The preference between salary increase and more vacation time

Abstract: In order to attract and retain skilled personnel companies must compete with other employers in terms of job content, salaries and other benefits. Two ways of compensating employees are an addition to the base salary or an addition to the employee’s amount of vacation days of the same monetary value as the base salary increase. Companies have limited resources, meaning that knowing if there are ways to attract certain employees more by offering an alternative to a base salary increase would be of interest. There is not much written on the preference of choosing vacation over money, but there are studies that have suggested that vacation would be a more valued option for some. In this study we build on this and add a deeper understanding on the preference in choosing between vacation and money. This thesis looks at how companies could refine their compensation package they offer to new or already employed personnel given their budget restrictions in looking into an alternative to a base salary increase. For an employee this means being able to choose. This thesis answers the questions if there are any relationships between an employee’s intrinsic motivation, job category (“position”) and that of amount of working hours in choosing extra vacation time over a base salary increase. Using a survey and interview data from Swedish IT companies this thesis finds no relation between an employee’s intrinsic motivation, job category or amount of working hours to the preference of choosing extra vacation over a base salary increase. However, this thesis finds a relation of age to the same preference, indicating that the older the employee the more likely he would be in choosing vacation over money. The implications are that companies could potentially increase their older employee retention rate by offering to interchange a base salary increase by an increase in the vacation days offered. Another implication is that in offering such an interchange neither the employee’s intrinsic motivation, the amount of hours worked or the job category of the employee are by themselves indicators that he or she would value vacation over money. Suggestions for further research to build upon this study are included at the end of the thesis.