KKR’s Peter Stavros Makes the Business Case for Shared Ownership

Creating value and driving growth are pillars of private equity, and the M&A community is increasingly recognizing the role of human capital in achieving those objectives.

For many companies, investing in staff comes in the form of strong benefits packages, upskilling initiatives and worker training, along with improved communication between workers and their managers.

KKR Partner and Co-head of Global Private Equity Peter Stavros has launched an initiative called Ownership Works aimed at dramatically rethinking how to create value by investing in workers through a shared ownership model. By offering equity to their non-management staff, Stavros says, operators can greatly increase workforce engagement, all while driving growth for the company.

In last week’s ACG members-only webinar “Building Wealth for All: Employee Ownership Is Fundamentally Changing the Private Equity Industry,” Stavros joined Texas Municipal Retirement System Chief Investment Officer Yup S. Kim and ACG CEO Brent Baxter to make the business case for why companies should integrate shared ownership programs and how such initiatives offer a powerful way for private equity investors to differentiate themselves around their value creation strategies.

How Does Shared Ownership Work?

When done right, shared ownership or providing equity to the workforce is a free and incremental benefit for employees on top of existing wages and benefits. Depending on the structure of the program, employees receive a payout when a company is sold—or receive payments on an incremental basis with certain performance milestones. .

Stavros has spearheaded the launch of two initiatives aimed at expanding the implementation of employee ownership programs within private businesses.

One is Ownership Works, a nonprofit organization with nearly 100 partners including investment banks, pension funds, LPs, labor unions and labor advocates. Ownership Works offers hands-on, practical resources for businesses to structure and implement ownership programs.

The second is Expanding ESOPs, a movement aimed at broadening the availability of the ESOP—employee stock ownership plans—model, first created by Congress through the Employee Retirement Income Security Act of 1974. Expanding ESOPS focuses on broadening the applicability of ESOPs and making them more effective through education initiatives and collaboration with academics, with eventual plans to pitch modernized ESOP legislation on Capitol Hill.

How Does That Benefit My Business?

Stavros acknowledged that it may seem counterintuitive to integrate a new cost to the business by offering this free benefit to employees.

“Yes, it’s a cost to the company,” he said. “But if the hard work around culture is done, this can pay for itself over time.”

Yes, it’s a cost to the company. But if the hard work around culture is done, this can pay for itself over time.

Peter Stavros

KKR, Ownership Works

The idea is that by making workers owners in the business, they will become more motivated to improve performance. Stavros pointed to a 2024 Gallup poll that said 52% of U.S. workers are not engaged and 17% are actively disengaged with their work.

An oft-cited case study exemplifying the success of a shared ownership program is industrial company Ingersoll Rand, which in 2015 offered ownership to all 17,000 employees. Seven years into the program, the company showed “software-level” 35% EBITDA margins, said Stavros. There was a 90% reduction in the company’s quit rate as well as an improvement in the workers’ engagement from the 20th percentile to the 90th.

But it took more than providing equity in the business to employees to make this program a success. Ingersoll Rand’s leadership emphasized communication by educating staff about the company, sharing financial information and teaching them about the business plan. Listening to staff was a crucial component to facilitate employee-direct investments like new break rooms and onsite medical services.

What’s in It for the PE Buyer?

Shared ownership programs aren’t reserved for the largest conglomerates. Indeed, businesses across the middle market stand to benefit, particularly as improved financials make a company a more attractive acquisition target.

But there is also a case to be made for private equity firms to spearhead implementation of such programs within their existing portfolios. “I do think private equity firms that are thinking innovatively on how to differentiate themselves on value creation is critically important,” explained Texas Municipal Retirement System’s Kim.

It may seem logical to conclude that once a company is acquired, employees may take their payout and leave. Yet what the evidence shows, Stavros said, that employee ownership programs drive up loyalty to the company itself, not its owners. Even upon exit, staff remain with the business that has made them feel recognized, respected and included in the conversation.

Wouldn’t This Dilute Ownership for LPs?

It would also seem a logical conclusion that providing equity to employees would dilute ownership for LPs. But Kim emphasized a need to look at the math of employee ownership programs from a purely economic perspective. And what the math shows is a strong correlation between shared ownership and better engagement, lower turnover, and stronger growth and productivity—all yielding stronger EBITDA growth. In other words, the entire enterprise was more valuable because of the program and the proverbial rising tide is lifting all boats.

The business case for Ownership Works is measurable and incredibly compelling.

Yup S. Kim

Texas Municipal Retirement System

“These are all factors that matter deeply to us as returns-seeking investors. The business case for Ownership Works is measurable and incredibly compelling,” Kim said.

Is This a Guaranteed Win?

While these programs have seen some big wins, it is not a guaranteed success for every business. “It’s not magic,” Stavros noted.

But by and large, Stavros said, the largest differentiator between a program that is successful and one that is not can be found in a business’s leadership. Business leaders must be invested in the program, making it a top priority to communicate and really drive to improve the culture of the business. “It has to be a real ownership culture,” Stavros said.

It’s why Ownership Works is dedicated to working with CEOs to workshop new ideas on how to improve the effectiveness of these programs as part of broader efforts to refine the employee ownership playbook and improve success rates.

According to Stavros, the future of investing is within the private markets; he predicted that within 50 years, employee ownership programs will be the main avenue for people to access equities.

“This is a way to propagate change across the economy, and we can do so much good,” he said. “I would not underestimate how much this can do for your own firm and for the people.”

Carolyn Vallejo is ACG’s senior editor.

Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.