KKR's Pete Stavros launches group promoting stock ownership for employees

By Steve Gelsi

'Expanding ESOPs' rolls out with backing from 50 banks, law firms, and foundations

Pete Stavros, a high-ranking executive at private-equity firm KKR & Co. Inc. known for rewarding staff with stock, on Tuesday launched an organization aimed at promoting employee stock ownership programs, or ESOPs.

The group, Expanding ESOPs, has the backing of more than 50 banks, law firms, academic groups and foundations such as Wells Fargo & Co, (WFC), The Ford Foundation, Holland & Knight, UBS (UBS), BMO (BMO), The Bipartisan Policy Center, Kirkland & Ellis, Project Equity, and many others.

The group will push Congress for an update of the Employee Retirement Security Act (ERISA) from 1974 to pave the way for wider use of ESOPs as a way to help the middle class gain traction in the U.S.

The group said the ESOP issue has the support of both Democrats and Republicans.

"Polling clearly shows that Americans across the political spectrumwant to see workers participate in company ownership to a far greater extent, and ESOPs represent our best shot of achieving that goal," Stavros said in a prepared statement.

The group is launching a few weeks after 60 Minutes aired a segment on Stavros entitled, "Private Equity's unlikely champion for giving workers a leg up with employee ownership."

A YouTube video of employees at C.H.I Overhead Doors shows employees celebrating when they found out they would get thousands of dollars in stock as part of KKR's acquisition.

When broad-based ESOP employee ownership is combined with a "supportive" culture, voluntary employee turnover drops 85%, the group said.

Most ESOPs are in place at smaller companies, and only about 250 programs are launched in a given year and mostly in the industrial and service sectors, the group said.

Only 4% of new ESOPS are launched at companies with more than 500 employees.

The idea of ESOPs has already been catching on in the world of private equity.

In May, Blackstone Inc. (BX) said it would provide equity to the majority of workers at its larger buyouts of portfolio companies, starting with Copeland, which has 18,000 employees. Blackstone acquired the company from Emerson Electric for $14 billion.

Stavros has also launched Ownership Works, a nonprofit backed by more than a dozen private-equity firms including Ares Management Corp.( ARES), Apollo Global Management Inc. (APO) and TPG Inc. (TPG).

The Institute of the Study of Employee Ownership and Profit Sharing at Rutgers University estimated that 6,247 corporations currently have about $2.09 trillion in total wealth, or roughly $165,000 per employee.

Kim Blaugher, executive director of The Beyster Institute at UC San Diego's School of Management, said the benefits of ESOPS have been limited by "narrow applicability" of their structures to a "small portion" of corporations.

"By broadening the scope of where ESOPs can be used, wehave an opportunity to generate a meaningful impact to workers and companies alike," Blaugher said.

Also read: Private equity: Everything you always wanted to know about this $12 trillion asset class but were afraid to ask

-Steve Gelsi

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09-24-24 0814ET

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