The writer is co-head of KKR’s private equity business for the Americas and founder of Ownership Works
My story was familiar. I am a first generation college graduate from a hard working blue collar family. My parents saved up and made a small real estate investment. While we lived hand to mouth on my father’s construction salary, owning an appreciating asset brought us into the middle class. Today, there aren’t enough families enjoying upward mobility like mine.
Home ownership is one of the few ways to move up the economic ladder. But with real wages largely stagnant since the 1970s, many people have no savings to invest. Another way to enjoy assets is to receive stock from the company you work for, but this is a perk typically reserved for more senior employees.
As a result, working class families are excluded from these types of ownership. WE Federal Reserve Economic Data shows that the poorest 50% of wage earners own only 5% of the assets and 1% of the shares. As asset prices continue to rise, the gap is widening.
This divide is not just a question of money. Gallup surveys show that only 20% of the global workforce is constructively engaged at work, and engagement scores tend to be worse for hourly paid employees.
I saw this firsthand with my father. He felt no connection with his employer. If he worked too fast, his hours went down and his pay went down. He spoke of the need to “work steadily” – not too fast, but not too slow. His opinions and comments were ignored. He dreamed of profit sharing and having a voice in the company.
As an investor working with a variety of companies and management teams, I have had the opportunity to try to bridge this gap through large-scale employee ownership and engagement programs at over the past 12 years. The results were more than encouraging.
To take one example, manufacturer Ingersoll Rand shared ownership with all of its 16,000 employees in more than 80 countries. Over time, the company’s quit rate dropped from 20% to less than 3%. Employee engagement scores from internal company data increased from the 20th percentile to the 90th percentile. And non-employee shareholders realized substantial gains thanks to the strong performance that came with an improved corporate culture.
A few weeks ago we analyzed our work with CHI Overhead Doors, a garage door manufacturer. When we sold the company, property checks to workers ranged from $20,000 for a new carpenter to over $800,000 for hourly employees and senior truckers. Productivity has exploded in our seven years of ownership, with profits quadrupling and margins nearly doubling. Building a culture of ownership has brought great shared rewards.
Many other investors are also striving to expand ownership of their businesses. Insight Global, a staffing firm owned by Harvest Partners and Leonard Green, has given each of its 4,500 employees a path to ownership: the quit rate has fallen from 45% in 2017 to 14% today. Similar results were seen at SRS, a distributor of roofing products owned by Berkshire Partners and Leonard Green. Ownership was broadened, employee engagement improved, and the quit rate dropped by three-quarters.
To be clear, it’s not just about sharing ownership – changing the culture is much harder than that. You should treat employees like owners. Set goals and talk about your progress often. Share information transparently. Make sure there is a good understanding of the stocks and their potential value. And ownership can’t be in exchange for wages or other benefits – it’s not about shifting the risk onto the workforce.
If shared ownership helps workers and shareholders, why isn’t it more common? Deploying this model requires a concerted effort and it takes a long time to see results. Results for Ingersoll Rand spanned nine years. There are also often deep-seated misconceptions about the workforce. That they will never understand fairness. They won’t like it. They can’t move the needle on performance, so why do they need stock?
These misconceptions are wrong. Ownership Works, which helps companies implement such broad-based action programs, shows that there is a way to make strategy effective. Whether you’re a business owner, investor, or board member, shared ownership is something to consider. There is no silver bullet to solving the challenges of our workplace, but giving employees a stake in their business has impacts that go far beyond the workforce.