In a landscape reshaped by the COVID-19 pandemic, the shift to remote work and its subsequent reversal in the form of return-to-office (RTO) mandates has become a critical issue for HR leaders. But is RTO delivering the outcomes businesses desire? University of Pittsburgh’s Yuye Ding and Mark (Shuai) Ma look at the evidence
As the threat of the COVID-19 pandemic receded, many companies began reconsidering their workplace policies. Some, like Nvidia and Airbnb, continued with remote work, while others, including Amazon and Disney, implemented return-to-office (RTO) mandates.
Fast forward to 2024 and debate about RTO is as vociferous as ever. Just this month it was revealed that computer giant IBM has specified all its US managers return to the office for a minimum of three days a week or leave the company. Remote workers, excluding those with specific exemptions such as medical issues or military service, must relocate closer to an IBM office by the beginning of August.
Speaking to Bloomberg an IBM spokesperson said: “IBM is focused on providing a work environment that balances flexibility with the face-to-face interactions that make us more productive, innovative and better able to serve our clients. Consistent with that approach we’re requiring executives and people managers in the United States to be in the office at least three days per week.”
Meanwhile the Financial Times reported this week that consulting giant EY is keeping track of how often staff attend its offices through turnstile access data, as some teams disregard its return-to-office policies in the UK. The firm's hybrid working policy requires staff to come into the office twice a week but at least half of some teams are flouting this rule, according to the article. It also said that more than eight in 10 company bosses surveyed by KPMG in October said they were likely to reward employees who came in more regularly with better assignments, pay rises or promotions.
A study by global workplace creation experts Unispace in May 2023, which combined the results of a survey of 9,500 employees and 6,650 employers from 17 countries worldwide, found 72% of companies globally had mandated office return. However, 42% of those that had mandated returns have experienced higher than normal employee attrition, with 29% struggling to recruit.
Productivity, financial performance and organisational culture are often cited as reasons for RTO mandates. But does the evidence back this?
Research released in January 2024 by the University of Pittsburgh’s Katz Graduate School of Business’s Yuye Ding and Mark (Shuai) Ma highlights the importance of understanding the motivations behind such mandates, their impact on employee satisfaction and their effect on financial performance. They note that the rationale for RTO mandates include improving productivity and firm performance but also suggest other motives like managers' desire to reassert control or blame employees as scapegoats for bad firm performance.
The researchers used a sample of 137 Standard and Poor’s firms, the index that tracks the stock performance of 500 of the largest companies listed on stock exchanges in the United States. These companies had each made RTO announcements between 2020 and Q2 2023. Many firms announced their RTO plans between the second quarter of 2021 and the first quarter of 2022.
The manufacturing industry and the finance, insurance and real estate industries collectively represent about 60% of the RTO firms in the sample, with the service industry, transportation and public utilities, and retail industry following.
Understanding the motivation behind RTO mandates
A significant finding is the influence of managerial attitudes and company performance on these mandates. Firms with CEOs who have a propensity for control and those experiencing poor stock performance were more likely to enforce RTO policies. This suggests that in many cases RTO decisions are driven less by performance metrics and more by managerial preferences or perceptions.
The impact of RTO mandates on employee satisfaction
A vital aspect of the research focused on the consequences of RTO mandates on employee job satisfaction. The results are telling: RTO mandates led to a notable decline in various aspects of job satisfaction, including overall satisfaction, work-life balance and views on senior management. These findings highlight a potential disconnect between managerial decisions and employee wellbeing, underlining the importance of considering employee perspectives in policy making.
Financial performance and RTO mandates
Contrary to what some might expect the study found no significant impact of RTO mandates on the financial performance or market value of firms. This is a critical insight for HR leaders, as it challenges the notion that physical presence in the office is inherently linked to better financial outcomes. It suggests that the benefits of RTO policies may not be as straightforward as they appear, particularly when weighed against the potential costs in terms of employee satisfaction. As the researchers say: “In summary, these findings are inconsistent with managers’ argument that RTO mandates improve firm performance and values.”
Comprehensive evidence on the impact of remote working, hybrid working and RTO post-pandemic is still being gathered but this study contributes to the ongoing debate over RTO mandates. The authors point out that past experiences need to be reevaluated to adapt to this new era.
“Before the pandemic, employees generally didn’t have the chance to fully WFH [work from home]. During the pandemic employees who worked fully from home may have suffered from distractions, such as family conflicts and childcare responsibilities, and they could only compare their WFH experience to their pre-pandemic in-office experiences. However, in the post-pandemic era employees’ attitudes towards WFH may change, as they may be less distracted at home or have successfully adjusted their pace of life when working from home,” they say.
What this study is clear about is that mandating employees to return to the office after the COVID pandemic does not result in a significant improvement in firm performance. Instead, such mandates hurt employee satisfaction. One of the most frequently cited motivations by managers for implementing the RTO policy, namely company performance improvement, may not be a valid justification for such a policy in the post-pandemic era.
For HR professionals these findings underscore the need for a balanced approach to post-pandemic work arrangements. The decision to mandate a return to the office should not be taken lightly, as it can have far-reaching implications on employee morale and, by extension, organisational culture. HR leaders are in a unique position to advocate for policies that consider both managerial objectives and employee wellbeing.
Ding, Yuye and Ma, Mark (Shuai), Return-to-Office Mandates (December 25, 2023). Available at SSRN: http://dx.doi.org/10.2139/ssrn.4675401