Why unlimited vacation time makes sense for some employers

As we say goodbye to 2015, many employees are using up their final vacation days of the year. That’s especially true for employees whose workplaces have a “use it or lose it” policy, and don’t allow staffers to roll over their days to the next year.

But at those companies that do let employees carry over much or all of their paid time off to the following year, all that accrued vacation time can start to add up. And nowhere is that more true than when it comes to top executives.

A recent report in Bloomberg revealed that at some companies, chief executives are due a hefty amount — if or when they leave the company — for the unused vacation time they have sitting around. If Qualcomm CEO Steven Mollenkopf were to leave the company, he’d be owed $185,177 in accrued time, according to the company’s most recent proxy. HCA Holdings CEO R. Milton Johnson had $152,308 tallied up at the end of 2014 that he’d be due in the event he leaves the company.

Join the conversation on Facebook >>

And at Whole Foods, co-CEO Walter Robb has $613,836 banked up due to 2,703 accrued time-off hours he hasn’t used in his 24 years at the company. Whole Foods spokesperson Michael Silverman said in an email that all “team members,” including executives, will get their paid-time-off balance when they leave the company and said the accumulated amount reflects Robb’s long service. He also noted that cash compensation at Whole Foods is limited to 19 times the average annual wage of full-time employees.

The reason for those tallies, of course, is twofold: The obvious one is that most CEOs have big paychecks, and some clearly aren’t taking much of their allotted vacation. In addition, as with Whole Foods, many companies have policies — or are required by state law — to pay out unused vacation time when any employee exits, whatever their status at the company. (Whole Foods workers are also given the option once a year of cashing in their unused personal time off each year at 75% of its value, something a few companies still do.)

“When you see these large values, in many cases all that means is the CEO is covered by the same policy as other employees,” said Pete Lupo, a managing director at the executive compensation consulting firm Pearl Meyer & Partners.

They’re just paid more, of course, which means that all that accrued vacation time can pile up in terms of liabilities the company has to carry forward. Research from Oxford Economics, which looked at Securities and Exchange Commission filings for 114 public companies, found that U.S. companies carried $65.6 billion in accrued paid time-off costs forward on their books last year, with an average vacation liability per employee of $1,898.

SIGN UP for the free California Inc. business newsletter >>

When Henrique de Castro, the former Yahoo chief operating officer who spent just 15 months in the job, left the company this year, he exited not only with a huge severance package but $29,491 in unused vacation pay. When former Weyerhauser Executive Vice President Thomas Gideon retired in 2014 after 36 years, he received a payout of $129,063 in accrued time off.

Such figures are one reason more companies have been adding the “unlimited vacation” policies that have become popular with Silicon Valley start-ups, particularly for their groups of executive or professional employees. If there’s no policy, then there’s no bank of vacation time for employees to accrue or not accrue, said Carol Sladek, a partner who leads work-life consulting at Aon Hewitt.

“Many employers are doing this now for top tiers or executives,” Sladek said. Not only are there fewer people keeping track of how much time these senior folks take off, making a closely scrutinized policy less applicable, she said, but they also often have the kind of jobs where they aren’t able to get away as much. “They’re the highest paid, so that’s a big number,” she said. Switching to a policy that doesn’t track time off is “kind of a no-brainer.”

Those who aren’t going so far as to cut out vacation parameters are increasingly taking a more active role in urging employees to use their time.

“When employees take vacation, everybody wins,” said David Wise, U.S. market leader for Hay Group. “The company can remove those costs from their books and employees theoretically come back refreshed.”

By the time companies get to the fourth quarter, he said, there are companies “who are urging employees to please take vacation, otherwise it will hit their financials. The irony is it can cost more for employees not to take vacation than it will for employees to take it.”

So then shouldn’t companies be urging CEOs to take their vacation too? Perhaps, but the reality is that many of these top jobs, particularly at major publicly traded corporations, simply don’t have an off switch.

“CEOs work seven days a week. It’s the nature of that job,” Pearl Meyer’s Lupo said. “At that level, time is amorphous. This is not a 9-to-5 job, and it never will be.”

Jena McGregor writes a daily column analyzing leadership in the news for the Washington Post’s On Leadership section.

ALSO

Worker salaries are poised to climb in 2016

Disneyland to close some attractions to build ‘Star Wars’ land

United Airlines makes changes to program for children flying alone