This is just that sort of example.
Most every company we work with has an extensive paid-time-off policy, detailing what days are allowed, for what purposes, and at what times during the year. There are extensive rules governing its use and tracking their frequency. But it’s worth asking: even when companies spend time and energy defining a thoughtful policy and system, is there an exact amount of time off from work that suits each of us perfectly? What if we allow workers some discretion in how much time off they want?
At a recent luncheon, I spoke with an executive who felt strongly that companies should designate a required amount of time off and was uncomfortable with the notion of letting employees decide how much to take. He couldn’t articulate why, just that generally people might not know what was “good for them.” I wondered, does any CEO know what employees need more than they do?
Let’s look at an example where a company allowed employees to decide whether to use their time off or take home more pay…
The graph above shows what happened when a company (in a service industry) decided that after a base accumulation of days off, employees had the option to cash-in unused days for 100% of wage value instead of using them. In the two years after that policy began, employees, at their own discretion, took 1.3 fewer days off per quarter, dropping from a total of about 32 to under 26 days per year (about 16% fewer). (Click on the graph to enlarge) In a population of 4,000 employees, this is 20,000 days or about 80 FTEs—2% of the workforce—who were on the job instead of absent.
A Win-Win: This company reduced absence and allowed its people to earn more. Should all employers consider a cash-in option?
The potential benefit of allowing people to work more probably depends on at least two assumptions:
1) There is enough work that employees are needed on extra days,
2) There is no harm caused by allowing the person to work more.
Let’s presume the first item to be true most of the time: more employees are needed to do the work. Most frequently, when I hear arguments against allowing employees to cash-in days, they pertain to the second issue—harm.
Certainly there are jobs where public safety is a concern: pilots, truck drivers and crane operators are great examples, where the government actually intervenes with laws that restrict overtime and work hours to protect public safety. But what about the vast number of office workers who are not a concern to public safety? In such a workforce, is there an absolute minimum number of days off a person requires to be productive and function optimally? And must those be PAID days?
Consider self-employed workers and entrepreneurs. If there was ever a group of workers that we respect, it’s the self-starting, entrepreneurial risk-taker who stakes out on his or her own to do something new and innovative. Isn’t it true that self-employed workers are in charge of their own schedules, earning money when they work, and not earning money when they don’t? This population is a clear example of workers who have complete control over their time, and good incentives to spend it wisely. Do we worry that all self-employed people will harm themselves by working too much? I don’t.
Reactions to the work-more option.
In addition to the reaction I heard from my lunch companion—that employees don’t know what’s good for them—I have also heard that making employees choose between more pay and time off is “cruel,” and that government workers are “owed” more time off because their base salaries are so low.
What I rarely hear is the basic economic truth: mandatory paid time-off comes at the direct expense of higher pay. When companies budget an employee’s total compensation, they allot a specific portion to paid time-off—a portion determined by the company. Remember, pay usually reflects value produced by the average worker in a specific job. If we plan for employees to work 90% of the year rather than 100%, pay will be 90% of what we would expect if they worked all year.
What if you have a worker who trains and competes in marathons and wants six weeks off every year (and is willing to sacrifice pay for that option), and another worker saving up money for a new house who would rather take two weeks off and get paid for the rest? If the official policy is four weeks, it meets neither of their needs.
Within the bounds of a) a minimum amount of work days we need an employee to perform adequately, and b) a maximum that prevents a safety risk, why must companies decide on a worker’s behalf? In the example above, the company’s assumption about how much time off employees want and need was 16% wrong before they changed their policy to give employees a choice. Clearly, some people will choose money rather than more time off.
At the very least, explain to employees how time off fits within total compensation.
A Win-Win: This company reduced absence and allowed its people to earn more. Should all employers consider a cash-in option?
The potential benefit of allowing people to work more probably depends on at least two assumptions:
1) There is enough work that employees are needed on extra days,
2) There is no harm caused by allowing the person to work more.
Let’s presume the first item to be true most of the time: more employees are needed to do the work. Most frequently, when I hear arguments against allowing employees to cash-in days, they pertain to the second issue—harm.
Certainly there are jobs where public safety is a concern: pilots, truck drivers and crane operators are great examples, where the government actually intervenes with laws that restrict overtime and work hours to protect public safety. But what about the vast number of office workers who are not a concern to public safety? In such a workforce, is there an absolute minimum number of days off a person requires to be productive and function optimally? And must those be PAID days?
Consider self-employed workers and entrepreneurs. If there was ever a group of workers that we respect, it’s the self-starting, entrepreneurial risk-taker who stakes out on his or her own to do something new and innovative. Isn’t it true that self-employed workers are in charge of their own schedules, earning money when they work, and not earning money when they don’t? This population is a clear example of workers who have complete control over their time, and good incentives to spend it wisely. Do we worry that all self-employed people will harm themselves by working too much? I don’t.
Reactions to the work-more option.
In addition to the reaction I heard from my lunch companion—that employees don’t know what’s good for them—I have also heard that making employees choose between more pay and time off is “cruel,” and that government workers are “owed” more time off because their base salaries are so low.
What I rarely hear is the basic economic truth: mandatory paid time-off comes at the direct expense of higher pay. When companies budget an employee’s total compensation, they allot a specific portion to paid time-off—a portion determined by the company. Remember, pay usually reflects value produced by the average worker in a specific job. If we plan for employees to work 90% of the year rather than 100%, pay will be 90% of what we would expect if they worked all year.
What if you have a worker who trains and competes in marathons and wants six weeks off every year (and is willing to sacrifice pay for that option), and another worker saving up money for a new house who would rather take two weeks off and get paid for the rest? If the official policy is four weeks, it meets neither of their needs.
Within the bounds of a) a minimum amount of work days we need an employee to perform adequately, and b) a maximum that prevents a safety risk, why must companies decide on a worker’s behalf? In the example above, the company’s assumption about how much time off employees want and need was 16% wrong before they changed their policy to give employees a choice. Clearly, some people will choose money rather than more time off.
At the very least, explain to employees how time off fits within total compensation.
Our research indicates that when employees understand—and see evidence of—a direct connection between their compensation and business success, they tend to have higher levels of productivity and lower utilization of discretionary benefits.
A good starting place is itemizing everything the company pays while a worker is employed: wages, plus training, plus payroll taxes, plus healthcare, plus life insurance, plus time off. Seeing how much of total compensation does NOT go to wages and performance pay helps open the door for conversations about how the company allocates its human capital investments, and how that allocation could change for mutual benefit.
Too often employees hear what “they get” once per year (if that), rather than an ongoing dialogue about how effort and attendance translate into business success—and how lower use of benefits can result in greater allocation of resources to bonuses, profit sharing or training opportunities.
Be straightforward and transparent with employees about how money gets spent, and consider giving them an option to use it in ways that fit their ideal mix of work and home life. Perhaps it is time to trust that their choices may produce a win-win.
Why this matters: One size does not fit all when it comes to paid time-off. There are situations where workers will choose to work more, or less, than the company designates. Further, connecting pay to attendance reminds everyone that business success results from the work we do, not just the people we hire.
A good starting place is itemizing everything the company pays while a worker is employed: wages, plus training, plus payroll taxes, plus healthcare, plus life insurance, plus time off. Seeing how much of total compensation does NOT go to wages and performance pay helps open the door for conversations about how the company allocates its human capital investments, and how that allocation could change for mutual benefit.
Too often employees hear what “they get” once per year (if that), rather than an ongoing dialogue about how effort and attendance translate into business success—and how lower use of benefits can result in greater allocation of resources to bonuses, profit sharing or training opportunities.
Be straightforward and transparent with employees about how money gets spent, and consider giving them an option to use it in ways that fit their ideal mix of work and home life. Perhaps it is time to trust that their choices may produce a win-win.
Why this matters: One size does not fit all when it comes to paid time-off. There are situations where workers will choose to work more, or less, than the company designates. Further, connecting pay to attendance reminds everyone that business success results from the work we do, not just the people we hire.
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