Pete Stavros of KKR said ESOPs are fundamental to corporate culture

  • The father of KKR executive Pete Stavros was an hourly worker, which inspired him to seek employee ownership.
  • KKR said giving shares to employees of portfolio companies increases engagement and reduces revenue.
  • Stavros made the comments during a virtual event hosted by Ayco of Goldman Sachs last Wednesday.

KKR’s co-head of US private equity, Pete Stavros, is familiar with the challenges facing low-income hourly workers. Now, he thinks he has found an effective solution by granting these workers shares in the companies that employ them.

Stavros’ father worked hourly construction in Chicago for 45 years. Stavros said his father’s job had helped him understand the challenges of working “in direct disagreement with your employer”. Employees want to maximize their pay, against the will of employers who seek to reduce workers’ working hours, Stavros said.

Since 2011, KKR has implemented its ’employee engagement model’ across all companies in its US industrial product portfolio, a division that Stavros led at KKR from 2005 to 2019, when he was promoted to co -responsible for US private equity. The model grants hourly workers ownership shares in their employer.

If the business is running well, workers can receive part of its profits as dividends and can earn money when KKR finally sells the business.

Stavros said the model, which also includes employee training programs, has dramatically improved productivity and employee retention, with the latter being particularly important as U.S. manufacturing companies struggle to hire enough workers.

Speaking on Wednesday at a virtual event hosted by the Ayco division of Goldman Sachs, Stavros said KKR started “experimenting” with employee ownership 11 years ago to mitigate the high turnover rate of some of its employees. holding companies.

Stavros, who has spent decades advocating for widespread ownership, said he has been keen to try and implement it in KKR’s portfolio for years. KKR first granted shares to employees of drug maker Capsugel in 2011, after which recordable safety incidents fell by 56%, and the absence rate fell by 55% over the years. six years that KKR owned it, according to a fact sheet about the program a KKR spokesperson shared with Insider.

Four years later, Stavros was back in Illinois, leading the acquisition of garage door manufacturer CHI Overhead Doors. When KKR first bought the company, he said absenteeism and turnover were rampant. The company therefore once again implemented its employee engagement program.

The employees received their first dividend as shareholders, amounting to $ 1,300 to $ 4,000 per person. Subsequently, Stavros said, employee participation in a survey to gauge engagement increased from 30% to 90%.

Since then, the average compensation per employee at CHI from dividends has been around $ 10,000 per hourly colleague, according to Stavros.

Stavros said the program has been successful in reducing staff turnover, although he did not provide specific numbers. While not a “magic bullet” to any problem, Stavros said, employee ownership “can be the foundation for building culture.”

In a video released at the event, an employee explained how the subsidies have changed the lives of some workers. She said the dividend enabled an employee, a single mother of two, to buy a new car for the first time. Another employee, she said, finally took her husband on his honeymoon.

For KKR, the focus on employee ownership has proven to be a differentiator from other private equity firms.

Stavros said some KKR executives believe the program is the “most meaningful thing” they’ve done in their careers, leading hourly workers to “dignified retirement and real wealth creation.”

“It has become an asset for recruiting, and a real source of mission and purpose within the company for the management team,” he said.

Stavros, meanwhile, is launching the Center for Shared Ownership this summer, a nonprofit to which he and his wife plan to contribute $ 10 million from their savings. The association will conduct research on the results induced by employee shareholding.

Disclaimer: KKR owns a controlling stake in Insider’s parent company, Axel Springer.