INSTANT MBA: This tech CEO gives employees $7,500 to go on vacation — here's the unexpected reason it's good for business

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June 25, 2015

In 2012, Bart Lorang, cofounder and CEO of the Denver-based tech company FullContact introduced "paid paid vacation."

In addition to the standard 15 days paid vacation plus federal holidays, the company would give employees $7,500 to finance a trip. That's $7,500, on top of their full salaries.

There were just three rules:

No checking work emails, texts, or calls.
No working, period.
You have to actually go on vacation or you don't get the money.

Needless to say, the program did not go unnoticed. And as FullContact's communications director Brad McCarty told the Washington Post last year, it's worked "incredibly well."

"The really big names in tech all focus on the same idea, that employee happiness has to come before everything else. While it's really difficult to measure that return on investment from a dollar standpoint, it's not difficult to measure what happens when someone returns from a Paid Paid Vacation: you see, without fail, people shining brighter, working harder and more excited to get back into the swing of things."

And as the Huffington Post noted at the time, there's plenty of research backing up the claim that workplace happiness pays off for employees and employers alike.

But what people still don't understand, Lorang tells Business Insider, is the way the vacation policy has improved the day-to-day structure of the company.

It's what he calls "an amazing forcing function to eliminate single points of failure," he explains. By nudging employees to take real vacations — vacations where they're genuinely inaccessible — he's built a culture that can't depend too heavily on one person for any particular thing.

That's harder than it sounds. Everyone wants to feel indispensable, and startup cultures are particularly prone to "hero syndrome" — an "I'm the only one who can do this," mentality.

Surfing in Australia

The problem is, that's the definition of a single point of failure. It's bad for the employee, and it's bad for the company.

"But here's the thing," Lorang says. "If people know they will be disconnecting and going off the grid for an extended period of time, they might actually keep that in mind as they help build the company." That means empowering colleagues, documenting their code more clearly, and generally sharing knowledge.

The policy makes employees happier and more relaxed, both because they know they "aren't the last line of defense," and because Costa Rica is lovely this time of year.

But it also pays off on a macro level. "At the end of the day, the company will (and has) improved," Lorang says.