The writer is Sinyi Professor of Chinese Management at Cambridge Judge Business School.
In October 2024, global private equity group KKR announced the sale of geohazard mitigation business GeoStabilization International for more than $1bn, five times its original investment. A unique aspect of the deal was that GSI employees shared a $75mn payout, with some receiving up to $325,000 each.
That KKR included stakes for employees six years earlier when buying GeoStabilization — which specialises in emergency landslide repairs and rockfall prevention — was a striking departure from the 1980s. Then, the firm’s leveraged buyout model earned it the sobriquet “Barbarians at the Gate”, the title of a business book on the era.
Even more surprisingly, in 2022 Pete Stavros, co-head of private equity at KKR, spearheaded the creation of a PE industry initiative, Ownership Works, to generate $20bn in worker wealth through employee ownership by 2030. Through the initiative, KKR has almost 50 deals that include worker equity awards and has sold 10 investments, generating $1.6bn for 33,000 non-management staff so far.
Such a strategy seems propitious at a time when wealth and employment are front and centre in the public conversation. Donald Trump has courted billionaires and promised tax cuts while campaigning to rescue the American worker, a dual focus some observers have argued is incongruous.
Test yourself
This is part of a series of regular business school-style teaching case studies devoted to business dilemmas. Read the text and the articles from the FT and elsewhere suggested at the end (and linked to within the piece) before considering the questions raised. The series forms part of a wide-ranging collection of FT ‘instant teaching case studies’ that explore business challenges.
Does the KKR model suggest it is possible to have one’s cake and eat it? Or is the aim to improve public perceptions of the firm while its model remains fundamentally harmful to workers?
Traditional ownership structures, such as publicly traded companies and venture capital or private equity investing, are often viewed as increasing inequality by funnelling a disproportionate amount of gains to owners while employee earnings do not rise at the same rate. Employee ownership addresses this by enabling workers to benefit financially as the company grows.
In the UK, recent inheritance tax changes have boosted employee ownership. Business owners can avoid the new tax if they sell at least 50 per cent of their company to a trust in which the beneficiaries are employees. Known as employee ownership trusts (EOTs), these make up more than 90 per cent of the UK’s 2,037 staff-owned businesses according to the Employee Ownership Association.
EOTs are also known as the “John Lewis Model”, after the UK’s largest employee-owned retailer, owned by its staff since 1929. In 2023 it had sales of £12.3bn, 80,000 employees and more than 360 retail outlets.
Another form of employee ownership, worker co-operatives, dates back to an 1852 UK law and differs from an EOT — which is managed by a trustee — in that worker-owners have a more direct voice in company decision-making. The world’s largest is Spain’s Mondragon Corporation, a federation of diverse businesses including a bank, a grocery chain and more than 10 technology-focused companies. With 80,000 employees, the company had €11bn in revenue in 2023 and maintains a 6:1 pay ratio between the highest and lowest earners.
A model popular in the US is the employee stock ownership plan. In an ESOP, the company allocates shares to its employees over time and they can cash out when they leave or retire, when the stock is bought back from them at fair market value.
These shares are held in a separate trust and voting power rests with a board-appointed ESOP trustee, so employees do not have direct legal ownership or control over the company’s operations. The largest, Publix Super Markets, has 1,376 stores, more than 255,000 employees and, as of 2022, retail sales of $54.5bn. It is estimated to be 80 per cent owned by current or former employees (with the remaining 20 per cent held by the founding family).
Critics of KKR’s approach contrast its model with these traditional forms of employee ownership, which both help employees build wealth and are legal structures designed to endure longer than a traditional PE deal.
But Stavros says: “I have seen employee ownership — regardless of the model — drive remarkable engagement and cultural change in some companies and have a limited impact on others. What’s far more important than the specific form of ownership is the strength of company leadership and the extent to which they make deliberate and ongoing investments in their people to create ‘ownership cultures’.”
Marjorie Kelly, a longstanding advocate of employee ownership, argues that KKR’s model is more like a one-time cash bonus than real employee ownership. Corey Rosen, founder of the National Center for Employee Ownership in the US, sees the short holding period of most PE deals as undermining the employee ownership culture, which is seen as a benefit of ESOPs.
Supporters of the PE model counter that the ESOP model locks up employees’ assets until retirement and concentrates too much of individuals’ wealth in one company.
While PE firms often position employee ownership as a “win-win”, they are arguably the bigger winners, since the model may help secure higher returns and generate more business.
For instance, GSI’s employee turnover rate dropped from 50 to 17 per cent after implementing the equity plan. As Stavros told the FT Behind the Money podcast in 2024, “you can unleash a lot of growth when you suddenly stop losing half your workforce every year”.
Employee ownership can also help secure more deals. For instance, when Simon & Schuster sold itself to KKR in 2023, Richard Sarnoff, the publisher’s chairman of media, applauded KKR for its plan for employees to “participate in the benefits of ownership”.
However, Kelly argues that the PE industry harms communities and employees. She cites aggressive PE tactics causing significant job losses, and has concluded that while KKR’s approach is a step forward, “it’s a step up on an escalator that’s moving rapidly down”.
Stavros refutes such critiques. “When you look at what workers are getting, I just think there’s too much substance for someone to shrug it off and say, ‘Ah. That’s just . . . that’s fake,’” he told CBS News.
Questions for discussion
Further reading:
Private equity’s experiment with worker ownership
Employee share ownership is a perk worth expanding
Consider these questions:
• Are employee ownership initiatives by private equity firms genuine efforts at reform or strategic moves to improve public perception? How can this be assessed?
• What distinguishes KKR’s employee ownership approach from the traditional stock awards of tech companies such as Google and Facebook and employee ownership models such as those of John Lewis and Mondragon?
• What explains the timing of private equity’s embrace of employee ownership?
• How can companies ensure that employee ownership translates into meaningful decision-making power rather than just symbolic participation?
• To what extent should employee ownership be viewed as a right rather than a privilege in modern economies?
• How does employee ownership reshape the traditional division between labour and capital?
https://www.ft.com/content/bda17cbf-5b62-4e28-9c93-866978e72c6a
