A growing number of companies are issuing return-to-office (RTO) mandates, with the objective of driving more in-person innovation and culture-building. These major decisions carry the potential for significant rewards but also introduce a number of risks. There are at least two ways for CFOs and their C-suite colleagues to approach these changes.
One approach is to frame the RTO policy as serving the best interests of the business, let the chips fall where they may and deal with any fallout later. The other method treats RTO policies as (1) part of a larger, ongoing effort to optimize the company’s talent investment; (2) a means to enhance partnerships within finance, as well as the finance-HR partnership; and (3) an opportunity to stress-test employee listening mechanisms, sophisticated people analytics, and new total rewards strategies and benefits mixes.
Guess which RTO blueprint delivers more value over the long haul?
The success of RTO policies to date has been mixed. A recent study by commercial real estate services and investment firm CBRE indicates that approximately 80% of organizations have a return-to-office policy, but only 17% actively enforce these policies. Meanwhile, research detailed in the MIT Sloan Management Review reveals that RTO mandates can cause a short-term lag in productivity and hamper hopes for a financial win.
The decision, structure and communication for an RTO mandate is, above all, a company-specific determination. It is also a decidedly high-stakes decision given the magnitude of potential upsides (higher levels of employee engagement and collaboration, productivity, knowledge transfer, on-the-job training and innovation) and downsides (spikes in attrition and absenteeism, a diminished talent pool, and perceptions of inequity) that the shift can induce. It may be fueled by a desire to strengthen a company’s culture by returning to the HR model that existed pre-COVID. But it could also trigger accusations of a “backdoor layoff.” As with any major change, reality and perceptions tend to vary, and the change management needs to be intentional.
While workforce decisions are the CHRO’s domain, addressing the risks, costs and financial analyses of a return to the office benefits from the CFO’s input and expertise. Finance leaders should focus on the big picture to understand the potentially messy dynamics and far-reaching implications of these workforce decisions and consider taking forward-looking actions to mitigate the risks and maximize the benefits of “putting the genie back in the bottle” when it comes to RTO and hybrid policies.
First things first: It’s complicated
While the RTO decision is often framed in a straightforward manner—we believe collaboration, productivity and innovation flourish more in an office environment—the reality is that numerous factors affect the decision, its execution and how your workforce perceives the directive.
For starters, many employees have grown accustomed to remote work and the flexibility it offers in managing their work-life balance. The pandemic and its aftermath forced most people to adjust their personal circumstances, and these adjusted behaviors and norms are fully entrenched in their daily lives. And, of course, few miss the stress of rush hour commutes. Bottom line, an RTO mandate presents a big change for many.
Furthermore, the company’s real estate portfolio can be a significant consideration. Remote workers hired during the pandemic may not have a local office to commute to, which means that relocation or travel costs may be part of the RTO equation. If not, perceptions of inequity could arise, resulting in unintended damage to the company’s culture: “Why do I have to resume my local commute to our Chicago HQ when my chief marketing officer is staying put in Nashville?” Differentiated pay levels for remote workers living in higher- and lower-cost cities may require adjustments. And what about certain groups of employees (for example, IT and customer service) who worked remotely prior to the pandemic—are they now required to “return” to an office to which they previously never reported?
Another complication: Employees in different demographics and fields hold different views of in-office and work-from-home models. Gen X employees who had their first taste of remote work after years—even decades—of commutes and in-person work may be reluctant to return to the office full-time. On the other hand, as newer entrants to the workforce, Gen Z employees may be eager for the mentoring, learning and development that occur more frequently, naturally and effectively in person. Thus, generational distinctions merit consideration.
Listen, then act
The complicated, multidimensional and high-risk nature of RTO decisions makes it important for CFOs to consider a number of key underlying factors.
- Talent scarcity remains a significant long-term challenge. Remote working models enabled companies to access top talent from anywhere in the country and/or the world. Moving back to a full-time in-office model or even a hybrid model could reduce the organization’s talent pool—particularly its pool of top contributors. Offering relocation benefits to difficult-to-hire positions can help offset this challenge.
- Knowledge transfer represents a major risk. Many organizations are struggling to transfer knowledge from tenured employees to early-career workers. In such instances, well-executed RTO policies help mitigate this risk.
- Successful RTO mandates involve a give-and-take. Employees who value working from home may perceive RTO mandates as the company “taking something away” from them. What carrot can the company offer employees to offset the perceived takeaway? CFOs should keep in mind that employees value both financial and non-financial rewards. Commuting and parking allowances may help offset the sting of resuming commutes; so, too, can benefits related to child/dependent care. More and better opportunities for career growth and leadership development may be even more appealing.
- Benefits adjustments require detailed people and financial analyses. Finance and HR leaders should work together to identify and quantify all of the potential costs (new benefits and rewards, COLA or differentiated pay adjustments), risks (higher absenteeism rates, a surge in attrition) and benefits (more effective knowledge transfer, better onboarding and staff development) associated with returning to the office.
Leveraging their partnership, CFOs and CHROs should take the following actions before and after their companies issue an RTO policy:
- Listen before acting. HR administers employee listening strategies (studies on total rewards optimization, engagement surveys and the like) that monitor the workforce’s pulse. These analyses provide key insights into the benefits that employees value most and what they prioritize in their relationship with the organization. RTO discussions should begin with an understanding of these priorities and preferences so that optimal rewards adjustments help minimize negative reactions.
- Know which skills you can’t live without. Given the attrition risks associated with RTO mandates, C-suites should identify upfront which skills and roles the organization cannot sacrifice. HR functions typically maintain up-to-date skills inventories as well as engagement, absenteeism and performance data. This information will help the organization monitor and manage how crucial roles and individuals behave following an RTO announcement.
- Time the decision well. If talent and workforce analytics point to a higher risk of RTO-driven turnover for high-value skill sets, it may be best to adjust the decision’s timing to blunt those impacts (e.g., delaying the announcement until after a major product launch). Organizations also can synchronize RTO mandates with open benefits enrollment so that employees can adjust their rewards packages—for example, pre-tax commuter spending accounts—with a return to the office in mind.
- Leverage the work. RTO planning with CHROs gives CFOs an opportunity to get a better feel for which employee behaviors drive financial results—and, just as important, the talent management and rewards mechanisms the organization can leverage to drive those behaviors.
Finally, the CFO and CHRO should focus on storytelling. It can be difficult to extol to employees the benefits of vague concepts like knowledge transfer and innovation opportunities that result from working in-person. Strong narratives help. The C-suite should follow a consistent playbook to share stories about the benefits of informal hallway collaborations, team-building over meals and the value of in-person mentoring. Clear, candid and complete explanations of the rationale behind the organization’s RTO decision and what it means to individual employees and the organization help dispel misinformation while cultivating acceptance.