The Case Against Vacation Policy

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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. And 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 co-workers 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. And 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." But 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. But the formula seems to be working. Bluewolf is projecting $31 million in revenue for 2008, up from $11 million two years ago. And 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.

Tozzi covers small business for BusinessWeek Online.