What happens when employees become part-owners of the companies they work for? And not just paper owners, but truly involved decision-makers? KKR has learned a few lessons on this front after implementing broad employee ownership and engagement programs at several portfolio companies under the leadership of Pete Stavros, Co-Head of Americas Private Equity at KKR and founder of the nonprofit organization Ownership Works.

Stavros has found that broad-based employee ownership, coupled with a strong engagement program that gives employees a voice and treats them like owners, can have a very positive impact on the workforce and the company itself. That comes as no surprise to Andrew Stern, President Emeritus of the Service Employees International Union (SEIU) and a member of KKR’s Sustainability Expert Advisory Council, who has been advocating for employees to have a larger say in how their workplaces run his entire career.

But the positive impact of shared ownership also has the potential to ripple out past the company’s walls. KKR believes it’s a model that could help build wealth at the base of the income pyramid, improve financial literacy, and benefit local communities. Stern and Stavros recently sat down to talk about both the social and business benefits of employee ownership. Here are some key takeaways:

Addressing Inequality at Its Root

Stavros notes that the bottom 50% of the population owns less than 5% of the assets and almost none of the stock in every developed country in the world. That, in turn, means they don’t share in the proceeds when corporations increase in value.

Consider a few more numbers:

• Only 56% of Americans own stock, with the average family’s holdings worth $40,000, according to the results of a Gallup poll published in July 2022.
• The bottom 50% of the US population owns less than 1% of total corporate equity assets, while the top 1% owns 54% of corporate equities, according to the Federal Reserve’s latest tally.
• The price of the US benchmark S&P 500 index hasn’t doubled or tripled since the low of the Global Financial Crisis ― it’s increased nearly five-fold as of late-September 2022.

Companies usually only award stock options to executives, who at least in the United States are overwhelmingly white and male. In fact, the Gallup survey indicates that white Americans account for 90% of the country’s stock ownership. Giving stock to every employee not only has implications for building wealth at the bottom of the income pyramid, but also in diverse communities.

Stock Options Are Compensation; Ownership Is Comprehensive

For ownership to truly put workers on a more equal footing, Stavros says, companies have to be willing to treat employees like real owners. That means being transparent about issues and trade-offs facing the company, giving workers a strong voice in corporate decision-making, and providing financial literacy education to make sure employees have the tools they need to invest and protect their new wealth over the long term.

That resonates with Stern’s experience as a union leader.

“Workers understand change is inevitable…it’s progress that’s somewhat optional,” Stern says. “For workers, a lot of times when there’s been change, it’s not been progress for them or their families or their communities.”

Learning from the Front Lines

Want to know what’s working well and what could be better about a business? Ask the people who work there. Stern calls it listening before you lead, and notes that conducting a pro forma annual engagement survey doesn’t cut it. Ideas have to lead to action.

Stavros gives an example of how this can work in practice. Employee-owners at C.H.I. Overhead Doors independently figured out a way to buy steel more cheaply and waste less of it. When production rose 120%, the amount of metal that went to the scrap pile rose just 7%. (Read more about the transformation under employee ownership at C.H.I.)

Engaging Workers by Offering Choices

The Great Resignation is an indication of a critical underlying issue: Workers feel disengaged. Only 20 percent of the global workforce reports feeling engaged at work, according to Gallup surveys. For ownership programs to change these grim statistics, employee-owners should have real, impactful choices about the company’s priorities.

Stern praises a KKR initiative to let C.H.I. employees decide how they wanted to spend an allotted sum to improve their experience at work, whether it was the food available on the job, a new-air conditioning system, or something else.

Stavros goes a step further and says that everything from the company’s values and mission statement to the ways it gets involved in local communities should be decided with employee input. “The CEO should not decide what the charitable contribution is,” Stavros says.

Watch the entire conversation between Pete Stavros and Andrew Stern to learn about the implications of KKR’s efforts to implement employee ownership models. As of July 2022.

As part of KKR’s “Investing in Sustainability” webinar series, we bring together various voices and experts within KKR and industry to discuss the market trends related to sustainable investing and what KKR is doing in this space.

Learn more about recent shared ownership news at KKR.

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