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The Value Gap: Can hourly workers profit from a private-equity buyout? This KKR executive says yes.


The Value Gap is a MarketWatch interview series with business leaders, academics, policymakers and activists on reducing racial and social inequalities.

Pete Stavros, the co-head of U.S. private equity at KKR & Co. Inc., has a plan to overhaul corporate America — first by changing who sees a payout in the world of Wall Street takeovers. 

His plan involves giving employees company stock, which could be worth quite a lot. That’s assuming profit and productivity can be improved, often at a struggling casino, plant or other business controlled by KKR

or another private-equity firm. If it works, wage earners share in the windfall, instead of only CEOs and buyout titans.

The hitch is getting skeptical factory workers, truck drivers and low-wage earners on board.

It’s all part of Stavros’s new nonprofit, Ownership Works, which aims to get middle- and low-wage earners — the latter of whom are disproportionately women and people of color — an equity stake in the places where they work. His goal is to create $20 billion in wealth for wage workers in the next decade, although with more than 60 big banks, pension funds and labor advocates already on board, he thinks it could hit $100 billion by 2023, and eventually become the norm in all U.S. workplaces.

The plan isn’t one-size-fits-all. It also won’t shield companies from the whims of free-market forces or an economic recession. Stavros, 47, instead sees it as a template to start making improvements across America’s workplaces, potentially even to soften the blow if layoffs happen in a downturn.

Critics like Jim Bonham, the president of the ESOP Association, a trade group that advocates for employee ownership, warn that when private-equity or hedge funds are in charge, job cuts and lost savings are a risk for workers. Stavros takes that criticism in stride, saying he isn’t defending private equity — which now touches most aspects of American life, including housing, food and infrastructure — or downplaying the risks of owning stock in a public company.

“This is one step in the right direction,” Stavros told MarketWatch. “But this is not going to, by any stretch, solve the massive inequities in society.”

But Stavros also doesn’t shy away from what it could mean for families, particularly if both public

and private companies start distributing wealth more broadly to wage workers — “something they have been deprived of forever.”

From his perch at the New York-based pioneer of corporate takeovers, Stavros recently proved the model can work, with a deal that’s due to give hourly workers at an Illinois plant six-figure payouts.

“My folks didn’t go to college, so I had no idea,” Stavros said of his job trajectory into the rarefied air of high finance. After college, he was recruited to work at an investment firm and then went to business school, where he wrote his dissertation on expanding employee ownership. “When I got into a leadership position here, I started experimenting with broad ways of sharing ownership,” he said. 

What he did know was this: “It’s hard to get rich on your labor alone,” he said. “The way people get rich in this country is by owning something.”

Stavros spoke with MarketWatch for The Value Gap about how he wins over skeptical workers, what a recession would mean for portfolio companies and workers, and the state of the American dream. The conversation has been condensed and lightly edited for clarity:

MarketWatch: You just inked a $3 billion deal to sell Illinois-based CHI Overhead Doors to Nucor Corp
the largest steel producer in the U.S., setting up KKR to make 10 times the return of its seven-year investment. Wage earners stand to make $175,000 on average from their shares. How did you get small-town workers to listen to your big-city plans for stock ownership where they work?

Stavros: One thing to understand is that it’s a free benefit. You are not having to convince them to purchase stock or give up benefits, wages or wage increases. It’s an incremental benefit. Even with that, you initially have a fair bit of skepticism where people say: Oh, come on, give me a break. I mean, are the stocks really gonna be worth something someday? Some private-equity firm is gonna give me stock? I don’t believe it. 

There is a lot that goes into, over many years, building that trust. They speak up about things they would like to see changed in the workplace. The CEO works on those things, tries to make the workplace better, so that people feel heard. They feel respected. 

[At the CHI plant], some employees said they’d really like air-conditioning, because in the summer, in Arthur, Ill., it’s 95 degrees. Because the plant was not air-conditioned, and it had no fans, it could get 100-plus degrees in the plant. It’s exhausting. So, many years ago, we added air-conditioning. The next year, they said there aren’t really many healthy food options in the town. We built an on-site cafeteria, a health clinic and new break rooms.

It’s not just about stock. It’s about a whole way of operating that’s different, where you listen to workers. They have a voice. They are receiving financial information as owners. They are treated with trust and respect. And it takes years. 

MarketWatch: You are from the Midwest originally?

Stavros: Yes, I’m from Illinois, the northwest suburbs of Chicago.

MarketWatch: I was born in Minnesota. A lot of people think of private equity and they think of “Larry the Liquidator,” a character from the 1991 movie “Other People’s Money.” There’s a lot of skepticism about a big New York private-equity firm coming in and taking over their company. Is there a situation that comes to mind that’s been a lesson for you in this process?

Stavros: You have to realize that no one’s gonna listen to what you have to say. They’re going to watch what you do. Even though my dad was a construction worker, they’re still not gonna listen to me. That’s why those early commitments matter: We’re going to do a survey. We’re going to ask for your voice. We’re going to act on it. Then we do it again, again, and again. It’s only after years of follow-through with promises that people start to say, “This really could be different.”

“‘I don’t think it’s fair to think our companies are not operating and exposed to free-market forces anymore, because that wouldn’t be reality. But I do think there’s a higher standard being put on companies that want to come along for this journey.’”

MarketWatch: What about if there’s a recession? What do you think it would mean for your portfolio companies and for workers?

Stavros: My perspective is that if you operate in this way, where you give workers a voice, you’re giving ownership, you’re focusing on worker safety, all the things that go into this, it doesn’t mean you are immune to something horrible happening.

I do think it means that if something horrible happens, how you behave needs to be different. If, God forbid, you have to have a layoff, [the questions include]: How much notice do you give people? How much severance do people get? Do you do the bare minimum, or something that actually allows people to land on their feet? Do you do job outplacement? That’s what I think this is all about.

This is about operating in a different way. I don’t think it’s fair to think our companies are not operating and exposed to free-market forces anymore, because that wouldn’t be reality. But I do think there’s a higher standard being put on companies that want to come along for this journey. I think that’s reasonable.

MarketWatch: Let’s get into the big picture. Your program, Ownership Works, wants to create at least $20 billion in wealth in 10 years for workers. Tell me how you arrived at the figure.

Stavros: It comes from a place of wanting to exceed expectations. We think we will beat that number handily. We at KKR, if you add up all of our companies [in private equity], we’re responsible for 900,000 employees. If we just did this program with half of them, and even if people only made on average $35,000, which I sure hope we do better than that, that’s $10 billion right there. 

I wanted to say $100 billion, but people felt like it was too aggressive. They said, “Once you get enough other companies, family-owned businesses and investors involved, and a clear path to $20 billion, then raise it to $40 billion. Then raise it to $60 billion. Go from there.” That’s what we’re doing. I would be disappointed if we don’t create $100 billion of wealth for working families over 10 years. That’s for Ownership Works, the entire effort, not just our companies.

MarketWatch: Is the hope that this program is introduced to every company in KKR’s private-equity portfolio?

Stavros: We have committed to doing this in all of our U.S. companies where we have operational control, in private equity. The 20 partners who have joined Ownership Works have committed to doing this, initially, with at least three companies by the end of next year. If you add that up, you’re already upward of 100 companies. If every company has a few thousand employees, at minimum, that’s about 300,000 families that can be impacted.

MarketWatch: You’ve made a career in private equity at KKR, a firm known for putting leveraged buyouts on the map. Why focus on increasing prosperity for lower-income employees and people of color?

Stavros: There is a big racial and gender equity play here. As we all know in corporate America, the top of the organization is [mostly] white males. Right now, in a typical company, all the equity ownership is also in those top layers that are white, male. So when you distribute ownership, broad and deep inside a company, you massively, disproportionately benefit women and people of color. It’s unfortunate that’s the case. We are trying hard so that it’s not the case, so that down the road we’ve got plenty of women and people of color in those top layers. 

But when you talk to leaders in the Black community, about what we can do right now, it is to give people ownership of assets. Give them a chance. What we have not done enough as a business community is on economic inclusion, which is what this is really about.

The initial inspiration started with my dad, who was a construction worker for 45 years. He operated a road grader for a small construction company in Chicago. He actually loved his job. He did not begrudge being a construction worker. But it was hard to build wealth making $15 or $20 an hour, and there was no sense of alignment with your employer. My dad really hoped for profit-sharing in his union. That is where my personal passion comes from.

“‘Today, people don’t own assets in much of the country. I think without ownership, it’s going to be hard to lift up the bottom half of the country economically.’”

MarketWatch: Why focus on stock opportunities instead of higher wages?

Stavros: At Ownership Works, we will not work with a company if they say, “I’d like to try and give some stock, and maybe I can get some wage concessions.” Or “Maybe I don’t have to give wage increases,” or “Maybe I don’t need to do a 401(k) match.” That’s not something we would ever contemplate. 

[It’s about how] does the company share wealth with workers, and hopefully get people to stay at the company and change behavior. To start from the company perspective, I think it’s impractical to think a company is going to double wages, for example, to get to the kind of payouts you saw at CHI. Because it increases their fixed costs, and it would immediately take their earnings way down. On the other hand, equity is a variable cost. Yes, you’re sharing wealth with workers, but it’s for performance, only if value is created. From a shareholder perspective, it’s more palatable. From the employees’ perspective, it’s hard to get rich on your labor alone. The way people get rich in this country is by owning something. 

Today, people don’t own assets in much of the country. I think without ownership, it’s going to be hard to lift up the bottom half of the country economically.

MarketWatch: Can you talk about the wage profile of the average worker where you see this fitting and making a difference?

Stavros: At CHI Overhead Doors, the factory workers on average make about $50,000 a year. The truck drivers make about $100,000. It’s a tough job, long-haul trucking. You sleep in the back of a cab four nights a week. But that’s kind of the rough wage profile.

MarketWatch: That’s relatable to a lot of people in this country. What would you say to people who say the American dream of working hard to get ahead is dead?

Stavros: I think it’s hard to deny that it’s gotten so much harder. The question is, what are we going to do about it? I think all parts of society have a role to play. Government clearly has a role from a policy perspective, from a tax perspective. I think business has a role. And I think this is one of the ways we’re trying to leverage business to give people access to a key wealth-creation tool, in this case, stock ownership.

MarketWatch: Is this your business school dissertation put to a real-life test?

Stavros: What I wrote 20-some years ago was a very technical paper. You would die from boredom if you read it. It was on a tax structure, where if a company were to give all of the common equity ownership to its workers, then the company could pay no federal income taxes. We’re doing this in a different way. This is an example of what we’ve been working on at KKR for 11 or so years now. We’ve done this 25 times with 25 different companies. With Ownership Works, we’ve got a group of 60 major corporations, investment firms, pension funds, worker advocates and labor organizations all coming together, saying we need to do something different. 

It’s going to be a 10-year journey to see if we can make this work. Some prominent labor leaders have said this could be the best thing for workers they’ve seen in their careers, if this gets done right. It’s gonna be a ton of work. But this is worth the effort.

MarketWatch: Where do you see this program going in the next 20 years?

Stavros: I’m an optimist, so you’ll have to weigh that. But in 20 years I think this is going to be the new normal, where everyone participates in the financial appreciation of the equity of their company. I think this is the way everyone knows the economy should work. The way we’re doing it now is so screwed up. There’s a reason why CEOs [at companies in the program] get so emotional, because they know deep down that this is what should be happening. 

It’s not just the potential payouts. They see the reactions from the workforce, who for the first time feel trusted, felt respected, felt included. The human emotion tied up in this is one of the things that’s going to carry it. Then, over time, the data comes out showing it’s better for companies. Economists will tell you this is better for the economy.

MarketWatch: It sounds a little bit like a corporate revolution.

Stavros: That’s the hope — a movement, as we say.

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