K.K.R. Tackles Worker Discontent with Employee Stock Ownership in 2023.
In today’s job market, a shift is occurring where workers are increasingly questioning the traditional ties that bind them to their jobs. Emerging trends such as “lazy girl jobs” and “quiet quitting” have gained popularity in a post-pandemic world, with many young employees prioritizing work-life balance over relentless ambition.
As evidence of worker dissatisfaction mounts, actors and writers continue to go on strike, and even U.P.S. workers came close to a labour stoppage before reaching a tentative agreement with their employer. A recent survey revealed that over half of employees feel burnt out due to excessive workloads.
In light of this, one question looms: what if there was greater economic alignment between employers and employees, with the latter having more “skin in the game”?
Pete Stavros, co-head of global private equity at K.K.R., has been pondering this question and has become a strong advocate for employee stock ownership programs (ESOPs). Stavros champions implementing these programs in all the companies that K.K.R. acquires through its $19 billion Americas Fund.
ESOPs are additional benefits given to non-management employees, granting them a stake in their company. It provides them with other compensation beyond their regular wages and benefits, enabling them to participate in any potential upside value the company may generate.
Stavros firmly believes that ESOPs offer a superior business model from every perspective. Not only does it benefit investors and the company, but it also proves advantageous for employees and their communities. In an interview for the Delivering Alpha Newsletter, he expressed that ESOPs lead to decreased quit rates and significantly higher employee engagement scores.
However, he also emphasizes that offering equity to employees is not a standalone solution; it must be accompanied by financial literacy, tax advice, education, and mechanisms for employees to voice their ideas and concerns, similar to traditional stockholders.
K.K.R.’s success in implementing ESOPs is evident in its recent deal with RBmedia, a KKR-backed audio-books publisher sold to H.I.G. Capital, another investment firm. As part of this transaction, all RBmedia employees will receive a cash payout based on their tenure, equating to an average of 100% of their annual salary.
Stavros proudly revealed that K.K.R. had executed approximately nine such deals, each proving highly successful. These exits have delivered returns ranging from three to ten times the capital invested by K.K.R. Since 2011, over 60,000 non-management employees have been granted billions of dollars in total equity value through these ownership programs.
With remarkable outcomes like these, Stavros envisions a future where ESOPs become commonplace across the entire industry. To advance this vision, he and K.K.R. co-founded a non-profit organization, Ownership Works. By promoting shared ownership, they aim to generate at least $20 billion of wealth for lower-income and diverse workers over the next decade.
Ownership Works has also garnered support from prominent private-equity firms like Apollo and T.P.G., who have pledged to incorporate shared ownership within their portfolios.
Although it’s still early days, particularly in an industry not known for rapid change, the concept of ESOPs appears to be a potent antidote to worker discontent—one exit at a time. These programs can potentially transform the employee-employer dynamic by empowering employees with a sense of ownership and vested interest in their company’s success.
As workers become more engaged and invested in their organizations’ future, job satisfaction increases, and the desire to walk out the door diminishes.
As ESOPs gain traction and become a driving force in fostering economic alignment between employers and employees, hope exists for a more balanced and prosperous workforce. This transformation benefits individual workers and holds the promise of creating a positive impact on communities and society as a whole.
With advocates like Pete Stavros and organizations like Ownership Works leading the way, the potential for a brighter future for workers and businesses seems within reach. The shift towards a more equitable and engaged workforce may begin a new era in the relationship between employers and employees.
