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.

vacation
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Vacation

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

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