Why Your Open Vacation Policy Sucks

Imagine that you have just received a job offer from a tech company. They’re growing fast, they have all kinds of perks and they’re the hottest new thing in the Bay. Everyone tells you that you must be at the top of your game to have landed such a position. What kind of salary did they offer, everyone asks?

Actually, that’s the weird part. They’re trying this innovative new thing. They want to be flexible. Everybody has different needs at different times, you see. You might need a new car and spend a lot in one month, but in another month perhaps all you do is go out for dinner a couple times. How about a policy that lets you not worry about keeping track of funds and whether you can afford it?

That’s right: your new tech job has an Unlimited Pay Policy! Instead of a salary they give you a credit card without a limit. Now you can pay your rent and lease your car and go out for dinner as much as you like without worrying. Sure your manager has to approve big purchases before they go through, but you’re never going to have to worry about money again.

This sounds entirely ridiculous. You’d have to be entirely naïve to sign up for this — it’s a pipe dream. There’s obviously limits, but now you don’t know where they are. Worse, they depend on how much your manager likes you and how good a job he thinks you’re doing. And then if you’re let go or leave, you’re left with nothing.

You don’t have an unlimited pay policy, you have a fear-based pay policy.

You don’t know where the limits are so you play it safe by sticking in the middle of the pack. Every now and then someone a little more profligate gets let go and it’s probably unrelated, but who’s to know? You play it a little safer. It becomes a race to the bottom until nobody takes more than they absolutely need, and doing so becomes the new normal, the new acceptable.

Nobody with a modicum of experience or foresight would sign up for such an arrangement for pay, but it’s precisely what we do with unlimited vacation policies. This is not as abstracted from your salary as we like to think, either. Take your annual salary and divide it by the number of hours you worked in a year, and that’s your hourly rate.

Say you make $100k, do 40-hour weeks and never take vacation. You make $48 an hour. Take 5 weeks off instead, which is the legal minimum in Europe, and you make $53 an hour. Take 2 weeks off, but you’re doing 60-hour weeks normally? $33 an hour. That’s a tremendous, incredible variance in how much compensation you are accepting for your work. Far more significant even than the pay raise you negotiated for your last role.

So as many others have said before me, “unlimited vacation” is a myth. A mirage. They might sound like a good system, and they might even seem to work for a little while. But sooner or later it becomes a tremendous cost-saving for the company and therefore an effective way to cut your pay without you ever realising.

Next time you’re in a position to choose between roles, remember to account for the days of guaranteed vacation when choosing the best offer. “Unlimited” vacation is worth 0. Unvested stock is worth 0. The rest is up to you.

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