Executives Evaluating the New Norm —No Office Required

As executives scramble to slash operational costs, employee layoffs have followed as a result of a frozen economy. For those still employed, the new norm of social distancing has set in and work is continuing “business as usual”.

Everything has changed… but it hasn’t.

Business leaders are realizing employee productivity is hanging steady, if not increasing for some. TIME can only describe this as “the world’s largest work-from-home experiment”, leaving employees to speculate what’s to come.

Are Underperforming Employees Affecting Your Bottom Line OR Inflated Wages?

Let’s look at some numbers: “Top companies” (all with offices in the Bay Area), provide an average pay to entry-level workers with 0 to 5 years’ experience at $87,500.

Sounds a bit high for an entry-level position doesn’t it?

Think about the high cost of living. Operational costs would be substantially lower if jobs were outsourced somewhere else in America, however, it’s perceived that having someone physically in the office is needed, and inflated wages are justified. The rise of Zoom and other free virtual engagement tools negate this argument; in fact, one could argue employers are more in-tune with what their employees are up to.

But back to entry-level wages, why are they so inflated? Currently sitting at an average rate of $145,000, non-entry level jobs are solidifying high cost areas such as the San Francisco Bay Area as the highest salaries in the world. Employers fighting for senior talent (non-entry-level) continue to drive wages higher and the cost of living with it, triggering inflated wages for the surrounding economy.

The fight for senior talent is typically an afterthought for most employers. In reality, bidding wars trigger a domino effect in the long-term by driving up the cost of entry-level workers needed to run the day to day operations.

Evaluating the Location of High Costs Areas for Entry-Level Talent

New to the Bay Area and shopping for a 5x5 closet to call their home, entry-level employees are welcomed with an average monthly cost of a one-bedroom apartment at $3,450 or approximately 47% percent of their income. Approximately 66% lower than a more senior employee, motivated entry-level workers with 0–5 years face a choice of a grim personal space reality of shared living quarters. Should one accept a job that could further their career knowing full well they will essentially be living to work? This may explain a delay of life milestone because living alone in high cost areas is unaffordable.

Fiscally responsible individuals in entry-level jobs typically spend no more than 30% of their monthly income on housing which could explain the eye-popping statistic from Zillow which found that 60.9 percent of San Francisco’s total renter population need a roommate to afford their current living situation. But what does an employee’s living situation have to do with the company’s bottom line?

According to Forbes, “Not addressing employees’ financial concerns drains productivity and cash straight from your business because it reduces office morale and causes a significant distraction.”

To balance the professional commitment to excellence, an employee with a well rounded personal life ensures a productive work life. Absent additional funds for non-communal housing leads to the loss of quality entry-level talent, racking up company turnover costs, and weigh on the bottom line.

(Cost of hiring + cost of onboarding & training + cost of learning and skill development + cost of unfilled time) x annual turnover percentage = your annual cost of turnover

Questions of Uncertainty, Executives Between a Rock and a Hard Place

In an era of virtual operations, it’s not a question of IF executives will weigh the cost turnover against the rate of productivity, it’s WHEN. Those that don’t immediately, will no doubt be hounded by shareholders looking to plug holes caused by the sinking economy. Operating costs will be reevaluated, posing the question, do employers really need to pay the inflated wages in high-cost areas or just outsource the work to somewhere more affordable?

Now for the real kicker…

How will employees react when told to come back to the office? Current sentiment is in favor of a virtual work environment according to this Gallup poll showing more than half of employees favor remote work in the post-COVID era. It may be that employees not willing to go back to a traditional office environment will look for work elsewhere.

The high cost of living, potential for turnover, and diminished productivity are factors for corporate evaluation when considering WFH as the new norm.