Employee ownership makes work fair and reduces economic inequalities

The writer is co-head of KKR’s Private Equity business in the Americas and founder of Ownership Works

My story used to be a familiar story. I am a first generation college graduate from a hard working blue collar family. My parents cut back and saved and made a small investment in real estate. While we lived day to day on my dad’s construction wages, owning an appreciated property brought us into the middle class. Today, not enough families enjoy my upward mobility.

Property 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 achieve asset appreciation is by giving stock in the company you work for, but this is a benefit usually reserved only for the most senior employees.

As a result, working-class families are locked out of these types of ownership. us Federal Reserve Economic Data shows that the bottom 50 percent of earners own only 5 percent of assets and 1 percent of stocks. As property prices continue to rise, the gap widens.

This gap is more than just money. Gallup polls shows that only 20 percent of the global workforce is constructively engaged at work, and engagement scores tend to be worse for hourly workers.

I saw it firsthand with my father. He felt no connection with his employer. If he worked too fast, his hours decreased and his pay decreased. He spoke of the need to “work steadily” – not too fast, but not too slow. His opinions and inputs were ignored. He dreamed of profit sharing and a voice in society.

As an investor working with a variety of companies and management teams, I have had the opportunity to experience bridging this gap through equity ownership and employee engagement programs over the past 12 years. The results were beyond encouraging.

To take one example, the manufacturer Ingersoll Rand shared ownership with all of its 16,000 employees in more than 80 countries. Over time, the company’s retirement rate dropped from 20 percent to below 3 percent. Employee engagement scores from the company’s internal data jumped from the 20th percentile to the 90th percentile. And non-employee shareholders have reaped substantial gains from the strong performance that has come 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 business, the employee ownership checks ranged from $20,000 for a new entrant to over $800,000 for the hourly workers and the most tenured truck drivers. Productivity has exploded during our seven years of ownership, with profit quadrupling and profits nearly doubling. Building a culture of ownership has brought great shared rewards.

Many other investors are also working to expand ownership of their companies. 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 attrition rate has dropped from 45% in 2017 to 14% today. Similar results were seen at SRS, a roofing products distributor owned by Berkshire Partners and Leonard Green. Ownership was expanded, employee engagement improved and the retirement rate dropped by three quarters.

To be clear, it’s not just about sharing ownership – changing the culture is much more difficult than that. You should treat employees as owners. Set goals and talk about progress often. Share information transparently. Make sure there is a strong understanding of the stock and its potential value. And ownership cannot be in exchange for wages or other benefits – it is not about transferring risks to the workforce.

If shared ownership helps both employees and shareholders, why isn’t it more common? Deploying this model requires a concentrated effort, and it takes a long time to see results. The results for Ingersoll Rand occurred over nine years. There are also often deep misconceptions about the workforce. They will never understand equity. They won’t appreciate it. They can’t move the needle on performance, so why do they need inventory?

These misconceptions are wrong. Ownership Works, which helps companies implement such broad capital plans, shows that there is a way to make the strategy effective. Whether you are a corporate leader, investor or board member, shared ownership is something to consider. There is no solution to our workplace challenges, but giving employees a stake in their companies has impacts that go far beyond the workforce.

Employee ownership makes work fair and reduces economic inequalities Source link Employee ownership makes work fair and reduces economic inequalities

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