At some companies they call it “discretionary time off” to make it clear it is between you and your manager but the concept is the same. What many companies fail to do is properly train their managers (1) how to manage this with their reports and (2) to consistently take time off as an example to the people that report to them and to set expectations. Without a program in place to encourage people to use it, people don’t use as much as the company typically intends. Due to legal nuances, it is a bit tricky to officially track performance in this regard.

Most companies that I’ve worked at which had this type of vacation policy had a directive for managers to ensure that every employee took at least 3-5 weeks of vacation every year (the minimum varied with company). It wasn’t always successful but that was the objective. More than that was fine too.

One of the original motivations behind these policies was the burst-y nature of some types of engineering work. Companies wanted to allow engineers to take 2-3 months of paid vacation after a relatively intense 12-18 months with few breaks working to ship some product. Giving people multiple months of vacation is surprisingly difficult without also running afoul of other legal and accounting complexities around vacation time in various jurisdictions. The “unlimited / discretionary” policy is essentially a loophole in US law that originally allowed managers to reward people with large amounts of time off. It has been generalized, and has other accounting benefits, but this was the original use case.