The Case Against Vacation Policies

About 18 months later, with 10 employees, they made their ad hoc policy official. "If you want to take a vacation, take it," Kirven says. As long as workers met their goals, they could take as much time as they wanted, when they wanted. In other words, no formal vacation policy.

Kirven doubted the startup could sustain the approach as the company expanded. "I didn't think it would scale when we were at 20, then 50, then 100, then 150 [employees]," he says. Now, with a staff of 200, satellite offices in San Francisco and North Carolina, and US$18 million in revenue in 2007 (Disclosure: BusinessWeek's advertising department was a Bluewolf client in 2004), he doesn't consider the loose vacation rules a risk that employees will shirk their duties.

Instead, Kirven sees it as a competitive advantage. He makes it clear no vacation policy doesn't mean unlimited vacation. He estimates most people take three to four weeks each year; six or more would usually make it hard to meet objectives, he says. However, there's no pressure to put in a certain number of days or hours as long as the work is getting done.

Holdover From the Industrial Era

Bluewolf is part of a small but growing group of companies of all sizes that let employees manage their own time. The most visible example is Best Buy (NYSE: BBY) , where an employee-led movement toward results-only metrics transformed the company's culture. Outdoor gearmaker Patagonia lets workers at its Ventura, Calif., headquarters surf during the day and offers up to two months of paid leave for employees to work with environmental groups. However, giving workers complete control over their schedules is rare enough that Kirven says human resources people tell him he's crazy.

Counting days and hours is a holdover from the industrial era that makes no sense for information workers who can do their jobs without being at their desks at set hours, proponents of such changes say. "The reason companies have a vacation policy or time-off policy is because of the way work is structured: 8 to 5, Monday through Friday," says Jody Thompson, one of the Best Buy HR managers who upended the company's attitude toward time.

Thompson and Cali Ressler just published Why Work Sucks and How to Fix It, a manifesto for what they call the "Results-Only Work Environment," or ROWE. "Work is something you do, not someplace you go," Thompson says. The pair now run a St. Paul, Minn., consulting firm, CultureRx, to help companies switch to the model they pioneered at Best Buy.

The benefits for staff are clear. Workers at Bluewolf's Manhattan headquarters in a converted 15th-floor loft enthuse about the flexibility the company offers, and the bottom-up culture that supports everything from volunteer work to green initiatives to team trips to the gym. When the vacation time isn't enough, Bluewolf accommodates workers who want to take unpaid leaves, including one who took a year off when each of her three children was born.

However, what's the business case for tossing the vacation policy? For companies rooted in the information economy, like Bluewolf, which is adding staff quickly, the freedom helps attract and retain motivated workers, especially Gen Yers who resist punching clocks. Kirven says the company's turnover is next to nil -- so low that three people who left recently decided to return. Bluewolf has no HR staff. Instead, it relies on a quarterly audit from a lawyer to make sure the company complies with labor laws. Kirven estimates the company saves $250,000 a year by not having bean-counters tracking time.

Identifying Goals Is Key

To make it work, everyone is measured on performance goals that contribute to Bluewolf's bottom line. That means financial targets for salespeople, billable hours for analysts and project managers, and client retention rates for customer service people. Tim Johnson, Bluewolf's sales director, hasn't had a problem with people taking too much time off or with grumbling from coworkers left behind. "Everyone understands you have to work harder when people take off," he says. They're rewarded with the same freedom their colleagues have, regardless of position or seniority. The time off is real time off -- while many Bluewolf workers telecommute, when they go on vacation they're encouraged to leave their laptops and BlackBerrys behind.

Working this way is not for everybody, and it can backfire if the company doesn't have clear and measurable targets for each employee. "The key to making this work is helping your management to be able to identify good goals," says Bob Kustka, president of Fusion Factor, a Norwell, Mass., workplace-productivity consultant. "There are those people who need structure, who left to their own devices will not do what they need to do." However, plenty of companies offer highly structured work environments, and Kirven positions Bluewolf's flexibility as a differentiator that attracts talent in a competitive IT labor market.

A Growing Trend?

It also keeps people from burning out. While Kirven estimates he takes only about two weeks of vacation a year, he appreciates the culture of work-life balance that Bluewolf has built. "I don't want to work 80 hours a week and travel all over the globe. I have small kids myself," he says.

Such a policy isn't realistic for every company. Kirven and Berridge funded Bluewolf without any outside equity investors; Kirven imagines many VCs would quash a vacation policy like Bluewolf's. However, the formula seems to be working. Bluewolf is projecting $31 million in revenue for 2008, up from $11 million two years ago. Kirven thinks the approach won't be unusual for long. He sees more companies adopting similar policies, and not just in IT but in professions like law, where much of the work can be done on flexible schedules. "My prediction is that in 10 years, this will be what most people are doing," he says.