Unlimited PTO. Some love it, others think it’s a scam.

But it’s worth exploring why this policy was implemented in the first place. And for that, we go back to the early days at Netflix.

It’s 2003. Netflix is galloping along in pursuit of Blockbuster. There’s a buzz around the office. The chase is on and an employee asks:

"'We are all working online some weekends, responding to emails at odd hours, taking off an afternoon for personal time. We don't track hours worked per day or week. Why are we tracking days of vacation per year?"

Reed Hastings, CEO of Netflix, doesn’t really have a great answer. After all, he’s always judged performance without looking at hours. Get the job done in 1 hour or 10 hours? Doesn’t matter as long as you're doing good work.

Hastings also realizes that some of the best ideas at work come after someone’s just taken vacation. They’ve got the mental bandwidth to think about their work in a fresh, creative manner. Something that’s not possible if you’re clocking in and out without any rest.

So Hastings decides to pull the trigger. He introduces Netflix’s No Vacation Policy which puts the onus on their employees to decide when and how much vacation they need to take.

In his book, No Rules Rules, Hastings describes getting nightmares when he first introduced this policy. In one of these nightmares, he’d drive to the office, park his car, and walk into a completely empty building.

Those nightmares, minus a few blips which we’ll get to in a bit, never really materialized. The policy was a success and soon other companies in the Valley started copying Netflix. Everybody wanted the best talent and implementing a no rules vacation policy seemed like a great differentiator.

Except that the same policy which worked so well for Netflix...wasn’t working for anyone else.

Other companies found that after implementing an unlimited PTO type policy, employees paradoxically started to take less vacation. They would worry that their co-workers would think they were slacking off or that they would get left behind come promotion time.

Hastings was surprised. After a bit of digging, he realized the reason behind why these policies had failed.

The leaders at these companies were not modelling big vacation taking.

Indeed, if the execs were only taking 10 days off, then the unlimited plan would deter other employees from taking anywhere near that amount or more than that.

As Hastings put it:

“In the absence of a policy, the amount of vacation people take largely reflects what they see their boss and colleagues taking.”

Modelling others around you

This concept of modelling others around us applies not only to vacation taking, but to all sorts of behaviors. As we continue to move towards a new distributed, remote-first workforce, there’s going to be a lot of ambiguity in the decisions that we need to make.

The companies that are able to best adapt to this changing environment will be the ones in which leaders model the right set of behaviors.

A big one will be written communication. As the ability to just randomly walk up to someone at the office and ask them a question subsides, we’ll need to document our practices much better and be able to communicate much more efficiently.

The more we see others, especially our leaders, invest in written communication and take the time to get better at it, the more we will do it.

And never mind us seeing them do this. Reed Hastings wants them to shout loud and clear just how much vacation they’re taking or just how much they’re investing in themselves, so as to encourage everyone else to do it.

An example of good modelling in practice is Evernote. The company, which also doesn’t limit employee vacation days, actually gives a $1,000 stipend to anyone who takes an entire week off in order to encourage vacation taking (source).

Other Things

Okay, so there was one more thing that Reed Hastings found out. It wasn’t enough for leaders to just model the right behavior. They also had to set context and guidelines.

Reed realized this when it was the end of quarter and his accounting team was supposed to be closing up their financial books. But a member of the team, in an attempt to avoid the annual crunch period, took off the first two weeks of January. No bueno.

So Reed decided to put in place clear parameters and guidelines on what was acceptable within the context of taking time off. For example, it was imperative to mention things like how many people taking time off at the same time is acceptable and how managers must be notified well in advance of any such long vacations.

This would help prevent blows like the one above in the accounting department.

Conclusion

In the end, it seems like Unlimited PTO can work, but it also needs to be supported with strong management. Individuals need to model big vacation taking and put into place the right guidelines.

But I think the lessons here go beyond just vacation.

The behaviors we see and notice from those around us eventually have a strong impact on the type of people that we become. This is especially true at the managerial level, where the impact is 1 to N and can result in considerable cultural debt.