In this video Michael, a veteran CEO and self‑described business nerd, critiques the growing trend of unlimited paid time off (PTO). He traces the historical roots of PTO back to World War II labor shortages, explains how the shift to a service‑ and tech‑driven economy set the stage for flexible work policies, and highlights Netflix’s 2003 introduction of unlimited PTO as the catalyst for the modern craze. Using data from Wall Street Journal reports, surveys, and an NPR study, Michael shows that unlimited PTO yields only a marginal 6 % increase in days taken, creates pressure to work while on vacation (75 % of respondents), leads to widespread avoidance of time off (83 %), lowers work‑life‑balance satisfaction by 2.5 %, and is a top mental‑health stressor (58 %). He also notes that job postings advertising unlimited PTO take about 12 days longer to fill, suggesting candidate wariness. Concluding that unlimited PTO is a “scam,” Michael proposes a concrete alternative: assign each employee a fixed number of vacation days (e.g., 2‑5 weeks) and mandate that they use all of them each year, with a strong expectation of fully unplugging. He argues this fixed‑vacation model fosters a healthier partnership between employer and employee and improves company culture.
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So article out today in the Wall Street Journal talking about a new trend, uh, that's not so new, but is getting more and more popular by companies, which is to offer unlimited PTO or unlimited paid vacation time to employees. And basically, if you're not familiar with this, instead of having a fixed number of days per year that you can use as vacation days, the company just says, take off as many days as you think is appropriate. And look, this sounds like a great deal. Uh, and companies seem to think so as well. Uh, the number of job postings advertising unlimited PTO grew 50% year over year. But underneath, there's something happening. When you go look at the data, the number of days off that people take when they have unlimited PTO policies, it's only 6% more than the average that people normally do. One extra day a year. And three-quarters of employees report that when there's an unlimited PTO policy like this, they feel pressured to work while they're on vacation. So obviously what's going on is not working great. People are starting to kind of cue into this idea of what's going on with unlimited PTO. And for many, it feels like a scam. Uh, and there's a better way. And so that's what this video is about. I'll dig into those questions, talk about how we got here, and then tell you something to do that's better than unlimited PTO. So let's dig in. Hi, my name is Michael. If you're new here, please subscribe. Uh, I am a business nerd. I love to go for walks and talk about things that are going on in business because I like that. And I've been a CEO for 20+ years. Other people have hobbies like flying airplanes or doing fun things. I love to talk about business. So I guess everybody has their problems. I got mine. So let's talk a bit about how we got here. And I think it helps explain kind of the trends that have created this unlimited PTO phenomenon. You know, the idea of PTO actually is relatively new. It came about in World War II and subsequently thereafter. So if you look at what was happening in World War II, we sent a bunch of working-age men overseas to go fight the war and stuff like that. So there was suddenly a labor shortage where it was difficult to find workers. So companies in a rapidly industrializing economy like the United States had to do stuff to retain and train and keep workers from going to other jobs. So that is to some extent how we ended up with employer-sponsored healthcare, 'cause there were wage controls back then. But also employers were trying to compete to basically get employees to choose their jobs, and paying them for vacation days was something that was invented and came about at that time. And look, back then, a lot of the stuff that was going on in a rapidly industrializing United States, uh, was building widgets and making things, factory work and that sort of thing. Uh, so it was very easy to compartmentalize and pick a certain number of days that you could give people time off. Uh, and that all worked really well, uh, until the economy changed. And fast forward into the early 2000s, we look up and we have a very different economy in the United States. Uh, number one, it's driven by consumption and services. And secondarily, it's gravitating much more to things that are digital and virtual and technology. A lot of the things that used to be done around physical good manufacturing, especially at the low end, has moved overseas. Textiles and all that kind of stuff suddenly was being made in the Far East rather than, well, the Eastern United States. And especially in technology and in many of the kind of digital businesses, you get into a situation in which there's a lot of intellectual property happening in people's brains, and that's turning into keyboard strokes that turns into software and digital type stuff. And many of those markets, especially the startup ones, well, they're winner-take-all markets, meaning one company comes in, the people work really hard for a period of time, and somebody dominates that market. So, your output and how hard you work for a period of time, especially in those businesses, becomes super duper important. And in 2003, Netflix being run by a guy named Reed Hastings, who had a lot of kind of interesting ideas about culture and work and how to create high-performing organizations, you know, was leading Netflix. And Netflix was a hard-charging culture at that time, trying to beat Blockbuster, uh, and trying to win the DVD-by-mail business, uh, that eventually became streaming. But because of some of these ideas and this hard-charging culture, they had a situation where people were working long hours and really rushing hard to try to create something of value for the consumers, and ultimately a business that would be very valuable for them because, well, it's Silicon Valley, so everybody has, well, stock options. And so in this creative culture at Netflix that really was thinking outside the box about how to do work and the culture of work, uh, some of the employees started to look around and ask, hey, if we're not counting how many hours per day we're working and how many hours per week we're working, why are we counting how many days per month or per year that we're taking off, uh, for vacation days? And it was hard to argue that, right, from a Netflix leadership and talent perspective. Like, Well, yeah, they kind of have a point. So the Netflix leadership at that point told their folks, hey, congratulations, we have unlimited PTO and take off as much time as you like. We appreciate you working hard and we trust you to use your best judgment to do right by the company and take off, you know, and have unlimited PTO. And look, Netflix, pretty highly regarded company. And the idea of this unlimited PTO perk, it started to take off from there up to a point where now 7% of companies in 2020 offer unlimited PTO. And so companies responded in kind, and they started to advertise this unlimited PTO as a perk. And they often did it for high-paying jobs only, you know, $120K or more was where you started to see the sweet spot where people started to put this unlimited PTO benefit into practice. But what the years have proven out is that unlimited PTO policies have actually created work cultures and work environments that do the opposite of providing more benefit to the employees. Unlimited PTO actually sucks. So So some numbers for this: 83% of respondents to a survey reported that they and their fellow employees avoided taking time off because they were too busy. And then 75% of respondents reported that there was an expectation in their company that they would work while on vacation if they had unlimited PTO policies. In other words, like, this was vacation that really wasn't vacation. Oh, but if you thought it couldn't get worse, There's more. I feel like I'm on an infomercial here. But wait, there's more. So on average, companies with unlimited PTO policies, they actually did worse in terms of measuring the satisfaction or the measurement of satisfaction of work-life balance amongst employees. It was 2.5% lower if you were an unlimited PTO policy company. And this particular survey about unlimited PTO had another bad sign and data point for us, which is 58% of respondents reported that work was their number one source of mental health challenges. In other words, this thing that was supposed to be a huge benefit to employees— unlimited PTO and work-life flexibility and work-life balance that comes with it— it was all a mirage. But let's switch to some good news. The data like this that I've been talking about here, it's starting to get out. And another one I haven't talked about is there was a study from NPR where the public radio, where they went through and took a look at job postings and how long it took to fill job postings that included unlimited PTO as a perk, quote unquote. Well, those job postings took on average 12 days longer to fill. And there's only one reason for this to happen. It's that employees are recognizing that unlimited PTO is one of those things that sounds really good, but underneath it is actually worse for employees and also for the companies. All right. So what's the right answer here? If unlimited PTO sucks and then people aren't using all of their vacation days, what is the right answer? Well, I've tried a bunch of different stuff. And my experience is the absolute best path forward for all of this is the following setup. If you're a business owner or entrepreneur, you have a fixed number of vacation days that each employee gets based on their relationship with the company. So that may be 2 weeks, 3 weeks, 4 weeks, 5 weeks, whatever that is. And then you mandate as a policy that people are required to use all those vacation days per year. No ifs, ands, or buts. They got to do it with no exception. And if at all possible, they need to firmly and completely unplug while they're on those vacation days. You as the boss can't treat them like they're still at work even though they're just on vacation. And look, there may be exceptions there. The higher you get up in organizations and the smaller companies are, there are always emergencies where, man, just catching somebody on vacation for 2 minutes, like, is a good thing. But by and large, sticking to this policy best you can, in my experience, creates the absolute best company culture and in the end does what we want, which is creates a partnership between the employees and the employer, uh, to where we all win together rather than it being a win-lose. What do you think? Let me know in the comments below. See ya.
