Return to Office edicts are a hot topic. The Business Insider highlights a 2023 paper from the University of Pittsburgh that examined the benefits of Return to Office (RTO). RTO policies are requirements that employees must work in the office for at least several days in a week. In the paper, Return-to-Office Mandates, Mark Ma, a professor at the Katz Business School analyzed firms that had publicly announced their RTO policies. He wanted to understand if the Return to Office mandates actually affected financial performance.
Changing work
The COVID-19 pandemic challenged traditional employee work arrangements. Because of government-mandated physical distancing to slow the virus’s spread, the percentage of the U.S. workforce working exclusively from home surged according to the article. Working from home (WFH) rose from 8.2% in February 2020 to over 35% in May 2020. Ma argues that COVID-19 accelerated an existing trend of digital transformation that was already a hot topic.
In the post-pandemic period, the proportion of the U.S. workforce exclusively working from home began to decline. The decline is driven by high profile CEOs like Amazon’s Andy Jassy, JPMorgan Chase’s Jamie Dimon, Disney’s Bob Iger, Starbucks’ Howard Schultz, and Tesla’s Elon Musk. They have pushed for return to office mandates. According the Chief Executive Group, in 2023 there has was an increase in the number of firms requiring employees to be fully present on-site. The percentage of firms requiring employees to be on-site rose from 31% in May 2022 to nearly 50% in 2023. This resulted in a decrease in the number of companies embracing WFH. Firms embracing WFH declined from 61% in 2022 to 48% in 2023.
No financial incentive to return to the office
Professor Ma told BI that many managers think that working from home reduces productivity. Additionally management believes that return to office mandates will improve the firms and the shareholder value. Ma’s research found that the results do not support these beliefs. Instead, they found that firms with mandatory RTO plans do not experience significant changes in profitability and market values relative to non-RTO firms.
Return to office mandates try to grab power back from employees
The Pitt team reviewed news articles about RTO policies. They found that managers are trying to use the return to office mandates to reassert their control over the employees even if it costs the firm money.
Professor Ma calls this an “agency problem.” The problem is that managers do not make decisions in the best interest of the shareholder or the firm. Instead, RTO decisions are based on their own best interest. By regaining control of the employees, he said, the managers feel a false sense of control. This makes them feel more secure about their job and their own careers. Ma told BI “We found RTO mandates are more common among male CEOs and more powerful CEOs. So that’s consistent with these managers using RTO mandates to reassert control.” He continued,
“… as prior research suggests, most CEOs are very narcissistic. That means they are used to being in the center of everything and issuing orders for employees to follow. But after the pandemic, they feel kind of like they’re losing power because employees became more and more aware of their rights during the great resignation. So, the managers feel that they are losing their power inside the firm, basically, and as a result, they want to grab their power back in this relationship. And that’s the reason we found such results.”
Employee performance as a scapegoat
Another reason for RTO mandates is poor financial performance. Ma points out that some firms performed exceptionally well financially during the pandemic, while others floundered. His research suggests RTO policies may offer managers a scapegoat. They attempt to explain away poor performance by blaming employees who underperformed while working from home. Managers try to explain away poor performance by blaming employees for being lazy at home. The research confirmed that RTO mandates have no positive impact on firm performance and may reflect managers’ self-interest.
Ma told BI, “We found that return-to-office mandates are more common among firms with poor stock performance and stock returns … Like, really bad stock returns during the pandemic.“
BI noted that research from Harvard Business School, found that employees who worked from home 75% of the time were the most productive.
Return to office mandates hurt employee satisfaction and retention
Ma’s team also looked at the impact of mandated RTO on employee satisfaction and retention. He reported “… we found that after return to office mandates, employees’ job satisfaction significantly drops.” This impacts the productivity that RTO mandates sought to improve. “… there’s a significant drop in job satisfaction, and that decrease translates into lower productivity — even though maybe before the pandemic it was true that people were more productive in the office.”
According to BI, research out of Stanford says that workers increasingly value a flexible workplace. They view hybrid work accommodations as equal to an 8% pay increase. Stanford found that employers that insist upon bringing employees back to in-person work are seeing slower hiring rates. Companies that have full-time remote work see a 5% increase in their staffing levels over the last year, compared to just 2.6% for full-time in-person offices.
Professor Ma’s research show that Return to Work mandates do not work. RTO’s do not improve the bottom line. RTO mandates hurt employee satisfaction and retention. And at their worst are just and attempt to blame the employees for poor stock performance. He concluded, “… firms need to treat the employee more humanely and also give them more flexibility … I see no reason for these big firms to treat their employees more harshly because they’re working from home.”
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Some managers believe that WFH is a treat and hold continued WFH as a lever to control their employees.
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Ralph Bach has been in IT long enough to know better and has blogged from his Bach Seat about IT, careers, and anything else that catches his attention since 2005. You can follow him on LinkedIn, Facebook, and Twitter. Email the Bach Seat here.
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