Is employee ownership the key to building workers' wealth?

After private equity firm KKR bought Potter Global Technologies, a manufacturer of fire protection equipment in St. Louis, employees learned they were being given an ownership stake in the company. 

The goal is for KKR to sell Potter Global Technologies five or so years later, for a profit. If that happens, workers will get payouts tied to their tenure, on top of salaries. If past sales are any indication, the money can be life changing.

"We've been doing it, but now we're going to get benefits from it," a hopeful Potter employee, Debi Brumit, said.  

Employee ownership comes to Illinois.

While employee ownership is just getting underway at Potter Global Technologies, it came to C.H.I. Overhead Doors in the small town of Arthur, Illinois years ago. C.H.I. was founded by a local Amish carpenter in the 80s, and in 2015, purchased by private equity titan KKR for $700 million. Workers weren't sure how to react to the news. Brad Edwards, a 19-year C.H.I. veteran, recalled rumors going around the factory floor: "Like, 'Oh, this is big New York private equity, they're gonna skin this down to the bare bones until they can squeeze a few bucks off of us. And whenever they leave, there's going to be nothing left.'"

Today, roughly 12 million Americans are employed by companies owned by private equity. Firms like KKR, which specialize in buying businesses with the goal of improving performance and value, before ultimately reselling for a profit. But this practice often involves cuts and layoffs. It's estimated that half a million jobs have been lost to private equity cutbacks in recent years.

Layoffs would have devastated Brad Edwards' family. They were buried under credit card debt with no savings—both Brad and his wife, Crystal, had to take second jobs to support themselves and their three daughters. 

But when KKR executive Pete Stavros came to Arthur to speak to employees after the sale, he brought unexpected news. Far from the steep cutbacks the workers feared, C.H.I would be growing, and the entire workforce would now be part-owners in the business.

Advancing the employee ownership model

Employee ownership is not a new concept. In the 1970s, Congress passed laws to encourage the practice – which 60 Minutes reported on at the time. But the effort sputtered as corporate America struggled with the complexity of a new model. 

Stavros's obsession with employee ownership traces back to his working-class upbringing outside Chicago, where his father paved roads for a construction company. 

"The lessons around the dinner table for my sister and I were really about the plight of the hourly worker," Stavros said. "There's no incentive. I mean, the thing that really drove my dad crazy, he used to talk about the need to just 'work steady.' If you work too fast and you're too productive, your hours go down and your paycheck goes down."

He put the idea of employee ownership into action for the first time at KKR in 2011. Today, Stavros's firm has implemented the model at 47 companies and counting. 

The idea, Stavros says, is simple: give rank-and-file workers a stake in their company on top of salary — plus a voice in how the business is run day-to-day. With skin in the game, those workers will be motivated to work smarter and harder. 

"Ownership is really an ethos, it's a mindset," Stavros said. "What I mean by that is what you want are people feeling like, 'These are my products. So, if I'm sending out poor quality, that's a problem for me. If our productivity's down or if our customers are unhappy, these are my customers.'"

While it's common today for executives to be compensated with shares, fewer than a quarter of private sector employees own a stake in their company. This as wages and wealth for the rank-and-file have stagnated.

Stavros views this situation as bad, not just for society, but also for balance sheets. 

"[Employee ownership] is the right thing to do that also happens to be good business," Stavros said. 

But Stavros is quick to stress that any payout depends on how the company performs, and whether KKR sells at significant profit. 

"It's risk. Now, there's no downside because workers are not investing out of their own pocket," Stavros said. "But there's definitely no guarantee. We need, we always say, we need to perform for this to work."

KKR sells C.H.I., workers benefit 

In 2022, KKR sold C.H.I. Overhead Doors for a ten-fold return. Employees were summoned to the factory floor for the payout announcement. They knew they stood to gain, but not precisely how much. 

Stavros started with employees who'd just joined the company. Their payout: $20,000. The numbers went up from there, according to how long employees had been at CHI. Brad Edwards wouldn't reveal exactly how much he made, but said the check was in the mid-six figures. It was life-changing for the family. 

"Our kids don't have to worry about us being stressed out about money," Crystal Edwards said. "We're not working night shifts."

The windfall for C.H.I. employees rippled across Arthur, Illinois as employees had money to spend in, and on, the community. The Edwards family donated to their church, paid off their credit card debt and started a college fund for their kids. 

Criticisms of KKR's employee ownership model

Stavros has his critics, who view his efforts with deep skepticism, given the cutthroat industry he's in. 60 Minutes correspondent Jon Wertheim put some of the criticisms to Stavros: '"It's green washing. It's white washing. It's mostly public relations. It's a watering down of the real employee ownership.' What do you say to detractors like that?"

"I just think there's too much substance for someone to shrug it off and say, 'Ah. That's just— that's fake," Stavros responded.

But Stavros concedes that when one of his companies does sell, top executives stand to make orders of magnitude more than rank-and-file workers. 

"I think that's one of the things that I struggle with about employee ownership, in general," Stavros said. "It's giving people a chance to get a leg up, but it is not going to solve the wealth inequality problem that we have."

Still, Stavros has been crisscrossing the country preaching his employee ownership gospel. He has founded a nonprofit called Ownership Works that trains executives to implement the model. And he has been meeting with legislators in DC, pushing for changes to the tax code to incentivize employee ownership.

"This is an unbelievably popular idea with liberal progressives and MAGA Republicans and everything in between," he said.