Companies can have unlimited leave and succeed, but it takes some new ground rules

Photo: Getty Images.

Contrary to the accepted wisdom that wage restraint, unfair dismissal and the broader “flexibility” agenda in industrial relations hold the key to buffering Australia’s economy in the 21st Century, it could be the case that some counterintuitive thinking is in order to meet our economy’s contemporary challenges.

Last week, the two Australian-based government relations firms which I lead, the Labor-aligned Hawker Britton and Coalition-aligned Barton Deakin, announced a system of unlimited paid annual leave for consulting staff. PwC also recently revealed it is now actively encouraging its full-time consulting staff to undertake private ventures in addition to their jobs.

Just a few years ago, these two initiatives would have been seen as not only highly unlikely, but directly counter to the traditional neo-liberal self-interest of the firm. After all, unlimited leave raises a hard-to-counter risk of abuse (the lure of a long paid holiday is a strong one) while encouraging a start-up culture in a traditional consulting firm is an invitation for senior staff to be distracted on personal ventures.

Yet we are witnessing an increasing number of innovative firms, particularly those in the professional services and technology fields, recognising that the traditional principal-agent relationship between the firm and its key element of production is not necessarily the optimal one.

Flexible working arrangements approaches (mobile working, flexible hours and out of office working) have been growing in popularity in recent years across the economy. The positive impacts on productivity, morale, retention and recruiting costs, innovation and corporate reputation are well documented. Unlimited paid leave, encouraging start-ups and other innovative initiatives are a natural rejoinder to this. After all, if your consultant is working from home, who’s to say if they’re focused on their start-up instead of their day job, let alone sitting by the pool with a drink without having applied for leave?

In most industries, but particularly professional services, the flexibility agenda will ultimately lead to these more advanced forms of industrial arrangements.

On coming to office last September, Prime Minister Malcolm Turnbull noted that achieving a “high-wage, high-skill… first world economy” will be secured by “being confident and not fearful, innovative and not complacent.” Co-existing prosperously with the highly-populated emerging economies of our region will not be well-served by competing on wage levels, but instead on skills, productivity and innovation. In turn, these aims are not well-served by the 1980s industrial agenda of wage restraint and unfair dismissal that is looking more anachronistic by the week.

Needless to say, these modern approaches to workplace arrangements aren’t appropriate for all companies or industries – and by extension, the traditional principal-agent approach remains relevant in some. For such new approaches to succeed, there are a number of pre-conditions that must exist.

Firstly, companies must have a culture that engenders trust. In both the examples, the company is placing a wager on trust – counting on the belief employees won’t abuse the freedom they’ve been given. Companies will rely on the professionalism and commitment of their staff. Employees must also trust the company not to mark them down for taking advantage of the arrangements.

Secondly, there needs to be a natural limitation through the employees’ remuneration structure, with a stronger weighting on incentives and less on base salary.

Finally, such advanced industrial approaches are more likely to succeed with mature employees rather than less experienced ones. People with decades’ of work experience under their belt (let alone stable partners and families) are less likely to game a system or take advantage of a trust-based structure. In the case of unlimited leave, such maturity also avoids the problem of employees not taking adequate leave to boost health and productivity, as was experienced by US technology firm Travis CI which rescinded its unlimited leave policy, with CEO Mathias Meter calling it “a race to the bottom”.

Ultimately, these approaches need to be legally limited. The Fair Work Act makes systems like unlimited leave much more difficult for award-qualifying employees. Those on common law individual contracts need an overriding clause requiring employees to faithfully serve the company in a professional and conscientious manner and use best endeavours to promote its interests.

As the Australian economy adjusts to the post-boom “new normal”, expect to hear more about these advanced approaches to industrial arrangements. Perhaps we should also expect to hear less about the traditional wage and unfair dismissal business agenda.

Justin Di Lollo is the head of government relations companies at STW Group (ASX:SGN). He Tweets at @JustinDiLollo

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