Unlimited vacation perks and game theory

There have been a few news articles going after perks like “unlimited vacation.” The trouble with these articles is that they typically go after these perks quoting folks who run workplaces without these policies and thus tell you that these perks are dangerous. There’s an inherent skin-in-the-game problem there.

A better approach might be to examine such perks from the lens of game theory. The challenge with unlimited vacations is that one’s natural behavior is to want to take a little less vacation than their neighbor – i.e., not enough to be the slacker on the team. This means the natural equilibrium point is to reduce the number of vacation days to zero.

This problem can be easily solved by shifting the equilibrium. For example, companies like Hubspot and LinkedIn (where I work) either mandate 2 weeks of vacation or shut down entirely for 2 weeks in the year. Another way to do this would be to have negative incentives below a certain threshold – e.g. maybe you get some benefit deducted if you don’t take 3 weeks off.

Company culture goes a long way in creating equilibrium points as well. Smart employers understand that breaks result in more productivity. And, cultures can create norms that make it unacceptable to not take these breaks.

Perks aren’t culture – their use is dictated by culture. They are rarely good or bad by themselves. Ping Pong tables, for example, can actually be pretty great if you use them every once in a while to blow off some steam with a teammate.

So, if perks aren’t being used as intended, it is better to evaluate the equilibrium created by the culture and incentives in place. And, game theory is our friend.

(Inspired by the game theory chapter on “Algorithms to Live By” – a very good book :-))