The ‘unlimited vacation’ pitfalls offered by companies

Can you take as many vacations as you like? Sounds great — or not!

Investment bank Goldman Sachs, based in New York, United States, recently made an unexpected decision: the institution granted unlimited paid vacations to its senior-level employees.

According to a memorandum received by various media, partners and executive directors will be able to “take as much rest time as necessary, without fixed vacation days”. Junior-level employees received two more annual vacation days and the bank stated that all employees will need to take at least 15 vacation days per year.

At first glance, this seems like a positive move by a company known for its grueling workdays and rigorous culture. After all, unlimited paid vacations could give overworked employees more time to rest and improve their mental health and overall work-life balance.

In addition, a generous vacation policy for higher-level employees can benefit lower-level employees by building a happier and more productive workforce as a whole.

But what seems like an incredible benefit also has considerable caveats.

Employees are only likely to take a good vacation if companies create an environment that encourages them to do so. In some companies that adopt unlimited paid vacations, employees end up taking shorter vacations, due to peer pressure and expectations about “acceptable” vacation periods.

And the latest data shows that unlimited paid vacations are not the most coveted benefit for workers. More than unlimited vacations, most people value flexibility, including being able to work from home.

Is this newly-introduced perk the glittering allure workers have always wanted, or a gift no one asked to receive?

Trust and freedom?

The idea is simple: instead of a fixed number of paid vacation days each year, employees are entitled to an infinite number of days, as long as they arrange their absence periods with their bosses.

The policy is intended to give employees more autonomy to manage their workload and personal lives, potentially generating increased well-being, to the benefit of both the employee and the company.

Unlimited vacations have become much more common in recent years. They started in small Silicon Valley start-ups and spread to large companies like LinkedIn, Netflix and Bumble until they reached Wall Street. But they are still very rare: data from a 2021 survey indicates that only about 4% of US companies offer unlimited paid vacations.

Johnny C. Taylor Jr., president and chief executive of the US-based Society for Human Resource Management (SHRM), says he and his colleagues prefer the term “open vacation,” which more accurately captures the benefits of unlimited paid vacation.

“It doesn’t necessarily mean unlimited weeks at the beach,” he says. “Sometimes they are for parenting needs, check-ups, or even mental health,” allowing employees to take their time off in whatever form and amount they feel is necessary.

Some companies have reaped benefits from unlimited paid vacations. Many employees at industrial giant General Electric reacted positively to the perk. Netflix CEO Reed Hastings detailed in his book, published in 2020, that while it took years for unlimited paid vacations to become a reality, he eventually discovered that “freedom signals to employees that we trust them to do the right thing, which in turn serves as an incentive for them to behave responsibly”.

But there are still several companies that experimented with unlimited paid vacations and ended up eliminating this policy, considered a failure. Employees often end up taking less vacation time than they would with a fixed policy.

A 2018 survey showed that workers with unlimited paid vacations took less vacation than those with fixed allocations; and, according to another survey, one-third of US workers on unlimited paid vacation always work during the vacation period.

The North American networking company Facet is one of those that abandoned unlimited paid vacation after concluding that its employees were taking fewer vacation days.

The CEO of London-based human resources firm Unknown went viral in a LinkedIn post explaining that the company canceled its unlimited paid vacation program because people felt guilty and never took days off. The company now offers 32 days of paid rest for employees of all levels.

Part of the problem is that, at some companies, taking a vacation is something that many employees don’t do often — a phenomenon particularly pronounced in the United States.

“People don’t take vacations now, even when they accumulate,” says Peter Cappelli, a management professor at the University of Pennsylvania’s Wharton School of Business and director of its Center for Human Resources. “The reason is the pressure on them not to take it.”

But granting unlimited paid vacations doesn’t end these problems. In fact, it can make them even worse.

With unlimited paid vacations, workers technically do not have vacation days, as there is no fixed number. Everything must be defined with the boss, on a case-by-case basis.

For employees, determining the “right” amount of paid vacation days to request often depends on observing the behavior of colleagues and bosses. If colleagues are only taking ten days off a year, asking for more may seem inappropriate.

Companies that have embraced unlimited paid vacations, according to Cappelli, “switched from a model where you earn it — you really earned the vacation — to one where you kind of [precisa] ask. And there’s nothing to stop your boss from yelling at you if he wants to take more time off, or from punishing you if he does.”

In addition, unlimited paid vacation removes safeguards that protect workers’ interests if they are unable to take a vacation. There are no days left that the law requires employees to take at the end of the year or carry over to the following year.

And there’s also no cash receivable for workers who quit with vacation days remaining — which saves companies, according to Cappelli.

slow changes

All of this means that it is critical for companies to have a work culture that promotes balance if they are to offer unlimited paid vacations — something that has traditionally not characterized Goldman Sachs, as well as other companies in the financial sector.

“If a company introduces unlimited paid vacations, but the culture [da companhia] still promoting work overload, the adoption of a new policy will not change that overnight. The company needs to encourage rest, and managers need to embrace it in their own lives,” says SHRM’s Taylor.

But that can take time, considering that most senior employees at many large Wall Street firms demonstrate their effectiveness in the finance industry’s grueling long-hour culture. And many executives still work on vacation, so it’s unclear whether bosses will actually take vacations and encourage this behavior for junior-level employees.

On the other hand, it is also important that, for these lower-level employees, Goldman Sachs has granted more paid vacation days and also required them to take at least one sequence of five days of vacation per year.

These may be “heartfelt” changes to combat Goldman’s work culture issues, but they may not be quite the kind of flexibility some of the junior-level employees want, according to Sonia Marciano, a clinical professor of management and organizations at the Stern Business School. from New York University in the United States. She states that the company “will receive [candidatos] substandard, fresh out of college, if other employers catch the eye, figuring out how to create hybrid days for their employees.”

While additional vacation benefits such as unlimited paid vacations are a start, experts caution that the discussion on how to change the culture of grueling work is far from over.

“This is a story about work-life balance,” says Alec Levenson, a senior research scientist at the University of Southern California’s Marshall School of Business. “Offering additional benefits to people without addressing the fundamental questions of how hard they have to work and for how long… doesn’t change the situation.”