Why Companies are Turning on Remote Work [Finance Fridays]
Is it truly a lack of productivity or is it something more?
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The remote work vs in-person debate seems to be more divisive than ever.
The debate seemed to be settling towards remote work, with many companies making declarations that were switching to fully remote. However, many of these names are now switching back-
Goldman Sachs wants employees in five days a week. Google is factoring employees’ in-office attendance into their performance reviews.
A whopping 90% of companies plan to implement return-to-office policies by the end of 2024, according to an Aug. report from Resume Builder, which surveyed 1,000 company leaders. Nearly 30% say their company will threaten to fire employees who don’t comply with in-office requirements.
There have been multiple reasons given for this change- including productivity, culture, and increased collaboration- but the financial reasons are often overlooked. In this piece, we will look at the financial incentives driving upper-level management to embrace in-person work, even when there is no obvious benefit (unlike certain fields, where security measures, work requirements, etc might require in-person work). As an employee, it’s always important to understand the parts not said out loud to make better decisions.
Business Reasons for In-Person Work
Increased Turnover: Some companies need to cut costs to maintain margins. Manpower is expensive. However, laying off employees can also damage a company's reputation and make it harder to hire new employees in the future. Forcing employees to return to the office can lead to higher staff turnover, which saves the company from bad press and expensive severance packages associated with layoffs.
Unispace found that nearly half (42%) of companies with return-to-office mandates witnessed a higher level of employee attrition than they had anticipated. And almost a third (29%) of companies enforcing office returns are struggling with recruitment. In other words, employers knew the mandates would cause some attrition, but they weren’t ready for the serious problems that would result.
Meanwhile, a staggering 76% of employees stand ready to jump ship if their companies decide to pull the plug on flexible work schedules, according to the Greenhouse report.
Real estate: Some companies have a lot of invested in real estate, and they are now stuck with empty office buildings. This is a problem for companies that own their office buildings since the office space has turned from an asset into a massive liability- for eg. Apple ended up spending 5B on their Cupertino office, would’ve looked very stupid if no one used it. Companies that lease office space are often stuck in long-term leases, and they may be unable to sublease the space if they don't need it. Thus many companies use RTO as a way of justify the massive cap-ex on offices. If you’re skeptical about this, consider that Google leasing some buildings to C3.ai makes them$103.1 million in base rent payments (If you’re wondering what C3 gained from this, consider that this rent payment was a tiny bribe to secure the Google Cloud partnership that shot their valuation up.) When it’s not in use, commercial real estate is a big hole in the balance sheets.
That monthly payment is insane when you consider C3’s awful financials. You can find the lease between Google and C3 here Management reasons: Some managers feel that they have more power over their employees when they are in the office. This is because it is easier to micromanage employees in person, and it is also easier to build relationships with employees in person. However, studies have shown that remote workers can be just as productive as in-office workers, remote work can be better for inclusivity, and can even reduce distractions- boosting creativity and performance.
Cultural reasons: Some companies simply prefer the traditional office culture. They believe that face-to-face interaction is important for building relationships and collaboration. However, there are many ways to build relationships and collaborate remotely, and there is no evidence that remote workers are less productive or collaborative than in-office workers (especially when given the right tools/spaces for this).
Now some of you might prefer working from an office for mental or social reasons. That’s fine, we don’t judge any kinks here. The good news for you is that there are plenty of orgs looking for people like you. And if you are someone who hates commuting as much as me, I hope this gave you some insight into the market dynamics causing some companies to push against remote work. Either way, hope you have a great weekend. Fellow UFC fans who you got for the title fight? It’s impossible to bet against Volk but as someone whose game is built around pocket-boxing and top-pressure, I will be rooting for Topuria.
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Interesting timing of your post. I was talking about this topic with someone yesterday. In most cases, there are benefits to doing something or not doing something, and the same is true here. We are in a transition period, and the next 3-5 years will define where we end up, but for now, here are my observations:
1. Individual productivity is high for many people due to fewer distractions. Still, quite a few people, especially independent IT contractors (my work requires working with them), are doing multiple jobs and billing their time to two entities without doing 16 hours of work.
2. If people come to the office for a day or two per week, at least one of those days is used primarily for meet and greet, and productivity is limited during work-from-office days. So, the hybrid world makes the teams less productive if it is less than three days.
3. The new employees take much longer to get going in the remote/hybrid world.
4. The new college graduates suffer the most since the lack of interaction or mentoring is hard in the remote world.
5. More meetings happen in remote world than in-office scenarios. In the work-from-office scenario, people spend more time on non-work things like water cooler chat, coffee and lunch trips.
6. Work usually ends when you leave the office, but most people work longer in the remote world as there is no activity called “leave office.”
7. I love the time in the car as it gives me time to think and listen to a book, which I cannot do when I work from home.
8. Most big cities are suffering because of a lack of tax revenue as fewer people are coming, and commercial properties are losing value fast. The crime has gone up. DC is an example of more crime.
9. The large IT enterprise projects have become difficult to execute as walking into a room and whiteboard a solution/problem is far more than using any available technology. Also, training users has become more complicated, especially instructor-led training, since it is hard to keep people focused for more than 15 minutes in an MS Teams/Slack session.
10. The meetings using MS Teams/Slack need to be short and focused; otherwise, it is challenging to keep people focused and stop them from multi-tasking.
We will overcome most of these technology challenges over time, whichever route we take eventually. Still, I think no one method is the best for an organization and each job category. The organizations will have to consider how to be fair and also ensure that work gets done.
These are all important reasons. There's even one more: tax incentive. A bigger company often gets paid to have a bunch of businesses they're supporting with an office building (think: food courts, janitorial services, etc) in the form of local tax breaks. These tax savings can be in the tens (or even hundreds) of millions... I think a lot of folks are missing this, too.