Companies face unprecedented challenges around employee disengagement but also clear opportunities to improve it. Global labor force participation rates are near 30+ year lows,1 51% of workers are actively seeking a new job, and only 23% of global workers are actively engaged.2 Companies now face persistent challenges around adequate staffing and worker motivation, problems compounded by stubbornly high inflation rates.
How can companies respond? Our experience from working with our portfolio companies — initially in the U.S. but quickly expanding to other regions3 — has revealed a powerful instrument for attracting and retaining employees at all levels of the company: investing in employee engagement and ownership culture. This approach can transform both the employee experience and turn ordinary investment outcomes into extraordinary ones.
We adopted this approach almost 14 years ago after observing the same issues in our industrials portfolio companies: low engagement, high turnover, and consequently, negative effects on corporate performance. Our analysis revealed misaligned incentives between management and hourly workers as their root cause, so we turned our focus to helping companies provide every employee a stake in our companies’ success. To start, we began working with our companies on allocating a portion of the equity value created in these deals to the entire workforce.
We now complement our plans with management initiatives around employee engagement, workforce training, and financial literacy among other activities to build ownership culture. Since we began, we have seen clear evidence that this holistic approach to shared ownership both improves company performance and generates meaningful wealth for workers. To date, we have helped our companies award billions of dollars of equity to non-executive employees across more than 40 companies, with the potential to create real wealth for over 100,000 working families.
We are confident that many more companies can create their own success stories with this approach. For that reason, we have supported the founding of Ownership Works, a nonprofit partnering with companies and investors to scale the adoption of broad-based employee ownership across the economy.
In addition to providing hands-on practical resources for investors and companies, Ownership Works organizes convenings of leaders engaged in shared ownership. Across two convenings in 2023 OW gathered more than 50 chief executives and more than 80 other executives in finance, HR, and operations to discuss their efforts, challenges, and successes in their journey to improve employee engagement. Through engagements like these, we and Ownership Works are continually learning from our experiences and contributing those learnings back to the broader ecosystem.
The Evidence on Engagement and Ownership
KKR’s experience tracks closely with findings from the consulting and analytics firm Gallup, which keeps a pulse on employee engagement and trends. In a 2023 State of the Global Workforce survey, Gallup noted that most companies tend to have low workforce engagement and that higher employee engagement scores correlate directly with performance at both the team and individual levels across a variety of measures. This overall relationship holds true across geographies, industries, and company sizes.
In our own work, we have also seen evidence that developing an ownership culture creates incremental impact even with an engaged employee base. Early research on broad-based ownership programs at KKR portfolio companies shows that 97% of employees who say they are highly engaged and feel like an owner strongly agree that they will still be with their company in a year. In contrast, only 47% of those who score high in engagement but low in ownership strongly agree with this statement.4
One of the unexpected benefits of employee ownership is how it has helped further differentiate FCG in a competitive M&A environment… adding a powerful quiver to our pitch with sellers and helping align us as partners post-acquisition.”
We have also seen the impact of broad-based ownership plans and ownership cultures in both sourcing acquisitions and integrating the cultures of companies built through M&A. Flow Control Group (FCG), a leading provider of high value flow control solutions, has completed over 50 M&A transactions during our hold period. FCG CEO David Patterson noted that, “One of the unexpected benefits of employee ownership is how it has helped further differentiate FCG in a competitive M&A environment… adding a powerful quiver to our pitch with sellers and helping align us as partners post-acquisition.” Similarly, at PlayOn! Sports, a leading high school sports media and technology company, granting equity ownership to all employees soon after merging with digital ticketing company GoFan created a foundation for a common culture and mission. PlayOn CEO David Rudolph shared, “Having a single uniting goal where everyone shares in the upside has been a critical tool to break out of silos and start working together as an integrated company.”
While there is no rigid rulebook for creating an ownership culture, we have seen great outcomes follow from eight key practices.
1. International Labour Organization. “ILO Modelled Estimates and Projections database ( ILOEST )” ILOSTAT. Accessed February 06, 2024. ilostat.ilo.org/data.
2. Gallup State of the Workforce 2023.
3. On April 25, 2022, KKR said it was supporting all companies in its new $19 Billion North America Private Equity Fund with employee ownership programs.
4. 2022 Gallup Analysis on OW6 culture index and Gallup Q12 engagement index across 8 KKR portfolio companies.
