Ownership — For a While

In April, a new employee ownership organization, Ownership Works, was announced in the Wall Street Journal. The really novel aspect of this is that it is sponsored by Peter Stavros, a major figure in the private equity firm of KKR.

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A little investigation into the Stavros-inspired Ownership Works plan generates a number of dubious aspects from the viewpoint of employee ownership:

• Under this time-constrained approach, the employees’ status as owners is necessarily temporary since PE operates through temporary funds that are liquidated after five or so years. What does so-called “ownership culture” mean in that context? ESOPs, by comparison, are typically set up in private companies to perpetuate EO, since the ESOP eventually buys back an exiting employee’s shares and recycles them to the current employees.
• The Stavros scheme hence does not use ESOPs, which by far are the most common form of EO in the U.S., with around 7,000 ESOPs covering 10% of the private workforce. Instead, the Stavros approach uses special restricted share grants to the employees which will be liquidated when the firm is sold in a few years by the PE firm. Free share grants also bypass the ESOP mechanism wherein the employees at least partially earn their shares through creating the income that goes as the contribution to the ESOP to pay for those shares.

Read the rest at Ownership Matters