Unlimited paid vacation sounds like an amazing perk. Just think — you could take a three month cruise around the world and get paid for it, right?
The reality is it may not be nearly as great as it sounds.
There are various reasons why. The most obvious one is the fact that many employees don’t use the limited time off they get now, so how can we expect them to take advantage of unlimited PTO?
I want to focus on another reason, however, which might be the most telling: The paradox of choice.
With unlimited PTO, how much is too much?
In a nutshell, people intuitively believe that the more options they have, the greater their chances are of finding the choice that will perfectly satisfy their needs. But this assumption turns out to be an illusion. The more options people have, the less likely they are to make a decision at all.
Companies that tend to adopt this trendy new unlimited vacation perk are small companies and start-ups, full of competitive, driven people. But recently larger companies have jumped on board — Netflix, Virgin Airlines, Expedia, Best Buy, Morningstar, Grant Thornton (the 6th largest accounting firm in the U.S.) and General Electric (30,000 of GE’s professional employees are in the U.S.).
In highly competitive and hard charging work environments, and without some guidelines as to what is normal or expected, employees may worry about what’s an appropriate amount of time to take. Is taking two weeks OK? Three? Four?
Surely “unlimited” doesn’t really mean totally unlimited. Right? Will others who take less vacation, or no vacation, be viewed more favorably?
Paralyzed by choice
Employees can become paralyzed by too much choice. When all is said and done, there’s something comfortable about having limits.
Sheena Iyengar, a professor at the Columbia Business School, believes that unlimited vacation policies create a phenomenon called “choice overload.” Contrary to accepted belief, less is more.
Psychologist Barry Schwartz in his book The Paradox of Choice: Why More is Less argues that eliminating choices can greatly reduce anxiety. Alvin Toffler said pretty much the same thing in his 1970 book, Future Shock. Having too many good options is confusing and mentally draining because each option must be weighed against alternatives to select the best one.
Choice overload is what kept unlimited vacation from succeeding at Kickstarter. Employees ended up taking less vacation with an unlimited policy than when they had a limited one.
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Now employees have an upper limit of 25 days per year, which is more than they had under their old traditional plan. Kickstarter’s HR team felt that providing clearer guidelines would help employees get a better sense of how much leisure time versus work time is right.
A perk for some, choice overload for others
Tribune Publishing, which owns the Chicago Tribune and Los Angeles Times reversed its unlimited vacation policy only one week after it was announced. The policy change created too much confusion and concern within the company. Editors and reporters were uncomfortable with asking for, and approving, liberal time off.
Unlimited vacation is not the only perk that can create choice overload. For example, it could apply to maternity leave as well.
At Yahoo, new mothers can take 16 weeks of paid leave, up from eight. Fathers can take eight weeks. Even with limits, what do you think the likelihood is that new mothers and fathers will take the full allotted time off? Not very likely — especially since CEO Marissa Mayer has said she will only take two weeks off when her twins are born.
Last but not least is a practice that all Compensation professionals should be aware of — allowing employees to set their own pay. No limits. There’s some interesting data on that but … a post on it will have to wait for another day.
Back to the main topic — have you booked that three month around the world cruise yet?
This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.