BiGS Actionable Intelligence: There’s growing evidence that businesses can unlock new levels of financial and operational performance — and tackle America’s wealth gap — by giving employees stock ownership, decision making power and supporting programs like financial literacy training. KKR and other large private equity firms are embracing the model, citing compelling benefits for companies, employees and society. HBS research shows that this model can spur broad positive impact by extending the distribution of equity ownership beyond top management.

There were shouts, laughter and applause. There were tears, too. When KKR’s Pete Stavros announced to the workers at C.H.I. Overhead Doors in 2022 the financial results of their ownership in the company, the response was something close to joy.

Indeed, the moment, caught on video, was extraordinary. A group of employees at an industrial garage door manufacturer, where the average salary was $48,000 a year, were making incredible windfalls—life-changing money in some cases. These payouts were the result of an employee ownership program that was established when KKR purchased the company seven years earlier.

To understand the tears, one need only see the numbers. KKR bought C.H.I. in 2015 and sold it to Nucor, a manufacturer of steel and steel products, last year for $3 billion, giving the firm one of its largest returns in the past 30-years. Upon the sale, non-management employee-owners received a payout ranging from $20,000 for first-year employees to an average of $170,000 for those who joined the company between 2015 and 2017. In rare cases, veteran truck drivers received more than $800,000.

“There are so many memorable outcomes from this program,” Stavros told The BiGS Fix. “We achieve a big payout and people can pay off their mortgage or pay off their car, or now they've got a chance at sending children to college and all the things that would probably be pretty obvious. There are also some not-so-obvious things that have happened.”

As an example, Stavros describes a plant worker and his wife who had earlier decided against having children because they were in debt, a situation that was resolved when they received their payout. “They got out of debt, and they started a family,” he said.

The concept that engineered boom times at C.H.I. is known as broad-based employee ownership and it has been in development at KKR & Co. for almost 15 years. Unlike profit sharing and other compensation-related benefits, broad-based employee ownership allows employees to own equity in the company and, therefore, share in the wealth created when companies grow profitably and reap the windfalls that come with a sale or a public offering. The concept also calls upon companies to give employees serious responsibility in an effort to build authentic, company-wide investment in common goals, ranging from revenue targets to environmental objectives.

The model is gaining attention among private equity firms as a tool for unlocking growth and value creation within portfolio companies. It has also spread to public companies such as Harley Davidson which doesn’t have private equity-backing, but was inspired by Stavros’ work on ownership and in 2021 sought his advice on creating a program.

It is challenging to create wealth without investing capital, but one powerful way to do so is by owning shares in a company, according to Ethan Rouen, an associate professor at Harvard Business School (HBS) who studies broad-based employee ownership.

Today, broad-based employee ownership is in practice at major companies like Ingersoll Rand, Insight Global and Gibson Guitars. KKR alone has implemented the concept at more than 35 of its portfolio companies, creating billions in wealth for over 60,000 workers.

A Vision for Employee Ownership

“The big picture opportunity for society is to generate and create wealth at the bottom of the economic ladder,” Stavros said. “There's a racial and gender equity component because, typically, equity ownership is not traveling to parts of the organization that have great diversity. That's where diversity is stacked … it's at the bottom of organizations.”

Stavros grew up in Chicago, where his father worked as a union construction worker, operating a road grader for roughly 40 years. He saw firsthand how employees with no stake in the company can become disillusioned. Workers want more money, more hours and more voice. Employers want lower labor costs.

“That leads to nonstop conflict,” Stavros said. “That's what I grew up with, is my dad always fighting, he and his union fighting with management.”

When Stavros entered HBS in 2000, he decided to study broad-based employee ownership. Later, at KKR, he put his ideas into practice, having a number of early successes with companies that were part of a pilot program. Today, as co-head of global private equity, Stavros has become an evangelist, pointing out the benefits for both management and labor.

Employee engagement critical to success

At C.H.I. Overhead Doors, for example, he cited major improvements that took place through deepened employee engagement even before KKR sold the company. Safety levels increased drastically. Profitability soared. The company made progress on environmental goals and employees pulled together to undertake projects, from factory improvements to charitable donations. At the same time, workers attended training in financial literacy to understand the ownership system.

Profitability soared. The company made progress on environmental goals and employees pulled together to undertake projects, from factory improvements to charitable donations. At the same time, workers attended training in financial literacy to understand the ownership system.

“It is not only good for society - it is also good for business,” Rouen told The BiGS Fix. “The reason is that when you have more engaged workforces, you see lower turnover, higher retention rates, greater productivity and lower injury rates. All of these factors … can be improved through this connection to employee ownership.”

Rouen stresses that driving and measuring employee engagement within an organization is essential to this model, since there are upfront costs to increasing engagement and the benefits will come further in the future.

“To better directly connect those costs and benefits, you need to think about what you're measuring and what you expect those outcomes to be,” said Rouen, who is studying the model and its benefits for companies, people and society.

Can a Vision Become a Movement?

In 2021, Stavros launched the nonprofit Ownership Works to advance broad-based employee ownership, particularly at private equity firms that, together with the companies they back, employ roughly 12 million people in the United States. Today, Ownership Works has a long list of name-brand partners, including Bank of America, Citi, Goldman Sachs, Ford Foundation, The Rockefeller Foundation, TPG, Advent International, Warburg Pincus, McKinsey & Co., and Gallup.

The nonprofit aims to generate at least $20 billion in wealth for lower-income and diverse workers over the next decade.

“We firmly believe that employee participation programs can help more employees grow their wealth, reducing wealth inequalities in society while also enabling firms to prosper,” Ralph Hamers, then-CEO of UBS Group, said in a release at the organization’s launch.

Stavros acknowledges that adopting the program can be difficult and that it takes strong leadership within each company to share ownership with employees.

“I have sympathy for CEOs who say, ‘I'm overwhelmed. There's already so many priorities. We've got to double our profits. We've got to decarbonize, reduce our utilization of key resources, diversify the board and change how we recruit to increase diversity throughout the organization. And now, on top of that, you're asking me to share ownership.’”

However, he argues that a more engaged, stable and financially resilient workforce is better equipped to achieve all of those goals. The mission of Ownership Works is to give both management and employees better models and tools. So far, Ownership Works says that more than 95,000 employees have received more than $359 million, with an average payout to low- and moderate-income workers of more than $100,000 per person.

“With the right leadership, the right commitment and being patient, this absolutely can work,” Stavros said. “It can deliver mind-blowing outcomes over time.”


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