Policies That Work: What Are the Limits of Unlimited Vacation?

Unlimited vacation policies have been in the spotlight recently. In September 2014, Virgin Group’s larger-than-life CEO Richard Branson announced that the company’s salaried employees would enjoy unlimited vacation going forward. His daughter gave him the idea when she shared that a friend’s company had moved to unlimited vacation and “experienced a marked upward spike in everything—morale, creativity and productivity have all gone through the roof.”

The idea resonated with Branson. As he wrote in Entrepreneur a year before changing the policy, “As an entrepreneur or business leader, if you didn’t come back from your vacation with some ideas about how to shake things up, it’s time to consider making some changes.”

In fact, some services Americans use every day are products of vacation’s power to stimulate innovative thinking and new ideas. Instagram founder Kevin Systrom was walking the beaches of Mexico when he came up with the idea for the photo platform. Drew Houston dreamed up Dropbox while traveling. According to the global consulting firm Sandler Training, in a survey of 1,000 small business owners, one–in-five startup ideas come to entrepreneurs while on vacation.

Today’s businesses crave innovation, so it is no wonder that unlimited vacation gets so much buzz. But the media frenzy around unlimited vacation belies the reality. According to SHRM, unlimited vacation or paid time off is offered by less than three percent of firms—and less than one percent have plans to offer it in the next year.

But those numbers may start to change if the broader business community embraces the concept like entrepreneurs have. A commanding 60 to 80 percent of startups in the San Francisco Bay Area offer unlimited vacation plans, according to Brian Helmick, a founder of Algentis, a human resources company that specializes in tech firms. Companies that have embraced the policy include Gilt Groupe, TIBO Software, Zynga, Nerd Wallet, and Stash Hotel Rewards.

In 2004, Netflix became a pioneer in the unlimited vacation space when it issued its “Freedom and Responsibility” company culture document—which Facebook’s Chief Operating Officer, Sheryl Sandberg, said “may well be the most important document ever to come out of the Valley”—and proved that going without a policy can work.

Before 2004, Netflix did not have a formal PTO tracking system; however, when it went public, Sarbanes-Oxley compliance required record keeping. Rather than shifting to a formal system, CEO Reed Hastings opted against a vacation policy and investing the man-hours it takes to track employees’ time off. As the Netflix culture document posits, while there is no vacation policy or tracking, “there is also no clothing policy at Netflix, but no one comes to work naked.”

The company is outspoken about its trust in employees, clarifying that high performance is still required: “Adequate performance gets a generous severance package,” according to the Netflix website.

MGM Resorts International is a recent convert to unlimited vacation. The company implemented what it calls “flex time” in 2014 for its 3,000-plus managers.

The new policy has been particularly important to the company’s growth. As MGM has acquired companies, its human resources and payroll departments have struggled to keep the various vacation policies straight. Implementing the flex time policy streamlined the process and, according to MGM’s Senior Vice President of Human Resources Michelle DiTondo, it has been “very well received” and there have been “very few issues of people abusing the policy.”

“The majority of our managers, due to the nature of our industry, work long days and holidays,” DiTondo told VEGAS INC. “They need to take time off to maintain their productivity.”

There is no one-size-fits-all policy. Every workplace culture is different and the most important thing about a policy is the company’s ability to communicate it effectively and model it from the top levels down. We all have a role in shaping company culture. Whatever policy your company has, start a conversation about the importance of taking time off. You’ll be glad you did.

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