Editor’s note: Dan Ruch is the founder and CEO of Rocketrip.
What do a teepee, cosmetic surgery and hot tub supplies have in common? They all appeared on corporate expense reports in 2011. Yes, it turns out that when companies tell employees, “Spend company money like it’s your own,” some people listen too well. When the average American household carries $15,611 in credit card debt, let’s face it: you don’t actually want employees to follow that broken platitude.
The “your money” mantra is not a source of freedom – it’s a stealthy form of repression and a leech on productivity. If you want employees to experience self-direction and choice, relativistic spending guidelines that obscure expectations will not help. Instead, it’s time we provide transparent benchmarks and data that empower workers to make their own informed decisions with ease.
The Tyranny of Ambiguity
Teepee expensing is no doubt rare, but expecting employees to be reasonable is unreasonable. The concept sounds great: let’s run a democratic business where employees can make their own spending decisions. We’ll give workers “choice,” so they feel a sense “ownership” and care about our “bottom line,” right?
Quite the opposite. When you tell employees to spend money like it’s their own, you create fear, indecision and abuse. People will spend too much or too little and question their choices. This is true not just of Travel and Expense (T&E), entertainment and business software, but also true of unlimited vacation policies, free snacks and limitless work-from-home days.
The hottest startups champion cultures of free will, transparency and self-direction. Like modern Magna Cartas, the best culture documents seek to liberate employees from the tyranny of corporate bureaucracy run amok.
Yet, if we replace absolutism with ambiguity, we actually kill off the freedoms we hoped to create. Instead, we introduce tyrannies of the mind in which employees don’t understand what’s ‘reasonable’ and begin to consider choice a burden. There’s no freedom in fearing the consequences of every decision.
“Spend company money like it’s your own” is an invitation to make decisions without prior approval. That is a good thing. However, it usually requires employees to spend precious mental power on tons of unclear choices that have little to do with your business goals. This is proven to reduce self-discipline and decision quality.
In a popular TED Talk, “The paradox of choice,” psychologist Barry Schwartz explains that a high level of choice “produces paralysis, rather than liberation. With so many options to choose from, people find it very difficult to choose at all.” So when employees join a culture with the “your money” mantra and unlimited [fill in the blank] policies, they face a huge set of choices. This intensifies “decision fatigue” (aka ego depletion), the biological price we pay for making choices.
As science columnist John Tierney shows in the New York Times, dozens of peer-reviewed studies illustrate that people have a “finite store of mental energy for exerting self-control,” and it plunges throughout the day as we trudge through choices. It doesn’t take complex decisions to induce fatigue – shopping for clothing presents enough tradeoffs to deplete this mental reserve. The consequences are significant, as ego-depleted people “take illogical shortcuts and tend to favor short-term gains and delayed costs.” So a hyper laissez-faire environment will likely speed up ego depletion and increase poor decision-making.
Imagine the process of booking a business trip when your guiding principle is, “Spend company money like it’s your own.” The direct flights are $300+ more expensive than the one-stop options, but they would shave three hours off travel. Which one is acceptable? How do I filter the dozens of flight options? Will I get in trouble if I take the more convenient route? What if I stay at this more expensive hotel but forgo the rental car? The questions and sub-decisions multiply like parasites because there are no clear principles guiding each decision (e.g. minimize costs and travel times).
Without guidelines that “automate” decisions, employees will face choice paralysis and ego depletion. Your company will sacrifice productivity and quality thinking to a counterfeit freedom.
Benchmarks and Guardrails
We know that draconian policies, exhaustive procedure and rampant bureaucracy cripple businesses. On the other end of the spectrum, I’ve made a case that unstructured choices – best characterized by the mantra, “Treat the company’s money like your own” – is repression in disguise and detrimental to the quality of decision-making in your organization.
However, I still advocate democratic company culture. What I propose is a self-directed spending culture that uses benchmarks and guardrails to make decisions easy and beneficial to the company.
Sharing knowledge is more effective than imposing upper limits.
To create benchmarks, we can investigate what something should cost, and we can look at historical averages among employees. With T&E, business software, office supplies and other free market purchases, you can crunch some numbers to predict what things should cost.
With knowledge of a suggested or average budget, employees can compare potential purchases with ease and make their decision without suffering from uncertainty, endless sub-decisions and the accompanying ego depletion. If you have an unlimited vacation policy, you can determine how many days people take off on average and publish the number. That way, new employees don’t stress each time they consider a vacation. They can use the data to make a reasonable decision.
Guardrails, on the other hand, are minimum limits. With an unlimited vacation policy, a lot of people will take little or no time off, which has been shown to increase the risk of burnout, heart disease and depression. Therefore, setting a minimum for required vacation days makes good sense.
With client dinners, too, the “your money” mantra can scare employees into picking mediocre restaurants and skimping on the wine. TGI Fridays and white zinfandel won’t help you close deals. Transparency – knowledge of what an average dinner costs – will save employees from the agony of overthinking their choices. Sharing knowledge is more effective than imposing upper limits; the data exerts social pressure whereas upper limits will erode price sensitivity and encourage employees to max out their spending.
Freedom with Knowledge
The takeaway here is to preserve free choice yet eliminate ambiguity by using data. Benchmarks, guard rails and rewards give you the levers to reign in spending while preserving a culture of democracy and free choice. If you tell employees to spend company money (and time) like it’s their own, it will backfire.
It’s a mantra that sounds good on paper but disconnects spending from business goals. It’s a mantra that will increase the likelihood of teepees, cosmetic surgery and hot tub supplies appearing on your expense reports.