From Relocation to Real Estate, The New Normal of Remote Work

This is part 3 of a 3-part series

Companies like Google, Facebook and Amazon have said they will allow their employees to work outside the office long-term, even after we get past the Covid-19 crisis.

But remote work is raising some thorny issues for HR managers and executive teams. For example, should you think about reducing compensation for employees who choose to leave, say, the pricey environs of Silicon Valley, for a more inexpensive part of the country? Or does adjusting salaries downward for people who move to lower-cost locales look petty? VMware employees who relocate from Silicon Valley, for example, must now accept a substantial salary reduction, according to reports.

Also, how do you deal with structural salary imbalance as a result of talent migration? And which demographic is more likely to relocate vs. return to the office? In the Bay Area, for instance, it’s fair to assume that workers who are 25 to 35 years old will still prefer to live in San Francisco and, increasingly, Oakland. They want the bars and restaurants and the social scene. Tahoe and Palo Alto are beautiful places, yes, but the 25-to-35 set will return to cities when socializing returns.

And, as a result, what will your company look like as people either return to the office or relocate elsewhere? These are questions that forward-thinking companies are considering now.

Accommodating all employees

Optimizely, a cloud-based progressive delivery and experimentation platform, made a decision earlier this summer and told employees that they can work from home until the end of the year. And, when it is safe to go back to the office, Optimizely will accommodate different preferences.

“There will be a cohort of employees who want to work in the office all the time, there will be a second cohort who want to work in the office occasionally and there will be a third cohort who want to work from home permanently,” explains Erin Flynn, chief people officer at Optimizely. “And guess what, you get to decide which cohort you’re in.”

She says providing employees with those three options was a great relief for everyone.

“If you know you’re going to work from home permanently, then maybe you’ll invest in that high-end ergonomic desk chair. You’ll make different decisions. We wanted to empower employees by giving them a choice and sending the message that, as an organization, we’ll accommodate all three cohorts.”

Adjusting compensation

Cloud-based CRM software provider Insightly, is now in the process of allowing its high-performing employees to move wherever they want in the U.S. But Insightly is not modifying salaries based on where employees move, because neither the company nor the employees know if these moves will be permanent.

“However, for future employees we hire, salaries will be based on where you’re located, with reduced ranges outside the Bay Area,” says Elena Doudoukalova, vice president of people operations at Insightly. “For example, Ohio has a lower cost of living than California, so salaries will reflect that.”

By the same token, Insightly is now looking to hire employees in more cost-effective locations like Georgia and Toronto, where costs can be about 20 percent lower. “Since Covid hit, we have really started thinking much more seriously about geographies, time zones and costs per hire,” says Doudoukalova.

Rethinking offices entirely

Some companies have even vowed to give up their physical office spaces altogether. For early stage companies in particular, there is even talk about going completely office-less post pandemic.

While we think the shift to work from home is likely lasting, it is equally likely that the pendulum overswung during the pandemic. Loneliness, mental health, and cultural disconnectedness will, in the long run, drive many employees back into office, at least part time. Hence, a pure virtual environment for early stage startups, while possible, doesn’t seem advisable, and is unlikely to be the norm in the future.

But, for the time being, if everyone is working remotely, the next question is, how much real estate does my company need? And will we ever need an office again? These questions are on the minds of many CEOs and HR execs.

“Going forward, will we just need half the space we currently have, to use as a hub?” asks Doudoukalova. “When things get better, we will want to give teams the ability to meet in the office but we probably won’t need the space for 200 people that we currently have.”

I was talking to another company that, just before the pandemic, was asked to pay a huge increase in its cost per square foot by its landlord. But now the company is in a position to negotiate the price downward and also take less square footage because not everyone will be coming back to the office.

Many startups are in a similar position. I recently spoke with one cloud company that is currently leasing multiple floors in its building in San Francisco, several of which are subleased. In January, before the pandemic hit, the landlord wanted to raise the rent exponentially.

The landlord ultimately abandoned that plan but the company is not sure now if it wants to be on the hook for so many floors and be responsible for the subleases, because there is sure to be lots of available office space on the market.

“Currently, we’re negotiating in earnest for fewer floors while also looking for new space,” a company executive told me. “We’ll just move to a smaller space if we can’t come to an agreement.”

Optimizely, for its part, expects to reduce its real estate outlay while also realizing other significant cost savings as a result of everyone working from home.

“For instance, we served a catered lunch every day in our San Francisco and Amsterdam offices for more than 300 people,” says Flynn. “So not having to provide lunch anymore and not having to load the office with snacks and beverages has positively impacted our cash burn. Trust me, our CFO is very happy.”

Nobody knows for sure when this crisis will end or what the world will look like on the other side. But we do know that HR folks are the new corporate superheroes and we are extremely grateful to all the amazing leaders who are skillfully guiding us through these very trying times.

~ Matt Holleran, General Partner of Cloud Apps Capital Partners