RDEL #32: Do return-to-office (RTO) mandates lead to better performance?

This week, we evaluate research on the return-to-office mandates and performance of companies in the S&P to determine whether RTO mandates improves company performance.

Welcome back to Research-Driven Engineering Leadership. Each week, we pose an interesting topic in engineering leadership, and apply the latest research in the field to drive to an answer.

Nearly every technology organization has evolved their strategy on return-to-office (RTO) over the last two years. Some companies stayed permanently remote, while others started enforcing either partial or full returns to the office. With enough time, researchers have finally collected enough data that allows us to ask: do return-to-office (RTO) mandates lead to better performance?

The context

Since the broad availability of vaccines in 2022 and the decreased threat from the COVID pandemic, there has been a growing trend of Return-to-Office (RTO) mandates by firms post-pandemic. Given the shift to remote work during the pandemic, the shift back to a different structure has left companies wondering if being in the office makes their teams more productive.

Companies are generally split on the optimal setup of office time - some companies believe being fully-remote is more optimal for productive teams, while others argue that it decreases productivity and leads to lower performance. The decision is not one to take lightly: RTO policies have a massive impact on employees and their lives, especially after a mandatory WFH period.

The research

Researchers at the University of Pittsburgh evaluated 137 S&P companies who have publicly-facing RTO policies. Using Glassdoor, BoardEx, and Compustat, researchers collected data on policies, performance, and employee sentiment of various companies to determine how RTO impacts the well-being and performance of the company. Note: this is not specific to engineering teams, but rather company performance as a whole.

In determining characteristics of companies that mandate RTO policies, researchers found that:

• RTO is positively correlated with firm size and negatively correlated with financial constraints, stock performance, institutional ownership, and high-tech companies

• Firms with weaker stock performance before RTO announcements are more likely to enforce an RTO mandate

  • Note: Researchers call out that the results don’t show that poor performance is due to WFH.

In evaluating employee satisfaction, researchers found that:

• There is a significant negative correlation between an employee’s rating of their employer and an RTO mandate.

• Employee ratings for work-life balance, senior management, and culture also statistically significantly decrease after an RTO mandate.

Finally, in reviewing firm performance after RTO mandates (using a firm’s return on assets and EBITDA), researchers found that firm performance and firm values did not significantly improve after RTO.

The application

This study’s findings highlight a few key pieces that contribute to the RTO debate:

• Reducing flexibility reduces employee satisfaction. Companies that reduce their employee’s flexibility by mandating a return to office see a decrease in employee satisfaction, work-life balance, and culture.

  • Note: the research does not answer whether there is a rebound after a certain period of time as the team gets comfortable with the new office arrangement.

• Performance improvements are not a strong argument for why employees should return to the office. Strictly speaking, the research shows just being in an office every day is not enough to impact performance. There are different reasons why a team may want to be in-person, but the firm’s financial performance was not proven to be one of them.

While there may be valid benefits to encouraging teammates to meet in person on a regular basis (ie easier synchronous communication, team bonding), the research points out that using “performance” as the only excuse to enforce RTO is not necessarily valid. Setting (and re-evaluating) an RTO is a difficult balance between the flexibility of WFH and the collaboration and culture of being in-office, but unfortunately the decision is more nuanced than just looking at performance.

—

We hope this edition provokes some interesting discussion on the value (and research!) of return-to-office mandates. Happy Research Monday!

Lizzie

From the Quotient team