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Are Catered Meals, Foosball Tables, and Other In-Office Perks Jumping the Shark? A CFO’s Perspective on In-Office vs. Remote Work Models

by | May 11, 2022 | Insights

There are a lot of compelling arguments for and against a remote work model. Supporting employee morale? Productivity? Company culture? Profitability? Data security? All crucial. The benefits of a remote work model are massive and real.

As a CFO, I’m mostly interested in one question: How will this decision affect revenue and profitability? At SVI, we have a remote work model, and we have had one for our entire eight-year history. With countless companies testing out a similar remote work model over the past three years, there’s plenty of data to add to my notes. Taking all of this into account, it’s my opinion that a well-executed remote work model is an excellent financial decision for companies to make, especially for companies that primarily employ knowledge workers, such as professional services firms.

As many companies have noticed, the in-office work model has significant opportunity costs. On the flip side, the flexibility, productivity gains, and cost savings of a remote work model add up quickly. I acknowledge that there are downsides to a remote work model. That said, it’s critical for companies to be proactive by shoring up these weaknesses.

After struggling with this debate internally with the executive committee, I’ve decided to share some ideas to help others going through similar debates. Here’s how a well-executed remote work is not just a Band-Aid fix but an excellent financial decision for companies in this economy:


Opportunity Cost of In-Office Work

As supporters of in-person work push for a return to pre-pandemic office conditions, let’s look back in time for an idea of what that could mean from a financial perspective.

According to the US Census Bureau, in 2019, the average one-way commute in the US increased to a record high of 27.6 minutes. That time spent commuting represents an opportunity cost of almost 240 hours per year per employee—the equivalent of nearly six 40-hour workweeks, or roughly an eighth of an entire productive work year. Unless listening to podcasts while cruising down the freeway at a zippy 37 miles per hour is part of the job, those hours could be put to much better use to benefit employees, clients, and employers.

Let’s look back even further to a time before remote work was even a possibility. Back then, many of us didn’t recognize the downsides of an employee pool limited by geography; however, now that remote work has turned into a common alternative, the drawbacks are beginning to show themselves.

Now, let’s say it’s 2007, and you own a company with a brick-and-mortar location in San Francisco, CA. As you’re recruiting, you see applicants who live in the greater San Francisco area—but only up to a point, because the commute in this area is notorious for being one of the worst. Within this limited geography, your pool of possible employees is, of course, quite limited. This creates a supply-and-demand economy; with relatively low supply and high demand for employees, employers end up paying more for lower-quality employees than they would have had their applicant pool not been so limited.

Moreover, if a significant life event happens and an employee needs to move, they will have no choice but to resign. And we all know how expensive it is to replace an employee: 50 percent to two times the employee’s annual base salary, according to one conservative estimate from Gallup. You also lose institutional knowledge. This loss of institutional knowledge is difficult to measure but extremely costly to organizations.


Financial Benefits of Remote Work

The financial downsides of in-person work are even clearer when you look at the financial upsides of remote work for employees, clients, and employers.

Benefit 1: Employees can live affordably.

First, if given the option, many employees would love to live anywhere. Ever since the pandemic began, employees (and employers!) have been migrating out of the most expensive cities and into places that offer the best of both worlds: far enough outside of major cities that the cost of living is less, but close enough to major city amenities, such as a large airport, with comfortable homes at much more comfortable prices.

This sort of flexibility is also a great benefit for employers. In fact, according to a recent Gallup poll, 54 percent of fully remote workers say they would be likely or very likely to leave their job if they lost the option to work remotely. It is difficult to find 54 percent of people agreeing on anything, so this sort of data is very revealing.

Benefit 2: Employee morale and productivity rise.

Second, this flexibility boosts employee morale and productivity. A study conducted by the National Bureau of Economic Research found that working from home has led to “a 5 percent productivity boost in the post-pandemic economy due to re-optimized working arrangements.” Part of that productivity boost is that employees just don’t have to spend as much time and energy on unproductive activities, such as commuting. One study found that remote employees save an average of 70 minutes a day on commuting and other morning rituals, from shaving to putting on makeup.

Not only that, but workers are also reinvesting over a third of this 70 minutes back into productive work for their employers. That represents a gain of over 2.5 weeks of productive work time—representing almost 100 percent incremental profit, especially for professional services firms, which largely bill salaried employees’ time.

Benefit 3: Employers save on infrastructure costs.

For employers, another clear benefit is that they can save on infrastructure costs, largely in the form of rent payments. Depending on where a firm is based, savings could range between $4,000 to $15,000 per employee per year.

This amount of savings provides employers with a margin of safety for downside events, such as wage hyperinflation. More to the point, remote work actively addresses wage hyperinflation by disrupting the historic supply-and-demand economy I mentioned earlier. With this model, the talent pool opens wide, and you can hire much better talent. This results in cost savings for the remote worker (e.g., not needing to commute), the employer gets a much more valuable resource than it may otherwise, and clients receive the best, most experienced talent.

This is not a knock on companies based in San Francisco. Far from it. Instead, this is my attempt to say there might be a different way to achieve better results. In other words, the grass may not be greener on the other side, but the grass is proving to be just as green, more abundant, and priced at a much better value for both employees and employers.

Benefit 4: Employers cut down turnover.

Along the same vein, employers can keep their current employees when those employees need or want to relocate. That means employers—and clients—don’t have to pay the steep price of turnover. But, if an employee does leave the company, typically, when utilizing a remote-work model effectively, employers lose less institutional knowledge because they are forced to create a culture of collaboration bordering on overcommunicating (if that is ever possible).


How to Compensate for the Drawbacks of Remote Work

Clearly, not everyone believes remote work is a good idea, and at least one study that I could find claims that remote work can have undesirable side effects on productivity and employee morale. One study, published by Chicago Booth Review, reported on a large Asian IT-services company whose employees moved to 100 percent work from home from March 2020 through October 2020.

Unfortunately, total hours worked during that time increased by approximately 30 percent, including an 18 percent rise in working beyond normal business hours, the researchers find. At the same time, however, average output—as measured by the company through setting work goals and tracking progress toward them—declined slightly.

With these valid concerns in mind, it’s crucial to compensate—even overcompensate—for any downsides relating to remote work should you choose to implement a similar work model. Let your concern for your employees’ growth and development take precedence, and codify it in a plan. You don’t want employees to feel that no one is looking out for them. Proactively invest in your people. Your employees will have more opportunities to talk with recruiters, so you want them to be so happy that they could not dream of wasting half an hour talking about the possibility of working somewhere else.

At SVI, we make a heavy investment in employee learning and development because it has proven to be the most effective way in which we are able to recruit, grow, and retain some of the most talented people in the world, all while meeting or exceeding our investors’ expectations year after year. Here are a few things we have done at SVI to overcompensate for some of the downsides of a remote work model:

  • Invest three times as much as our competitors in our employees. This is reflected in generous cash bonuses and significant budgets for learning and development programs allocated and guaranteed to each employee every year.
  • Bring people together for important client meetings. For example, we brought our entire project team to meet a client in San Diego, CA, to do a formal onboarding. Typically, only senior project leaders would be invited. In this case, we were willing to incur a higher level of expense so our people could experience those important in-person connections and the project could get off to a great start. With the complexities of travel these days and the skyrocketing price of fuel, it would be sensible to be conservative and cut expenses in these categories. However, we have proven at SVI that making this seemingly imprudent investment pays immediate dividends with higher-quality work products, improved client relationships, increased employee morale, and hundreds of thousands of dollars in employee and client turnover-related cost savings.
  • Hold regular all-hands town hall meetings. The purpose of these meetings is to disseminate information and give everyone an opportunity to talk with the CEO and executive committee. We hold a two-hour-long Q&A session to make sure we hear and address everyone’s concerns and questions.
  • Hold regular coffee chats. These informal meetings give employees a chance to get to know each other and connect over non-work-related topics.
  • Facilitate meetups for employees who live near each other. We’ll reimburse team members for a lunch or happy hour with fellow coworkers so they can experience the crucial camaraderie and bonding that we all likely took for granted pre-pandemic.

A remote work model isn’t just a quick fix for an unexpected crisis or something we do while checking the Health Department’s website for updates on when remote work will end. A remote work model is a desirable, primary model. This work model is often a wise, long-term, mutually beneficial financial choice for many companies to make.

When making this decision for your company, please do not ignore the many downsides of an in-office work model and the enormous boost in flexibility, productivity, employee and client satisfaction, and cost savings of a well-executed remote work model. While a remote work model does have some downsides of its own, given today’s tight labor market suffering from wage hyperinflation, a remote work model is one possible solution to protect against these downside risks, making your company more sustainable and desirable for employees, clients, and even investors!

This article represents Jordan Dorenfeld’s personal opinion for demonstration purposes only and should not be construed as financial, legal, or other form of advice.

Jordan Dorenfeld

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