Blackstone
Inside the plan
The biggest challenge, Shuster said, was making sure that all 18,000 employees understood the model.
To do that, Copeland shut down all of its plants one day so that every employee could watch a roughly half-hour video explaining the program, dubbed in eight languages, followed by additional communications to employees.
Copeland’s employees learned that they stand to receive a cash bonus payment or stock grant from the company when Blackstone sells the company or brings it public — as long as they’re still employed at the firm.
The size of any individual employee’s stake will depend on several factors, including their rank, their tenure at the company, and most importantly, the overall success of the deal.
Success in private equity is often evaluated by how much money a deal generates compared to the initial investment. The higher the multiple on invested capital, the higher the payout.
The video, Shuster said, explained how to value a company and technical concepts like EBITDA, valuation, and cash flow.
It also spoke to employees about how they, personally, might play a role in generating a bigger return.
“How do you impact those things if you’re in procurement? How do you impact cost and cashflow through contractual terms,” Shuster said. “If you’re on the production floor, how do you have an impact on customer satisfaction and productivity.”
Copeland’s Chief Human Resources Officer Stuart Dalgleish said that after the rollout, 56% of the firm’s employees said they understood the program — a number that Shuster said was “as expected for a program of this nature,” and that they are focused on increasing it over time.
Blackstone
Across the industry, high interest rates have squeezed returns and exit opportunities. As a result, firms have been searching for novel ways to create more value by drilling down on company operations.
Employee ownership offers yet another way to create value by aligning investors, employees, and the portfolio company.
“This is the right thing to do for our 18,000 colleagues, but it is also an investment for business,” Copeland’s Shuster said. “And with any investment, there is also an expected return on that investment.”
Blackstone’s current initiative, which grew out of a talent development and employee engagement program called Career Pathways, comes amid an industry-wide push led by KKR.
KKR drastically expanded its employee-ownership program after seeing outsized returns at garage-door manufacturer CHI Overhead Doors in 2015. The firm has since awarded billions of dollars of equity to over 120,000 nonsenior management employees across more than 55 portfolio companies.
KKR’s global cohead of private equity, Pete Stavros, also helped found the nonprofit Organizing Works to encourage the adoption of this model across the private equity industry and beyond.
The payouts
Blackstone didn’t specify the size of the stakes granted to Copeland’s employees, but payouts have been substantial in some well-publicized deals at other firms.
When KKR launched its employee-ownership program at CHI, the firm told employees that if KKR hit its goals, employees could earn about a year’s salary, KKR’s Stavros recently told NPR’s “Ted Radio Hour.”
The CHI deal eventually led to a return of 10 times the firm’s initial investment, one of KKR’s best-performing deals of all time, resulting in average payouts of $175,000 for “frontline” factory workers. The longest-tenured employees ended up with much more, or six and a half times their annual income.
“We had factory floor workers make half a million dollars,” Stavros said. “Some truck drivers made $800,000.”
One factory worker, Josh Ryan, told NPR that he was able to start college funds for all four of his children, renovate his family’s house, and pay down some of his mortgage.
KKR’s September sale of GeoStabilization International to Leonard Green & Partners led to a five times return on investment, resulting in a $75 million equity payout being shared among the company’s non-management employees. The company’s longest-tenured hourly employees will receive at least $325,000 in cash payouts when the deal is finalized.
Such payouts may prove the exception, however. The amount any one employee might receive is determined by far more than the size of the return, including how much equity is put aside for workers and the number of employees splitting that money.
A KKR spokesperson told BI that payouts across their portfolio so far have averaged about a year’s worth of pay, with more tenured employees earning more than that. When setting up an employee-ownership plan, the firm typically aims for payouts equal to nine months’ salary with a minimum goal of six-months’ worth of pay.
Copeland executives are hopeful that its program will have a major impact on the firm’s 18,000 employees.
“I really want to get to a point where, through the benefits of the program, people can maybe put their kids through school, or they might put a deposit on a house purchase,” Dalgleish said.
KKR has a stake in Business Insider’s parent company, Axel Springer.