KKR Executive’s Push to Spread Employee Stock Ownership Begins to Gain Traction

KKR KKR -0.39% & Co. executive Pete Stavros is on a mission to get more stock of industrial and manufacturing companies into the hands of their workers.

Mr. Stavros, co-head of private equity for the Americas at the buyout firm, has spent the bulk of his career studying and promoting the benefits of awarding stock to factory workers and other hourly wage earners. He has implemented programs to make equity awards and provide financial-literacy training at the industrial companies the firm owns, including Ingersoll Rand Inc., a pump and compressor maker, formed in 2020 through a roughly $9 billion merger with Gardner Denver Holdings Inc., a KKR investment.

Mr. Stavros, 46 years old, is now raising money to launch a nonprofit he plans to call the Center for Shared Ownership, to which he and his wife are pledging $10 million of their savings, he said. The organization will focus on providing companies with resources to help them adopt employee-ownership programs, funding academic research and potentially pushing for new government incentives.

Giving ownership to lower-level employees better aligns their interests with those of management and shareholders, makes them more engaged and creates a stronger culture, Mr. Stavros said. And at a time when rising inequality has led to populist uprisings and geopolitical instability, awarding shares to blue-collar workers can lead to greater social cohesion by helping lower earners—many of whom are racial minorities—build wealth, he said.

The wealthiest 10% of Americans owned $26.6 trillion of equities in 2020, an increase of more than 15 times since 1989. That compares with just $178 billion and an eight-fold increase for the bottom 50%, according to Federal Reserve data.

“There’s often no connection between the people working in factories and the people who work in headquarters,” Mr. Stavros said. “The country expects business to do something, but despite all of the proclamations, we haven’t done anything yet.”

Employee ownership can be a double-edged sword, providing benefits when a stock is on the rise but potentially contributing to malaise when it isn’t.

Still, Mr. Stavros’s message is beginning to resonate. On Feb. 2, Harley-Davidson Inc. said it would offer an equity grant to roughly 4,500 non-management employees as part of Chief Executive Officer Jochen Zeitz’s new strategic plan for the nearly 120-year-old company.

Mr. Zeitz, who took over as CEO in May of last year, said he quickly realized morale was poor and motivation low among employees who make Harley’s famous motorcycles. He watched a video of a speech Mr. Stavros gave about employee ownership, and knew he wanted it for Harley.

“This is not just about doing good through business,” said Mr. Zeitz, who consulted Mr. Stavros on development of the plan and invited him to give a presentation to Harley’s board. “It’s about: How do you make your business better?”

Messrs. Zeitz and Stavros acknowledged that heightened focus by big investors on environmental, social and governance issues has made it easier for companies to justify doing something that shareholders might once have criticized because it dilutes their stakes.

It also helps that adopting broad-based stock-ownership programs has gone hand in hand with growth and profitability for KKR. When KKR took Gardner Denver public in 2017, more than $100 million of its stock was granted to all of its employees, equal to 40% of their base salary. When the company merged with Ingersoll-Rand PLC’s industrial division last year, it made another $150 million in equity grants to the combined company’s nearly 16,000 employees.

Ingersoll Rand’s operating margins have climbed by about 7 percentage points, and the value of the buyout firm’s investment has more than quadrupled based on the current stock price. The lowest-paid employee who received the 2017 grant now has a stake of about $35,000.

Mr. Stavros’s own passion for the issue predates the ESG movement. His father worked as a road grader for a small construction company in Chicago and pushed for profit-sharing but never achieved it. Mr. Stavros, during his second year at Harvard Business School, wrote a thesis that examined employee stock ownership plans.

He joined KKR in 2005 and has done deals in the healthcare, consumer and industrials sectors, helping to lead a number of the firm’s highest-profile investments, including its 2006 buyout of hospital operator HCA Inc. for $21 billion. In 2010, Mr. Stavros began leading the industrials team, where he started putting his ideas for employee ownership into practice. In 2019, KKR promoted him to his current role.

Write to Miriam Gottfried at Miriam.Gottfried@wsj.com

Bob MassengillFebruary 19, 2021