, liberal vacation policies -- not to mention flexible schedules, remote working opportunities and office perks -- is a critical step to cultivating a world-class workforce. Relying on punitive or overly prescriptive policies has a nasty habit of breeding discontent and underachievement. Freedom in the workplace (at least in the right workplace) can build responsibility and ownership. Unlimited vacation is one step in that direction.