Giving workers unlimited time off could help companies outperform the S&P 500

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Businesses grappling with falling stock prices amid the current economic downturn should consider revisiting their vacation policies, as investors indicate.

Bloomberg’s research reveals that approximately two-thirds of investors see potential in companies with unlimited time-off policies, suggesting they could potentially outperform the S&P 500.

In a survey of 1,061 participants conducted through Bloomberg’s weekly Markets Live Pulse, 65% of professional investors and 57% of retail investors expressed the belief that companies offering unlimited vacation could fare better than the top 500 companies listed on the U.S. stock exchange.

The perk which originated at small Silicon Valley start-ups has slowly trickled its way to major corporations like LinkedIn, Netflix, and Microsoft.

Even, Goldman Sachs which is well known for its long hours and always-on culture, introduced the generous holiday package last year, (albeit only for senior staff).

Currently, just 8% of companies in the States offer unlimited PTO but demand for it is growing: In 2022, Glassdoor reported that mentions of “unlimited” leave policies in employee reviews were up 75% from pre-pandemic levels.

Not only does the policy enable employees to attract top talent, but it also helps cut costs associated with unused vacation.  

“If I’m the CFO, I’m loving this. This is a big money saver for me,” Rich Fuerstenberg, senior partner at consulting firm Mercer told Bloomberg, who thinks that its adoption was accelerated by the pandemic lockdowns because unused leave ballooned when employees weren’t able to travel. 

Really, offering unlimited PTO is more than a well-being booster for workers, it also enables firms to eliminate accrued vacation liabilities from their books. 

What’s more, it’s unlikely that workers will even make the most of the generous offer. 

Most people don’t make use of the annual leave offered

Counterintuitively, offering staff unlimited time off work won’t result in staff being endlessly away from their desks.

Prior research indicates that many workers do not fully utilize the vacation time offered by their employers. This trend is particularly evident in the United States, where almost 46% of employees do not use all their allocated paid time off.

Even when companies already offer more than 20 paid vacation days per year, about two-thirds of participants in Bloomberg’s survey reported this level of allowance. However, less than 40% of respondents actually took more than 20 days off.

That doesn’t change with the introduction of unlimited PTO: When Bloomberg asked respondents how much leave they would take if they had an unlimited vacation, most voted that they would take no more than 20 days of leave.

“People feel guilty to take any time off with unlimited PTO lest they get dinged by their manager,” one survey respondent wrote. “Unlimited PTO is garbage.”

Ultimately, more than two-thirds of unlimited vacation companies said the amount of time staff took off after rolling out the policy didn’t change, Mercer told Bloomberg—and of those that did report a change, the majority said employees actually took less leave.

Only 1 in 5 say this trend could gain traction

Despite the little difference unlimited PTO makes to annual leave taken and its positive impact on stock price, investors don’t predict it will become the next up-and-coming workplace perk.

Only 18%, or less than 1 in 5, believe the trend of unlimited vacation time is likely to take off. Instead, over half of those surveyed believe the four-day workweek will gain the most traction, followed by 20% who think that sabbatical policies would.

Plus, Fuerstenberg isn’t even sure whether dropping annual leave limits alone will directly lead to a boost in performance, or if it’s the culmination of trends that startups can quickly adopt which makes them so attractive on the stock market. 

“It’s a chicken or the egg sort of question,” he said. “Are they outperforming the S&P 500 because of their unlimited PTO policy or because they’re the type of employer who’s going to have an unlimited PTO policy?”