63% of Americans live paycheck to paycheck, and 40% of American workers have less than $400 in savings. Not only is this level of financial precarity a psychological burden that research shows is the equivalent of losing 13 IQ points, it is also the biggest driver of wealth inequality. Pete Stavros, a partner at private equity firm KKR, is acutely aware of this fact. The son of a construction worker, he grew up hearing about his father's frustration about how difficult it is to build wealth on an hourly wage. This remains a problem in modern America to this day; the bottom half of the US population owns 2% of the wealth, and few people at the bottom of the income ladder are even aware of shares as an option for building wealth, yet equity is surest way to escape the poverty trap.
This observation is what drove Stavros to found Ownership Works, a non-profit organization devoted to promoting workers' access to equity; employees literally own a stake in the company, meaning that they can grow their net worth as their company grows. "It's not right for a leadership team to drive a company super hard for five years and at the end of it, out of thousands of people, only a handful of people generate real wealth," he explains.
Ownership Works has already seen great success in this respect; CHI, one of the companies that it has partnered with, was recently sold to Nucor and employees received average payouts of $175,000. Ownership Works now works with dozens of companies, employing upwards of 45,000 people, and they hope that examples of success stories like CHI will help generate momentum for employee ownership programs in the wider economy. By providing companies with tools and methods to help them implement these programs, Ownership Works conservatively estimates that they will create thousands of new employee-owners and generate at least $20 billion of wealth for working families.
However, implementing an employee ownership program is not as simple as just rolling out a new compensation policy; according to Stavros, this radical change in philosophy the idea that everyone should share in the value generated by the company requires a massive cultural shift, and the key success factor is aligned leadership: the management team needs to be on board, You need full buy-in and commitment to implement a holistic "culture of ownership" where employee engagement is front and center.
Senior management will often have to accept slightly less equity in the company, and existing shareholders need to understand that, although the total value of their equity is diluted, as well as it being the right thing to do, they ultimately also benefit in the long term through improved employee engagement, which results in better employee performance and, ultimately, better financial results.
Implementing this employee ownership model requires forethought, dedication and determination especially as it can sometimes take a while before the results are visible. "You have to treat employees like owners. Set goals and talk about progress often. Share information transparently. Ensure there is a strong understanding of stock and its potential value. And ownership cannot be in exchange for wages or other benefits; this is not about shifting risk on to the workforce," Stavros says. Education is also key: "More junior colleagues in a company won't understand and value the ownership," but financial education and equity ownership are mutually reinforcing. One of the main barriers to financial literacy is that the majority of the workforce has zero net wealth; people have no incentive to learn about personal finance if they have nothing to invest and they certainly don't want to talk about their debt but employees are much more likely to want to take ownership of their wealth if they realize they have an investment to look after.
There can be a certain tension between profit sharing and investment, so in order to convince employees to forego a short-term increase in profits in order to invest in advertising or equipment, for example, management will have to sell their project and convince workers that it increases their long-term earning potential, but there is also evidence such schemes can also boost innovation. This implies a high level of transparency and mutual trust, but it also ensures that employees who do stay are in it for the long haul.
Another partner of Ownership Works, French private equity firm Ardian has long sought to ensure employees are rewarded with a fair share of the company's profits. In 2009, Ardian became one of the first signatories of the United Nations' Principles for Responsible Investment (PRI), and for the firm's Senior Sustainability Manager, April Tissier, CSR and employee ownership can go hand in hand: "Ardian is committed to sustainable investment, and as such, it was important for us that everyone working for our portfolio companies be rewarded for their contribution to the company's success. That's why being part of the ownership Works program really makes sense for us as a company," she explains. "Since 2008, 28,000 people working for our portfolio companies have benefited from Adrian's profit-sharing mechanism, and employees have received the equivalent of up to 6 months' salary," she adds.
Sharing value is truly part of Ardian's DNA, as evidenced by the fact that when Ardian split from AXA Private Equity in 2013, it gave the firm's employees an opportunity to become shareholders, which 80% of them now are. The case of Ardian, which also aims to roll out a shared ownership program for its portfolio companies in 2024, shows how employee ownership can be a major element of a company's CSR policy by promoting equity, helping working families develop greater financial resilience, and by helping workers and managers alike find more purpose and meaning in their work. And having happy workers who feel valued and who enjoy a sense of purpose is a mutually advantageous situation because, as CEO Dominique Senequier says, "the most sustainable companies will have the greatest long-term value to their stakeholders".
