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PE Firm Distributes $500 Million to Employees

PE Firm Distributes $500 Million to Employees

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An unusual step from KKR 
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Private equity firm KKR has taken an unusual step for a private equity firm: sharing $500 million in wealth with hourly employees. 
The firm has distributed the funds in the form of dividends and other proceeds. The beneficiaries include about 20,000 hourly employees of eight different companies in the industrial manufacturing portfolio.
Companies products
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These companies manufacture products such as pumps and compressors, garage doors, and safety harnesses. 
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Everyone an Owner 
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According to KKR’s Pete Stavros, the key idea is “making everyone in the business and owner, down to the most junior levels of the organization.” 
Stavros explained that the benefits to the company include improved employee engagement, better retention, and strong investment returns.
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The company's investment 
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KKR’s U.S. private equity business is investing its $14 billion 12th fund. The U.S.-based funds are managed separately from the global funds, which include the $1 billion Global Impact Fund. 
Since 2011, KKR has invested $4 billion in the eight companies, an investment that is now valued at $12 billion. 
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Not the Usual Playbook
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Private equity firms are usually better known for calling for layoffs, plant closings, and debt. KKR has itself been associated with some of these tactics, including leveraged buyouts and other deals.
However, KKR and Bain Capital did create a $20 million fund for employees of the now-defunct Toys ‘R Us, a toy store chain that went bankrupt in 2018. 
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The Importance of Engagement 
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Stavros explained that engaging and motivating hourly employees is particularly important in manufacturing, even more so than retail. And KKR is making this change after noting that among the approximately 80% of the workforce that are hourly employees, key problems have included low engagement and high turnover. 
The program will pay for itself
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“When you see turnover go down, absenteeism goes down, quality goes up, productivity go up, scrap go down – there’s a connection there,” Stavros said. 
Stavros said that he developed KKR’s employee-ownership strategy by listening to his father – an hourly construction worker who worked in Chicago. Stavros explained his father “wanted to be paid for quality, cost, on-time delivery – all of the things the company cares about.”
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KKR and Gardner Denver 
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One good example of KKR’s strategy in action comes from Gardner Denver, a maker of industrial compressors and pumps. KKR took the company private in 2013. At that time, 86 of the company’s 6,000 employees had ownership stakes, and the company had a history of messy plant closures, management turnover, and board strife.
Gardner Denver went public again four years later. By that time, 6,400 employees held $100 million worth of stock, and that stock increased in value after the IPO. Gardner Denver is now scheduled to merge with Ingersoll-Rand, and KKR has pledged an additional distribution of $150 million in stock. 
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Investing in Employees and in the Future 
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Because employees get stock options, returns to KKR’s other investors are not diluted unless there are meaningful increases in company value. Hourly employees are also not expected to make any financial contribution. 
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Company aspirations
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Beyond money, Stavros explained that KKR is looking to promote employee engagement through investments in safety, through partnerships with nonprofits, and through employee committees to set priorities for company investments in amenities – including childcare and fitness.

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