New York Times : Advocates say PE-endorsed employee-ownership model doesn’t do enough for workers

A recent New York Times article analyzed the rise of Ownership Works, an employee-ownership model that purports to “share the wealth” with employees of portfolio companies owned by private equity firms. 

New York Times, January 28, 2024: Private Equity Is Starting to Share With Workers, Without Taking a Financial Hit

Notably, the namesake organization promoting Ownership Works has close links with private equity giant KKR: both the Ownership Works organization and employee-ownership model were created by executive Pete Stavros. KKR received a failing grade on PESP’s Labor Scorecard due to its large number of mass layoffs and numerous bankruptcies among KKR portfolio companies. 

According to the model, employees are granted some equity in the portfolio company they work for and current employees receive a payout when PE firms sell the company. Yet, the payout would not cover any employees who had left or had their jobs eliminated before the company was sold. 

While the namesake organization and its proponents claim that Ownership Works gives workers a chance at building wealth, there’s no guarantee that employees will ever see substantial profits. One former employee of a Blue Wolf Capital portfolio company noted that his shares were worth nothing when he left his job for another with higher pay. In fact for many workers at PE portfolio companies, their workplace could go under before they see any money. As the Times article notes, “often, private equity executives profit from client fees and debt-funded dividends even when the underlying assets founder.” 

As PESP’s Jim Baker told the Times: 

[…]employees of private equity-owned companies were more likely to end up in bankruptcy than with an equity payday. He thinks Ownership Works is in part an effort to polish the industry’s image, noting that KKR had talked up the nonprofit on an earnings call, and Mr. Stavros was promoted to global co-head of private equity last year.

‘Ownership Works’ public relations value for KKR, in general, and Pete Stavros, in particular, outpaces its value for workers,’ Mr. Baker said.

If private equity firms like KKR want to truly improve working conditions for employees at portfolio companies, they should adopt fair labor standards such as those in PESP’s Labor Rights Platform.