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- Experts studying RTO policies at S&P 500 companies found in-office workers aren't more productive.
- Businesses with strict RTO policies aren't more profitable, either, the researchers determined.
- But they say controlling managers prefer RTO and use employees as a scapegoat for bad performance.
Billionaire CEOs were quick to sing the praises of working from home at the start of the pandemic, calling it the way of the future — but over the last three years, they've slowly changed their tune.
Late last year, Forbes reported that 90% of companies will return to the office in 2024, with 28% threatening to fire workers who don't comply.
But it turns out that the motivations for calling workers back to the office may have less to do with employee productivity or profit margins and everything to do with catering to the egos of controlling managers who want their workers back, according to a recent study published by researchers at the University of Pittsburgh.
Mark Ma, an associate professor of business administration from Pitt's Katz Graduate School of Business, who led the study, told BI he started the research hoping to understand why some S&P 500 firms want employees to return to the office while other firms avoid calling them back.
Analyzing firms that had publicly announced their RTO policies, Ma examined whether the mandates actually affected financial performance and how such policies impacted employee well-being.
"One of the most common arguments management suggests is that they want to return to office because employee productivity is low at home, and they believe returns to office would help firms improve performance and ultimately improve the firm's value," Ma told BI. "That's the reason they give — but our results actually do not support these arguments."
No financial incentive to return to the office
Ma compared each firm's financial performance on the stock market before and after implementing return-to-office mandates and found no significant change in either the financial performance or the stock market value.
One potentially contributing factor as to why firm performance has not improved, Ma said, could be due to higher expenses caused by bringing employees back to the office. Even if employee productivity is better in the office, he said, the firm also needs to spend a lot of expenses to accommodate them — parking, office space, catering, or other in-house costs — which he says mitigates the positive benefits of enhanced productivity.
More than 60% of company leaders who responded to a recent survey indicated they pay more than $50 per square foot for their office space.
"So, on average, if we take a look at all these benefits and the expense average, the net benefit is really close to zero," Ma said. "That's what our studies are suggesting."
The discovery of a lack of financial benefit to RTO policies prompted Ma's team to look into other possible explanations for why managers call their employees back to the office.
RTO is favored by controlling bosses
A common theme among news articles about RTO policies that Ma's team reviewed highlighted workplace control issues, indicating managers are trying to use the return to office mandates to reassert their control over the employees even if it costs the firm money.
In his research, Ma calls this "the agency problem," where the managers do not make decisions in the best interest of the shareholder or the firm but based on their own best interest. By regaining control of the employees, he said, the managers feel a false sense of control, which makes them feel more secure about their job and their own careers.
In putting the "controlling manager" theory to the test, Ma expected to find more return-to-office mandates implemented by higher-profile managers in S&P 500 companies.
"And that's indeed what we found," Ma said. "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 added: "It is my personal belief that, 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."
Previous studies have found that CEOs with narcissistic traits made an average of $512 million more than peers who spent the same amount of time at their companies. Still, companies with extremely self-absorbed bosses also tend to use shadier accounting practices.
Managers could be using employee performance as a scapegoat
Some firms performed exceptionally well financially during the pandemic, while others floundered. Ma's research suggests RTO policies may offer managers a possible scapegoat to explain away poor performance by blaming it on employees who underperformed while working from home.
"So rather than say the poor performance is because of the manager's bad decisions, they will try to tell investors, 'It's not my fault, it's the employees who are being lazy at home,'" Ma said.
If the scapegoat explanation were true, Ma hypothesized he'd find more RTO mandates among firms whose performance was bad during the pandemic.
"And that's exactly what we found. We found that return-to-office mandates are more common among firms with poor stock performance and stock returns," Ma said. "Like, really bad stock returns during the pandemic."
In-office mandates hurt employee satisfaction and retention
To analyze the impact of strict RTO policies on workers, Ma's team collected all the employee reviews on Glassdoor for S&P 500 firms.
"And we found that after return to office mandates, employees' job satisfaction significantly drops," Ma said. "Based on our findings, 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."
Prithwiraj Choudhury, an associate professor at the Harvard Business School and remote work expert, found in recent research that employees who worked from home 75% of the time were the most productive.
"When you allow flexibility, it expands your talent pool," Choudhury said, adding: "Whether the economy is contracting or expanding, the best workers always have outside options. And so I think if you as a company have a model that doesn't give the best employees flexibility some of them — not every one of them, but some of them — will be poached by competitors."
Nicholas Bloom, a Stanford economics professor, told The Wall Street Journal that workers increasingly value a flexible workplace and view hybrid work accommodations as equal to an 8% pay increase. The Journal also reported that employers that insist upon bringing employees back to in-person work are seeing slower hiring rates — with companies that have full-time remote work seeing a 5% increase in their staffing levels over the last year, compared to just 2.6% for full-time in-person offices.
Instead of forcing everyone back to in-office work, Ma says high-performing employees who perform well at home should be allowed to continue at home. This would benefit the employee as well as the firm in the long-term, he said, because it would help the firm to better retain its high-performing employees — especially because high-performing employees could easily find other jobs.
An Amazon software developer previously told Business Insider that the company's strict RTO mandate resulted in his resignation from the company, seeking a new remote-first role and leaving $200,000 of unvested stocks on the table rather than return to the office.
An administrator in Arizona also left a six-figure job over its return-to-office policy, BI previously reported.
"Maybe firms could call back the employees who are not performing as well as expected," Ma said. "But they should not call back most employees who are performing well back to the office."
Instead, Ma advocates for monthly team-building activities in person to maintain company culture, which can be essential for problem-solving and brainstorming new ideas. Still, he added that "working in the office every day may not necessarily create a better team, and also sometimes it could create conflicts between team members."
"I think firms need to treat the employee more humanely and also give them more flexibility," Ma said. "And I see no reason for these big firms to treat their employees more harshly because they're working from home."