Study: RTO Mandates Costing Companies Their Best Employees

A new study shows companies lose their best employees over RTO mandates—and struggle to replace them—in the latest evidence proving ROT mandates are disastrous.

Companies have been rolling out RTO mandates of varying degree. Amazon has been one of the most aggressive, among big tech companies, mandating that employees return to the office five days a week. The move has been incredibly unpopular among employees, with a Blind survey finding that 73% of employees were considering a job change as a result.

Despite such anecdotal evidence, there has been a lack of research and concrete evidence to quantify just how unpopular RTO mandates are, or what impact they have on the companies that enact them, at least until now. The University of Pittsburgh, in cooperation with as The Chinese University of Hong Kong, Baylor University, and Cheung Kong Graduate School of Business have conducted one of the most comprehensive studies on the effect of RTO mandates, and it’s bad news for companies trying to return to the past.

Methodology

The researchers tracked the employment histories of more than three million tech and finance workers via their LinkedIn profiles, comparing movement with RTO policies of 145 S&P 500 firms from the beginning of 2020 through the end of 2023.

Because tech and finance work can often be done remotely, the researchers further narrowed the scope by focusing only on S&P 500 firms in those fields, bringing the number to 57 firms. The study also excluded three of those since they didn’t announce their RTO mandates till after June 2023, and the researchers wanted at least two full quarters to measure the impact. As a result, a final total of 54 firms were analyzed.

For each RTO firm, we consider the quarters before its RTO announcement the pre-RTO quarters, and the quarters during and after its RTO announcement the post-RTO quarters. We measure employee turnover from the first quarter of 2020 to the last quarter of 2023, a total of 16 quarters.

We collect employee turnover data using Revelio Labs, a leading data provider that extracts information from employees’ online profiles on LinkedIn. According to LinkedIn (2024), LinkedIn is most widely used among tech and financial workers. The online profiles contain information about an employee’s employment history, including the start and end dates of each job, the employer’s name, the job title, and the location. Employees can also self-disclose their skills on their profiles, such as proficiency in certain programming languages, software, or processes.

Using employment histories from LinkedIn profiles, we first measure a firm’s monthly turnover rate by dividing the number of employees who left the firm during the month by the employee headcount at the end of the prior month. Next, we adjust the monthly turnover rate by the national average turnover rate, using data from the Bureau of Labor Statistics. Finally, we calculate a firm’s quarterly abnormal turnover rate (Abnormal Total Turnover) as the average of the monthly adjusted employee turnover rates for each quarter.

Results

Overall, the study’s results showed a higher turnover rate among female employees, employees with higher skill levels, and managerial employees.

Together, these results suggest that firms are more likely to lose female employees, employees in managerial positions, and employees with higher skill levels. These results are consistent with the concern that RTO mandates can cost firms their most valuable talent (Elliott 2024). They also support the notion that more valuable employees have better outside options and can more readily secure alternative positions at peer firms offering flexible work arrangements.

Executives who believe they can easily replace those employees are in for an even bigger disappointment, with the study showing positions that opened up as a result of employees leaving over RTO mandates were harder to fill.

Consistent with our expectations, the coefficient on RTO is positive and significant (coefficients = 0.239, t-statistics = 3.82), suggesting that it takes firms 23 percent longer to fill job positions following RTO mandates. In terms of days, an average RTO firm takes 12 additional days to fill a position following its RTO mandate. The increased hiring time is a significant cost associated with talent loss due to RTO mandates.

Even more telling, the overall hiring of RTO firms decreases, indicating that many potential employees have a dim view of RTO mandates and avoid companies that enforce them.

Consistent with our expectations, the coefficient on RTO is negative and significant (coefficient= -0.032, t-statistic = -1.84), suggesting that firms hire fewer new employees following RTO mandates. The decrease in new hires indicates that RTO firms have greater difficulty filling vacancies and recruiting qualified new employees after RTO mandates. Of course, an alternative explanation for the lower hire rate is that these firms are intentionally hiring less to cut headcounts. However, this alternative explanation cannot explain the longer time to hire after RTO mandates. Therefore, the two sets of results complement each other, suggesting that RTO mandates increase difficulties for firms in attracting new employees.

Researchers’ Conclusion

The researchers’ conclusion is a damning indictment of RTO mandates.

In this paper, we empirically examine the effect of return-to-office mandates on employee turnover and hiring, using a sample of 54 high-tech and financial firms in the S&P 500 index. We find that these RTO firms experience higher employee turnover rates after announcing RTO mandates. Our findings validate the concern that RTO mandates may induce employees to leave for other firms and are consistent with the overwhelmingly negative employee response. We further find that female employees, more senior employees, and employees with higher skill levels are more likely to leave RTO firms, consistent with RTO firms losing highly valuable employees. Finally, we find that it takes longer for RTO firms to fill new job positions. These firms also hire fewer employees following the RTO mandates. Together, our evidence suggests that RTO mandates are costly to firms and have serious negative effects on the workforce. These turnovers could potentially have short-term and long-term effects on operation, innovation, employee morale, and organizational culture.

Study Confirms What Progressive Companies and Executives Already Know

The study simply confirms what many of the more progressive leaders have already realized, namely that remote work is here to stay and can be a powerful tool.

“I’d say, ‘your employees have options,’” said Dropbox Drew Houston in late 2023, when asked about companies who enforce RTO mandates. “They’re not resources to control.

“From a product design perspective, customers are our employees. We’ve stitched together this working model based on primary research,” he continued. “We’ve just been handed the keys that unlock this whole future of work, which is actually here.

“You need a different social contract, and to let go of control,” he added. “But if you trust people and treat them like adults, they’ll behave like adults. Trust over surveillance.”

from WebProNews https://ift.tt/Z4CTwYa