, member & head of Industrials
In what ways does employee share ownership serve a useful purpose?
Broad-based employee share ownership aligns incentives, improves culture and ultimately enhances performance of the company. It shares the resulting higher profits with all employees, which is the way it should be because – as we all know – everyone contributes, not just those at the top.
How can we widen and deepen the adoption and use of employee share ownership?
We need serious study of the impact of employee share ownership on both the company and its employees. It needs to be objective and impartial and needs to be large enough in scale to have results that are meaningful.
What would you tell someone on the fence about introducing employee share ownership to their company?
I would tell them that while there are real benefits to the company and the employees, it will not magically solve a company’s underlying problems or result in immediate impact. It requires a huge amount of effort to 1) educate employees so they understand and value the equity; 2) explain how each employee can personally contribute to the key initiatives at the company; and 3) further explain how those initiatives will result in equity value creation, in which they will share. Many employees have never owned stock and do not have much knowledge of – or interest in – finance and accounting, which is why this is a significant undertaking. In the end, I think it is definitely worth it over the long-term. I would simply encourage someone who is on the fence to make sure they are willing and prepared to do more than hand out equity, and then hope the results pour in and that employees become more committed to their jobs overnight.
What has been rewarding about instituting employee ownership?
Over the past 7-8 years, we have instituted broad-based employee share ownership at a number of our US Industrial portfolio companies. It is extremely rewarding when we pay a dividend on the equity or ultimately sell a company and it becomes clear what a difference it has made in people’s lives. It is also very rewarding when you see specific examples of employees’ changed behaviour and see them acting like owners.
What have been some of the challenges?
The biggest challenges we have faced relate to poor communication, which has resulted in people not understanding the equity plan and therefore not valuing it. In a few cases, frankly, some employees did not even know it existed. We have figured out ways of more effectively communicating the equity programme and explaining it in a way such that people truly grasp the value.
Where can people learn more about the broad-based employee ownership efforts you have introduced at KKR in the Industrials group?
I gave a talk at KKR’s 2018 Investor Day entitled “Incentivizing Employees and Creating Value.” A videotape of this can be found on the KKR Industrials’ YouTube page
. We also have a LinkedIn
where we have shared some additional information.