This message is brought to you by the Planet Money Book Tour. Join Planet Money for a night of dry wit, sober discussions of economic policy with intelligent guests, and Q&As that go on just a bit too long. I'm so sorry, I do feel like we're maybe underselling this like a bit. Do you mind if I just do a little? Is that okay? Biond, go right ahead. Okay, thank you. So the Planet Money Book Tour really is unlike any other book tour. The H-Stop is totally designed just for your city. There will be game shows, inter-audience competitions, tests of humanity itself, and we will be joined at various stops by influencers, celebrity chefs, a co-founder of Anthropic and Planet Money's very own Jack Corbett of TikTok. And absolutely zero questions that are a little more of a comment than a question situation. We're going to ban those. You can get tickets at PlanetMoneyBook.com. We do hope you'll join us. Thanks. This is Planet Money from NPR. Cindy Cordes loved her job. She worked at a company called Capital Safety. It made safety equipment like harnesses people wear, washing windows on skyscrapers or working on oil rigs. And her team made the part that attaches to the harnesses. I was in the Shocks, which the Shocks was the part that would tie off from the harness to your point of say on a building or a scaffolding or whatever. What was your favorite part of the job? Sending out quality equipment and knowing that it's going to save people's lives. She'd been at the company since the early 90s, worked her way up, and by 2011, Cindy was the manufacturing lead on the production floor. She oversaw a team of like 40 people. And I had to make sure that they had their job orders for the day, that they had all their materials so that they could make their equipment for the day. And if there was any issues, they would come to me and I would try to solve them. And one day that year, she hears that her company is getting sold. It was like, okay, now what are we going to be getting into? The company that's buying her company, KKR, a private equity firm, one of the big ones, which is not always good news. When you heard that you were getting bought by private equity, were you like, oh great. Next feelings, you know, one big fear is you're like, oh, are they going to take it, you know, and take it overseas, close the company here? You know, you had all those worries, you know, when you have a bigger company by you. Because private equity's whole thing is they buy companies, try to figure out how to make those companies more profitable, and then sell them for more money than they bought them for. And very often, the way they make those companies more profitable is by cutting jobs. But Cindy was in for a more interesting ride than that, because she was actually part of a brand new experiment, a large-scale experiment conducted by this guy at KKR, who had a new idea about how to grow companies. Hello and welcome to Planet Money. I'm Mary Childs. And I'm Waylon Wong, Private Equity. It's ruined so many things, from nursing homes to toy stores to vet clinics. But today on the show, someone is trying to do private equity a different way. Will it save all of private equity? No. But maybe this one experiment in private equity will lead to more equity. And maybe Cindy has more coming than she thought. The experiment that Cindy Cordes was inadvertently part of began back in 2011. It's the personal project of this guy, Pete Stavros, whose job at KKR is to buy companies, make them more profitable, and then sell them. The inspiration for his big experiment comes from his childhood. Growing up in Chicago, sitting around the dinner table, hearing stories about his dad's job at a construction company, making roads smooth and flat. He operated a road grader for over 40 years, and he was often specified in municipal contracts. Like, Harry Stavros must do the road grading. Because if you don't grade a road properly, it won't drain appropriately, and it'll freeze and then crack in the winter. His dad was in the union, eventually became influential, representing the interests of the workers. And Pete says there was this structural tension between the union and the company. Workers wanted to work more hours because they were paid by the hour, and employers wanted the work done in fewer hours. Over the years, the company was kind of winning. It was whittling away paid time, like the time spent driving to a faraway construction site. Or the time people were grabbing lunch during work. So as Pete remembers it, the company told workers they weren't going to pay for lunchtime anymore. Employees should take an hour unpaid. On that one, the workers decided finally to fight back. Pete's dad took the lead. He organized all of the workers, and in fact also the truck drivers who delivered the raw material to pave the road. And so he had that material delivered directly at 12 noon. Right at the time the lunch would normally be. And instead of doing the most expedient thing and unloading the truck when it arrived? He would look at his watch and say, what a shame, we don't work the lunch hour anymore. And he would send the truck away, and he and his colleagues intentionally ran the job out of material. So the work site would have to shut down, which would mean the company had to pay late fees to its client. And it would have to pay the workers overtime to try to catch up. Pete says his dad hated the absurdity. My dad would come home and say, can you believe this is what we're doing? You know, we're all adults, and this is how we're behaving, as opposed to having the same incentives and all wanting to work together. We have all of these fights over hours. Pete remembers his dad being like, there's got to be a better way. Some way to align the workers' incentives and the companies. Why don't we have profit sharing or ownership, or some way to get workers on the same side as management? Give workers a chance to get ahead financially, and, you know, give the company a reason to start listening to workers. That was where the original inspiration came from was from my dad. The original inspiration for what Pete is now doing from his seat at KKR. In the big bad world of private equity, sharing ownership with workers. Which is not normal. The normal private equity move is to buy companies, often borrowing a lot to do it, and then try to make the companies more profitable so they can sell them at a profit. As the private equity industry has grown, over time the effects of the industry have become more apparent. Like academic research has shown that when private equity buys a company, it can bring in better management practices or save costs, and it does increase productivity. But private equity ownership can lead to a degradation in the quality of the product, which becomes especially salient when the product is like healthcare or nursing homes, and it does result in fewer jobs overall. The people who lose those jobs often make less money in their next job, or never find another one, which of course becomes very expensive for society. And as private equity has grown over the last couple decades, and bought more and more companies that touch everyday people's lives, scrutiny of it, and a mainstream cultural distaste has grown too. By the time Pete had found his way to private equity, he was still thinking about his dad's ideas of giving workers equity. He'd even done a little research on it in business school. So now he's in charge of this team at KKR, and they give partners plenty of freedom, and he's like, we kind of get to pick what companies to buy and what to do with them, so I kind of have an opportunity here. I should try to see if I can do my dad's thing, making workers part-owners in their own companies. It's such an opportunity to try new approaches, because we can, it's almost like a laboratory. So his big experiment is about trying different ways to get the workers at those companies more bought in, more involved. And he suspects to some degree there's a business case for this too. Like if workers have ownership in their company, they might feel ownership as well. They might work a little harder, get more training, stay more engaged. So he decides to give it a go. And Cindy Cordes' company, Capital Safety, where they made harnesses, that is Pete's first try, the first in this experiment. So Cindy remembers when KKR bought the company, the company's management told her and all the other workers that the plants in Red Wing, Minnesota would stay open and no jobs would get cut. Cindy was like, okay, but for how long? A year? 10 years? If these jobs had gone away, would you have had a hard time finding another job or an easy time? Where I live, there is a few other companies, right-in-town manufacturing companies that I think people, you know, some people would have found jobs right-in-town, but I don't think there would have been enough for everybody. So the workers are nervous. And meanwhile, KKR is quietly working on their test case for this worker ownership thing. And they ran into a few problems. Pete says the first was that the workers in the company didn't really trust the company's management. Immediately after they buy the company, Pete says KKR starts getting a lot of complaints about worker safety, unscheduled over time, and people feeling like they weren't being listened to. KKR was like, if we give the workers equity now, they're not going to believe us. Their company had already been bought and sold by three other private equity firms. So Pete was worried they would not trust this move. They would think it was some kind of trick. So he thought, let's work on improving safety and culture first. Just some basic things. And then we can talk about employee ownership and hopefully then it will be received in good faith. But the other problem was, since this was literally his first rodeo, they had to figure out how to do it. This is way more complicated than it sounds. And even just structuring it and implementing it and administering it's really challenging. This was a multinational company, so it spanned different jurisdictions, each with their own problems. Like in Western Europe, if you gave a worker ownership. A lot of times they get taxed on the grant and have something called dry income. So even though they don't have any cash from the share grant that you made, they have to pay taxes. So we had to work around that. And here at home, there were other obstacles at the time. In the United States, there was a real limit on how many shareholders you could even have in a private company. So simply figuring out the how was a big challenge. But eventually they did it. They rolled out an ownership program. But Pete says this first time, it was kind of sloppy. We, in a very haphazard and not in a way that I would characterize as being well done, we rolled out employee ownership for everyone. But they felt weird telling the employees at that company that they were now part owners. Like what if they say everyone's getting equity, but then they bungle the rollout and can't fulfill their promise somehow. So they just did it quietly. They structured some equity, gave it to the employees and basically didn't say a peep. The corporate equivalent of sliding an envelope across the table. An invisible envelope. So Cindy, an employee at that company getting ownership at that moment, had no idea. We did not know that there was going to be like this in Senup. None of that was brought to our attention until they sold the company to 3M. So in KKR sold the company to 3M in 2015, all that surprise equity suddenly paid out for Cindy and all her coworkers. They found out one day Cindy was in a big meeting with more than a hundred of her coworkers. So we were in the cafeteria, which is nice size. And we were like sardines in there. And then they announced that there was going to be this big incentive. What bonus that we would all be getting because of the sale. And we're like, okay, so we all were thinking it was going to be a few hundred dollars, maybe a thousand dollars and stuff. The check was bigger than she'd expected. She wouldn't tell me how much. It was like, oh my gosh, I've never had anything like this before. She says it was five digits, $10,000 or more. And it came at a good time, especially for me and I know for a few other people, where I use that money to pay off a couple of my credit cards. Back then I still had a couple of my kids still lived at home and, you know, so that I could go and I could be a little more debt free. And Cindy remembers that feeling of getting the money. It wasn't life changing, but it was a nice surprise. Were they basically like, by the way, you've had equity this whole time and we just never mentioned it? Right. No, that's so funny to me. Is it funny to you? It is. You know, there is a lot of communication that does not get brought down to the people that are working on the floor. And she thinks this was kind of a missed opportunity. Y'all had told us we the workers might have acted differently. I think if we would have known it when they would have bought our company, I think people would have probably stuck a little more effort into it and making the company grow maybe a little bit more. We had no idea that this was going to be what was going to be happening when they sold the company. KKR did sell her company. This wasn't a failure. But on the worker ownership part, it kind of was. Because maybe if the Cindy's of the world had known that they had equity and had been that much more engaged and felt that much more ownership, their productivity might have been higher and profitability might have been higher. KKR could have sold the company for even more. And Cindy's check might have had another zero on it. Pete agrees with Cindy. The first test of how to give workers equity was not its best possible execution. I would say the communication was like an F. We were worried about over-promising and under-delivering, so we kind of weren't real clear on what it could mean to people. And on and on and on. It was just not well done. So Pete has learned an important lesson. You got to tell people when they become owners. And now he has also learned how to structure this. So he takes those lessons to the next company his group buys. And the next. And? It was one of the greatest things that ever happened to me in my life. That's after the break. After the haphazard not success of worker ownership at Capital Safety, Pete Stavros does not give up. He continues testing at his theory that giving workers equity can be good for business. And so we tried it again and again and again and we did it with about a half dozen manufacturing companies. Each time he tries this, it's another experiment. He sets up the program using the structures he's learned so far and watches to see what will go wrong or right this time. And then he'll write down in his mental research folder what he thinks the lesson is from this iteration and tweak his approach for the next one. And in 2018, he landed on a version that seemed to really work. And he and his team bought GSI, Geostabilization International. It does things like emergency landslide repairs and rockfall mitigation. And I talked to one guy who works there, Mike Pavelko. He told me he started at GSI in 2018. And his first job was to show up to a work site where some emergency needed fixing, like undo the mess from a landslide. Does that mean you have a shovel and you dig? Yeah, but you know, even as a senior superintendent, I have a shovel and I dig. I dig the way that GSI is here. As a kid, Mike was big into Legos and Tonka trucks. But this work can be intense. Like a couple years ago, he got sent out on I-40 to help clean up from Hurricane Helene in North Carolina so that first responders could get through the mountain. The mountain was still moving, why we were there. We just drilled from a safe area and we were able to drill in micro piles and grout that up. And it held perfectly. That's crazy. You put nails and glue into a falling mountain and it stopped it. Yeah, it's just Portland cement is the grout and that's what we use when we drill nails. You're like, it's not glue. Okay. Mike joined the company right before Pete's group at KKR bought it. The acquisition was the first time he'd ever heard of KKR. You had no impression of the company or Pete or private equity at all before that. And from the beginning KKR gave all the GSI workers equity and remembered to tell the workers about it. Mike definitely got the memo. It's ownership. And how does that feel? It feels awesome. I think it gives everybody here when they go to work every day. It gives them a little edge and it gives them something that they know that they're working hard for. It's not just going to a nine to five. This is a job that you just really, truly feel a part of. And it changes how you show up. Absolutely it does. I think that's just what makes us want to hit our numbers because as long as we're hitting our numbers and excelling more than what's expected, then we know we're bringing that share up. Now the equity doesn't come with any like vote in how the company is managed and it doesn't necessarily go with you if you leave. But for Mike, the equity changed his relationship with his work. It made him feel an act like an owner. It definitely brings a lot of pride factor to here, right? Like we know what things could damage the sharehold, you know, all our shares. We all know and keep that in our mind. You know, we need to hit make margins on projects and, you know, there's just a lot of pride. So you like oil your machines a little bit more carefully. You like don't steal office supplies like you might otherwise. Not that anyone would do that. Yes, correct, correct. Over the years, Mike started attending owner's calls about every three months where he and his coworkers would hear about the company's growth and what their shares were worth. He got promoted to management. Then in October 2024, KKR announced it was selling GSI. Management had a big internal meeting in Denver to tell the employees and they flew Mike out for it. I just remember standing in the room and, you know, they were going through the numbers and I was just like kind of like, no way, you know. Then they reveal how much money everyone's getting. I really didn't say anything for probably about like 30 minutes. Like people are cheering and I'm just, I wasn't shocked. Like I just, it's just something that's just impossible to believe, right? Because for this portfolio company, for this worker, the payout has been life-changing. When I started here at GSI, I remember getting on the plane and I had $100 in my pocket and kind of just didn't look back. And I mean, I bought my first home. I mean, it changed my life. Whoa. Can I, sorry, Tacky. Can I ask how much it was? Yeah, the initial was $195,000 and then for the next two additional years, I got $25,000 for each year that I stay. Kind of like $250,000? Yes. Quarter of a million dollars. Yes. Okay. Yeah. Yeah. Mike's new home is in Tennessee. Three bed, two and a half bath, a garage. I'll be honest, I never thought that would be a situation I'd ever come upon in my life to purchase a brand new home. You know, it was just built, you know, so it was pretty amazing. Is it in a very stable land area? Yes, it is. I have no but not an unstable hill. Yeah. Yeah. Instead of doing the standard private equity thing of firing a percentage of the workforce, Pete's model has those workers bought in. When we asked Pete about why he's doing all this, whether he's trying to fix private equity or rehab its image, he was like, no. Yeah, I really hope I'm not seen as someone trying to write the reputation of private equity. It's certainly not my focus and why I'm doing this. It does it because he's seeing the results workers who are more engaged, less likely to quit. To date, Pete's implemented his ownership model at 85 companies. They're not like distressed companies in dire straits. They're generally growing, healthy companies. But his project has caused more than 190,000 workers to have a stake in their companies where they probably wouldn't have otherwise. In the case of Mike's company, they definitely saw a change in the business's metrics. Pete says when KKR bought GSI, half of the workforce was quitting every year. So that meant we're hiring hundreds and hundreds of people every year and losing them almost that whole amount every two years. What a waste for the company of having to re-recruit and retrain and re-onboard all of these folks. And then of course, the newest folks are the least productive, least efficient and most likely to get hurt. So just awful that setup. That was before and the after. Over five years, the quit rate dropped to around 15%. But this kind of clear results isn't always the case. By now, Pete and KKR, they have all these different test cases. The companies are pretty similar. KKR gives the workers equity in all the same tools and tries to make the companies more profitable in their little laboratory. In one case, you'll see engagement scores go up a lot in the quit rate plummet. And in the other case, nothing will happen. And so as you can imagine, we're spending a lot of time trying to understand why is that. Sometimes employees don't become more engaged. Their productivity does not go up. They keep quitting. Pete and KKR are like, okay, what gives? Pete's given it a lot of thought. And the answer we keep coming back to is its leadership. You know, if you have the wrong leader at the top, they're not going to get the most out of this program. And the question is, what is it about the leader? Pete has been testing some theories. What we're focused on at the moment is this idea of empathy. So the leader who is doing this from a place of, I want to do this because it's good for my people. And what an honor as a leader to be able to do this for, in some cases, thousands of people who have never had a shot. Economically. Those leaders we're finding are the ones who do a phenomenal job with the program. The ones who come at it from the perspective of, okay, if I do this, how much productivity can I get? What exactly is in it for me and how do I turn the dials? That approach doesn't seem to be as effective. It's the challenge of building trust, like what he'd been thinking about all the way back with Cindy's company. It's actually listening to workers like his dad wanted. At least in Mike's case at GSI, Pete's thesis about empathy seems to be pretty well borne out. It doesn't matter what position you are. You would have people coming out that you would never expect on your job site. Just having somebody in higher management, I remember Colby Barrie coming out one time and he was changing drill steel for us. He was running GSI at the time. That's something that I bought into pretty hardcore. Having a good empathetic leader is Pete's leading theory as to why this works sometimes. But Pete will tell you worker ownership is not some kind of cheat code. It's really hard to do, he says, and it just doesn't always work. Even so, the case that Pete's making to his peers and competitors that maybe they should do it too is getting even more compelling. Private equity just isn't generating the big returns it used to, even and especially relative to the regular, regular stock market. So if Pete has found a whole new way to improve company performance and boost PE returns, maybe it will really spread. There is evidence the idea is getting traction outside of KKR. Private equity firms including Blackstone, Aries, and TPG are all rolling out similar programs. Our book is finally available in stores. You can walk into your favorite bookstore and buy it or listen as an audiobook. The book is Planet Money, a guide to the economic forces that shape your life. Details and book tour tickets at planetmoneybook.com. This episode of Planet Money was produced by Sam Yellow Horse Kessler. It was edited by Jess Jang with an assist from Marianne McEwn, fact-checked by Sierra Juarez, and engineered by Sina LaFreda with help from Jimmy Keely. Alex Goldmark is our executive producer. Thank you to Josh Lerner. I'm Mary Childs. And I'm Waylon Wong. This is NPR. Thanks for listening.
